SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )*
Paragon Trade Brands, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
69912K206
- --------------------------------------------------------------------------------
(CUSIP Number)
Jane Beatty
5650 Yonge Street, 5th Floor
Toronto, Ontario M2M 4H5
(416) 730-6178
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
January 28, 2000
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE>
CUSIP No. 69912K206
1. Name of Reporting Person: Ontario Teachers' Pension Plan Board
2. Check the Appropriate Box if a Member of a Group*
(a) |_|
(b) |x|
3. SEC Use Only
4. Source of Funds: 00
5. Check box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e): |_|
6. Citizenship or Place of Organization: Ontario, Canada
Number of 7. Sole Voting Power: 0
Shares With
Beneficially Owned By 8. Shared Voting Power: 2,401,953
Each Reporting
Person 9. Sole Dispositive Power: 0
10. Shared Dispositive Power: 2,401,953
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 2,401,953
12. Check box if the Aggregate Amount in Row (11) Excludes Certain Shares: |_|
13. Percent of Class Represented by Amount in Row (11): 20.2%
14. Type of Reporting Person: EP
<PAGE>
Item 1. Security and Issuer.
This statement relates to the common stock, par value $.01 per share (the
"Common Stock"), of Paragon Trade Brands, Inc., a Delaware corporation
("Paragon"), whose principal executive office is located at 180 Technology
Parkway, Norcross, Georgia 30092.
Item 2. Identity and Background.
(a)-(c) This statement is being filed by Ontario Teachers' Pension Plan
Board, an Ontario, Canada corporation (the "Board"). The principal business
address of the Board is 5650 Yonge Street, 5th Floor, Toronto, Ontario, Canada,
M2M 4H5. The Board administers a pension plan and manages a pension fund.
The name, business address, present principal occupation or employment (and
the name, principal business and address of any corporation or other
organization in which such employment is conducted) and the citizenship of each
executive officer and director of the Board, each person controlling the Board
and each executive officer and director of any corporation or other person in
control of the Board is set forth in Schedule A and incorporated herein by
reference.
(d) Not Applicable.
(e) Not Applicable.
Item 3. Source and Amount of Funds or Other Consideration.
On January 28, 2000, the Board purchased from Paragon 2,401,953 shares of
Common Stock for an aggregate purchase price of $24,019,530, or $10.00 per
share, pursuant to an Assignment and Assumption Agreement dated January 28, 2000
(the "Assumption and Assignment Agreement") between the Board and PTB
Acquisition Company, LLC, a Delaware Limited Liability Company ("PTBA"), and a
Stock Purchase Agreement dated as of November 16, 1999 (the "Stock Purchase
Agreement"), between Paragon and PTBA. The Assumption and Assignment Agreement
is filed as Exhibit 1 and the Stock Purchase Agreement is filed as Exhibit 2,
and both such exhibits are incorporated herein by reference. All of the funds
used by the Board to acquire the 2,401,953 shares of Common Stock came from the
pension fund managed by the Board, which includes income from the fund's
investment portfolio and contributions of members of the pension plan
administered by the Board.
Item 4. Purpose of Transaction.
Under the terms of the Stock Purchase Agreement, PTBA had committed to
purchase up to an aggregate of 11,712,635 shares of Common Stock (less the
196,230 shares of Common Stock subscribed for pursuant to a now completed rights
offering made to certain Paragon stockholders), although PTBA retained the right
to assign its right to purchase any or all of such shares to one or more
assignees. Pursuant to that right, PTBA assigned the right to purchase 2,401,953
shares of Common Stock to the Board and 2,401,953 shares of Common Stock to
Co-Investment Partners, L.P. ("CIP").
Pursuant to a Shareholders' Agreement, dated January 28, 2000 (the
"Shareholders' Agreement"), among Paragon, PTBA, CIP and the Board, each of CIP
and the Board has granted PTBA an irrevocable proxy to vote (or grant written
consent in lieu of voting) the shares owned by them on all matters other than a
proposal to amend or eliminate Article 5 of Paragon's Amended and Restated
Certificate of Incorporation. In addition, under the terms of the Shareholders'
Agreement, PTBA has the right to cause each of CIP and the Board to sell their
shares of Common Stock to a third party pro rata with the sale by PTBA of its
shares to such third party if (i) at the time of such sale PTBA owns more than
50% of the outstanding shares of Common Stock, and (ii) PTBA proposes to sell
more than 50% of its shares to such third party as part of such transaction. The
Board does not have any rights to vote or cause the disposition of the shares of
Common Stock owned by PTBA or CIP. The Shareholders' Agreement is filed as
Exhibit 3 and is incorporated herein by reference.
Except as disclosed herein, the Board acquired shares of Common Stock of
Paragon for investment purposes. To the best of its knowledge, the Board expects
that the business and operations of Paragon will continue without substantial
change. The Board currently expects that Paragon's operations would continue to
be run and managed by its existing executive officers, but will continue to
evaluate the business, operations and management of Paragon and will take such
further actions as it deems appropriate under the circumstances then existing.
Paragon has granted to PTBA an option to purchase from Paragon, out of the
authorized but unissued shares of Common Stock, up to 2,500,000 additional
shares of Common Stock at a price per option share equal to $10.00 per share.
Pursuant to the Shareholders' Agreement, the exercise of this option by PTBA may
require Paragon to provide the Board and CIP with an opportunity to subscribe
for and purchase a ratable share of such option shares. Such option is not
currently exercisable, and will not be exercisable unless, on or prior to
January 28, 2001, Paragon Trade Brands International, Inc., a subsidiary of
Paragon, elects to exercise an option to purchase up to an additional 34%
interest in Groupo P.I. Mabe, S.A. de C.V. (the "Exercise Event"). Such option
will expire unless exercised on or prior to the first anniversary of the
Exercise Event.
Except as set forth in this Item 4, no person reporting hereunder has any
present plans or proposals that relate to or would result in any of the actions
specified in clauses (a) through (j) of Item 4 of Schedule 13D of the Act.
Item 5. Interest in Securities of the Issuer.
(a) and (b) As set forth above, on January 28, 2000, Paragon issued to the
Board, and the Board has voting and dispositive power over and owns beneficially
and of record 2,401,953 shares of Common Stock, representing approximately 20.2%
of the outstanding shares of Common Stock. 11,891,000 shares of Common Stock
were outstanding as of January 28, 2000. As discussed in Item 3, as a result of
the grant of irrevocable proxies by each of CIP and Ontario and PTBA's right to
cause each of CIP and Ontario to sell their shares of Common Stock pro rata with
a sale by PTBA, the Board also may be deemed to have shared voting and
dispositive power over and to have shared beneficial ownership of the 6,712,499
shares of Common Stock owned of record by PTBA, representing approximately 56.5%
of the outstanding shares of Common Stock, and the 2,401,953 shares of Common
Stock owned of record by CIP, representing approximately 20.2% of the
outstanding shares of Common Stock. As stated in Item 4, however, the Board does
not have any rights to vote or cause the disposition of the shares of Common
Stock owned by PTBA or CIP. Each of PTBA, its sole member Wellspring Capital
Partners II, L.P., a Delaware limited partnership ("WCPII"), WCPII's general
partner Wellspring Capital Management, LLC, a Delaware limited liability company
("Wellspring"), and Wellspring's sole managing member Mr. Greg S. Feldman may be
deemed to have shared voting and dispositive power over and to have shared
beneficial ownership of the shares of Common Stock beneficially owned by PTBA,
although Mr. Feldman disclaims such beneficial ownership.
(c) Except as set forth above, no person identified in Item 2 hereof has
effected any transaction in the Common Stock during the 60 days preceding
January 28, 2000.
(d) CIP and PTBA have the right to receive dividends from, or proceeds from
the sale of, the shares owned of record by them.
Paragraph (e) of Item 5 of Schedule 13D is not applicable to this filing.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
On January 28, 2000, Paragon, PTBA, Wellspring, the Board and CIP entered
into the Shareholders' Agreement. Certain aspects of this agreement are
described in Item 3. In addition to those aspects of the Shareholders' Agreement
described in Item 3, the Shareholders' Agreement also contains certain
limitations on share transfers, tag-along rights, preemptive rights, rights to
receive information from Paragon and have observers present at Paragon board
meetings, and limitations on Paragon's ability to enter into material
transactions with Wellspring or its affiliates. The Shareholders' Agreement is
filed as Exhibit 3 and is incorporated herein by reference.
Pursuant to a Registration Rights Agreement, dated as of January 28, 2000
(the "Registration Rights Agreement") among Paragon, PTBA, the Board and CIP,
Paragon has granted PTBA, among other things, the right on the terms and
conditions set forth in the agreement, to require Paragon to register for sale
to the public its shares of Common Stock.
Under this Registration Rights Agreement, PTBA may require Paragon to
effect (i) two demand registrations of the Common Stock of Paragon on Form S-1
under the Securities and Exchange Act of 1934 (the "Act") and (ii) an unlimited
number of registrations of all or a portion of its shares on Form S-3 or any
similar short-form registration under the Act of the Common Stock of Paragon.
Paragon is not be required to effect such registrations within the period
beginning on the effective date of a registration statement and ending on the
expiration of any lock-up period (not to exceed 180 days) reasonably required by
the underwriters, if any, in connection therewith.
After the closing date of the initial sale by Wellspring of any of its
shares or January 30, 2005, each of CIP and the Board may require Paragon to
effect one registration of their securities. Paragon will not be required to
effect such a registration within the period beginning on the effective date of
a registration statement and ending on the expiration of any lock-up period (not
to exceed 180 days) reasonably required by the underwriters, if any, in
connection therewith.
The holder of the shares requesting registration pursuant to the above must
offer each other holder party to the Registration Rights Agreement the right to
participate in such registration by including a portion of such offeree's shares
in the request for the registration.
PTBA and, under certain circumstances, each of CIP and the Board are also
entitled to unlimited piggyback registration rights. Each of PTBA, the Board and
CIP are subject to customary lock-up provisions. The Registration Rights
Agreement is filed as Exhibit 4 and is incorporated herein by reference.
As described in Item 4, Paragon has also issued to PTBA an option to
acquire up to 2,500,000 additional shares of Common Stock for an exercise price
of $10.00 per share under certain circumstances. A copy of such option agreement
is filed as Exhibit 5 and is incorporated herein by reference.
Except as described elsewhere in this Schedule 13D, to the best knowledge
of the Board, there exist no contracts, arrangements, understandings or
relationships (legal or otherwise) among the persons named in Item 2 and between
such persons and any person with respect to any securities of Paragon, including
but not limited to transfer or voting of any securities of Paragon, finder's
fees, joint ventures, loan or option arrangements, puts or calls, guarantees of
profits or division of profits or loss.
Item 7. Materials to be Filed as Exhibits.
1. Assumption and Assignment Agreement, dated January 28, 2000, between
Ontario Teachers' Pension Plan Board and PTB Acquisition Company, LLC.
2. Stock Purchase Agreement, dated as of November 16, 1999, by and between
PTB Acquisition Company, LLC and Paragon Trade Brands, Inc.
3. Shareholders' Agreement, dated as of January 28, 2000, among Paragon
Trade Brands, Inc., PTB Acquisition Company LLC, Co-Investment Partners, L.P.,
Ontario Teachers' Pension Plan Board and Certain Other Shareholders.
4. Registration Rights Agreement, dated as of January 28, 2000, among
Paragon Trade Brands, Inc., PTB Acquisition Company LLC, Co-Investment Partners,
L.P., Ontario Teachers' Plan Board and Certain Other Shareholders.
5. Option Agreement entered into as of January 28, 2000, by and between
Paragon Trade Brands, Inc. and PTB Acquisition Company, LLC.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
February 4, 2000
ONTARIO TEACHERS' PENSION PLAN BOARD
/s/ Jane Beatty
-----------------------
Name: Jane Beatty
Title: Legal Counsel,
Investments
<PAGE>
SCHEDULE A
The following tables set forth for the directors and executive officers of
the Board (i) the name of each such person; (ii) the present principal
occupation or employment of each such person; and (iii) the name, principal
business and address of any business corporation or other organization in which
such occupation or employment is conducted. Each of the following persons is a
citizen of Canada.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME RESIDENCE OR PRINCIPAL OCCUPATION
BUSINESS ADDRESS OR EMPLOYMENT
Claude Lamoureux 5650 Yonge Street President and Chief Executive
5th Floor Officer of the Board
Toronto, Ontario
M2M 4H5
Robin Korthals 121 King Street West Retired Financial Executive
(Chairperson) Suite 2525
Toronto, Ontario
M5H 3T9
Jalynn Bennett 247 Davenport Rd. President of Jalynn H. Bennett Associates, a
(Director) Suite 303 strategic planning consulting firm whose
Toronto, Ontario principal business address and office are the
M5R 1J9 same as for Ms. Bennett
David Lennox 55 Lombard Street Retired Secretary for Ontario Teachers'
(Director) Suite 413 Federation, a teacher's union
Toronto, Ontario
M5C 2R7
Ann Finlayson 440 Markham Street Self-employed journalist, speaker, freelance
(Director) Toronto, Ontario editor and consultant
M6G 2L2
Lucy Greene 1736 Caughey Lane Retired Human Resources Executive for Sun
(Director) Penetang, Ontario Life Assurance Company of Canada
L9M 1X4
Geof Clarkson P.O. Box 251 Retired Partner with Ernst & Young
(Director) Toronto-Dominion Centre
Toronto, Ontario
M5K 1J7
Gary Porter 820-439 University Ave. Self-employed Chartered Accountant
(Director) Toronto, Ontario
M5G 1Y8
Ralph Lean, Q.C. Cassels Brock & Blackwell Corporate & Commercial Lawyer
(Director) 40 King Street West
Suite 2100
Toronto, Ontario
M5H 3C2
John Lane 77 Dawlish Avenue Retired Chief Investment Officer for Sun
(Director) Toronto, Ontario Life Assurance Company of Canada
M4N 1H2
Robert Bertram 5650 Yonge Street Senior Vice President, Investments of the
5th Floor Board
Toronto, Ontario
M2M 4H5
Allan Ressor 5650 Yonge Street Senior Vice President, Member Services and
5th Floor Chief Information Officer of the Board
Toronto, Ontario
M2M 4H5
John Brennan 5650 Yonge Street Vice President, Human Resources and Public
5th Floor Affairs of the Board
Toronto, Ontario
M2M 4H5
Andrew Jones 5650 Yonge Street Vice President, Finance of the Board
5th Floor
Toronto, Ontario
M2M 4H5
Peter Maher 5650 Yonge Street Vice President, Internal Audit of the Board
5th Floor
Toronto, Ontario
M2M 4H5
Roger Barton 5650 Yonge Street Vice President, General Counsel & Secretary
5th Floor of the Board
Toronto, Ontario
M2M 4H5
Rosemarie McClean 5650 Yonge Street Vice President, Client Services of the Board
5th Floor
Toronto, Ontario
M2M 4H5
Morgan McCague 5650 Yonge Street Vice President, Quantitative Investments of
5th Floor the Board
Toronto, Ontario
M2M 4H5
Neil Petroff 5650 Yonge Street Vice President, International Equity Indexes,
5th Floor Fixed Income and Foreign Exchange of the Board
Toronto, Ontario
M2M 4H5
Brian Gibson 5650 Yonge Street Vice President, Equities of OTP
5th Floor
Toronto, Ontario
M2M 4H5
Michael Lay 5650 Yonge Street Vice President, Merchant Banking of the Board
5th Floor
Toronto, Ontario
M2M 4H5
Brian Muzyk 5650 Yonge Street Vice President, Real Estate of the Board
5th Floor
Toronto, Ontario
M2M 4H5
Leo de Bever 5650 Yonge Street Vice President, Research & Economics of the
5th Floor Board
Toronto, Ontario
M2M 4H5
</TABLE>
Exhibit 1
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated January 28, 2000 by and between PTB Acquisition Company,
LLC, a Delaware limited liability company (the "Assignor"), and Ontario Teachers
Pension Plan Board, a non-share capital corporation continued under the
Teachers' Pension Act, R.S.O., 1990 Chapter T.1 (the "Assignee").
The Assignor is party to that certain Stock Purchase Agreement, dated
November 16, 1999 (the "Stock Purchase Agreement;" unless otherwise defined
herein, terms defined in the Stock Purchase Agreement are used herein as therein
defined), by and between the Assignor, and Paragon Trade Brands, Inc., a
Delaware corporation (the "Seller"), pursuant to which the Assignor has agreed
to purchase from Reorganized Paragon, up to 11,712,635 shares of New Common
Stock, under the terms and subject to the conditions set forth therein.
The Assignee has heretofore delivered to Assignor Assignee's commitment to
purchase as a co-investor alongside the Assignor up to $25 million of New Common
Stock. Pursuant to Section 13.14 of the Stock Purchase Agreement, the Assignor
is permitted to assign its right to purchase any or all of the Purchased Shares
to one or more assignees. The Assignor desires to assign to the Assignee, and
the Assignee desires to be assigned and to assume, the obligations of the
Assignor under the Stock Purchase Agreement to purchase not less than $23.5
million nor more $25 million of New Common Stock, under the terms and condition
set forth herein.
Accordingly, the Assignor and the Assignee hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without recourse
and without representation or warranty (other than as expressly provided
herein), and the Assignee hereby purchases and assumes from the Assignor, the
right and obligation of the Assignor under the Stock Purchase Agreement to
purchase from the Seller at the Closing under the terms and conditions of the
Stock Purchase Agreement not less than 2,350,000 nor more than 2,500,000 shares
of New Common Stock at a purchase price equal to $10.00 per share. The exact
number of shares to be purchased by the Assignee shall be set forth in a written
notice from the Assignor delivered to the Assignee not later than 2 days prior
to the Closing Date. The Assignor and Assignee further agree that at the Closing
they shall each enter into, execute and deliver a Stockholders Agreement,
substantially in the form of Exhibit A hereto (the "Stockholders Agreement"),
and a Registration Rights Agreement, substantially in the form of Exhibit B
hereto (the "Registration Rights Agreement").
2. The Assignor (i) represents and warrants that (a) it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim, (b) it is duly organized,
validly existing and in good standing under the Laws of the jurisdiction under
which it was organized and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
(c) it has the full legal right and power and all authority and approvals
required to enter into, execute and deliver this Agreement, the Stockholders
Agreement and the Registration Rights Agreement and to perform fully its
obligations hereunder and thereunder, (d) this Agreement has been, and the
Stockholders Agreement and the Registration Rights Agreement, when executed and
delivered at the Closing will be, duly executed and delivered by the Assignor,
and this Agreement is, and in the case of each of the Stockholders Agreement and
the Registration Rights Agreement, when executed and delivered at the Closing,
will be, a valid and binding obligation of Assignor enforceable against the
Assignor in accordance with its terms, (e) the execution and delivery by the
Assignor of this Agreement do not, the execution and delivery by the Assignor at
the Closing of the Stockholders Agreement and the Registration Rights Agreement
will not, and the consummation of the transactions contemplated by this
Agreement, the Stockholders Agreement and the Registration Rights Agreement, and
the performance by the Assignor of its obligations hereunder and thereunder will
not (1) violate any provision of the Assignor's governing or organizational
documents; (2) require the Assignee to obtain any consent, approval,
authorization or action of, or make any filing with or give any notice to, any
Governmental Body or any other person; (3) violate, conflict with or result in
the breach of any of the terms and conditions of, result in a material
modification of the effect of, otherwise cause the termination of or give any
other contracting party the right to terminate, or constitute (or with notice or
lapse of time or both constitute) a default under, any Contract to which the
Assignor is a party or by or to which such assignee or any of its properties is
or may be bound or subject; or (4) violate any Law or Order of any Governmental
Body applicable to the Assignor. The Assignor makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations of the Seller made in or in connection with the
Stock Purchase Agreement or any other documents entered or delivered or to be
entered into or delivered by the Seller in connection therewith, PROVIDED, that
the Assignor assigns, transfers and conveys to the Assignee such statements,
representations and warranties of the Seller pertaining to the shares of New
Common Stock to be purchased by the Assignee pursuant hereto.
3. The Assignee (i) confirms that it has received a copy of the Stock
Purchase Agreement and the Plan and such other documents and information as it
has deemed appropriate to make its own investment analysis and decision to enter
into this Assignment and Assumption Agreement; (ii) agrees that it has,
independently and without reliance upon the Assignor, and based on such
documents and information as it deems appropriate at the time, continued to make
its own credit decisions in taking or not taking action under the Stock Purchase
Agreement; (iii) represents and warrants to the Assignor and the Seller that (a)
the Assignee is duly organized, validly existing and in good standing under the
Laws of the jurisdiction under which it was organized and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted, (b) the Assignee has the full legal right and
power and all authority and approvals required to enter into, execute and
deliver this Agreement, the Stockholders Agreement and the Registration Rights
Agreement and to perform fully its obligations hereunder and thereunder, (c)
this Agreement has been, and the Stockholders Agreement and the Registration
Rights Agreement, when executed and delivered at the Closing will be, duly
executed and delivered by the Assignee, and this Agreement is, and in the case
of each of the Stockholders Agreement and the Registration Rights Agreement,
when executed and delivered at the Closing, will be, a valid and binding
obligation of Assignee enforceable against the Assignee in accordance with its
terms, (d) the execution and delivery by the Assignee of this Agreement do not,
the execution and delivery by the Assignee at the Closing of the Stockholders
Agreement and the Registration Rights Agreement will not, and the consummation
of the transactions contemplated by this Agreement, the Stockholders Agreement
and the Registration Rights Agreement, and the performance by the Assignee of
its obligations hereunder and thereunder will not (1) violate any provision of
the Assignee's governing or organizational documents; (2) except for filings
under the HSR Act or the Canadian Acts, if required, require the Assignee to
obtain any consent, approval, authorization or action of, or make any filing
with or give any notice to, any Governmental Body or any other person; (3)
violate, conflict with or result in the breach of any of the terms and
conditions of, result in a material modification of the effect of, otherwise
cause the termination of or give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default under, any Contract to which the Assignee is a party or by or to which
such assignee or any of its properties is or may be bound or subject; or (4)
violate any Law or Order of any Governmental Body applicable to the Assignee;
and (e) the Assignee is an "Accredited Investor" within the meaning of Rule 501
of the Securities Act of 1933, as amended, and is purchasing the Purchased
Shares assigned to it hereunder for its own account for investment and not with
a view to public resale or distribution thereof.
4. The Assignor hereby agrees that it shall be responsible for making any
filing or obtaining any approval under the Canadian Acts triggered by the
consummation of the transactions provided in the Stock Purchase Agreement and
this Agreement, as the case may be, and the Assignee shall have no
responsibility in connection therewith, except that the Assignee agrees to
promptly provide the Assignor with such information regarding itself as the
Assignor may reasonably request to make any such filing or obtain any such
approval. The Assignee hereby represents that the purchase by it of the shares
of New Common Stock to be purchased by it pursuant hereto is exempt from the
notification requirements of the HSR Act.
5. The Assignor agrees that it shall promptly notify the Assignee if (i) it
learns of any breach by the Seller of any representation, warranty, covenant or
other agreement of the Seller under the Stock Purchase Agreement, or (ii) it
elects to terminate the Stock Purchase Agreement pursuant to Section 11.1
thereof.
6. This Assignment and Assumption Agreement shall automatically terminate
upon termination of the Stock Purchase Agreement pursuant to Section 11.1
thereof and shall become null and void and have no further force or effect.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE ENTIRELY PERFORMED WITHIN SUCH STATE.
8. Any notice or other communication required or permitted hereunder shall
be in writing and shall be delivered personally, sent by facsimile transmission
or sent by certified, registered or express mail, postage prepaid. Any such
notice shall be deemed given when so delivered personally, or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mails, as follows:
(A) if to the Assignor, to:
PTB Acquisition Company, LLC
c/o Wellspring Capital Management, LLC
620 Fifth Avenue
New York, New York 10020-1579
Attention: David C. Mariano
Telephone: (212) 332-7555
Facsimile: (212) 332-7575
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert Drain, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
(B) if to the Assignee, to:
Ontario Teachers Penion Plan
5650 Yonge Street, 5th Floor
Toronto, Ontario M2M 4H5
Attention: Dean Metcalf
Telephone: (416) 730-6166
Facsimile: (416) 730-5374
with a copy to:
Cleary Gottleib Steen & Hamilton
One Liberty Plaza
New York, NY 10006-1470
Attention: Filip Moerman, Esq.
Telephone: (212) 225-2000
Facsimile: (212) 225-3999
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. This Agreement, together with the Stockholders Agreement and the
Registration Rights Agreement, contain the entire agreement among the parties
hereto with respect to the transactions contemplated hereby and thereby and
supersede all prior agreements, written or oral, with respect thereto.
10. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a number of copies hereof each signed by less
than all, but together signed by all of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Assignment and Assumption Agreement, as of
the date first above written.
PTB ACQUISITION COMPANY, LLP,
as Assignor
By /S/ CARL M. STANTON
----------------------
Title: Vice President
ONTARIO TEACHERS PENSION PLAN
BOARD,
as Assignee
By /S/ DEAN METCALF
----------------------
Title: Portfolio Manager
Exhibit 2
================================================================================
STOCK PURCHASE AGREEMENT
by and between
PTB ACQUISITION COMPANY, LLC
and
PARAGON TRADE BRANDS, INC.
-------------------------
NOVEMBER 16, 1999
-------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Sale and Purchase of Purchased Shares..................1
1.1. Sale and Purchase of Purchased Shares...........1
1.2. Payment of Purchase Price.......................2
1.3. Delivery of Shares..............................2
2. Closing; Closing Date..................................2
3. Representations and Warranties of the Seller...........2
3.1. Due Incorporation and Authority.................2
3.2. Subsidiaries and Other Affiliates...............2
3.3. Qualification...................................3
3.4. Outstanding Capital Stock.......................3
3.5. Options or Other Rights.........................3
3.6. Authority Relative to This Agreement............4
3.7. SEC Documents...................................4
3.8. Financial Statements............................4
3.9. No Material Adverse Change......................5
3.10. Taxes...........................................5
3.11. Compliance with Laws............................7
3.12. Permits.........................................8
3.13. No Breach.......................................8
3.14. Environmental Matters...........................9
3.15. Claims and Proceedings.........................10
3.16. Contracts......................................11
3.17. Tangible Property..............................11
3.18. Intellectual Property..........................12
3.19. Title to Properties............................13
3.20. Employee Benefit Plans.........................14
3.21. Employee Relations.............................15
3.22. Insurance......................................16
3.23. Company Products...............................16
3.24. Operations of the Company......................16
3.25. Projections....................................17
3.26. Inventories....................................17
3.27. Receivables....................................17
4. Representations and Warranties of the Buyer...........18
4.1. Due Organization and Authority.................18
4.2. Authority to Execute and Perform Agreement.....18
4.3. Purchase for Investment........................18
4.4. Plan Acknowledgment............................18
4.5. Financing......................................19
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5. Covenants and Agreements..............................19
5.1. Conduct of Business............................19
5.2. Corporate Examinations and Investigations......19
5.3. Publicity......................................20
5.4. Expenses.......................................20
5.5. Brokerage......................................20
5.6. Required Consents..............................21
5.7. Permit Transfers...............................21
5.8. Further Assurances.............................21
5.9. Bankruptcy Covenants...........................21
5.10. Calculation of Cash Deficit and Cash Excess;
Net Working Capital............................22
6. Conditions Precedent to the Obligation of the Buyer
to Close..............................................23
6.1. Representations and Covenants..................23
6.2. Consents and Approvals.........................23
6.3. Opinion of Counsel to the Seller...............23
6.4. HSR Act Filing; Canada Acts....................23
6.5. No Claims......................................23
6.6. Confirmation Order.............................24
6.7. Plan Confirmation..............................24
6.8. Management.....................................24
6.9. No Material Adverse Change.....................24
6.10. Overbid Order..................................24
6.11. Ordinary Course................................24
6.12. Exit Financing.................................25
6.13. Settlement Orders..............................25
6.14. Settlements....................................25
6.15. Exclusive Period...............................25
6.16. PTB Canada.....................................25
6.17. Other Documents................................25
7. Conditions Precedent to the Obligation of the Seller
to Close..............................................26
7.1. Representations and Covenants..................26
7.2. Certain Consents and Approvals.................26
7.3. HSR Act Filing; Canadian Acts..................26
7.4. Confirmation Order.............................26
7.5. New Securities Issued..........................26
8. Designation of Executory Contracts; Employment
Agreements; Confirmation of Overbid Order and
Auction...............................................26
9. Monetization..........................................27
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10. Survival of Representations and Warranties of the
Seller................................................27
11. Termination of Agreement..............................28
11.1. Termination....................................28
11.2. Survival After Termination; Expense Reimbursement
and Termination Fee............................29
12. Mabesa; Dilution......................................30
13. Miscellaneous.........................................31
13.1. Certain Definitions............................31
13.2. Consent to Jurisdiction and Service of Process.41
13.3. Notices........................................41
13.4. Entire Agreement...............................42
13.5. Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies.......................42
13.6. Governing Law..................................43
13.7. Binding Effect; Assignment.....................43
13.8. Usage..........................................43
13.9. Counterparts...................................43
13.10. Exhibits and Schedules; Cross References.......43
13.11. Headings.......................................44
13.12. Interpretation.................................44
13.13. Severability of Provisions.....................44
13.14. Assignment by Buyer............................44
13.15. Seller's Knowledge.............................45
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EXHIBITS
A: Form of Opinion of Counsel to the Seller
B: Financing Commitment Letter
C: Plan
D. Form of Closing Balance Sheet
E. Form of Cash Deficit/Cash Excess Calculation
Appendix 1:Summary of Principal Terms of Notes
Appendix 2:Summary of Management Incentive Plan
Appendix 3:Summary of Principal Terms of Warrants
Appendix 4:Summary of Principal Terms of Rights
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STOCK PURCHASE AGREEMENT
AGREEMENT, dated November 16, 1999, by and among PTB ACQUISITION
COMPANY, LLC, a Delaware limited liability company (the "Buyer"), and as of the
date of the execution of this Agreement, Paragon Trade Brands, Inc. (the
"Seller"), a Delaware corporation, as debtor and debtor in possession under
Chapter 11 of the Bankruptcy Code.
WHEREAS, the Seller is the debtor and debtor in possession in Chapter
11 case number 98-60390 (the "Case") pending before the United States Bankruptcy
Court for the Northern District of Georgia, Atlanta Division (the "Bankruptcy
Court"); and
WHEREAS, subject to the terms and conditions set forth herein, and
pursuant to the Plan, Buyer desires to purchase from the Seller, and the Seller
desires to sell to Buyer, 11,712,635 shares of capital stock (the "New Common
Stock") of the Seller, as reorganized under the Plan on the Effective Date
thereof (the Seller as so reorganized, "Reorganized Paragon"), representing
98.5% of the shares of the 11,891,000 shares of New Common Stock to be issued
and outstanding immediately following the Closing, subject to reduction of the
number of shares of New Common Stock to be purchased by and sold to Buyer as a
result of the Rights Offering and the TEEP Plan.
Certain terms used in this Agreement are defined in Section 13.1.
Accordingly, the parties agree as follows:
1. Sale and Purchase of Purchased Shares.
1.1. Sale and Purchase of Purchased Shares. At the closing
provided for in Article 2 (the "Closing"), upon the terms and subject to the
conditions of this Agreement and in reliance upon the representations,
warranties and agreements of the Seller contained herein, Reorganized Paragon
shall issue and sell to Buyer and/or its designees and assignees, and Buyer
and/or its designees and assignees shall purchase or acquire from Reorganized
Paragon, an aggregate of 11,712,635 shares of New Common Stock, at a purchase
price equal to $10.00 per share; provided, however, that the number of shares to
be issued and sold to, and purchased by Buyer and/or its designees and assignees
shall be reduced by the number of shares (x) issued and sold by Reorganized
Paragon pursuant to the Rights Offering and (y) issued and distributed under the
TEEP Plan pursuant to the Plan. As used herein, the "Purchased Shares" means
that number of shares of New Common Stock actually issued and sold to Buyer
and/or its designees and assignees pursuant hereto.
1.2. Payment of Purchase Price. At the Closing, Buyer shall pay
or cause to be paid by wire transfer of immediately available funds to an
account designated in writing by the Seller at least two Business Days prior to
the Closing
<PAGE>
Date an amount (the "Purchase Price") equal to the product of $10.00 and the
number of Purchased Shares.
1.3. Delivery of Shares. At the Closing, Seller shall deliver to
Buyer or its designee stock certificates representing the number of shares to be
purchased by Buyer and/or its designees, calculated in accordance with Section
1.1.
2. Closing; Closing Date. The Closing of the sale and purchase of the
Purchased Shares contemplated hereby shall take place at the offices of Willkie
Farr & Gallagher, 787 Seventh Avenue, New York, New York (or such other place as
the Buyer and Seller may agree), on the Effective Date, provided that all of the
conditions to the Closing set forth in Articles 6 and 7 have been satisfied or
waived by the party entitled to waive the same. The time and date upon which the
Closing occurs is herein called the "Closing Date."
3. Representations and Warranties of the Seller. The Seller hereby
represents and warrants to Buyer as follows:
3.1. Due Incorporation and Authority. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and lawful
authority and government approvals to own, lease and operate its properties and
to carry on its business as now being conducted, except where the failure to
have such authority or approvals could not, (i) individually or in the
aggregate, have a material adverse effect on the properties, businesses,
prospects, results of operations or financial condition of Reorganized Paragon
and the Subsidiaries (as defined below), considered as a whole, or (ii) prevent
or materially interfere with the Seller's or Reorganized Paragon's ability to
consummate the transactions contemplated hereby (the "Contemplated
Transactions") (any event, effect or result described in clause (i) or (ii)
above being a "Material Adverse Effect on the Seller").
3.2. Subsidiaries and Other Affiliates. Section 3.2(i) of
Seller's Disclosure Memorandum sets forth the name and jurisdiction of
organization of each corporation or other entity (collectively, "Subsidiaries")
in which the Seller directly or indirectly owns or has the power to vote shares
of any capital stock or other ownership interests having voting power to elect a
majority of the directors of such corporation, or other persons performing
similar functions for such entity, as the case may be. Section 3.2(ii) of
Seller's Disclosure Memorandum identifies each entity (each, an "Investment
Entity") in which the Seller or one of its Subsidiaries owns a direct or
indirect equity interest which is not a Subsidiary, and with respect to each
such entity identifies the type of entity, the jurisdiction in which such entity
is organized, the nature of such entity's business, and the owners of the
remaining equity of such entity (to the extent known to the Seller). Each of the
Subsidiaries is, and to the knowledge of the Seller, each of the Investment
Entities is, an entity duly
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organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite power and lawful authority
and government approvals to own, lease and operate its properties and to carry
on its business as now being conducted, except where the failure to have such
authority or approvals could not have a Material Adverse Effect on the Seller.
3.3. Qualification. The Seller and each of its Subsidiaries is,
and to the knowledge of the Seller, each of the Investment Entities is, duly
qualified or otherwise authorized as a foreign entity to transact business and
is in good standing in each jurisdiction in which such qualification or
authorization is required by Law, except where the failure so to qualify or be
authorized could not have a Material Adverse Effect on the Seller.
3.4. Outstanding Capital Stock. The authorized and issued shares
of capital stock or other ownership interests of each Subsidiary are set forth
in Section 3.4 of Seller's Disclosure Memorandum. Except as set forth in Section
3.4 of Seller's Disclosure Memorandum, as of the Effective Date all issued and
outstanding capital stock or other ownership interests of each Subsidiary, and
Reorganized Paragon's or any of its Subsidiaries' equity interest in any
Investment Entity, will be owned by Reorganized Paragon or a Subsidiary free and
clear of any Lien other than Permitted Liens. At the Closing, all of the
outstanding shares of capital stock of Reorganized Paragon and the Subsidiaries
will be (in the case of Reorganized Paragon as of the Effective Date and after
giving effect to the Plan), and Reorganized Paragon's or any of its
Subsidiaries' equity interest in any Investment Entity will be, duly authorized
and validly issued, fully paid and nonassessable (subject, in the case of the
Mabesa Investment Entity, to Seller's obligation to make annual earn-out
payments pursuant to the Irrevocable Call Option Agreement, dated January 26,
1996, among International Disposable Products Investments Ltd., PTB
International, Inc. and the Seller). Except as set forth in Section 3.4 of
Seller's Disclosure Memorandum, at the Closing, no other class of capital stock
or other ownership interests of the Subsidiaries will be authorized or
outstanding. Upon delivery of and payment for the Purchased Shares at the
Closing as herein provided, Reorganized Paragon will convey to the Buyer and/or
its designees and assignees good and valid title thereto, free and clear of any
Lien.
3.5. Options or Other Rights. Except for the Warrants to be
issued under the Plan and as otherwise set forth in Section 3.5 of Seller's
Disclosure Memorandum, as of the Effective Date, there will be no outstanding
right, sub scription, warrant, call, unsatisfied preemptive right, option or
other agreement of any kind to purchase or otherwise to receive from Reorganized
Paragon or any Subsidiary any of the outstanding, authorized but unissued,
unauthorized or treasury shares of the capital stock or any other security of
Reorganized Paragon or any Subsidiary or, to the knowledge of the Seller, any
Investment Entity, and there will be no outstanding
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security of any kind of Reorganized Paragon or any Subsidiaries convertible into
any such capital stock.
3.6. Authority Relative to This Agreement. Except for any
required approvals of the Bankruptcy Court, the Seller has all necessary
corporate power and authority to execute and deliver this Agreement and,
assuming the satisfaction of the conditions set forth in Section 7, to perform
its obligations hereunder. The execution and delivery of this Agreement by the
Seller, the performance by the Seller of its obligations hereunder and the
consummation by the Seller of the transactions contemplated hereby have been
duly authorized by all requisite corporate action on the part of the Seller.
This Agreement has been duly and validly executed and delivered by the Seller
and (assuming due authorization, execution and delivery hereof by the Buyer and
upon receipt of any required approval of the Bankruptcy Court) will constitute
the legal, valid and binding obligation of the Seller (including Reorganized
Paragon) enforceable against the Seller (including Reorganized Paragon) in
accordance with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally and subject, as to enforceability, to the
effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.7. SEC Documents. Since December 27, 1998, Seller has filed
with the Securities and Exchange Commission (the "SEC") all reports, schedules,
forms, statements and other documents (including exhibits and all other
information incorporated therein) required to be filed with the SEC pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the SEC thereunder (the "SEC Documents;" the SEC
Documents filed since December 27, 1998 and prior to the date of this Agreement
are referred to as the "Identified SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents when
filed contained, and, when considered as an entirety currently contain, any
untrue statement of a material fact or omitted or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.8. Financial Statements. The consolidated balance sheets of
the Seller and the Subsidiaries as of December 27, 1998 and the related
consolidated statements of income, shareholders' equity and changes in financial
position for the year then ended, including the notes thereto, certified by
Arthur Anderson LLP, independent certified public accountants, which have been
delivered to Buyer, set forth the consolidated financial position of the Seller
and the Subsidiaries as at such date and the consolidated results of operations
of the Seller and the Subsidiaries for
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such period, in each case in accordance with generally accepted accounting
principles consistently applied. (The foregoing consolidated financial
statements of the Seller and the Subsidiaries as of December 27, 1998 and for
the year then ended are sometimes herein called the "Audited Financials.") The
unaudited consolidated balance sheet of the Seller and the Subsidiaries as of
September 26, 1999, and the related consolidated statement of income, including
the notes thereto, which have been delivered to Buyer, set forth the
consolidated financial position of the Seller and the Subsidiaries as at such
date and the results of operations of the Seller and the Subsidiaries for the
thirty-nine weeks then ended, in each case in conformity with generally accepted
accounting principles applied on a basis consistent with that of the Audited
Financials (subject to the normal year-end adjustments). The foregoing unaudited
consolidated financial statements of the Seller and the Subsidiaries as of
September 26, 1999 and for the thirty-nine weeks then ended are sometimes herein
called the "Interim Financials," the consolidated balance sheet included in the
Interim Financials is sometimes herein called the "Balance Sheet" and September
26, 1999 is sometimes herein called the "Balance Sheet Date". To the knowledge
of the Seller, except as fully reflected in the Interim Financial Statements,
the Seller and the Subsidiaries do not have any direct or indirect indebtedness,
liability, Claim, loss, damage, deficiency, obligation or responsibility, fixed
or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent or otherwise, of any kind
("Liabilities") except for (a) liabilities that will be fully discharged in the
Case at the Effective Date, (b) liabilities arising after the Petition Date
reflected on the Balance Sheet or described in Seller's Disclosure Memorandum or
in the notes to the Audited Financials or Interim Financials, and (c)
liabilities that have arisen since the Balance Sheet Date in the ordinary course
of business of the Seller and the Subsidiaries and that are similar in nature
and amount to the liabilities that arose during the comparable period of time in
the immediately preceding fiscal period.
3.9. No Material Adverse Change. Except as set forth in Section
3.9 of Seller's Disclosure Memorandum, since September 26, 1999 there has been
no change, event or occurrence which has had a Material Adverse Effect on the
Seller, and to the knowledge of the Seller no such change, event or occurrence
is threatened, nor has there been any damage, destruction or loss which could
have or has had a Material Adverse Effect on the Seller, whether or not covered
by insurance.
3.10. Taxes.
(a) Except as set forth in Section 3.10(a) of Seller's
Disclosure Memorandum, the Seller and each Subsidiary have timely filed (after
giving effect to any extensions of the time to file which were obtained) prior
to the date of this Agreement, and will file prior to the Closing Date, all
material returns required to be filed prior to the date of this Agreement or the
Closing Date, as the case may be, with respect to all federal, state, local,
foreign and other taxes, together
5
<PAGE>
with interest and penalties thereon ("Taxes") for periods ending on or after
February 3, 1993, and such returns are true, correct and complete; and the
Seller and each Subsidiary has paid or will pay (or the Seller has paid or will
pay on its behalf), or has or will set up (or the Seller will set up on its
behalf) an adequate reserve for the payment of, all material Taxes required to
be paid by the Seller or any of the Subsidiaries on or before the Closing Date.
(b) Except as set forth in Section 3.10(b) of Seller's
Disclosure Memorandum, none of the Seller or any Subsidiary has filed or entered
into any election, consent or extension agreement that extends any applicable
statute of limitations, which statute of limitations has not expired.
(c) Except as set forth in Section 3.10(c) of Seller's
Disclosure Memorandum, and except as could not reasonably be expected to have a
Material Adverse Effect on the Seller, (i) none of the Seller, any Subsidiary
or, to the Seller's knowledge, any group of which the Seller or any Subsidiary
is a member, is a party to any action or proceeding pending or, to the Seller's
knowledge, threatened by any Governmental Authority for assessment or collection
of Taxes, and (ii) no audit or investigation of the Seller or any Subsidiary by
any Governmental Authority is pending or, to the Seller's knowledge threatened.
(d) None of the Seller nor any of the Subsidiaries
(i) is a party to, is bound by, or is under any obligation under any Tax sharing
or similar agreement that includes any other person, or (ii) will be required to
pay any Taxes attributable to any corporation (other than the Seller or any of
the Subsidiaries) that is a member of any group of affiliated corporations that
file consolidated returns for Federal income tax purposes of which the Seller or
any of the Subsidiaries was a member before the Closing Date by reason of Treas.
Reg. ss. 1.1502-6 or any comparable provision of state, local or foreign Law
that provides for joint or several liability, in whole or in part, in each case
except to the extent that the Seller is indemnified for such Taxes by any person
other than the Subsidiaries.
(e) Except as could not reasonably be expected to
have a Material Adverse Effect on the Seller, none of the Seller or any of the
Subsidiaries has entered into or is bound by any closing agreement that could
affect their Taxes for periods ending after the Closing Date.
(f) Except as previously disclosed in Tax returns
made available to Buyer or as set forth in Section 3.10(f) of Seller's
Disclosure Memorandum, none of the Seller or any of the Subsidiaries has agreed
to or, to the knowledge of Seller, is required to make any adjustments under
section 481(a) of the Code by reason of a change in accounting method or
otherwise.
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(g) To the knowledge of Seller, except as set forth in
Section 3.10(g) of Seller's Disclosure Memorandum, and except as could not
reasonably be expected to have a Material Adverse Effect on the Seller, no gain
or loss from deferred intercompany transactions or excess loss accounts of the
Seller or any of the Subsidiaries will be triggered by the transactions
contemplated by this Agreement.
(h) The Seller and the Subsidiaries have not at any
time consented under Section 341(f)(1) of the Code to have the provisions of
Section 341(f)(2) of the Code apply to any sale of its capital stock.
(i) Except as set forth in Section 3.10(i) of Seller's
Disclosure Memorandum and except as could not reasonably be expected to have a
Material Adverse Effect on the Seller, none of the Seller or any of the
Subsidiaries has been or is in violation of any applicable law relating to the
payment or withholding of Taxes, and each of them has duly and timely withheld
and paid over to the appropriate taxing authorities all material amounts
required to be so withheld and paid over.
(j) The Seller has made available to Buyer true and
complete copies of all Tax returns of the Seller and the Subsidiaries, together
with all related examination reports and statements of deficiency, and true and
complete copies of the portion of all other Tax returns relating to the
activities of Seller and the Subsidiaries, together with all related examination
reports and statements of deficiency.
3.11. Compliance with Laws. Except as set forth in Section 3.11
of Seller's Disclosure Memorandum, to the knowledge of Seller, neither the
Seller nor any of the Subsidiaries nor any of the Investment Entities is in
violation of any applicable order, judgment, injunction, award, decree or writ
(collectively, "Orders"), or any applicable law, statute, code, ordinance,
regulation or other requirement (collectively, "Laws") (including Orders or Laws
that affect the use, occupancy and operation of any real property assets of the
Seller or any of the Subsidiaries), of any government or political subdivision
thereof, whether Federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, or any
insurance company or fire rating and any other similar board or organization or
other non-governmental regulating body (to the extent that the rules,
regulations or orders of such body have the force of law) or any court or
arbitrator (collectively, "Governmental Bodies") (but not including, however,
Safety and Environmental Laws, which are addressed in Section 3.14, Tax Laws,
which are addressed in Section 3.10, and Laws relating to Benefit Plans, which
are addressed in Section 3.20), and to the knowledge of Seller, none of the
Seller or any of the Subsidiaries or any of the Investment Entities has received
notice that any such viola tion is being or may be alleged.
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3.12. Permits. The Seller and the Subsidiaries have all
licenses, permits, exemptions, consents, waivers, authorizations, rights,
certificates of occupancy, franchises, orders or approvals of, and have made all
required registrations with, any Governmental Body that are required for the
conduct of the business of, or the intended use of any properties of, the Seller
or any of the Subsid iaries (collectively, "Permits"), not including, however,
Permits relating to compliance with Safety and Environmental Laws, which are
addressed in Section 3.14, and no suspension or cancellation of any of the
Permits is pending or, to the knowledge of the Seller, threatened, except where
the failure to have, or the suspension or cancellation of, any of the Permits,
individually or in the aggregate, could not have a Material Adverse Effect on
the Seller (Permits other than those excluded by the foregoing exception being
the "Material Permits"). Except as set forth in Section 3.12 of the Seller's
Disclosure Memorandum, to the knowledge of Seller, no action by the Seller,
Reorganized Paragon, any Subsidiary, or the Buyer is required in order that all
Material Permits will remain in full force and effect following the consummation
of the Contemplated Transactions.
3.13. No Breach.
(a) The execution and delivery of this Agreement by
the Seller does not, and, assuming approval of this Agreement and confirmation
of the Plan by the Bankruptcy Court, the consummation of the Plan, and the
performance of this Agreement by Seller (including Reorganized Paragon) will
not:
(i) conflict with or violate any provision of any
Certificate of Incorporation or by-laws of the Seller or Reorganized
Paragon (to the extent that such document is then governing such entity)
or any equivalent organizational documents of any Subsidiary;
(ii) conflict with or violate any Law applicable to the
Seller or Reorganized Paragon or any Subsidiary or by which any property
or asset of the Seller, Reorganized Paragon or any Subsidiary is or may be
bound or affected, except for any such conflicts or violations that,
individually or in the aggregate, could not have a Material Adverse Effect
on the Seller; or
(iii) assuming that all Required Consents (as defined in
Section 3.13(b)) have been obtained or deemed by operation of the Plan or
the Confirmation Order to have been given, result in any breach of or
constitute a default (or an event which with or without notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien, other than a Permitted Lien, on any property or asset
of the Seller, Reorganized Paragon or any Subsidiary under any note, bond,
mortgage, indenture, contract, agreement, commitment, lease, license,
permit, franchise
8
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or other instrument or obligation (collectively, "Contracts") to which the
Seller or any Subsidiary is a party or by which any of them or their
assets or properties is or may be bound or affected, except for such
breaches, defaults or other occurrences which, individually or in the
aggregate, could not have a Material Adverse Effect on the Seller.
(b) Section 3.13(b) of Seller's Disclosure
Memorandum identifies each Contract to which the Seller or any Subsidiary is a
party or by which any of them or their assets or properties is or may be bound
or affected in respect of which a Required Consent must be obtained. For
purposes hereof, a "Required Consent" means any consent under a Contract
required so that the execution, delivery and/or performance by the Seller of
this Agreement, the consummation of the Contemplated Transactions, and the
assumption and/or continued enforcement thereof by Reorganized Paragon will not
result in any breach of or constitute a default (or an event which with or
without notice or lapse of time or both would become a default) under, or give
to others any right of termination, amendment, acceleration or cancellation of,
such Contract, or result in the creation of a Lien, other than a Permitted Lien,
on any property or asset of the Seller, Reorganized Paragon or any Subsidiary
except where the failure to obtain any such consent or consents could not,
individually or in the aggregate, have a Material Adverse Effect on the Seller.
For purposes hereof, the Seller shall be deemed to have obtained a Required
Consent if, and to the extent that, pursuant to the Plan and the Confirmation
Order the Seller is authorized to assume the Contract pursuant to section 365 of
the Bankruptcy Code.
3.14. Environmental Matters.
(a) Except as disclosed in the Identified SEC
Documents, the Seller and the Subsidiaries are and have been in compliance with
all applicable Safety and Environmental Laws, which compliance includes the
possession of permits and governmental authorizations required under applicable
Safety and Environmental Laws ("Environmental Permits") and compliance with the
terms and conditions thereof, except where such non-compliance would not result
in a Material Adverse Effect on Seller (Environmental Permits other than those
excluded by the foregoing exception being the "Material Environmental Permits").
(b) Except as disclosed in the Identified SEC
Documents or as will be discharged on the Effective Date, there are no Claims
brought pursuant to any Safety or Environmental Law pending or, to the knowledge
of Seller, threatened against Seller or any Subsidiary that could reasonably be
expected to result in a Material Adverse Effect on Seller.
(c) Except as disclosed in the Identified SEC
Documents, the real properties presently or to the knowledge of Seller formerly
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owned, leased or operated by the Seller or the Subsidiaries (including
groundwater under such real properties) (the "Real Properties") do not contain
any Hazardous Substance other than as permitted under applicable Safety and
Environmental Law; provided, however, that with respect to Real Properties
formerly owned, leased or operated by the Seller or the Subsidiaries, such
representation is limited to the period prior to the disposition of such Real
Properties by the Seller or the Subsidiaries.
(d) Except as disclosed in the Identified SEC
Documents, to the knowledge of Seller, no Hazardous Substance has been disposed
of or transported from any of the Real Properties during the time any such Real
Property was owned, leased or operated by the Seller or any of the Subsidiaries,
except as could not reasonably be expected to have a Material Adverse Effect on
the Seller.
(e) Except as disclosed in the Identified SEC
Documents, to the knowledge of Seller, the Seller and the Subsidiaries have not
become obligated, whether by operation of law or through contractual agreement,
to indemnify any other person or otherwise to assume liability for any Claim
brought pursuant to any Safety and Environmental Law which could reasonably be
expected to have a Material Adverse Effect on the Seller.
3.15. Claims and Proceedings. There are no outstanding Orders of
any Governmental Body against or involving the Seller or any of the Subsidiaries
which could have a Material Adverse Effect on the Seller or interfere with
consummation of the Contemplated Transactions. To the knowledge of the Seller,
except as to claims arising prior to the Petition Date that are within the
jurisdiction of the Bankruptcy Court and are to be resolved in the Case or by
force of the discharge granted to the Seller in connection with the Case, as of
the date of this Agreement, there are no actions, causes of action, suits,
claims, complaints, demands, litigations or legal, administrative or arbitral
proceedings or investigations (collectively, "Claims") (whether or not the
defense thereof or liabilities in respect thereof are covered by insurance)
pending, threatened against or involving the Seller or any of the Subsidiaries
or any of their properties, owned or leased, which, individually or in the
aggregate, could have a Material Adverse Effect on the Seller. There are no
claims pending or, to Seller's knowledge, threatened against the Seller or any
Subsidiary or Wal*Mart which, if successful, would materially interfere with the
Seller's or any Subsidiary's use of the White Cloud trademark in connection with
Seller's performance of the White Cloud Arrangement with Wal*Mart. To the
knowledge of Seller, there are no Claims pending, or threatened, against any
third party which, if successful, would in the reasonable business judgment of
Seller evidence a material risk with respect to Seller's use of the White Cloud
trademark in connection with Seller's performance of the White Cloud Arrangement
with Wal*Mart.
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3.16. Contracts.
(a) Section 3.16 of Seller's Disclosure Memorandum
sets forth all of the Material Contracts to which the Seller or any of the
Subsidiaries is a party or by or to which any of them or any of their properties
may be bound or subject (other than those specifically set forth in any other
Section of Seller's Disclosure Memorandum or any Material Contracts made
available to Buyer as set forth in Section 3.22 hereof); provided; however, in
the case of Material Contracts to which the Seller is a party, only those
Material Contracts which have or will be assumed in the Case are set forth in
Section 3.16 of Seller's Disclosure Memorandum.
(b) There have been delivered or otherwise made
available to Buyer true and complete copies of all of the Material Contracts set
forth in Section 3.16 of Seller's Disclosure Memorandum. All of the Material
Contracts referred to in the preceding sentence (i) to which the Seller is a
party and which are susceptible of assumption, upon the assumption thereof by
the Seller pursuant to section 365 of the Bankruptcy Code, are valid and binding
upon the Seller and, to Seller's knowledge, the other party or parties thereto
in accordance with their terms and (ii) to which any Subsidiary is a party are
valid and binding upon such Subsidiary and, to Seller's knowledge, the other
party or parties thereto in accordance with their terms. Except as set forth in
Section 3.16(b) of Seller's Disclosure Memorandum or as will be cured upon the
assumption of such Material Contract pursuant to section 365 of the Bankruptcy
Code, neither the Seller nor any of the Subsidiaries is in default in any
material respect under any of such Material Contracts, nor to the knowledge of
Seller does any condition exist that with notice or lapse of time or both would
constitute such a material default thereunder. To the knowledge of Seller, no
parties to any Material Contracts (other than the Seller or any Subsidiary) are
in default thereunder in any respect nor does any condition exist that with
notice or lapse of time or both would constitute such a default thereunder
except where the existence of any such defaults (including the existence of any
conditions that with notice or lapse of time would constitute defaults) could
not, individually or in the aggregate, have a Material Adverse Effect on the
Seller.
3.17. Tangible Property. To the knowledge of Seller, the
facilities, machinery, equipment, furniture, buildings and other improvements,
fixtures, vehicles, structures, any related capitalized items and other tangible
property material to the business of the Seller or any of the Subsidiaries (the
"Tangible Property") are in good operating condition and repair, subject to
continued repair and replacement in accordance with past practice, and are
suitable for their intended use.
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3.18. Intellectual Property.
(a) The Seller or a Subsidiary owns or is licensed or
otherwise has the right to (i) with respect to such items that the Seller owns
outright, sell, license and dispose of such items, without restriction, and (ii)
with respect to such items with respect to which the Seller has a license, use
and practice all Copyrights, Patents, Trade Secrets, Trademarks, Internet
Assets, Mask Works, Software and other proprietary rights (collectively, the
"Intellectual Property") that are material to the businesses of the Seller and
the Subsidiaries, the loss or cancellation of which would have a Material
Adverse Effect on the Seller.
(b) Section 3.18(b) of Seller's Disclosure
Memorandum lists (i) all Intellectual Property (other than unregistered
Copyrights and Trademarks and Trade Secrets) owned by the Seller or any of the
Subsidiaries, specifying as to each such item, as applicable: (A) the category
of Intellectual Property; (B) the jurisdictions in which the item is issued or
registered or in which any application for issuance has been filed, including
the respective issuance, registration or application number; (C) the date of
application, issuance or registration and the expiration date of the item; and
(D) with respect to any Trademarks, the class or classes of goods or services on
which each such Trademark is or is intended to be used; and (ii) all material
licenses, sublicenses and other agreements under which the Seller or any of the
Subsidiaries is either a licensor or licensee of any Intellectual Property the
cancellation or termination of which could have a Material Adverse Effect on the
Seller (the "IP Licences"), specifying as to each such item, as applicable: (A)
the category of Intellectual Property, (B) the licensor of such item, (C) the
licensee of such item and (D) the term of such license agreement. The Seller
heretofore has made available, or has caused the Subsidiaries heretofore to make
available, to the Buyer true, correct and complete copies of all material
documents evidencing Intellectual Property and IP Licenses (including all
modifications, amendments and supplements thereto).
(c) None of the Seller, the Subsidiaries or, to the
knowledge of Seller, any other party, is in breach of or default under any IP
License (i) which will not (in the case of Seller) be cured under section 365 of
the Bankruptcy Code pursuant to the Plan or (ii) which breach or default (in the
case of either the Seller or the Subsidiaries) could have a Material Adverse
Effect on the Seller. As of the Effective Date, each IP License will be valid
and in full force and effect.
(d) Except as will be satisfied, waived or released in
the Kimberly-Clark Settlement or the Procter & Gamble Settlement, no Claim is
pending or, to the knowledge of the Seller, threatened, that challenges the
validity, enforceability, ownership of or right (i) in the case of Intellectual
Property owned by the Seller, to sell, license or dispose of any item of
Intellectual Property, or (ii) in the
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case of the IP Licenses, the right to use or practice any item of Intellectual
Property, nor to the knowledge of the Seller, are there any valid grounds for
any such Claim.
(e) Except as will be released, satisfied or waived in
the Kimberly-Clark Settlement or the Procter & Gamble Settlement, to the
knowledge of the Seller, no item of Intellectual Property is subject to any
outstanding Order, Contract or Claim restricting in any manner the use or the
licensing thereof by the Seller or any of the Subsidiaries.
(f) Except for issues resolved by the Kimberly-Clark
Settlement and the Procter & Gamble Settlement, to the knowledge of Seller,
neither the Seller nor any of the Subsidiaries has infringed upon or otherwise
violated the intellectual property rights of third parties or, except as set
forth in Section 3.18(f) of Seller's Disclosure Memorandum, has received or has
been the subject of any Claim, charge or notice alleging any such infringement
or other violation which infringement, violation, alleged infringement or
alleged violation could have a Material Adverse Effect on the Seller. To the
knowledge of the Seller, the continued operation of the businesses of the Seller
and the Subsidiaries as presently conducted will not infringe upon or otherwise
violate any intellectual property rights of third parties, in a manner that
could result in a Material Adverse Effect on the Seller.
(g) Neither Seller nor any of the Subsidiaries is in
default under any provisions of the Kimberly-Clark Settlement or the Procter &
Gamble Settlement.
(h) To the knowledge of Seller, the Seller or one of
the Subsidiaries has the exclusive right to file, procure and maintain all
applications and registrations with respect to the Intellectual Property owned
by the Seller or any of the Subsidiaries.
(i) To the knowledge of Seller, all Patents and
registered Trademarks and Copyrights held by the Seller or any of the
Subsidiaries are presumed valid and subsisting. The Seller and the Subsidiaries
have taken all necessary action to maintain and, in the case of Trade Secrets,
protect each item of Intellectual Property owned or used by the Seller or any of
the Subsidiaries.
3.19. Title to Properties. The Seller and the Subsidiaries (a)
have good and marketable title in fee simple to all real property owned by them
(as reflected in the Identified SEC Documents) and valid leasehold interests in
all leased real property leased by them (as reflected in the Identified SEC
Documents), and (b) own outright and have good title to all of their properties,
including all of the assets reflected on the Balance Sheet, free and clear of
any Lien, except in the case of each of clauses (a) and (b) hereof for (i) Liens
which will be released pursuant to the Plan; (ii) properties disposed of, or
subject to purchase or sales orders, in the
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ordinary course of business since the Balance Sheet Date; (iii) Liens securing
Taxes, assessments, governmental charges or levies, or the claims of
materialmen, carriers, landlords and like persons, all of which are not yet due
and payable or are being contested in good faith, so long as such contest does
not involve any substantial danger of the sale, forfeiture or loss of any assets
which individually or in the aggregate are material to Seller; (iv) Liens
securing Reorganized Paragon's obligations to its lenders in respect of the Exit
Financing and (v) Liens set forth in Section 3.19 of Seller's Disclosure
Memorandum (the Liens described in clauses (i) through (v) above being
"Permitted Liens").
3.20. Employee Benefit Plans.
(a) Section 3.20 of Seller's Disclosure Memorandum
contains a true and complete list of each "material employee benefit plan"
(within the meaning of section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), including, without limitation, multiemployer
plans within the meaning of ERISA section 3(37)), stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, welfare benefit,
collective bargaining, bonus, incentive, deferred compensation and all other
material employee benefit plans, agreements, programs, policies or other
material arrangements, whether or not subject to ERISA (including any funding
mechanism therefor now in effect or required in the future as a result of the
transaction contemplated by this Agreement or otherwise), whether formal or
informal, oral or written, legally binding or not, under which any employee or
former employee of the Seller or any of the Subsidiaries has any present or
future right to benefits or under which the Seller or any of the Subsidiaries
has any present or future liability. All such plans, agreements, programs,
policies and arrangements shall be collectively referred to as the "Benefit
Plans."
(b) With respect to each Benefit Plan, the Buyer has
made available to the Purchaser a current, accurate and complete copy (or, to
the extent no such copy exists, an accurate description) thereof and, to the
extent applicable: (i) any related trust agreement or other funding instrument;
(ii) the most recent determination letter, if applicable; (iii) any summary plan
description and other written communications (or a description of any oral
communications) by Seller to its employees concerning the extent of the benefits
provided under a Benefit Plan; and (iv) for the three most recent years (A) the
Form 5500 and attached schedules, (B) audited financial statements, (C)
actuarial valuation reports and (D) attorney's response to an auditor's request
for information.
(c) (i) Each Benefit Plan has been established and
administered in all material respects in accordance with its terms, and in
material compliance with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations; (ii) to the knowledge of the Seller, no
event has occurred
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and no condition exists that would subject the Seller or any of the
Subsidiaries, either directly or by reason of its affiliation with any Commonly
Controlled Entity (defined as any organization which is a member of a controlled
group of organizations within the meaning of Code section 414(b), (c), (m) or
(o)), to any tax, fine, lien, penalty or other liability imposed by ERISA, the
Code or other applicable laws, rules and regulations; (iii) to the knowledge of
the Seller, no "prohibited transaction" (as such term is defined in ERISA
section 406 and Code section 4975) has occurred with respect to any Benefit
Plan; (iv) each Benefit Plan with respect to which a Form 5500 has been filed,
no material change has occurred with respect to the matters covered by the most
recent Form since the date thereof; (v) each Benefit Plan which is intended to
be qualified within the meaning of Code section 401(a) is so qualified and has
received a favorable determination letter as to its qualification, and nothing
has occurred, whether by action or failure to act, that could reasonably be
expected to cause the loss of such qualification; (vi) except as provided in the
TEEP Plan, for each Benefit Plan that is a "welfare plan" within the meaning of
ERISA section 3(1), neither the Seller nor any of the Subsidiaries has nor will
have any liability or obligation under any plan which provides medical or death
benefits with respect to current or former employees of the Seller beyond their
termination of employment (other than coverage mandated by law); and (vii) no
Benefit Plan is subject to Title IV of ERISA.
(d) With respect to any Benefit Plan, no actions, suits
or claims (other than routine claims for benefits in the ordinary course) are
pending or, to the Seller's knowledge, threatened, and no facts or circumstances
exist that could give rise to any such actions, suits or claims which
individually or in the aggregate could have a Material Adverse Effect on the
Seller.
(e) Except as set forth in Section 3.20(e) of the
Seller's Disclosure Memorandum, no Benefit Plan exists that provides for, or to
the Seller's knowledge could result in, the payment to any present or former
employee of any Seller or any of the Subsidiaries of any money or other property
or accelerate or provide any other rights or benefits to any present or former
employee of any Seller as a result of the transaction contemplated by this
Agreement.
(f) With respect to each Benefit Plan, there are no
funded post-petition benefit obligations for which contributions have not been
made or properly accrued and there are no unfunded post-petition benefit
obligations that have not been accounted for by reserves, or otherwise properly
footnoted in accordance with generally accepted accounting principles, on the
Audited Financials except for such unfunded post-petition benefit obligations as
could not, individually or in the aggregate, have a Material Adverse Effect on
the Seller.
3.21. Employee Relations. None of the Employees is represented
by a union, and to the knowledge of the Seller no union organizing efforts
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are now being conducted. Neither the Seller nor any of the Subsidiaries has at
any time during the last three years had, nor to the knowledge of any of the
Seller, is there now threatened, a strike, picket, work stoppage, work slowdown
or other labor dispute.
3.22. Insurance. Seller has heretofore made available for
inspection to Buyer true and correct copies of all policies or binders of fire,
liability, product liability, worker's compensation, directors and officers
liability, vehicular and other insurance held by or on behalf of the Seller or
any of the Subsidiaries and which are presently in effect. Such policies and
binders are valid and binding in accordance with their terms, are in full force
and effect, and, to the knowledge of Seller, insure against risks and
liabilities to an extent and in a manner customary in the industries in which
the Seller and the Subsidiaries operate. Neither the Seller nor any of the
Subsidiaries has received any notice of cancellation or non-renewal of any such
policy or binder.
3.23. Company Products. Except as set forth in Section 3.23 of
Seller's Disclosure Memorandum, to the knowledge of Seller, there are no
statements, citations or decisions by any Governmental Body specifically stating
that any Company Product is defective or unsafe or fails to meet any standards
promulgated by any such Governmental Body. Except as set forth in Section 3.23
of Seller's Disclosure Memorandum, there have been no recalls ordered by any
such Governmental Body with respect to any Company Product. Except as set forth
in Section 3.23 of Seller's Disclosure Memorandum, to the knowledge of any of
the Seller, there is no (a) fact relating to any Company Product that may impose
upon the Seller or any of the Subsidiaries a duty to recall any Company Product
or a duty to warn customers of a defect or of any Hazardous Substance in any
Company Product, (b) latent or overt design, manufacturing or other defect in
any Company Product, (c) Company Product, the reasonably foreseeable use of
which may expose any person to any Hazardous Substance or (d) material liability
for warranty claims or returns with respect to any Company Product not fully
reflected on the Audited or Interim Financials.
3.24. Operations of the Company. Except as set forth in Section
3.24 of Seller's Disclosure Memorandum or as contemplated by this Agreement,
since June 27, 1999 neither the Seller nor any of the Subsidiaries has:
(a) waived any material right under any Material Contract
or other agreement of the type required to be set forth in Seller's Disclosure
Memorandum;
(b) made any material change in its accounting
methods or practices or made any material change in depreciation or amortization
policies or rates adopted by it;
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(c) materially changed any of its business policies,
including advertising, investment, marketing, pricing, purchasing, production,
personnel, sales, returns, budget or product acquisition policies;
(d) except for inventory or equipment in the ordinary
course of business, sold, abandoned or made any other disposition of any of its
properties or assets or made any acquisition of all or any part of the
properties, capital stock or business of any other person;
(e) terminated or failed to renew, or received any
written threat (that was not subsequently withdrawn) to terminate or fail to
renew, any Material Contract or other agreement that is or was material to the
properties, business, prospects, results of operations or financial condition of
the Seller and its Subsidiaries;
(f) entered into any Material Contract; or
(g) engaged in any other material transaction other than
in the ordinary course of business.
3.25. Projections. The projections relating to operations of the
Seller and the Subsidiaries dated September 7, 1999 (the "Projections"),
heretofore delivered by the Seller to the Buyer, have been prepared in good
faith on a reasonable basis. The assumptions on which the Projections are based
are consistent with past practices (including accounting practices) of the
Seller and the Subsidiaries and with historical conditions applicable to the
business of the Seller and the Subsidiaries. Except as set forth in Section 3.25
of the Seller's Disclosure Memorandum, to Seller's knowledge there is nothing to
indicate that the Projections or the assumptions upon which they are based are
not reasonable.
3.26. Inventories. Since the Balance Sheet Date, the Inventories
related to the Seller's and its Subsidiaries' business have been maintained in
the ordinary course of business. After giving effect to any applicable reserves,
all of the Inventories recorded on the Balance Sheet consist of, and all
Inventories related to the business on the Closing Date will consist of, items
of a quality usable or saleable in the normal course of the business consistent
with past practices and are and will be in quantities reasonable for the normal
operation of such business in accordance with past practice.
3.27. Receivables. All Accounts Receivable (other than
receivables collected since the Balance Sheet Date) reflected on the Balance
Sheet are valid and fully collectible in the aggregate amount thereof, subject
to trade discounts, less any applicable reserves recorded on the Balance Sheet.
All Accounts Receivable arising out of or relating to the business at the
Balance Sheet Date have been included in the Balance Sheet, in accordance with
GAAP applied on a consistent basis.
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4. Representations and Warranties of the Buyer. Buyer represents
and warrants to the Seller as follows:
4.1. Due Organization and Authority. Buyer is duly organized,
validly existing and in good standing under the Laws of the jurisdiction under
which it was organized and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being and as
heretofore conducted.
4.2. Authority to Execute and Perform Agreement. Buyer has the
full legal right and power and all authority and approvals required to enter
into, execute and deliver this Agreement and each and every agreement and
instrument contemplated hereby to which Buyer is or will be a party and to
perform fully its obligations hereunder and thereunder. This Agreement has been
duly executed and delivered by Buyer, and on the Closing Date each and every
agreement and instrument contemplated hereby to which Buyer is a party will be
duly executed and delivered by Buyer and (assuming due execution and delivery
hereof and thereof by the other parties hereto and thereto) this Agreement and
each such other agreement and instrument will be valid and binding obligations
of Buyer enforceable against Buyer in accordance with their respective terms.
The execution and delivery by Buyer of this Agreement and each and every other
agreement and instrument contemplated hereby to which Buyer is a party, the
consummation of the transactions contemplated hereby and thereby and the
performance by Buyer of this Agreement and each such other agreement and
instrument in accordance with their respective terms and conditions will not (a)
violate any provision of Buyer's governing or organizational documents; (b)
except for filings or approvals under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and the rules and regulations thereunder (the "HSR
Act"), and the Investment Canada Act and the Competition Act of Canada
(together, the "Canadian Acts"), if applicable, require Buyer to obtain any
consent, approval, authorization or action of, or make any filing with or give
any notice to, any Governmental Body or any other person; (c) violate, conflict
with or result in the breach of any of the terms and conditions of, result in a
material modification of the effect of, otherwise cause the termination of or
give any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both constitute) a default under, any Contract to
which Buyer is a party or by or to which Buyer or any of its properties is or
may be bound or subject; or (d) violate any Law or Order of any Governmental
Body applicable to Buyer.
4.3. Purchase for Investment. Buyer is purchasing the Purchased
Shares for its own account for investment and not with a view to public resale
or distribution thereof.
4.4. Plan Acknowledgment. The Plan in the form attached
hereto as Exhibit C is satisfactory to Buyer in all material respects.
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4.5. Financing. At the Closing, the Buyer, together with its
designees and assignees, considered together, will have the financial ability to
purchase the Purchased Shares. The Buyer has delivered true and correct copies
of commitments that it has heretofore received from potential assignees, which
commitments have not been withdrawn or modified as of the date of this
Agreement.
5. Covenants and Agreements.
5.1. Conduct of Business. From the date hereof through the
Closing Date, the Seller agrees that it (a) shall conduct its (and shall cause
its Subsidiaries to conduct their) business in the ordinary course and, without
the prior written consent of the Buyer, not to undertake any of the actions
specified in Section 3.24; (b) shall (and shall cause its Subsidiaries to) use
commercially reasonable efforts to preserve intact its business relationships
with third parties and (c) shall conduct its (and shall cause its Subsidiaries
to conduct their) business in a manner such that the representations and
warranties contained in Article 3 shall continue to be true and correct on and
as of the Closing Date as if made on and as of the Closing Date. The Seller
shall give the Buyer prompt notice of any event, condition or circumstance
occurring from the date hereof through the Closing Date that would constitute a
violation or breach of (i) any representation or warranty, whether made as of
the date hereof or as of the Closing Date, or (ii) any covenant of Seller
contained in this Agreement.
5.2. Corporate Examinations and Investigations. Prior to the
Closing Date, the Seller agrees that the Buyer shall be entitled, through their
employees and representatives, including, without limitation, Paul, Weiss,
Rifkind, Wharton & Garrison, Kenyon & Kenyon, and KPMG Peat Marwick
(collectively, the "Representatives"), to make such investigation of the
properties, businesses and operations of the Seller and the Subsidiaries, and
such examination of the books, records and financial condition of the Seller and
the Subsidiaries, as they wish. Any such investigation and examination shall be
conducted at reasonable times and under reasonable circumstances, and the Seller
shall, and shall cause the Subsidiaries to, cooperate fully therein. No
investigation by the Buyer shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Seller contained in this Agreement.
In order that the Buyer may have full opportunity to make such physical,
business, accounting and legal review, examination or investigation as they may
wish of the affairs of the Seller and the Subsidiaries, the Seller shall make
available and shall cause the Subsidiaries to make available to the
Representatives during such period all such information and copies of documents
concerning the affairs of the Seller and the Subsidiaries as the Representatives
may reasonably request, shall permit the Representatives reasonable access to
the properties of the Seller and the Subsidiaries and all parts thereof
including access for the purpose of conducting sampling of the air, soil,
surface water and groundwater and shall cause their officers, Employees, consul
tants, agents, accountants and attorneys to cooperate fully with the
Representatives in
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connection with such review and examination. The Seller shall make reasonably
available and shall cause the Subsidiaries to make reasonably available to the
Representatives during such period all reports, assessments, audits, reviews,
plans, analyses and other documents or correspondence in the possession or
control of the Seller or any of the Subsidiaries relating to the condition of
the Environment, the effect of the operations of the Seller or any of the
Subsidiaries on the Environment or the compliance of the Seller or any of the
Subsidiaries with Safety and Environmental Laws. If this Agreement terminates,
(a) the Buyer shall keep confidential and shall not use in any manner any
information or documents obtained from the Seller or the Subsidiaries concerning
their properties, businesses and operations, unless (i) use or disclosure of
such information or documents shall, based on the advice of its legal counsel,
be required by applicable Law or Order of any Governmental Body, (ii) use or
disclosure of such information or documents is reasonably required, based on the
advice of its legal counsel, in connection with any Claim against or involving
the Buyer or (iii) such information or documents are readily ascertainable from
public or published information or trade sources (other than information known
generally to the public as a result of a violation of this Section 5.2) or are
already known or subsequently developed by the Buyer independently of any
investigation of the Seller or the Subsidiaries; and (b) any documents obtained
from the Seller or the Subsidiaries and all copies thereof shall be returned.
5.3. Publicity. The parties will cooperate in the issuance of
any press releases or otherwise in making any public statements with respect to
the Contemplated Transactions. The parties further agree that no publicity
release or public statement or public communication concerning this Agreement or
the Contemplated Transactions shall be made without written advance approval
thereof by the Seller and Buyer, which approval shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
other party, issue such press release or make such public statement as may, upon
the advice of counsel, be required by law or any listing agreement with any
national securities exchange.
5.4. Expenses. Subject to the occurrence of the Closing
hereunder, Reorganized Paragon shall bear the reasonable out-of-pocket expenses
incurred by each party (including any assignee of the Buyer), in connection with
the preparation, execution and performance of this Agreement and the
Contemplated Transactions, including the reasonable fees and expenses of agents,
representatives, counsel and accountants.
5.5. Brokerage. The Seller represents and warrants to Buyer
that, except for The Blackstone Group LP, no broker, finder, agent or similar
intermediary (a "Broker") has acted on behalf of the Seller or any of the
Subsidiaries in connection with this Agreement or the Contemplated Transactions,
and that, except for a fee to The Blackstone Group LP payable pursuant to a
Final Order of the Bankruptcy Court (the "Seller's Fee") there are no brokerage
commissions, finder's
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fees or similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with the Seller or any of the
Subsidiaries, or any action taken by the Seller or any of the Subsidiaries.
Buyer shall have no responsibility to pay the Seller's Fee.
5.6. Required Consents. The Seller shall use commercially
reasonable best efforts, prior to the Closing, to obtain all Required Consents
and undertake all actions required pursuant to the Required Consents. Buyer
shall not incur or be liable for any expenses, costs or obligations in
connection therewith.
5.7. Permit Transfers. The Seller shall use commercially
reasonable best efforts, at and as of the Closing, to cause the transfer,
reissuance or modification of any Material Permits or Material Environmental
Permits to the extent that such is required to cause the Material Permits and
Material Environmental Permits to remain in full force and effect in the
possession of Reorganized Paragon or any of the Subsidiaries, as the case may
be, after the Closing. Buyer shall not incur or be liable for any expenses,
costs or obligations in connection therewith.
5.8. Further Assurances. Each of the parties shall execute such
Documents and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the Contemplated Transactions.
Each such party shall use commercially reasonable efforts to fulfill or obtain
the fulfillment of the conditions to the Closing set forth in Articles 6 and 7.
5.9. Bankruptcy Covenants.
(a) The Seller shall promptly provide the Buyer with
(i) proposed final drafts of all documents, motions, orders, filings or
pleadings that the Seller proposes to file with the Bankruptcy Court which
relate to the consummation or approval of the Plan, this Agreement or any
provision therein or herein, and will provide the Buyer with reasonable
opportunity to review such filings and (ii) copies of any written objections to
the Plan or Disclosure Statement.
(b) In the event an appeal is taken, or a stay pending
appeal is requested or reconsideration is sought, from either the Confirmation
Order or the Order of the Bankruptcy Court approving the Disclosure Statement,
the Seller shall promptly after becoming aware thereof notify the Buyer of such
notice of appeal, request for a stay pending appeal or motion for
reconsideration. The Seller shall also provide the Buyer with written notice
(and copies) of any other or further notice of appeal, motion or application
filed in connection with any appeal from or application for reconsideration of,
either of such orders and any related briefs.
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5.10. Calculation of Cash Deficit and Cash Excess; Net Working
Capital.
(a) For purposes of determining the principal amount
of the New Notes to be issued under the Plan, the Cash Deficit and Cash Excess
shall be determined as of the Measuring Date and shall be adjusted upward or
downward, as the case may be, by (1) the amount by which the liabilities listed
on Schedule 5.10 hereto are greater or less on the Measuring Date than the
amounts set forth on Schedule 5.10 hereto and (2) any change in Seller's Net
Working Capital from June 27, 1999. As used herein, the "Measuring Date" shall
mean the last day of the fiscal month immediately preceding the fiscal month in
which the Closing occurs, unless the Buyer and Seller agree to use a different
date.
(b) Seller's Net Working Capital as of the Measuring
Date (the "Measuring Date Working Capital"), will be calculated using the
balance sheet (the "Measuring Date Balance Sheet"), substantially in the form
attached hereto as Exhibit D, prepared by Seller in accordance with past
practice and with the consultation and full participation of Buyer and as of the
close of business on the Measuring Date. The Measuring Date Balance Sheet
together with the calculation of the Measuring Date Net Working Capital shall be
certified by the Seller's chief financial officer as having been prepared in
accordance with the terms of this Agreement. The Measuring Date Balance Sheet
shall (a) fairly present in all material respects the consolidated financial
position of the Seller and the Subsidiaries as at the close of business on the
Measuring Date in accordance with GAAP applied on a basis consistent with those
used in the preparation of the Balance Sheet (but shall not include the
footnotes and other disclosures normally required by GAAP), (b) include line
items substantially consistent with those in the Balance Sheet, and (c) be
prepared in accordance with accounting policies and practices consistent with
those used in the preparation of the Balance Sheet (including calculating
reserves in accordance with the same methodology used to calculate such reserves
in preparation of the Balance Sheet).
(c) Simultaneously with the delivery of the Measuring
Date Balance Sheet, Seller will also prepare with the consultation and full
participation of the Buyer and cause to be delivered to Buyer a calculation of
the Cash Deficit or Cash Excess as of the Measuring Date (the "Measuring Date
Statement"), in the form attached hereto as Exhibit E, together with a
certificate from its chief financial officer certifying that the Measuring Date
Statement has been prepared in accordance with the terms of this Agreement, and
a schedule based on such Measuring Date Statement setting forth Seller's
calculation of the projected Cash Deficit or Cash Excess as of the Measuring
Date (the "Measuring Date Costs").
(d) Buyer and Seller agree that they will, and agree to
cause their respective employees to, cooperate in good faith and assist in the
preparation of the Measuring Date Statement and Measuring Date Balance Sheet and
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the calculation of Measuring Date Working Capital and Measuring Date Costs and
in the conduct of the audits, reviews and negotiations referred to in this
Section, including without limitation, making available their books, records,
work papers and personnel.
6. Conditions Precedent to the Obligation of the Buyer to Close. The
obligation of Buyer to enter into and complete the Closing is subject, at the
option of Buyer acting in accordance with the provisions of Article 11 with
respect to termination of this Agreement, to the fulfillment on or prior to the
Closing Date of the following conditions, any one or more of which may be waived
by the Buyer:
6.1. Representations and Covenants. All representations and
warranties of the Seller contained in this Agreement (disregarding all
qualifications and exceptions contained therein related to materiality) shall be
true in all respects on and as of the Closing Date, with the same force and
effect as though made on and as of the Closing Date, except for such breaches
that, individually or in the aggregate, would not have a Material Adverse Effect
on the Seller. The Seller shall have performed and complied in all respects with
all covenants and agreements required by this Agreement to be performed or
complied with by the Seller on or prior to the Closing Date, except for such
breaches that, individually or in the aggregate, would not have a Material
Adverse Effect on the Seller. The Seller shall have delivered to Buyer a
certificate, dated the date of the Closing and signed by the Seller, to the
foregoing effect.
6.2. Consents and Approvals. All Required Consents shall have
been obtained or deemed by operation of the Plan and/or the Confirmation Order
to have been given and shall be in full force and effect, and Buyer shall have
been furnished with evidence reasonably satisfactory to it that each such
Required Consent has been either (i) expressly granted, or (ii) deemed, by
operation of the Plan and/or the Confirmation Order, to have been given.
6.3. Opinion of Counsel to the Seller. The Buyer shall have
received the opinion of bankruptcy counsel to the Seller, dated the date of the
Closing, addressed to Buyer, in the form of Exhibit A.
6.4. HSR Act Filing; Canada Acts. Any person required in
connection with the Contemplated Transactions to file a notification and report
form in compliance with, or obtain any consent or approval required under, the
HSR Act and/or the Canadian Acts shall have filed such form or requested such
consent or approval and the applicable waiting period with respect to each such
form (including any extension thereof by reason of a request for additional
information) shall have expired or been terminated or the requisite consent or
approval required thereby shall have been obtained without any material
condition or limitation.
6.5. No Claims. No Claims shall be pending or, to the knowledge
of the Buyer, the Seller or any of the Subsidiaries, threatened, before any
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Governmental Body (including investigations instituted by the United States
Department of Justice or the Federal Trade Commission in connection with
antitrust regulations) to restrain or prohibit, or to obtain damages or a
discovery order in respect of, this Agreement or the consummation of the
Contemplated Transactions or which has had or may have, in the reasonable
judgment of the Buyer, a Material Adverse Effect on the Seller.
6.6. Confirmation Order. The Confirmation Order in form and
substance satisfactory to the Buyer, shall have been entered by the Bankruptcy
Court and shall not be stayed or reversed, ordered to be reconsidered, or, in
any manner not approved by Buyer, amended or modified.
6.7. Plan Confirmation. The Plan shall have been confirmed by
January 15, 2000 and shall have become effective in accordance with its terms.
Sections 7.5, 7.6, 9.5 (other than 9.5(b)), 9.6, 9.10, (other than 9.10(a)(ii)),
9.16(a), 9.22, 14.1, 14.2, 14.3, 14.4, 15.4, and any definition of New Notes,
New Securities, New Organizational Documents, Wellspring Investment Price,
Wellspring Rights Offering, New Notes Amount, Warrants or Rights, of the Plan
shall not have been modified or supplemented without the prior consent of the
Buyer and the Plan shall otherwise be satisfactory to Buyer in all material
respects.
6.8. Management. Senior management of Reorganized
Paragon shall be reasonably acceptable to Buyer (i.e., Reorganized Paragon shall
retain at least the previously identified senior management team, with exception
of Kevin Higgins and David W. Cole, which team presently includes Seller's
present senior management, including those individuals currently covered by the
TEEP Plan).
6.9. No Material Adverse Change. No material adverse change (or
event or condition that could result in a material adverse change) shall have
occurred in Seller's or any of the Subsidiaries' business, condition (financial
or otherwise), prospects, operations, assets or liabilities or in financial
markets generally ("Material Adverse Change") between September 26, 1999 and the
Effective Date.
6.10. Overbid Order. The Overbid Order shall remain in full
force and effect, and shall not have been stayed, vacated, modified or
supplemented without Buyer's prior consent, and the Seller shall have complied
with the terms of the Overbid Procedures and Overbid Order.
6.11. Ordinary Course. Seller shall (and shall have caused its
Subsidiaries to) have operated its business in the ordinary course consistent
with past practices and substantially consistent with the Projections from
September 26, 1999 through the Effective Date.
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6.12. Exit Financing. All conditions precedent to closing and
initial borrowing under the Exit Financing (other than the occurrence of the
Effective Date) shall have been satisfied or waived and the Exit Financing shall
have been consummated in accordance with the material terms contained in the
Financing Commitment Letter and the Exit Financing shall otherwise be reasonably
satisfactory in form and substance to the Buyer in all material respects.
6.13. Settlement Orders. The Kimberly-Clark Settlement Order and
Procter & Gamble Settlement Order shall be Final Orders; provided, however, that
if such Orders are not Final Orders on the Effective Date they shall be deemed
Final Orders upon the occurrence of the Effective Date.
6.14. Settlements. The Kimberly-Clark Settlement and the Procter
& Gamble Settlement (including the licenses provided for therein) shall have
been extended through the Effective Date and shall be in full force and effect.
6.15. Exclusive Period. Seller shall have maintained its
exclusive period to file and solicit acceptances of a plan through January 15,
2000, and Seller shall not have either (i) filed with the Bankruptcy Court a
chapter 11 plan providing for the acquisition of Seller (or a substantial
portion of its ownership or assets) by a person or entity other than Buyer, (ii)
sought Bankruptcy Court approval of an acquisition of Seller (or a substantial
portion of its ownership or assets) other than by Buyer, or (iii) except as
described in the Plan, filed any amendment or modification to the chapter 11
plan for Seller dated August 24, 1999 (the "Standalone Plan") or any other
chapter 11 plan providing for an internal reorganization of Seller, or obtained
Bankruptcy Court approval of a disclosure statement for the Standalone Plan.
6.16. PTB Canada. PTB Canada shall have retained $200,000, or
such lesser amount as is required to satisfy its potential liabilities. (It is
understood that PTB Canada shall dividend any excess cash to Seller for
distribution pursuant to the Plan).
6.17. Other Documents. The form and substance of each of the New
Notes (whose material terms shall include, among other things, substantially the
same terms as the material terms contained in Appendix 1), New Note Indenture
(whose material terms shall include, among other things, substantially the same
terms as the material terms contained in Appendix 1), Restated Bylaws, Restated
Certificate of Incorporation, Registration Rights Agreement and Warrants, shall
be satisfactory to Buyer in all material respects and all conditions precedent
to the issuance by Reorganized Paragon of the New Notes and the Warrants other
than the Closing hereunder shall have been satisfied.
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7. Conditions Precedent to the Obligation of the Seller to Close. The
obligation of the Seller to enter into and complete the Closing is subject, at
the option of the Seller acting in accordance with the provisions of Article 11
with respect to termination of this Agreement, to the fulfillment on or prior to
the Closing Date of the following conditions, any one or more of which may be
waived by the Seller:
7.1. Representations and Covenants. The representations and
warranties of the Buyer contained in this Agreement shall be true in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date. The Buyer shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date. Buyer shall have delivered to the Seller a certificate, dated the
date of the Closing and signed by an officer of Buyer, to the foregoing effect.
7.2. Certain Consents and Approvals. The Required Consents shall
have been obtained or deemed by operation of the Plan and/or the Confirmation
Order to have been given and shall be in full force and effect.
7.3. HSR Act Filing; Canadian Acts. Any person required in
connection with the Contemplated Transactions to file a notification and report
form in compliance with, or obtain any consent or approval required under, the
HSR Act and/or the Canadian Acts shall have filed such form or requested such
consent or approval and the applicable waiting period with respect to each such
form (including any extension thereof by reason of a request for additional
information) shall have expired or been terminated or the requisite consent or
approval required thereby shall have been obtained without any material
condition or limitation.
7.4. Confirmation Order. The Confirmation Order shall have been
entered by the Bankruptcy Court and shall not be stayed or reversed, ordered to
be reconsidered, or, in any manner not approved by Seller, amended or modified.
7.5. New Securities Issued. All conditions precedent to the
issuance of the New Notes and Warrants (other than the Closing hereunder) shall
have been satisfied.
8. Designation of Executory Contracts; Employment Agreements;
Confirmation of Overbid Order and Auction.
(a) The Buyer will have until thirty days before the
Confirmation Hearing to designate in writing the previously nonassumed executory
Contracts and unexpired Leases it wishes Seller to assume or reject, in addition
to the executory contracts and unexpired leases that Seller shall have
identified to the Buyer on or before thirty-five days before the Confirmation
Hearing that it intends to assume
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or reject. The Seller has determined to reject all non-designated, nonassumed
executory Contracts and unexpired Leases and to assume all designated executory
Contracts and unexpired Leases.
(b) Buyer shall use its good faith efforts to agree to mutually
acceptable employment terms with the senior management team referred to in
Section 6.8 on or before one day before the Disclosure Statement Hearing;
provided that if Buyer does not either (a) waive the condition set forth in
Section 6.8 on or prior to the scheduled Closing Date, or (b) agree to such
employment terms on or before such date other than as a result of Seller's
actions, Buyer shall waive its rights to the Termination Fee.
(c) Seller agrees that (i) Buyer's bid is the best bid and that
the Bid Deadline has passed and the Auction is concluded and (ii) other than
sales to customers in the ordinary course of Seller's and its Subsidiaries'
businesses, it shall not seek any higher or better offer for all or any portion
of the Seller, its Subsidiaries or any of their respective assets or businesses
unless this Agreement is terminated according to its terms.
9. Monetization. Buyer shall use its best efforts (which shall not
require Buyer to commit or expend its own funds) prior to the Effective Date to
obtain third party financing for Reorganized Paragon if such third party
financing is available on commercially reasonable terms that (i) will not, among
other things, materially diminish the value of the New Common Stock and (ii)
will not be materially different than the terms of the New Notes, in lieu of all
or a portion of the New Notes (the "Monetization"), in each case in the
determination of Seller and Buyer. Any Monetization shall be described in the
form of a binding commitment delivered to the Seller not later than ten days
prior to the Confirmation Hearing. Reorganized Paragon shall distribute the net
cash proceeds of such Monetization, if any, pursuant to the Plan on the
Effective Date or as soon thereafter as practicable in place of New Notes with a
principal amount equal to such net cash proceeds. The Monetization shall not
delay the occurrence of the Effective Date if all other conditions to the
Effective Date are satisfied.
10. Survival of Representations and Warranties of the Seller.
Notwithstanding any right of the Buyer to investigate fully the affairs of the
Seller and the Subsidiaries and notwithstanding any knowledge of facts
determined or determinable by the Buyer pursuant to such investigation or right
of investigation, the Buyer has the right to rely fully upon the
representations, warranties, covenants and agreements of the Seller contained in
this Agreement or in any documents delivered pursuant to this Agreement. All
representations and warranties of the Seller contained in this Agreement shall
terminate on the Closing Date.
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11. Termination of Agreement.
11.1. Termination. This Agreement may be terminated prior to
the Closing as follows:
(a) at the election of the Seller, if any one or more of
the conditions to the obligation of the Seller to close set forth in Article 7
has not been fulfilled as of the scheduled Closing Date;
(b) at the election of the Buyer, if any one or more of
the conditions to the obligation of the Buyer to close set forth in Article 6
has not been fulfilled as of the scheduled Closing Date;
(c) at the election of the Buyer, if there is any
injunction, stay, order, or decree of any nature of any Governmental Body of
competent jurisdiction that is in effect that prohibits or materially restrains
the consummation of the Contemplated Transactions;
(d) at the election of the Seller, if the Buyer has
materially breached any representation, warranty, covenant or agreement
contained in this Agreement, which breach cannot be or is not cured prior to the
scheduled Closing Date;
(e) at the election of the Buyer, if the Seller has
breached any representation, warranty, covenant or agreement contained in this
Agreement, which breach cannot be or is not cured prior to the scheduled Closing
Date and which breach(es), individually or in the aggregate, would have a
Material Adverse Effect on the Seller;
(f) at any time on or prior to the Closing Date, by
mutual written consent of the Seller and the Buyer;
(g) at any time after February 15, 2000, at the election
of the Buyer, if by such date the Effective Date has not occurred; or
(h) at any time after January 15, 2000, at the election
of Buyer, if by such date the Confirmation Order has not been entered.
If this Agreement so terminates, it shall become null and void and
have no further force or effect, except as provided in Section 11.2.
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11.2. Survival After Termination; Expense Reimbursement and
Termination Fee.
(a) If this Agreement terminates pursuant to
Section 11.1 and the Contemplated Transactions are not consummated, this
Agreement shall become null and void and have no further force or effect except
that any such termination shall be without prejudice to the rights of (i) Buyer
to receive the damages and payments described in Section 11.2(b) and 11.2(g) or
(ii) Seller to seek damages on account of the nonsatisfaction of the conditions
set forth in Article 7 resulting from the material breach or violation of the
representations, warranties, covenants or agreements of Buyer under this
Agreement. Notwithstanding anything in this Agreement to the contrary, the
provisions of Section 5.2 relating to the obligation of the Buyer to keep
confidential and not to use certain information and data obtained by them from
the Seller or the Subsidiaries, as the case may be, and to return documents to
the Seller or the Subsidiaries, as the case may be, shall remain in full force
and effect.
(b) The parties agree that if this Agreement is
terminated under Section 11.1 for any reason other than (i) the occurrence of a
Material Adverse Change, (ii) notwithstanding the reasonable efforts of Seller,
the Plan is not confirmed or confirmable by the Bankruptcy Court or not
consummated due to, as applicable, (x) failure to obtain the requisite votes
accepting the Plan or (y) the Plan's failure to comply with the provisions of
the Bankruptcy Code, (iii) pursuant to Sections 11.1(b), but only if the failure
to satisfy such condition is as a result of the non-satisfaction of Section 6.4,
which was not the result of the failure by Seller to make any timely filing or
provide any required submission or information, 11.1(c) or 11.1(d), or (iv)
pursuant to Sections 11.1(g) or 11.1(h), but only if the event specified in such
Section has not occurred on or prior to the date giving rise to such termination
right (and could not have occurred on or prior to the date of Buyer's
termination pursuant thereto) solely as a result of an act of God, the Buyer
shall be entitled at its option to either (1) the remedy of specific performance
or (2) payment of a $2 million Termination Fee, which shall be in lieu of any
Termination Fee provided under the Overbid Order and the Stipulation. Buyer
shall not otherwise have the right to a Termination Fee arising from the
confirmation of a chapter 11 plan providing for an internal reorganization of
Seller.
(c) If Buyer elects to receive payment of the
Termination Fee (in lieu of specific performance) under Section 11.2(b), such
payment, together with the Expense Reimbursement, shall (i) be full
consideration for the Buyer's efforts and expenses in connection with this
Agreement and the Contemplated Transactions, including the substantial due
diligence efforts of the Buyer and its professionals and advisors and (ii)
constitute liquidated and agreed damages in respect of this Agreement and the
Contemplated Transactions, and Seller and Reorganized Paragon shall have no
further obligations under this Agreement or further liability to Buyer. The
Buyer and Seller believe that it is impossible to determine accurately the
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amount of all damages that Buyer would incur by virtue of the failure to proceed
with the Contemplated Transactions, and Buyer's sole and exclusive remedy for
any such failure shall be to receive payment of the Expense Reimbursement and,
at Buyer's election, either specific performance or the Termination Fee. Except
as provided in this Section, Buyer shall have no right or remedy against Seller,
at law or in equity, by reason of a breach by Seller of its obligation to
proceed with the Contemplated Transactions.
(d) The Expense Reimbursement and Termination Fee
shall constitute first priority administrative expenses of the Seller pursuant
to sec tion 503(b) of the Bankruptcy Code.
(e) Notwithstanding anything herein to the contrary, in
no event shall the aggregate of all damages for which Seller shall have an
obligation to compensate Buyer in respect of any Claim or Claims for breach of
this Agreement exceed the Termination Fee and Expenses Reimbursement.
(f) The Seller acknowledges that the Buyer would not
have invested efforts in negotiating and documenting the Contemplated
Transactions and incurring duties to pay its Representatives if the Buyer were
not entitled to the Termination Fee plus Expense Reimbursement in accordance
with the terms hereof.
(g) Seller, after consultation with the Creditors'
Committee, the Equity Committee, Procter & Gamble and Kimberly-Clark, hereby
acknowledges and reconfirms that the Buyer shall receive the Expense
Reimbursement if this Agreement is terminated for any reason, except that Buyer
shall only receive the Partial Expense Reimbursement if this Agreement is
terminated pursuant to Section 11.1(d).
(h) If this Agreement is terminated by Seller pursuant
to Section 11.1(d), Seller shall set-off the Partial Expense Reimbursement
against damages (if any) which it may be awarded by Final Order against Buyer.
12. Mabesa; Dilution.
(a) On the Effective Date, Reorganized Paragon and Buyer shall
enter into an option agreement (the "Mabesa Option Agreement") which shall
provide that if during the period commencing on the Effective Date and ending on
the date which is three hundred and sixty-five days thereafter, Reorganized
Paragon determines to cause its Subsidiary to exercise its option (the "Mabesa
Option") to acquire up to an additional 34% of the shares of Groupo P.I. Mabe,
S.A. de C.V., Buyer shall have the right to invest up to an additional $25
million (the "Mabesa Amount") to be used by Reorganized Paragon for such
purpose. The Mabesa Option Agreement will also provide that the if Buyer invests
the Mabesa Amount in
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Reorganized Paragon, upon making such investment, Buyer and those persons who
exercise preemptive rights shall acquire additional shares of New Common Stock
attributable to the Mabesa Amount (the "Mabesa Shares") at a purchase price per
share based on the price per share paid for the Purchased Shares hereunder. The
Mabesa Shares will dilute, pro rata, the percentage of New Common Stock that
will be issued (x) to Buyer and (y) to Classes 4 and 5 under the Plan. The
Mabesa Option Agreement will provide that the investment of the Mabesa Amount
will be on terms mutually acceptable to Buyer and Reorganized Paragon and that
Buyer reserves the right to fund the exercise of the Mabesa Option in any other
economically equivalent manner permitted under applicable law; provided,
however, that such investment will be in a form which allows for the exercise of
preemptive rights.
(b) The New Common Stock to be purchased by Buyer and any New
Common Stock purchased pursuant to the Rights Offering shall be subject to pro
rata dilution pursuant to Section 12(a) and the Management Incentive Plan.
13. Miscellaneous.
13.1. Certain Definitions.
(a) Capitalized terms used herein but not otherwise
defined herein have the meaning assigned thereto in the Bankruptcy Code or in
the Plan, as applicable. In addition to the terms defined above, as used in this
Agreement, the following terms have the following meanings:
"Accounts Payable" means all accounts payable of the Seller and the
Subsidiaries, taken as a whole, whether arising under a Contract or otherwise.
"Accounts Receivable" means any right to payment for goods sold or leased
or for services rendered, whether arising under a Contract or otherwise.
"affiliate" means, with respect to any person, any other person
controlling, controlled by or under common control with, or the parents, spouse,
lineal descendants or beneficiaries of, such person.
"Auction" has the meaning set forth in the Overbid Order.
"Bankruptcy Code" means title 11 of the United States Code, as amended
from time to time, as applicable to the Case.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as
amended, promulgated under section 2075 of title 28 of the United States Code,
as applicable to the Case.
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"Bid Deadline" has the meaning set forth in the Overbid Order.
"Business Day" means any day other than a Saturday, Sunday or "legal
holiday" as defined in Bankruptcy Rule 9006(a).
"Cash Deficit" means the amount, if any, by which the amount of (a) Exit
Financing Costs and other closing expenses (not to exceed $2 million),
Monetization costs, the amount of any proceeds of sales or other dispositions of
assets out of the ordinary course consummated after October 14, 1999 (with the
exception of the Macon equipment line sale to Groupo P.I. Mabe, S.A. de C.V.),
reductions in capital expenditures from the amount included in the Projections
(such amount to be determined in consultation with Buyer), the amount of any
income tax refunds not included in the Projections, any payments after October
14, 1999 in respect of indebtedness of PMI to Seller in excess of $2.9 million,
and Allowed Administrative Claims (exclusive, however, of the Assumed
Liabilities listed on Schedule 13.1 hereto), including without limitation all
bankruptcy-related professional fees,1/ "confirmation bonuses," and paid and
estimated pro rated 1999 tax liabilities, (b) Priority Tax Claims and Other
Priority Claims, and (c) Priority Claims and Class 2 Claims (secured) paid in
cash or reinstated by Reorganized Paragon ((a), (b) and (c), above,
collectively, the "Cash Deductions") exceeds cash available for distribution
under the Plan on the Effective Date.
"Cash Excess" means the amount, if any, by which the amount of cash
available for distribution on the Effective Date exceeds the Cash Deductions.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Products" means all goods manufactured by the Seller or any of
its Subsidiaries.
"Confirmation Date" means the date that the Confirmation Order is entered
by the Bankruptcy Court.
"Confirmation Hearing" means the hearing held by the Bankruptcy Court
pursuant to section 1128 of the Bankruptcy Code on confirmation of the Plan, as
such hearing may be adjourned or continued from time to time.
"Confirmation Order" means the Order of the Bankruptcy Court confirming
the Plan pursuant to section 1129 of the Bankruptcy Code.
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1/ Non-ordinary course professionals shall submit an estimate of their total
unpaid fees and expenses at least 10 days prior to the date of the
Confirmation Hearing.
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"Copyrights" means any foreign or United States copyright registrations
and applications for registration thereof, and any non-registered copyrights.
"Creditors Committee" means the Official Committee of Unsecured Creditors
appointed in the Case by the United States Trustee pursuant to section 1102 of
the Bankruptcy Code, on or about January 16, 1998, as reconstituted from time to
time.
"DIP Credit Agreement" means that certain Debtor in Possession credit
facility approved by the Bankruptcy Court by interim order dated January 21,
1998 and Final Order dated January 30, 1998, as provided under the Revolving
Credit and Guaranty Agreement dated as of January 7, 1998, among the Debtor, as
borrower, certain subsidiaries of the Debtor, as guarantors, and the DIP Bank
Agent, as agent for the lenders thereunder, as amended by the First Amendment,
dated January 30, 1998, the Second Amendment, dated March 23, 1998, the Third
Amendment, dated April 15, 1998, the Fourth Amendment, dated September 28, 1998,
and the Fifth Amendment, dated as of June 14, 1999, and as thereafter amended in
accordance with its terms up to and including the Effective Date, or the
agreement or other documents evidencing any successor or replacement
postpetition financing facility, and all documents related thereto.
"Disclosure Statement" means the disclosure statement, including all
exhibits, appendices and attachments thereto, filed in connection with the Plan
and approved by Order of the Bankruptcy Court in accordance with section 1125 of
the Bankruptcy Code, as such statement may be amended or supplemented from time
to time.
"Disclosure Statement Hearing" means the hearing held by the Bankruptcy
Court to consider approval of the Disclosure Statement, as such hearing may be
adjourned or continued from time to time.
"D&O Insurance" means tail coverage for a period of six years under
Seller's existing or comparable directors and officers insurance policy covering
its current directors and officers.
"D&O Insurance Cost" means the cost of the D&O Insurance.
"Effective Date" means the first Business Day following satisfaction of
the conditions precedent to the effectiveness of the Plan specified in the Plan
(subject to the terms of this Agreement), unless otherwise waived as provided in
the Plan (subject to the terms of this Agreement), or such other date fixed by
the Seller upon notice to the Bankruptcy Court.
"Employee" means any individual employed by the Seller or any of the
Subsidiaries.
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<PAGE>
"Environment" means navigable waters, waters of the contiguous zone, ocean
waters, natural resources, surface waters, ground water, drinking water supply,
land surface, subsurface strata, ambient air, both inside and outside of
buildings and structures, man-made buildings and structures, and plant and
animal life on earth.
"Equity Committee" means the Official Committee of Interest Holders
appointed in the Case by the United States Trustee pursuant to section 1102 of
the Bankruptcy Code, on or about November 2, 1998, as reconstituted from time to
time.
"Exit Financing" means a working capital line of credit for post-Effective
Date operations that provides for a committed facility of not less than $75
million (subject to borrowing availability) as of the Effective Date (including
the DIP Credit Agreement, if reinstated pursuant to the Plan).
"Exit Financing Costs" means all fees and expenses payable on or prior to
the Effective Date in connection with the Exit Financing pursuant to the
Financing Commitment Letter.
"Expense Reimbursement" has the meaning set forth in the Overbid Order.
"Final Order" means an order or judgment of the Bankruptcy Court that has
not been reversed, stayed, modified or amended and as to which the time to
appeal or seek review, rehearing, reargument or certiorari has expired and as to
which no appeal or petition for review, rehearing, reargument, stay or
certiorari is pending, or as to which any right to appeal or to seek certiorari,
review, or rehearing has been waived, or, if an appeal, reargument, petition for
review, certiorari or rehearing has been sought, the order or judgment of the
Bankruptcy Court that has been affirmed by the highest court to which the order
was appealed or from which the reargument, review or rehearing was sought, or
certiorari has been denied, and as to which the time to take any further appeal
or seek further reargument, review or rehearing has expired.
"Financing Commitment Letter" means the commitment and/or agreement from
financial institutions with respect to a revolver/working capital facility (not
for purposes of the Monetization and which would be undrawn on the Effective
Date except for purposes of funding the Cash Deficit) of at least $75 million
(subject to borrowing availability) that would be available to Reorganized
Paragon on the Effective Date. A copy of the Financing Commitment Letter is
attached hereto as Exhibit B.
"Hazardous Substance" means any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste, industrial
substance or waste, petroleum or petroleum-derived substance or waste,
radioactive substance or waste, or any constituent of any such substance or
waste regulated under or defined by any Safety and Environmental Law.
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<PAGE>
"IRS" means the Internal Revenue Service.
"Internet Assets" means any internet domain names and other computer user
identifiers and any rights in and to sites on the world wide web including
rights in and to any text, graphics, audio and video files, and html or other
code incorporated in such sites.
"Inventories" means all of the inventory of the Seller and its
Subsidiaries including without limitation: (i) all raw materials, work in
process, parts, components, assemblies, supplies and materials used or consumed
in the business of the Seller and its Subsidiaries; (ii) all goods, wares and
merchandise, finished or unfinished, held for sale or lease or leased or
furnished or to be furnished under contracts of service; and (iii) all goods
returned or repossessed by the Seller and its Subsidiaries.
"Kimberly-Clark" means Kimberly-Clark Corporation, a Delaware corporation.
"Kimberly-Clark Settlement" means the settlement agreement dated March 19,
1999, as amended through the date of this Agreement, by and between the Seller
and Kimberly-Clark (including all exhibits thereto and any related agreements).
"Kimberly-Clark Settlement Order" means the Order of the Bankruptcy Court
authorizing and approving the Kimberly-Clark Settlement.
"Lien" means any lien, pledge, mortgage, deed of trust, security interest,
claim, lease, license, charge, option, right of first refusal, easement,
servitude, transfer restriction, encumbrance or any other restriction or
limitation whatsoever.
"Management Employment Agreement" means the existing or superseding
employment contracts agreed to between Seller's senior management and Buyer.
"Management Incentive Plan" means the equity incentive plan for members of
Reorganized Paragon's management on terms which are otherwise mutually
acceptable for Seller and Buyer in substantially the form set forth in Appendix
2.
"Mask Works" has the meaning set forth in section 901(a)(2) of Title 17 of
the United States Code.
"Material Contract" means (i) any (x) Lease for real property or (y) Lease
for personal property, in each case requiring aggregate payments after Closing
of $250,000 or more; (ii) any contract for the purchase of materials, supplies,
goods, services, equipment or other assets that has a term of at least one year
and that requires aggregate payments after Closing of $250,000 or more; (iii)
any contract that requires aggregate payments after Closing of $250,000 or more;
(iv) any sales, distribution or other similar contracts not entered into in the
ordinary course providing for the sale by
35
<PAGE>
the Seller or any of its Subsidiaries of materials, supplies, goods, services,
equipment or other assets that requires aggregate payments after Closing of
$250,000 or more; or (v) any partnership, joint venture or other similar
Contract.
"Net Working Capital" means Accounts Receivable plus Inventories less
Accounts Payable (including checks issued but not cleared) as determined in
accordance with GAAP as consistently applied.
"New Note Indenture" means the indenture, dated as of the Effective Date,
executed by Reorganized Paragon and the New Note Indenture Trustee, pursuant to
which the New Notes will be issued, which Indenture will contain terms
substantially similar to the summary of terms contained on Appendix 1 annexed
hereto.
"New Note Indenture Trustee" means any person denominated as the trustee
in the New Note Indenture.
"New Notes" means, collectively, the notes to be issued on or after the
Effective Date by Reorganized Paragon pursuant to the New Note Indenture in the
principal amount of $160,000,000, as adjusted in accordance with the Note
Adjustment provisions of the Plan.2/ The principal terms of the New Notes are
attached hereto as Appendix 1.
"Overbid Order" means that certain Order entered by the Bankruptcy Court
on July 13, 1999 approving the Expense Reimbursement and Termination Fee and
"Overbid Procedures" (as defined therein); as modified by that certain
Stipulation approved by the Bankruptcy Court on September 13, 1999 and the
commitment letter between Wellspring Capital Management LLC and Seller dated
October 14, 1999.
"Overbid Procedures" means the Overbid Procedures approved by the Overbid
Order as amended or modified from time to time with the consent of the Buyer and
Seller.
"PMI" means Paragon-Mabesa International, S.A. de C.V.
- --------
2/ Alternatively, Reorganized Paragon would issue $150 million of New Notes
(subject to the Monetization and the Note Adjustment) in substantially the
form set forth in Appendix 1 hereto, with the exception that the interest
rate for such New Notes shall not be the rate provided in Appendix 1 but,
instead, shall be the prevailing market rate for high-yield notes rated
"B" on the most recent weekly rating date prior to the Effective Date, as
reported by Salomon Smith Barney, rounded down to the nearest 1/8th.
Seller, after consultation with the Creditors Committee, Procter & Gamble,
Kimberly-Clark and the Equity Committee, shall elect whether to accept
this alternate form of the New Notes on or prior to the second day prior
to the Disclosure Statement Hearing.
36
<PAGE>
"PTB Canada" means Paragon Trade Brands (Canada) Inc., a Canadian
corporation.
"Partial Expense Reimbursement" means $565,000, representing fees, costs
and expenses included in the Expense Reimbursement which were incurred (i) on or
prior to October 14, 1999 and (ii) in connection with the Wellspring Commitment
(as defined in the Overbid Order) and the satisfaction of the conditions
thereof.
"Patents" means any foreign or United States patents and patent
applications including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on such
applications and whether or not such applications are modified, withdrawn or
resubmitted.
"person" means any individual, corporation, partnership, limited liability
company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
"Petition Date" means January 6, 1998.
"Plan" means the Second Amended Plan of Reorganization, dated November 15,
1999, for the Seller, and all exhibits and supplements hereto, as amended or
modified by the Proponents (as defined in the Plan) in accordance with the Plan,
the Bankruptcy Code and the Bankruptcy Rules and the terms of this Agreement,
pursuant to which the Contemplated Transactions will be consummated in
accordance with the terms of this Agreement. A copy of the Plan is attached
hereto as Exhibit C.
"Procter & Gamble" means The Procter & Gamble Company, an Ohio
corporation.
"Procter and Gamble Settlement Agreement" means the settlement agreement
dated February 2, 1999, as amended through the date of this Agreement, by and
between the Seller and P&G (including all exhibits thereto and any related
agreements).
"Procter and Gamble Settlement Order" means the Order of the Bankruptcy
Court authorizing and approving the Procter and Gamble Settlement Agreement.
"property" or "properties" means real, personal or mixed property,
tangible or intangible.
"Restated Bylaws" means the bylaws of Reorganized Paragon, as amended and
restated in connection with the Plan.
"Restated Certificate of Incorporation" means the certificate of
incorporation of Reorganized Paragon, as amended and restated in connection with
the Plan, which shall
37
<PAGE>
provide that holders of New Common Stock will have the right to participate on a
pro rata basis in any offering of New Common Stock by Reorganized Paragon on the
same terms and conditions as Buyer, including, without limitation, with respect
to the Mabesa Amount (the "Preemptive Rights"), provided that Buyer shall have
no obligation to invest the Mabe S.A. Amount or any portion thereof.
"Rights" means the rights to purchase shares of New Common Stock for a
purchase price based upon the Buyer's purchase price in accordance with the
principal terms set forth on Appendix 4.
"Rights Offering" has the meaning set forth in Appendix 4.
"Safety and Environmental Laws" means all Laws and Orders relating to
pollution, protection of the Environment, public or worker health and safety, or
the emission, discharge, release or threatened release of Hazardous Substances
into the Environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances including the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C.ss. 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., the Toxic Substances
Control Act, 15 U.S.C.ss. 2601 et seq., the Federal Water Pollution Control Act,
33 U.S.C.ss. 1251 et seq., the Clean Air Act, 42 U.S.C.ss. 7401 et seq., the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.ss. 121 et seq., the
Occupational Safety and Health Act, 29 U.S.C.ss. 651 et seq., the Asbestos
Hazard Emergency Response Act, 15 U.S.C.ss. 2601 et seq., the Safe Drinking
Water Act, 42 U.S.C.ss. 300f et seq., the Oil Pollution Act of 1990, 33
U.S.C.ss. 2701 et seq., and analogous state acts.
"Seller's Disclosure Memorandum" means the disclosure memorandum of even
date herewith delivered by the Seller to the Buyer in connection with the
execution and delivery of this Agreement by the parties hereto.
"Software" means any computer software programs, source code, object code,
data and documentation.
"TEEP Plan" means that certain top eight executives incentive plan
authorized and approved by Final Order of the Bankruptcy Court dated August 10,
1998.
"Termination Fee" has the meaning set forth in the Overbid Order.
"Trade Secrets" means any trade secrets, research records, processes,
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto.
38
<PAGE>
"Trademarks" means any foreign or United States trademarks, service marks,
trade dress, trade names, brand names, designs and logos, corporate names,
product or service identifiers, whether registered or unregistered, and all
registrations and applications for registration thereof.
"Wal*Mart" means Wal*Mart Stores, Inc.
"Warrants" means warrants to purchase New Common Stock of Reorganized
Paragon which shall contain terms substantially similar to the summary of terms
contained on Appendix 3.
"Weyerhaeuser" means Weyerhaeuser Company, a Washington corporation.
"White Cloud Arrangement" means the placement of orders by Wal*Mart, and
Seller's or Reorganized Paragon's fulfillment of such orders for diaper products
manufactured under the "White Cloud" trademark or any understanding or agreement
between Wal*Mart and Seller or Reorganized Paragon as to the placement of such
orders and the fulfillment thereof.
(b) The following capitalized terms are defined in the
following Sections of this Agreement:
Term Section
- ---- -------
Audited Financials 3.8
Balance Sheet 3.8
Balance Sheet Date 3.8
Bankruptcy Court Recitals
Benefit Plan 3.20
Broker 5.5
Buyer Preamble
Canadian Acts 4.2
Case Recitals
Claims 3.15
Closing 1.1
Closing Costs 5.10(e)
Closing Date 2
Closing Statement 5.10(e)
Code 3.10(f)
Commonly Controlled Entity 3.20(c)
Contemplated Transactions 3.1
Contracts 3.13
ERISA 3.20
Exchange Act 3.7
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<PAGE>
Term Section
- ---- -------
Governmental Bodies 3.11
HSR Act 4.2
Identified SEC Documents 3.7
Intellectual Property 3.18(a)
Interim Financials 3.8
IP Licenses 3.18(b)
Laws 3.11
Liabilities 3.8
Mabesa Amount 12
Mabesa Shares 12
Mabesa Option 12
Mabesa Option Agreement 12
Material Adverse Change 6.9
Material Adverse Effect on Seller 3.1
Material Environment Permits 3.14(a)
Material Permits 3.12
Measuring Date 5.10(a)
Measuring Date Balance Sheet 5.10(b)
Measuring Date Costs 5.10(c)
Measuring Date Statement 5:10(c)
Measuring Date Working Capital 5.10(b)
Monetization 9
New Common Stock Recitals
Orders 3.11
Permits 3.12
Permitted Liens 3.19
Projections 3.25
Purchase Price 1.1
Purchased Shares 1.1
Real Properties 3.14(c)
Reorganized Paragon Recitals
Representatives 5.2
Required Consents 3.13
SEC 3.7
SEC Documents 3.7
Seller Preamble
Sellers' Fee 5.5
Seller's Termination Fee 11.2(d)
Standalone Plan 6.15
Subsidiaries 3.2
Tangible Property 3.17
Taxes 3.10(a)
13.2. Consent to Jurisdiction and Service of Process. All
disputes arising out of or related to this Agreement, including, without
limitation, any dispute relating to the interpretation, meaning or effect of any
provision hereof, will be resolved in the Bankruptcy Court and the parties
hereto each submit to the exclusive jurisdiction of the Bankruptcy Court for the
purpose of adjudicating any such dispute.
13.3.Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, or sent by facsimile transmission or, if mailed, five days after the
date of deposit in the United States mails, as follows:
(i) if to the Buyer, to:
PTB Acquisition Company, LLC
c/o Wellspring Capital Management, LLC
620 Fifth Avenue
New York, New York 10020-1579
Attention: David C. Mariano
Telephone: (212) 332-7555
Facsimile: (212) 332-7575
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert Drain, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
(ii) if to the Seller, to:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Attention: General Counsel
Telephone: (678) 969-5000
Facsimile: (678) 969-4000
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with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Alexander W. Patterson, Esq.
Telephone: (404) 881-7000
Facsimile: (404) 881-7777
and
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Myron Trepper, Esq.
Telephone: (212) 728-8000
Facsimile: (212) 728-8111
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
13.4. Entire Agreement. This Agreement and any other collateral
agreements executed in connection with the consummation of the Contemplated
Transactions (including, without limitation, the Overbid Order) contain the
entire agreement among the parties with respect to the purchase of the Purchased
Shares and supersede all prior agreements, written or oral, with respect
thereto.
13.5. Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by the Buyer and the Seller or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies that any party may otherwise have at
law or in equity. The rights and remedies of any party based upon, arising out
of or otherwise in respect of any inaccuracy in or breach of any representation,
warranty, covenant or agreement contained in this Agreement or any documents
delivered pursuant to this Agreement shall in no way be limited by the fact
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<PAGE>
that the act, omission, occurrence or other state of facts upon which any claim
of any such inaccuracy or breach is based may also be the subject matter of any
other representation, warranty, covenant or agreement contained in this
Agreement or any documents delivered pursuant to this Agreement (or in any other
agreement between the parties) as to which there is no inaccuracy or breach.
13.6. Governing Law. This Agreement shall be governed and
construed in accordance with (a) the laws of the State of New York applicable to
agreements made and to be performed entirely within such State and (b) any
applicable provisions of the Bankruptcy Code.
13.7. Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and legal representatives. This Agreement is not assignable except by
operation of law, except that Buyer may assign its rights hereunder to any of
its affiliates, to any successor to all or substantially all of its business or
assets or to any bank or other financial institution that may provide financing
for the Contemplated Transactions.
13.8. Usage. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require. All terms defined in this Agreement in their singular or plural forms
have correlative meanings when used herein in their plural or singular forms,
respectively. Unless otherwise expressly provided, the words "include,"
"includes" and "including" do not limit the preceding words or terms and shall
be deemed to be followed by the words "without limitation."
13.9. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
13.10. Exhibits and Schedules; Cross References. The Exhibits,
Schedules and Seller's Disclosure Memorandum are a part of this Agreement as if
fully set forth herein and all references to this Agreement shall be deemed to
include the Exhibits, Schedules and Seller's Disclosure Memorandum. All
references herein to Sections, Exhibits, Schedules and Seller's Disclosure
Memorandum shall be deemed references to such parts of this Agreement, unless
the context shall otherwise require. Disclosure of any fact or item in any
Schedule hereto or in any Section of Seller's Disclosure Memorandum referenced
by a particular Section in this Agreement shall not be deemed disclosed with
respect to any other Section or Schedule or in any other section of Seller's
Disclosure Memorandum unless an explicit cross-reference appears indicating the
other Sections or Schedules to which such fact or item also relates.
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13.11. Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
13.12. Interpretation. The parties acknowledge and agree that:
(i) each party and its counsel reviewed and negotiated the terms and provisions
of this Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto, regardless of which party was generally responsible
for the preparation of this Agreement.
13.13. Severability of Provisions.
(a) If any provision or any portion of any provision of
this Agreement shall be held invalid or unenforceable, the remaining portion of
such provision and the remaining provisions of this Agreement shall not be
affected thereby.
(b) If the application of any provision or any portion of
any provision of this Agreement to any person or circumstance shall be held
invalid or unenforceable, the application of such provision or portion of such
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby.
13.14. Assignment by Buyer. Subject to, and without limiting
Buyer's obligation to timely consummate this Agreement in accordance with its
terms, the parties acknowledge and agree that the Buyer may assign its right to
purchase any or all of the Purchased Shares to one or more assignees upon
written notice to the Seller at any time prior to the Closing, subject only to
such assignee confirming in writing to the Seller as follows:
(a) Such assignee is duly organized, validly existing
and in good standing under the Laws of the jurisdiction under which it was
organized and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being and as heretofore
conducted.
(b) Such assignee agrees to assume the obligations of
the Buyer to purchase the Purchased Shares assigned to such assignee.
(c) Such assignee has the full legal right and power
and all authority and approvals required to enter into, execute and deliver its
assumption confirmation and to perform fully its obligations hereunder and
thereunder. Such assumption confirmation has been duly executed and delivered by
such assignee, and is a valid and binding obligation of such assignee
enforceable against such assignee in accordance with its terms. The execution
and delivery by such assignee of such
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<PAGE>
assignment confirmation, the consummation of the transactions contemplated
thereby and the performance by such assignee of its obligations thereunder will
not (a) violate any provision of such assignee's governing or organizational
documents; (b) except for filings under the HSR Act, require such assignee to
obtain any consent, approval, authorization or action of, or make any filing
with or give any notice to, any Governmental Body or any other person; (c)
violate, conflict with or result in the breach of any of the terms and
conditions of, result in a material modification of the effect of, otherwise
cause the termination of or give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default under, any Contract to which such assignee is a party or by or to which
such assignee or any of its properties is or may be bound or subject; or (d)
violate any Law or Order of any Governmental Body applicable to such assignee.
(d) Such assignee is purchasing the Purchased Shares
assigned to it for its own account for investment and not with a view to public
resale or distribution thereof.
13.15. Seller's Knowledge. For purposes of any representation or
warranty of Seller set forth in this Agreement, the words "to Seller's
knowledge" or "to the knowledge of Seller" shall mean the actual knowledge as of
the date of such representation or warranty of any of the persons identified on
Schedule 13.15 hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
BUYER:
PTB ACQUISITION COMPANY, LLC
By: /s/ David C. Mariano
------------------------
Name: David C. Mariano
Title: President and Treasurer
SELLER:
PARAGON TRADE BRANDS, INC.
By: /s/ Alan J. Cyron
---------------------
Name: Alan J. Cyron
Title: Chief Financial Officer
The undersigned hereby agrees that it shall cause the Buyer to pay,
or that it shall pay, any damages to which the Seller may be entitled in the
event that the foregoing Stock Purchase Agreement is terminated by the Seller
pursuant to Section 11.1(d) thereof.
WELLSPRING CAPITAL MANAGEMENT LLC
By: /s/ David C. Mariano
------------------------
Name: David C. Mariano
Title: President and Treasurer
45
<PAGE>
SCHEDULE 5.10
Calculation of Cash Deficit and Cash Excess
-------------------------------------------
The Cash Deficit and Cash Excess shall be adjusted upward or downward, as the
case may be, by the amount by which the following accrued liabilities are
greater or less on the Measuring Date than the amount set forth opposite such
liabilities:
1. Accrued payroll, payroll taxes and related liabilities (including PTB
Canada): $1.6 million
2. Accrued P&G Royalty: $5.3 million
3. Accrued K-C Royalty: $3 million
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SCHEDULE 13.1
Reorganized Paragon Assumed Liabilities
---------------------------------------
1. Pre-Effective Date accrued ordinary course operating and working capital
expenses and accounts payable (as provided in Projections), with the
exception of:
a. One-half of Defined Contribution Plan Payable
b. One-half of Incentive PIP (1999 Bonus)
c. Any modification of (a)-(b)
2. Administrative Claims or expenses incurred out of the ordinary course of
the Projections at Wellspring's option or insistence
3. The D&O Insurance Cost
- --------------------------------------------------------------------------------
The aggregate amount of (a)-(b) shall not exceed $2.7 million.
47
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Exhibit 3
SHAREHOLDERS' AGREEMENT
among
PARAGON TRADE BRANDS, INC.
PTB ACQUISITION COMPANY, LLC
CO-INVESTMENT PARTNERS, L.P.
ONTARIO TEACHERS PENSION PLAN BOARD
and
CERTAIN OTHER SHAREHOLDERS
------------------------------------
Dated January 28, 2000
------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions............................................1
2. Restrictions on Transfer of Shares.....................3
2.1 Limitation on Transfer...........................3
2.2 Permitted Transfers..............................3
2.3 Transfers in Compliance with Law; Substitution
of Transferee....................................3
3. Tag-Along Right........................................3
4. Bring-Along Right......................................4
5. Limited Preemptive Rights..............................6
6. Corporate Governance...................................7
6.1 General..........................................7
6.2 Number and Composition of Board of Directors.....7
6.3 Observers at Board Meetings......................8
6.4 Information Rights...............................8
6.5 Limitations on Transactions with and Fees to
Wellspring.......................................9
7. Representations and Warranties.........................9
8. After-Acquired Securities..............................9
9. Stock Certificate Legend..............................10
10. Miscellaneous.........................................11
10.1 Notices.........................................11
10.2 Amendment and Waiver. .........................13
10.3 Specific Performance............................13
10.4 Headings........................................13
10.5 Severability....................................13
10.6 Entire Agreement................................13
10.7 Term of Agreement...............................14
10.8 GOVERNING LAW...................................14
10.9 Consent to Jurisdiction and Service of Process..14
10.10 Further Assurances..............................14
10.11 Successors and Assigns..........................14
10.12 Counterparts....................................14
10.13 Other Shareholders..............................14
i
<PAGE>
EXHIBIT A: Form of Amended and Restated Certificate of Incorporation of Paragon
Trade Brands, Inc.
EXHIBIT B: Form of Proxy
ii
<PAGE>
SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of January 28, 2000 (this
"Agreement"), among Paragon Trade Brands, Inc., a Delaware corporation, as
reorganized (the "Company"), PTB Acquisition Company, LLC, a Delaware limited
liability company affiliated with Wellspring Capital Management LLC
("Wellspring"), Co-Investment Partners, L.P., a Delaware limited partnership
("CIP"), Ontario Teachers Pension Plan Board, a non-share capital corporation
continued under the Teachers' Pension Act, R.S.O., 1990 Chapter T.1 ("Ontario"),
and each other Person that hereafter becomes a signatory hereto as contemplated
by Section 10.13 hereof (each, an "Other Shareholder;" each of the Other
Shareholders, Wellspring, CIP and Ontario, are referred to as the "Parties"; and
the Parties other than Wellspring are referred to as the "Non-Wellspring
Parties").
WHEREAS, the Parties have acquired in the aggregate a majority of
the outstanding shares of Common Stock of the Company in accordance with the
Company's Chapter 11 plan of reorganization (the "Plan");
WHEREAS, to provide for the continuity of management of the Company,
the Parties hereto wish to restrict the transfer of the Shares (as hereinafter
defined) and to provide for certain other rights and obligations.
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, the adequacy of which are hereby acknowledged, the
Parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person
(with the understanding that such term, by definition, shall include the direct
and indirect general partners and managing members and the direct and indirect
limited partners and members of a Person that is a partnership or limited
liability company, respectively. For the purposes of this definition, "control,"
when used with respect to any Person, means the power to direct or cause the
direction of the management or policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Board of Directors" means the Board of Directors of the
Company.
"Buyout Notice" has the meaning assigned such term in Section
4.1.
<PAGE>
2
"Charter Documents" means the Certificate of Incorporation and
the Bylaws of the Company as in effect on the date hereof.
"Charter Section 5" means Section 5 of the Company's Amended and
Restated Certificate of Incorporation, as in effect on the date of this
Agreement, a copy of which is attached as Exhibit A hereto.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the common stock of the Company, or any
other capital stock of the Company into which such stock is reclassified or
reconstituted.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Party" shall mean Wellspring or any Non-Wellspring Party.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Registration Rights Agreement" means the Registration Rights
Agreement, of even date herewith, among the Company Wellspring, CIP, Ontario and
certain Other Shareholders.
"Registration Statement" means a registration statement filed
pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"Shareholder's Personal Liabilities" has the meaning assigned to
such term in Section 4.1.
"Shares" means, with respect to each of the Parties all shares,
whether now owned or hereafter acquired, of Common Stock owned by such Party.
"Tag Along Rights" has the meaning assigned to such term in
Section 3.1.
"Third Party Purchaser" has the meaning assigned to such term in
Section 3.1.
"transfer" has the meaning assigned to such term in Section 2.1.
<PAGE>
3
2. Restrictions on Transfer of Shares.
2.1. Limitation on Transfer. Each Party agrees that it shall not
sell, give, assign, hypothecate, pledge, encumber, grant a security interest in
or otherwise dispose of (whether by operation of law or otherwise) any Shares or
any right, title or interest therein or thereto (each a "transfer"), except in
accordance with Section 2.2. Any attempt to transfer any Shares in violation of
the preceding sentence shall be null and void ab initio and the Company shall
not register any such transfer.
2.2. Permitted Transfers. Each Party may transfer its Shares or
any right, title or interest therein or thereto, provided that (i) in the case
of Wellspring, such transfers are not prohibited by this Agreement or the
Registration Rights Agreement and, if applicable, Wellspring has complied with
the provisions of Section 3 hereof, and (ii) in the case of each Non-Wellspring
Party, such Shares are transferred pursuant to (x) this Section 2.2, Section 3
or Section 4 hereof or (y) the Registration Rights Agreement. Subject to Section
2.3, each Party may freely transfer its Shares or any right, title or interest
therein or thereto, to its Affiliates; provided, however, it shall be a
condition to such transfer that such Affiliates agree in writing to become a
party to this Agreement and be bound by the terms hereof to the same extent and
degree as the transferor of such Shares is or was a Party hereto at the time of
such transfer. The Persons to whom any Party may transfer Shares pursuant to
this Agreement are referred to hereinafter as such Party's "Permitted
Transferees".
2.3. Transfers in Compliance with Law; Substitution of
Transferee. Notwithstanding any other provision of this Agreement, no transfer
may be made pursuant to this Section 2 or Section 3 unless the transfer complies
in all respects with the applicable provisions of this Agreement and applicable
federal and state securities laws, including, without limitation, the Securities
Act.
3. Tag-Along Right. In the event that Wellspring or any of its
Affiliates desires to sell any of its Shares to a Person that is not an
Affiliate of Wellspring (a "Third Party Purchaser") then Wellspring shall
deliver an offer (a "Tag- Along Offer") to each Non-Wellspring Party (each an
"Offeree Shareholder") to participate pro rata (based on the number of Shares
beneficially owned) in such sale by including a portion of such Offeree
Shareholder's Shares in the sale, at the proposed purchase price per share (the
"Offer Price") and otherwise upon the same terms and conditions of such sale.
The Tag-Along Offer shall (1) state that it is a being made pursuant to Section
3 of this Agreement, and (2) set out in reasonable detail information regarding
the identity and financial strength (to the extent that such information has
been made available to Wellspring by the Third Party Purchaser, it being
understood that Wellspring shall not be under any duty to verify such
information) of the Third Party Purchaser and the Offer Price and any other
material terms and conditions to the contemplated sale. Upon delivery of the
Tag-Along Offer pursuant to this Section 3, the offer made therein to the
Offeree Shareholders shall be irrevocable unless and until the rights provided
for therein shall have been waived or shall have expired in accordance with this
Agreement. The right of each Offeree Shareholder to sell its pro rata portion of
the Offered Shares under this Section 3 (the
<PAGE>
4
"Tag Along Right") shall be exercisable by delivering written notice thereof,
within seven (7) days after the giving of such Tag-Along Offer (the "Notice
Period"), to Wellspring, with a copy to the Company. The failure of any Offeree
Shareholder to deliver such written notice within the Notice Period shall be
regarded as a rejection of the offer to participate in such sale as contemplated
by the Tag-Along Offer. To the extent that such Offeree Shareholder exercises
its Tag Along Right pursuant to this Section 3, the number of Shares proposed to
be sold to the Third Party Purchaser by Wellspring shall be reduced
proportionately. Each Offeree Shareholder, by exercising its Tag-Along Right
hereunder, shall be agreeing to (A) take all actions (including executing
documents) in connection with the consummation of the proposed transaction as
may reasonably be requested of it by Wellspring and (B) appoint Wellspring as
its attorney-in-fact to do the same on its behalf. Wellspring shall be free to
consummate the sale contemplated by the Tag Along Offer at any time within 90
days following the end of the Notice Period on substantially the same terms and
conditions as set forth in the Tag-Along Offer; it being understood that any
substantive change to such terms and conditions, or consummation of the
transaction more than 90 days following the end of the Notice Period, shall
require Wellspring to recommence the process contemplated by this Section 3.
Notwithstanding the acceptance of the Tag Along Offer by any Offeree
Stockholder, Wellspring shall be free at any time prior to the closing of the
proposed sale to the Third Party Purchaser to abandon or terminate such
transaction, and in such event Wellspring shall have no liability to any Offeree
Stockholder. Each Party hereby agrees that any liabilities of the Offeree
Shareholders exercising their Tag-Along Rights hereunder to the Third Party
Purchaser in a transaction, other than a Shareholder's Personal Liabilities (as
defined in Section 4 hereof), shall be shared by Wellspring and the Offeree
Shareholders exercising their Tag-Along Rights ratably, based on the
consideration to be received by each such Party from the sale of its Shares in
such transaction, and each Party agrees to contribute to the other Parties to
the extent required to cause any such liabilities to be shared in such
proportion.
4. Bring-Along Right. In the event that Wellspring receives a bona
fide offer from a Third-Party Purchaser to acquire (including an acquisition
resulting from a merger) 50% or more of its Shares and, at the time of such
offer, Wellspring is then the beneficial owner (as determined in accordance with
Rule 13d.3 under the Exchange Act) of more than 50% of the Company's outstanding
shares of Common Stock, Wellspring may give written notice (the "Buyout Notice")
to each Non- Wellspring Party (each, a "Bring-Along Shareholder") notifying such
Party that it will be required to sell on the same terms and conditions as
Wellspring a pro rata portion (based on such Party's record ownership of Shares)
of such Party's Shares in such sale; provided, however, that Wellspring shall
not have the right to deliver a Buyout Notice pursuant to this Section 4 (but
shall instead be obligated to make a Tag-Along Offer pursuant to Section 3
hereof) if the terms and conditions of the transaction contemplate that the
Bring-Along Shareholder would have any potential liability to the Third Party
Purchaser (including indemnification liabilities or liabilities in respect of
breaches of representations and warranties) in excess of the value of the
consideration to be received by such Bring-Along Shareholder in such
transaction; provided, further, that the limitation described in the foregoing
proviso shall not apply to potential liabilities which may be incurred by the
Bring-Along Shareholder as a result of (i) breach by a
<PAGE>
5
Bring-Along Shareholder of any representation or warranty concerning such Bring-
Along Shareholder's legal power and authority to enter into the transaction and
to deliver the shares to be sold by such Bring-Along Shareholder to the Third
Party Purchaser free and clear of any lien or other encumbrance, or (ii) failure
of such Bring- Along Shareholder to deliver to the Third Party Purchaser the
shares to be sold by it to free and clear of any lien or other encumbrance (the
liabilities described in clauses (i) and (ii) being the "Shareholder's Personal
Liabilities"). The Buyout Notice shall (1) state that it is a being made
pursuant to Section 4 of this Agreement, and (2) set out in reasonable detail
information regarding the identity and financial strength (to the extent that
such information has been made available to Wellspring by the Third Party
Purchaser, it being understood that Wellspring shall not be under any duty to
verify such information) of the Third Party Purchaser and the offered
consideration and any other material terms and conditions to the contemplated
sale. Upon receipt of a Buyout Notice, each Bring-Along Shareholder shall be
obligated to (1) sell a pro rata portion of its Shares in the transaction
(including a sale or merger) contemplated in the Buyout Notice on the same terms
and conditions as Wellspring (including payment of its pro rata share of all
costs associated with such transaction) and (2) otherwise take all necessary
action to cause the consummation of such transaction. Each Party hereby (A)
agrees to take all actions (including executing documents) in connection with
the consummation of the proposed transaction as may reasonably be requested of
it by Wellspring and (B) appoints Wellspring as its attorney-in-fact to do the
same on its behalf. Each Party hereby agrees that any liabilities of the Parties
to the Third Party Purchaser in a transaction resulting from a Buyout Notice,
other than a Shareholder's Personal Liabilities, shall be shared by Wellspring
and the Bring-Along Shareholders ratably, based on the consideration to be
received by each such Party from the sale of its Shares in such transaction, and
each Party agrees to contribute to the other Parties to the extent required to
cause any such liabilities to be shared in such proportion. Any sale pursuant to
a Buyout Notice shall be bona fide and made pursuant to a contract entered into
by Wellspring within ninety (90) days of the Buyout Notice. In the event a
contract with respect to the transaction contemplated by the Buyout Notice has
not been entered into within the 90-day period, the obligations of the
Non-Wellspring Parties hereunder shall terminate. Wellspring shall be free at
any time prior to the consummation of the transaction contemplated by the Buyout
Notice to abandon or terminate such transaction, and in such event Wellspring
shall have no liability to any of the Non-Wellspring Parties.
5. Limited Preemptive Rights. The Company, Wellspring, CIP and
Ontario recognize and confirm that Charter Section 5 provides certain limited
preemptive rights (the "Preemptive Rights") to stockholders of the Company in
the event that subsequent to the date hereof the Company or any of its
Subsidiaries shall (i) propose to issue or sell to any Identified Investor
Affiliated Entity (as defined in Charter Section 5), and any Identified Investor
Affiliated Entity shall have indicated to the Company its willingness to
purchase from the Company, any additional shares of Common Stock or any other
class of capital stock or any rights to subscribe for or purchase pursuant to
any option or otherwise any shares of any class of capital stock or any
securities convertible into or exchangeable for shares of any class of capital
stock (collectively, the "Additional Securities") or (ii) enter into any
contracts, commitments,
<PAGE>
6
agreements, understandings or arrangements of any kind relating to the issuance
or sale to any Identified Investor Affiliated Entity of any Additional
Securities. The Company, Wellspring, CIP and Ontario hereby agree for the
benefit of each of Wellspring, CIP and Ontario as follow:
(a) Each of Wellspring, CIP and Ontario (other than the one of
them (the "Triggering Holder") whose (or whose Affiliate's) proposed purchase
has given rise to the Preemptive Rights) shall be entitled to the rights granted
under Charter Section 5 to Other Stockholders (as defined in Charter Section 5)
regardless of any amendment that may be made to Charter Section 5 after the date
hereof, including, without limitation, any amendment to the Company's Amended
and Restated Certificate of Incorporation that may eliminate said section in its
entirety or limit the rights of Other Stockholders thereunder.
(b) Notwithstanding the provisions of clause (i) of Subsection
5.5 of Charter Section 5, each of Wellspring, CIP and Ontario (other than the
one of them who is the Triggering Holder) shall have the rights granted to Other
Stockholders pursuant to the provisions of Subsections 5.1 through 5.4 even if
the Company has obtained an opinion from a nationally recognized investment
banking firm to the effect that the consideration being paid by the Wellspring
Affiliates to the Company in connection with such issuance or sale represents
not less than the fair market value of the securities being offered. In
addition, clause (iii) of Subsection 5.5 of Charter Section 5 to the contrary
notwithstanding, each of CIP and Ontario shall have rights granted to Other
Stockholders pursuant to the provisions of Subsection 5.1 through 5.4 in
connection with the exercise by a Wellspring Affiliate of the stock option
referred to in said clause (iii) of Subsection 5.5 of Charter Section 5.
(c) Notwithstanding the provisions of Subsection 5.3 of Charter
Section 5, if Wellspring, CIP and/or Ontario, in their capacity as Other
Stockholders, have delivered Notices of Acceptance (as defined in Charter
Section 5) indicating that they are exercising the right to acquire their entire
Proportionate Percentage of the Offered Securities (Wellspring, CIP and/or
Ontario, as the case may be, in the capacity of a stockholder exercising its
right to acquire its entire Proportionate Percentage of the Offered Securities,
being an "Accepting Stockholder"), and the Company proposes to sell any of the
Offered Securities (as defined in Charter Section 5) not covered by Notices of
Acceptance (such securities being the "Identified Remaining Securities") to the
Triggering Holder, then, the Company shall also offer to sell to each Accepting
Stockholder a proportionate number of the Identified Remaining Securities that
it proposes to sell to the Triggering Holder so that each Accepting Stockholder
will be entitled to hold the same proportional interest in the outstanding
shares of capital stock of the Company relative to the Triggering Holder as such
Accepting Stockholder held prior to such issuance or sale.
(d) The provisions of this Section 5 may be amended by a written
instrument setting forth such amendment and executed by each of Wellspring, CIP
(if it is then a stockholder of the Company) and Ontario (if it is then a
stockholder of the Company).
<PAGE>
7
(e) Each of the Parties shall in good faith assist in the
carrying out of all the terms of this Section 5 and shall take all actions as
may be necessary or appropriate to carry out the intent of the Parties as set
forth in this Section 5.
6. Corporate Governance.
6.1. General. Pursuant to the proxies entered into substantially
in the form of Exhibit B hereto, each Non-Wellspring Party hereby irrevocably
appoints Wellspring as their proxy to vote and/or act by written consent with
respect to all of the Shares owned by such Non-Wellspring Party. Wellspring
shall be entitled to vote the Shares of each Non-Wellspring Party at any regular
or special meeting of shareholders of the Company or in any written consent
executed in lieu of such a meeting of shareholders. The foregoing
notwithstanding, the proxy granted to Wellspring pursuant hereto shall not
constitute a proxy to vote the Shares owned by any Non-Wellspring Party (or
grant any consent in respect of such Shares) on any proposal to amend or
eliminate the provisions of Article 5 of the Company's Amended and Restated
Certificate of Incorporation.
6.2. Number and Composition of Board of Directors. Each
Non-Wellspring Party acknowledges that the Board of Directors may consist solely
of persons selected by Wellspring, including through Wellspring's exercise of
the proxies granted in connection herewith, and that such Non-Wellspring Party
shall not be entitled to designate, elect or appoint a director to the Board of
Directors.
6.3. Observers at Board Meetings. Each of CIP and Ontario shall
have the right to designate in writing an individual (the "Observer") to attend,
but not be entitled to vote, at all meetings of the Board of Directors. The
Observer shall be entitled to receive all notices and information made available
to members of the Board of Directors and, to the fullest extent permitted by
law, shall be subject to the same confidentiality obligations as the directors
of the Company. As a condition to the Observer being entitled to attend or
receive information, the Observer shall be required to execute such documents as
the Company may reasonably request to evidence the Observer's acknowledgment and
agreement with obligations under this Section 6.3. The Observer shall be
entitled to be reimbursed by the Company for his or her reasonable out-of-pocket
expenses incurred in connection with his or her attendance at a meeting of the
Board of Directors to the same extent that (but only to the extent that) the
Company reimburses its outside directors for their reasonable out-of-pocket
expenses in connection with their attendance at meetings of the Board of
Directors.
6.4. Information Rights. The Company shall deliver to each
of CIP and Ontario:
(a) as soon as reasonably available after the close of each
fiscal year of the Company (and in any event, if the Company is not then subject
to the periodic reporting requirements of the Exchange Act, not later than 90
days after the close of each such fiscal year), an audited consolidated balance
sheet of the Company
<PAGE>
8
and its consolidated subsidiaries as of the close of such fiscal year and the
related audited consolidated statements of income and cash flows for the fiscal
year then ended;
(b) as soon as reasonably available after the end of each of the
first three fiscal quarters of each fiscal year of the Company (and, in any
event, if the Company is not then subject to the periodic reporting requirements
of the Exchange Act, not later than 45 days after the close of each such fiscal
quarter), an unaudited consolidated balance sheet of the Company and its
consolidated subsidiaries as of the end of such fiscal quarter and the related
audited consolidated statements of income and cash flows from the fiscal quarter
then ended and for the period from the beginning of the then-current fiscal year
to the end of such fiscal quarter;
(c) as soon as reasonably available after the close of each
fiscal year of the Company, (A) a copy of the business plan, and (B) a detailed
consolidated budget for the following fiscal year, and, as soon as available,
any significant revision thereof; and
The Company shall permit representatives of CIP and Ontario to visit
and inspect any of its properties and examine and make abstracts from any of its
books and records at any reasonable time during normal business hours and upon
reasonable prior notice and as often as may reasonably be desired and to discuss
the business, operations, properties and financial or other condition of the
Company and its Affiliates with officers and employees of the Company.
6.5. Limitations on Transactions with and Fees to Wellspring.
The Company shall not enter into any material transaction with Wellspring or any
of its Affiliates or make any payment to any of them, except for transactions
(excluding the provision of services for which management fees are charged
including, without limitation, any contracts for administrative or other
services or with respect to personnel or any other form of remuneration
whatsoever) entered into on normal commercial terms in the ordinary course of
business, as determined by a majority of members of the Board of Directors who
are not employees or officers of Wellspring or any of its Affiliates.
7. Representations and Warranties. Each Party hereby represents
and warrants as to itself, as of the date hereof, as follows:
(a) Such Party has all requisite power and authority to execute
this Agreement and to consummate the transactions contemplated hereby.
(b) Such Party has duly executed and delivered this Agreement,
and this Agreement constitutes the legal, valid and binding obligation of each
such Party, enforceable against such Party in accordance with its terms.
(c) The execution and delivery by such Party of this Agreement
does not, and the consummation of the transactions contemplated hereby
<PAGE>
9
and compliance with the terms hereof will not, conflict with, result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any lien or other encumbrance upon any of the properties or assets of such
Party under, any provision of any contract or agreement binding upon such Party
or under which any of the properties or assets of such Party are bound or,
subject to the filings and other matters referred to in the next sentence, any
provision of any judgment or law applicable to such Party or the properties or
assets of such Party.
(d) No consent of, or registration, declaration or filing with,
any governmental entity is required to be obtained or made by or with respect to
such Party in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby, other
than such reports under Sections 13(d) and 16 of the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated
hereby.
8. After-Acquired Securities. All of the provisions of this
Agreement shall apply to all of the Shares now owned by the Parties or that may
be issued or transferred hereafter to a Party in consequence of any additional
issuance, purchase, exchange or reclassification of any of the Shares (including
without limitation, upon the exercise of any option or warrant), corporate
reorganization, or any other form of recapitalization, consolidation, merger,
share split or share dividend, or that are acquired by a Party in any other
manner.
9. Stock Certificate Legend. A copy of this Agreement shall be filed
with the Secretary of the Company and kept with the records of the Company. Each
certificate representing Shares now held or hereafter acquired by any Party
shall, for as long as this Agreement is effective, bear legends substantially in
the following forms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR
PURSUANT TO A WRITTEN OPINION OF COUNSEL FOR THE COMPANY THAT REGISTRATION
IS NOT REQUIRED.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUM BRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
<PAGE>
10
SHAREHOLDERS' AGREEMENT, DATED AS OF JANUARY 28, 2000 (THE "SHAREHOLDERS'
AGREEMENT"), [AND BY THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT, DATED
AS OF JANUARY 28, 2000 (THE "REGISTRATION RIGHTS AGREEMENT"), EACH OF
WHICH IS]*/ AMONG PARAGON TRADE BRANDS, INC., PTB ACQUISITION COMPANY,
LLC, CO- INVESTMENT PARTNERS, L.P., ONTARIO TEACHERS PENSION PLAN BOARD
AND CERTAIN INDIVIDUALS, A COPY OF WHICH MAY BE INSPECTED AT THE COMPANY'S
PRINCIPAL OFFICE. THE COMPANY WILL NOT REGISTER THE TRANSFER OF SUCH
SECURITIES ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS
BEEN MADE IN COMPLIANCE WITH THE TERMS OF THE SHAREHOLDERS' AGREEMENT [AND
THE REGISTRATION RIGHTS AGREEMENT].*
10. Miscellaneous.
10.1. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telecopied or sent by certified, registered or express mail, postage prepaid.
Any such notice shall be deemed given when so delivered personally or telecopied
or, if sent by certified, registered or express mail five days after the date of
deposit in the United States mail, as follows:
(a) if to the Company:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Attention: General Counsel
Telecopy: (678) 969-4950
(b) if to Wellspring:
PTB Acquisition Company, LLC
c/o Wellspring Capital Management LLC
620 Fifth Avenue
Suite 216
New York, New York 10020-1599
Attention: David C. Mariano
Telecopy: (212) 332-7575
- --------
1/ Bracketed language to be deleted from securities held by any Party
who is not party to the Registration Rights Agreement.
<PAGE>
11
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert Drain, Esq.
Telecopy: (212) 757-3990
(c) if to CIP:
Co-Investment Partners, L.P.
660 Madison Avenue, 23rd Floor
New York, New York 10021
Attention: Christian A. Melhado
Telecopy: (212) 754-1494
with a copy to:
Kramer Levin Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Michael Nelson, Esq.
Telecopy: (212) 715-8000
(d) if to Ontario:
Ontario Teachers' Pension Plan Board
5650 Yonge Street, 5th floor
Toronto, Ontario M2M 4H5
Canada
Attention: Dean Metcalf
Telecopy: (416) 730-5374
with a copy to:
Cleary Gottlieb Steen & Hamilton
One Liberty Plaza
New York, NY 10006-1470
Attention: Filip Moerman, Esq.
Telecopy: (212) 225-3999
(e) if to an Other Shareholder, to the address set forth in
the Other Shareholder Acknowledgement executed by such
Other Shareholder.
<PAGE>
12
Any party may, by notice given in accordance with this Section 10.1, designate
another address or person for receipt of notices hereunder.
10.2. Amendment and Waiver.
(a) No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof (except where expressly provided in this Agreement), nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Parties hereto at law, in equity or
otherwise.
(b) Except as otherwise provided herein, any amendment,
supplement or modification of or to any provision of this Agreement, any waiver
of any provision of this Agreement, and any consent to any departure by any
Party from the terms of any provision of this Agreement, shall be effective upon
prior written consent of all of the Parties.
10.3. Specific Performance. The Parties hereto intend that each
of the Parties has the right to seek damages or specific performance in the
event that any other party hereto fails to perform such party's obligations
hereunder. Therefore, if any party shall institute any action or proceeding to
enforce the provisions hereof, any party against whom such action or proceeding
is brought hereby waives any claim or defense therein that the plaintiff party
has an adequate remedy at law.
10.4. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
10.5. Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
10.6. Entire Agreement. This Agreement is intended by the
Parties as a final expression of their agreement and, together with the
Registration Rights Agreement and the proxy entered into substantially in the
form of Exhibit B, intended to be a complete and exclusive statement of the
agreement and understanding of the Parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein. This Agreement supersedes all prior agreements and understandings
between the Parties with respect to such subject matter.
<PAGE>
13
10.7. Term of Agreement. This Agreement shall become effective
upon the execution hereof and shall terminate at such time as Wellspring no
longer owns any Shares or earlier with respect to any Non-Wellspring Party at
such time as such Party or its Affiliates (as Permitted Transferee) no longer
owns any Shares.
10.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
10.9. Consent to Jurisdiction and Service of Process. Any claim
arising out of or relating to this Agreement shall be instituted in Federal or
State court located in the State of New York, City of New York, County of New
York (unless personal or subject matter jurisdiction cannot be obtained
therein), and each Party agrees not to assert, by way of motion, as a defense or
otherwise, in any such claim, that it is not subject personally to the
jurisdiction of such court, that the claim is brought in an inconvenient forum,
that the venue of the claim is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court. Each Party further
irrevocably submits to the jurisdiction of such courts in any such claim. Any
and all service of process and any other notice in any such claim shall be
effective against any Party if given personally or by registered or certified
mail, return receipt requested, or by any other means of mail that requires a
signed receipt, postage prepaid, mailed to such party as herein provided.
Nothing herein contained shall be deemed to affect the right of any Party to
serve process in any manner permitted by law or to commence legal proceedings or
otherwise against any other party in any other jurisdiction.
10.10.Further Assurances. Each of the Parties shall, and shall
cause their respective Affiliates to, execute such instruments and take such
action as may be reasonably required or desirable to carry out the provisions
hereof and the transactions contemplated hereby.
10.11.Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective permitted
successors and assigns. This Agreement is not assignable except in connection
with a transfer of Shares in accordance with this Agreement.
10.12.Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
10.13.Other Shareholders. Subject to the consent of Wellspring,
any other stockholder of the Company may become a party hereto, and shall have
the rights and be subject to the obligations of an Other Shareholder hereunder,
by (i) executing and delivering to the Company, with a copy to each of
Wellspring, CIP and Ontario, the Other Shareholder Acknowledgement which follows
<PAGE>
14
the signature page hereof, and (ii) executing and delivering to Wellspring an
irrevocable proxy substantially in the form of Exhibit B hereto.
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Agreement on the date first written above.
PARAGON TRADE BRANDS, INC.
By: /s/ Alan J. Cyron
-----------------
Name: Alan J. Cyron
Title: Chief Financial Officer
PTB ACQUISITION COMPANY, LLC
By: /s/ Carl M. Stanton
-------------------
Name: Carl M. Stanton
Title: Vice President
CO-INVESTMENT PARTNERS, L.P.
By: CIP Partners LLC, its general partner
By: /s/ Christian A. Melhado
------------------------
Name: Christian A. Melhado
Title: Member
ONTARIO TEACHERS PENSION PLAN
BOARD
By: /s/ Dean Metcalf
----------------
Name: Dean Metcalf
Title: Portfolio Manager
<PAGE>
15
OTHER SHAREHOLDER ACKNOWLEDGEMENT
THE UNDERSIGNED, has received a copy of and has reviewed the
foregoing Shareholders' Agreement and agrees to become a party thereto and be
bound thereby as an Other Shareholder (as defined therein) as of the date set
forth below. By executing and delivering this Acknowledgement, the undersigned
shall be deemed to represent and warrant to each other Party to said
Shareholders' Agreement that each of the representations and warranties set
forth in Sections 7(a) through (d) of said Shareholders' Agreement is true and
correct as to itself as of the date set forth below.
Date:_________ __, 20__ ________________________________________
Name: ___________________________
Address: ________________________
________________________
________________________
Telecopier:_______________________
<PAGE>
Exhibit B
To Shareholders Agreement
FORM OF IRREVOCABLE PROXY
Reference is made to that certain Shareholders' Agreement dated as
of January 28, 2000 (the "Agreement"), by and among the Company, Wellspring,
CIP, Ontario and certain Other Shareholders.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings ascribed thereto in the Agreement.
This Proxy is granted pursuant to Section 6.1 of the Agreement, is
coupled with an interest and is irrevocable.
NOW, THEREFORE, the undersigned Non-Wellspring Party hereby appoints
Wellspring as their sole and exclusive and true and lawful agent and attorney-
in-fact and proxy during the term of the Agreement, with full power of
substitution to represent and vote or act by written consent with respect to all
Shares which the undersigned Non-Wellspring Party is entitled to vote on any
record date for determining stockholders eligible to vote; including, without
limitation, to act for and in the name, place and stead of the undersigned
Non-Wellspring Party, at all regular, special or other meetings of the holders
of Common Stock, and at any adjournment of such meetings, held during the term
of the Agreement, and to act by consent in lieu of a meeting of such holders,
with respect to any Shares held of record by the undersigned Non-Wellspring
Party on the date such consent is to be given, or such other action taken, at
all times during the term of the Agreement, in each case with respect to the
election or removal of any director. The foregoing notwithstanding, this proxy
shall not constitute a proxy to vote the Shares owned by any Non-Wellspring
Party (or grant any consent in respect of such Shares) on any proposal to amend
or eliminate the provisions of Article 5 of the Company's Amended and Restated
Certificate of Incorporation.
An executed copy of this Irrevocable Proxy shall be filed with the
Secretary of the Company. The Company shall furnish free of charge to any
shareholder thereof a copy of this Irrevocable Proxy upon written request.
All the terms and provisions of this Irrevocable Proxy shall be
binding upon the undersigned's successors and assigns. This Irrevocable Proxy
shall not be assignable by Wellspring without the written consent of the
undersigned. Any purported assignment not permitted hereunder shall be void.
If any provision of this Irrevocable Proxy shall be determined to be
illegal and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
IN WITNESS WHEREOF, the undersigned has caused this Irrevocable
Proxy to be executed and delivered as of the day and year first above written.
As of the ____ day of January, 2000.
<PAGE>
[NON WELLSPRING PARTY]
By:
----------------
Name:
Title:
Exhibit 4
REGISTRATION RIGHTS AGREEMENT
among
PARAGON TRADE BRANDS, INC.
PTB ACQUISITION COMPANY,
CO-INVESTMENT PARTNERS, L.P.
ONTARIO TEACHERS PENSION PLAN BOARD
and
CERTAIN OTHER SHAREHOLDERS
----------------------------------
Dated as of January 28, 2000
----------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions............................................1
2. Securities Subject to this Agreement...................3
(a) Registrable Securities...........................3
(b) Holders of Registrable Securities................3
3. Demand Registration....................................4
(a) Wellspring Request for Demand Registration.......4
(b) CIP and Ontario Requests for Demand Registration.5
(c) Piggy-Back Rights of Other Holders; Demand
Registrations....................................5
(d) Effective Demand Registration....................6
(e) Expenses.........................................6
(f) Underwriting Procedures..........................6
(g) Selection of Underwriters........................7
4. Piggy-Back Registration................................7
(a) Piggy-Back Rights................................7
(b) Piggy-Back Rights of Other Holders for Company
Registrations....................................8
(c) Registration Procedure for Piggy-Back
Registrations....................................9
(d) Expenses.........................................9
5. Holdback Agreements....................................9
(a) Restrictions on Public Sale by Holders...........9
(b) Restrictions on Public Sale by the Company.......9
6. Registration Procedures...............................10
(a) Obligations of the Company......................10
(b) Seller Information..............................13
(c) Notice to Discontinue...........................13
7. Registration Expenses.................................14
8. Indemnification; Contribution.........................14
(a) Indemnification by the Company..................14
(b) Indemnification by Holders......................15
(c) Conduct of Indemnification Proceedings..........15
(d) Contribution....................................16
9. Rule 144; Other Exemptions............................17
10. Miscellaneous.........................................17
(a) Recapitalizations, Exchanges, etc...............17
(b) No Inconsistent Agreements; Other Registration
Rights..........................................17
(c) Remedies........................................18
(d) Amendments and Waivers..........................18
(e) Notices.........................................18
(f) Successors and Assigns..........................20
(g) Counterparts....................................20
(h) Headings........................................20
i
<PAGE>
(i) Governing Law...................................20
(j) Jurisdiction....................................20
(k) Severability....................................21
(l) Rules of Construction...........................21
(m) Entire Agreement................................21
(n) Further Assurances..............................21
(o) Other Shareholders..............................21
ii
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 28, 2000, among
Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), PTB
Acquisition Company, LLC, a Delaware limited liability company affiliated with
Wellspring Capital Management LLC ("Wellspring"), Co-Investment Partners, L.P.,
a Delaware limited partnership ("CIP"), Ontario Teachers Pension Plan Board, a
non- share capital corporation continued under the Teachers' Pension Act.
R.S.O., 1990 Chapter T.1 ("Ontario") and each other Person that hereafter
becomes a signatory hereto as contemplated by Section 10(o) hereof (each, an
"Other Shareholder;" each of the Other Shareholders, Wellspring, CIP and
Ontario, are referred to as the "Parties"; and the Parties other than Wellspring
are referred to as the "Non-Wellspring Parties").
This Agreement is made in connection with (i) the Stock Purchase
Agreement, dated as of November 16, 1999, by and between the Company and
Wellspring (the "Purchase Agreement") and (ii) the Shareholders' Agreement, of
even date herewith, among the Company, Wellspring, CIP and Ontario (the
"Shareholders' Agreement"). In order to induce the Parties to acquire the Common
Stock pursuant to the Purchase Agreement, the Company has agreed to provide
registration rights with respect to the Registrable Securities (as hereinafter
defined) as set forth in this Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated hereunder.
"Approved Underwriter" has the meaning assigned such term in
Section 3(g).
"Approved Underwriter Amount" has the meaning assigned such term
in Section 3(f).
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Coinvestor Demand Registration" has the meaning assigned to
such term in Section 3(b).
"Common Stock" means the common stock of the Company.
"Company Underwriter" has the meaning assigned such term in
Section 4(a).
<PAGE>
2
"Demand Registration" means a Wellspring Demand Registration
or a Coinvestor Demand Registration.
"Demand Registration Offeree Party" has the meaning assigned to
such term in Section 3(c).
"Demanding Holder" means the Holder who has exercised its right
to a Demand Registration under Section 3(a) hereof or Section 3(b) hereof, as
the case may be.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended, and the rules and regulations of the SEC thereunder.
"Holder" has the meaning assigned such term in Section 2(b).
"Holders' Counsel" has the meaning assigned such term in Section
7.
"Indemnified Party" has the meaning assigned such term in
Section 8(c).
"Indemnifying Party" has the meaning assigned such term in
Section 8(c).
"Inspector" has the meaning assigned such term in Section
6(a)(viii).
"Liquidity Date" shall mean the earlier of (i) the closing date
of the initial sale by Wellspring of any of its Registrable Securities pursuant
to an offering registered under the Act, and (ii) January 30, 2005.
"NASD" has the meaning assigned such term in Section 6(a)(xv).
"Non-Wellspring Holder" means a Holder other than Wellspring.
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
any such entity.
"Registrable Securities" means, subject to Section 2(a), each of
the following: any shares of Common Stock of the Company held of record by any
of the Parties, including, without limitation, any shares of Common Stock of the
Company issued or issuable by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise.
<PAGE>
3
"Registration Expenses" has the meaning assigned such term in
Section 7.
"SEC" means the Securities and Exchange Commission.
"Total Securities" has the meaning assigned to such term in
Section 4(a).
"Wellspring Demand Registration" has the meaning assigned to
such term in Section 3(a).
2. Securities Subject to this Agreement.
(a) Registrable Securities. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Act by the SEC and such Registrable Securities have been
disposed of pursuant to such effective registration statement or (ii)
Registrable Securities proposed to be sold in a sale have been disposed of
pursuant to Rule 144 (or any successor provision then in effect) under the Act.
(b) Holders of Registrable Securities. A Person is deemed to be
a holder of Registrable Securities (a "Holder") whenever such Person (i) is a
party to this Agreement (or a permitted transferee thereof) and (ii) owns of
record Registrable Securities, or a security convertible into or exercisable or
exchangeable for, Registrable Securities, whether or not such conversion,
exercise or exchange has actually been effected and disregarding any legal
restrictions upon the exercise of such rights. If the Company receives
conflicting instructions, notices or elections from two or more persons with
respect to the same Registrable Securities, the Company may act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable Securities.
3. Demand Registration.
(a) Wellspring Request for Demand Registration. Subject to the
provisions of Section 3(c) hereof, at any time after the date hereof, Wellspring
may request the registration of Registrable Securities under the Act, and under
the securities or blue sky laws of any jurisdiction designated by it (each such
registration under this Section 3(a) is referred to herein as a "Wellspring
Demand Registration"). Notwithstanding the foregoing, (i) the Company will not
be required to effect a Wellspring Demand Registration within the period
beginning on the effective date of a registration statement filed by the Company
on its behalf and ending on the expiration of any lock-up period (not to exceed
180 days) reasonably required by the underwriters, if any, in connection
therewith, and (ii) the Company will not be required to effect more than two
Wellspring Demand Registrations under this Section 3(a) on Form S-1 (or an
equivalent form) but Wellspring may request registration of all or any portion
of its Registrable Securities on Form S-3 or any similar short-form registration
(if the Company then qualifies for use thereof) without limitation. For purposes
of
<PAGE>
4
clause (ii) of the preceding sentence, any Wellspring Demand Registration
request withdrawn by Wellspring shall not be counted as one Wellspring Demand
Registration. Each such request for a Wellspring Demand Registration shall
specify the amount of the Registrable Securities proposed to be sold, the
intended method of disposition thereof and the jurisdictions in which
registration is desired. Upon a request for a Wellspring Demand Registration,
the Company shall promptly take such steps as are necessary or appropriate to
prepare for the registration of the Registrable Securities to be registered. The
Company shall include in such registration all Registrable Securities requested
to be included by Wellspring, and by each other Holder, as applicable, to the
extent the Company has received a written request for inclusion therein during
the Demand Registration Notice Period (as defined herein). Each such request
will also specify the number of Registrable Securities to be registered, the
intended method of disposition thereof and the jurisdictions in which
registration is desired. Subject to Section 3(f) hereof, the Company shall be
entitled to include in any registration statement and offering made pursuant to
a Wellspring Demand Registration, authorized but unissued shares of Common Stock
or shares of Common Stock held by stockholders other than the Holders; provided,
that such inclusion shall be permitted only to the extent that it is pursuant to
and subject to the terms of the underwriting agreement or arrangements, if any,
entered into by Wellspring in exercising the Wellspring Demand Registration
rights.
(b) CIP and Ontario Requests for Demand Registration. Subject to
the provisions of Section 3(c) hereof, at any time following the Liquidity Date,
each of CIP and Ontario may request the registration of Registrable Securities
under the Act, and under the securities or blue sky laws of any jurisdiction
designated by it (each such registration under this Section 3(b) is referred to
herein as a "Coinvestor Demand Registration"). Notwithstanding the foregoing,
(i) the Company will not be required to effect a Coinvestor Demand Registration
within the period beginning on the effective date of a registration statement
filed by the Company on its behalf and ending on the expiration of any lock-up
period (not to exceed 180 days) reasonably required by the underwriters, if any,
in connection therewith, (ii) the Company will not be required to effect more
than one such Coinvestor Demand Registration under this Section 3(b) where CIP
is the Demanding Holder, and (iii) the Company will not be required to effect
more than one Coinvestor Demand Registration under this Section 3(b) where
Ontario is the Demanding Holder. For purposes of the preceding sentence, any
Coinvestor Demand Registration request withdrawn by the Demanding Holder thereof
shall not be counted as such Demanding Holder's Coinvestor Demand Registration.
Each such request for a Coinvestor Demand Registration shall specify the amount
of the Registrable Securities proposed to be sold, the intended method of
disposition thereof and the jurisdictions in which registration is desired. Upon
a request for a Coinvestor Demand Registration, the Company shall promptly take
such steps as are necessary or appropriate to prepare for the registration of
the Registrable Securities to be registered. The Company shall include in such
registration all Registrable Securities requested to be included by the
Demanding Holder, and by each other Holder, as applicable, to the extent the
Company has received a written request for inclusion therein during the Demand
Registration Notice Period (as defined herein). Each such request will also
specify the number of Registrable Securities to be registered, the intended
method of disposition thereof and
<PAGE>
5
the jurisdictions in which registration is desired. Subject to Section 3(f)
hereof, the Company shall be entitled to include in any registration statement
and offering made pursuant to a Coinvestor Demand Registration, authorized but
unissued shares of Common Stock or shares of Common Stock held by stockholders
other than the Holders; provided, that such inclusion shall be permitted only to
the extent that it is pursuant to and subject to the terms of the underwriting
agreement or arrangements, if any, entered into by the Demanding Holder in
exercising its Coinvestor Demand Registration rights.
(c) Piggy-Back Rights of Other Holders; Demand Registrations. In
the event that a Demanding Holder desires to request a Demand Registration
pursuant to Sections 3(a) or 3(b) hereof, such Demanding Holder shall first
give, seven (7) Business Days prior to such request, an offer (a "Demand
Registration Piggy-Back Offer") to each other Holder (each a "Demand
Registration Offeree Party") to participate in such registration by including a
portion of such Demand Registration Offeree Party's Registrable Securities in
the request for the Demand Registration. Upon the giving of the Demand
Registration Piggy-Back Offer, the offer made therein to the Demand Registration
Offeree Party shall be irrevocable unless and until the rights provided for
therein shall be waived or the Demand Registration request shall be withdrawn or
the relevant registration statement terminated. The right of each Demand
Registration Offeree Party to participate in the Demand Registration under this
Section 3(c) shall be exercisable by delivering written notice thereof, within
ten (10) Business Days after receipt of such Demand Registration Piggy-Back
Offer (the "Demand Registration Notice Period"), to the Demanding Holder, with a
copy to the Company, indicating the number of Shares the Demand Registration
Offeree Party desires to include in such Demand Registration. The failure of
such Demand Registration Offeree Party to respond within the Demand Registration
Notice Period shall be regarded as a rejection of the offer to participate in
such registration as contemplated by the Demand Registration Piggy-Back Offer
and shall be deemed to be a waiver of its rights under this Section 3 with
respect to such Demand Registration.
(d) Effective Demand Registration. The Company shall use its
best efforts to cause any such Demand Registration to become effective not later
than ninety (90) days after it receives a request under Section 3(a) or Section
3(b), as the case may be.
(e) Expenses. In any registration initiated as a Demand
Registration, the Company shall pay all Registration Expenses in connection
therewith, whether or not such requested Demand Registration becomes effective.
(f) Underwriting Procedures. If the Demanding Holder so elects,
the offering of such Registrable Securities pursuant to such requested Demand
Registration shall be in the form of a firm commitment underwritten offering and
the managing underwriter or underwriters selected for such offering shall be the
Approved Underwriter selected in accordance with Section 3(g). In such event, if
the Approved Underwriter advises the Company in writing that, in its opinion,
the aggregate amount of such Registrable Securities requested to be included in
such offering is sufficiently large to have a material adverse effect on the
success of such offering (including an
<PAGE>
6
adverse effect on the price thereof), then the Company shall include in such
registration only the aggregate amount of Registrable Securities that in the
opinion of the Approved Underwriter may be sold without any such effect on the
success of such offering (the "Approved Underwriter Amount"), and (i) in the
case of a Wellspring Demand Registration, (a) each Holder shall be entitled to
have included in such registration Registrable Securities equal to its pro rata
portion of the Approved Underwriter Amount, as based on the amounts of
Registrable Securities sought to be registered by the Holders in their requests
for participation in the requested Wellspring Demand Registration and (b) to the
extent that the number of Registrable Securities to be included by the Holders
is less than the Approved Underwriter Amount, the Company or stockholders other
than the Holders shall be entitled to have included securities that are proposed
to be registered in accordance with the last sentence of Section 3(a), and (ii)
in the case of a Coinvestor Demand Registration, (a) the Demanding Holder shall
be entitled to have included in such registration the number of Registrable
Securities which it seeks to include therein, up to the Approved Underwriter
Amount, (b) to the extent that the number of Registrable Securities to be
included by the Demanding Holder is less than the Approved Underwriter Amount,
each other Holder shall be entitled to have included in such registration
Registrable Securities equal to its pro rata portion of the excess of the
Approved Underwriter Amount over the amount sought to be included therein by the
Demanding Holder, as based on the amounts of Registrable Securities sought to be
registered by such other Holders in their requests for participation in the
requested Demand Registration and (c) to the extent that the number of
Registrable Securities to be included by the Demanding Holder and the other
Holders is less than the Approved Underwriter Amount, the Company or
stockholders other than the Holders shall be entitled to have included
securities that are proposed to be registered in accordance with the last
sentence of Section 3(b).
(g) Selection of Underwriters. If any requested Demand
Registration is in the form of an underwritten offering, the Demanding Holder
shall select and obtain an investment banking firm of national reputation to act
as the managing underwriter of the offering (the "Approved Underwriter").
4. Piggy-Back Registration.
(a) Piggy-Back Rights. If the Company proposes to file a
registration statement under the Act with respect to an offering by the Company
for its own account or for the account of any other stockholder (other than a
registration statement filed pursuant to Sections 3(a) or 3(b) hereof) of any
class of security (other than a registration statement solely on Form S-4 or S-8
(or any successor form thereto, but without including a red herring prospectus)
under the Act), then the Company shall give written notice of such proposed
filing (a "Preliminary Notice") to Wellspring and, if such registration
statement is proposed to be filed on or after the Liquidity Date, to each of CIP
and Ontario, at least forty-five (45) days before the anticipated filing date,
and such Preliminary Notice shall (i) describe in detail the proposed
registration and distribution (including those jurisdictions where registration
under the securities or blue sky laws is intended) and (ii) offer Wellspring
and, if such registration statement is proposed to be filed on or after the
Liquidity Date, each of CIP and Ontario, the opportunity to include some or all
of its Registrable Securities in such registration (the
<PAGE>
7
offer contained in the Preliminary Notice is referred to as the "Preliminary
Piggy-Back Offer"). The Preliminary Notice shall also state that acceptance of
the offer must (i) be in writing, (ii) state the number of Registrable
Securities proposed to be registered by such Holder, and (iii) be received by
the Company within ten (10) Business Days after receipt of such Preliminary
Notice (such ten business day period being referred to as the "Preliminary
Acceptance Period"). The failure of any party entitled to receive a Preliminary
Notice pursuant to this Section 4(a) (each, a "Preliminary Offeree") to respond
to such notice prior to the expiration of the Preliminary Acceptance Period
shall be regarded as a rejection of the offer to participate in such
registration as contemplated by the Preliminary Piggy-Back Offer and shall be
deemed to be a waiver of its rights under this Section 4(a) with respect to such
Preliminary Piggy-Back Offer.
(b) Piggy-Back Rights of Other Holders for Company
Registrations. If any Preliminary Offeree notifies the Company during the
Preliminary Acceptance Period that it wishes to include some or all of its
Registrable Securities in such registration, the Company shall deliver to each
Holder who is not then a Preliminary Offeree (for the purposes of this
subclause, each a "Piggy-Back Registration Offeree Party"), within ten (10)
Business Days following the expiration of the Preliminary Acceptance Period, a
notice (a "Piggy-Back Registration Notice") which shall (i) describe in detail
the proposed registration and distribution (including those jurisdictions where
registration under the securities or blue sky laws is intended), (ii) identify
the number of Registrable Securities proposed to be included in such
registration by each Preliminary Offeree (including the percentage of such
Preliminary Offeree's Registrable Securities represented by such Registrable
Securities) and (iii) offer each Piggy-Back Registration Offeree Party the
opportunity to include in such registration up to the same percentage of such
Piggy-Back Registration Offeree Party's Registrable Securities as the percentage
proposed to be included by the Preliminary Offeree proposing to include in such
registration the highest percentage of its Registrable Securities (the offer
contained in the Piggy-Back Registration Notice is referred to as the
"Piggy-Back Offer"). The Piggy-Back Registration Notice shall also state that
acceptance of the Piggy-Back Offer must (i) be in writing, (ii) state the number
of Registrable Securities proposed to be registered by such Piggy-Back
Registration Offeree Party, and (iii) be received by the Company within ten (10)
Business Days after receipt of such Piggy-Back Registration Notice (the
"Piggy-Back Registration Notice Period"). The failure of any Piggy-Back
Registration Offeree Party to respond within the Piggy-Back Registration Notice
Period shall be regarded as a rejection of the offer to participate in the
Piggy-Back Offer and shall be deemed to be a waiver of its rights under this
Section 4(b) with respect to such Piggy-Back Offer. If no Preliminary Offeree
notifies the Company during the Preliminary Acceptance Period that it wishes to
include some or all of its Registrable Securities in such registration, the
Company shall not be required to give a Piggy-Back Registration Notice to the
other Holders and the other Holders shall not be entitled to participate in such
registration.
(c) Registration Procedure for Piggy-Back Registrations. Subject
to the terms of this Section 4, the Company shall use its best efforts (within
thirty (30) days of the notice provided for in the preceding sentence) to cause
the managing underwriter or underwriters of an underwritten offering (the
"Company
<PAGE>
8
Underwriter") to permit the Holders to include the Registrable Securities of the
Holders in such offering on the same terms and conditions as the securities of
the Company included therein. Notwithstanding the foregoing, if the Company
Underwriter delivers a written opinion to the Holders seeking to participate in
such registration that the total amount of securities which they and the Company
intend to include in such offering (the "Total Securities") is sufficiently
large so as to have a material adverse effect on the distribution of the Total
Securities, then the Company shall include in such registration, to the extent
of the number of Registrable Securities which the Company is so advised can be
sold in (or during the time of) such offering, first, all Common Stock or
securities convertible into, or exchangeable or exercisable for, Common Stock
that the Company proposed to register for its own account, and second, all
securities proposed to be registered by the Holders and each other stockholder
for whose account such registration statement was to be filed which shall be
reduced on a pro-rata basis (based upon the number of shares proposed to be
registered).
(d) Expenses. The Company shall bear all Registration Expenses
in connection with any registration pursuant to this Section 4.
5. Holdback Agreements.
(a) Restrictions on Public Sale by Holders. To the extent not
inconsistent with applicable law, the Holders agree not to effect any public
sale or distribution of any Registrable Securities being registered or of any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Act, during the
ninety (90) day period (or such longer period as Wellspring agrees to be bound
by) beginning on the effective date of such Demand Registration or Piggy-Back
Registration or other underwritten offering (except as part of such
registration), if and to the extent requested by the Company Underwriter, in the
case of an underwritten public offering.
(b) Restrictions on Public Sale by the Company. The Company
agrees not to effect any public sale or distribution of any of its securities
for its own account (except pursuant to registrations on Form S-4 or S-8 (or any
successor form thereto) under the Act) during the ninety (90) day period
beginning on the later of (i) the effective date of any registration statement
in which the Holders are participating and (ii) the commencement of a public
distribution of Registrable Securities pursuant to such registration statement.
6. Registration Procedures.
(a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3 or 4 of this
Agreement, the Company shall use its best efforts to effect the registration and
sale of such Registrable Securities in accordance with the intended method of
distribution thereof as quickly as practicable, and in connection with any such
request, the Company shall, as expeditiously as possible:
<PAGE>
9
(i) prepare and file with the SEC (in any event not
later than forty-five (45) Business Days after receipt of a request to file a
registration statement with respect to Registrable Securities) a registration
statement on any form on which registration is requested for which the Company
then qualifies, which counsel for the Company and Holders' Counsel shall deem
appropriate and which shall be available for the sale of such Registrable
Securities in accordance with the intended method of distribution thereof, and
use its best efforts to cause such registration statement to become effective;
provided, however, that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall (A) provide Holders'
Counsel with an adequate and appropriate opportunity to participate in the
preparation of such registration statement and each prospectus included therein
(and each amendment or supplement thereto) to be filed with the SEC, which
documents shall be subject to the review of Holders' Counsel, and (B) notify
Holders' Counsel and each seller of Registrable Securities pursuant to such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;
(ii) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than twenty-four (24) months, such longer
period as is requested by Wellspring, to the extent permitted under Rule 415
under the Act, or such other period which will terminate when all Registrable
Securities covered by such registration statement have been sold (but not before
the expiration of the ninety (90) day period referred to in Section 4(3) of the
Act and Rule 174 thereunder, if applicable), and comply with the provisions of
the Act with respect to the disposition of all Registrable Securities covered by
such registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(iii) as soon as reasonably possible, furnish to each
seller of Registrable Securities, prior to filing a registration statement,
copies of such registration statement as it is proposed to be filed, and
thereafter such number of copies of such registration statement, each amendment
and supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as any such seller may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by
such seller;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities may request, and to
continue such qualification in effect in each such jurisdiction for as long as
is permissible pursuant to the laws of such jurisdiction, or for as long as any
such seller requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things which may be
reasonably necessary or advisable to enable any such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller; provided, however, that the Company shall not be required to (A) qualify
<PAGE>
10
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6(a)(iv), (B) subject itself to
taxation in any such jurisdiction or (C) consent to general service of process
in any such jurisdiction;
(v) use its best efforts to obtain all other approvals,
covenants, exemptions or authorizations from such governmental agencies or
authorities as may be necessary to enable the sellers of such Registrable
Securities to consummate the disposition of such Registrable Securities;
(vi) notify each seller of Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each such seller a reasonable number of copies of a supplement to or amendment
of such prospectus as may be necessary so that, after delivery to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(vii) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter or Company Underwriter, if any, selected as provided in Section 3 or
4) and take such other actions as are reasonably required in order to expedite
or facilitate the disposition of such Registrable Securities;
(viii) make available for inspection by any seller of
Registrable Securities, any managing underwriter participating in any
disposition pursu ant to such registration statement, Wellspring's Counsel and
any attorney, accountant or other agent retained by any such seller or any
managing underwriter (each, an "Inspector" and, collectively, the "Inspectors"),
all financial and other records, per tinent corporate documents and properties
of the Company and any subsidiaries thereof as may be in existence at such time
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and any
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such registration statement;
(ix) obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters, as Holders'
Counsel or the managing underwriter reasonably request;
(x) furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for
<PAGE>
11
sale pursuant to such registration or, if such securities are not being sold
through underwriters, on the date the registration statement with respect to
such securities becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the seller making such request, covering such legal
matters with respect to the registration in respect of which such opinion is
being given as such seller may reasonably request and as are customarily
included in such opinions;
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable but no later than fifteen (15) months
after the effective date of the registration statement, an earnings statement
covering a period of twelve (12) months beginning after the effective date of
the registration statement, in a manner which satisfies the provisions of
Section 11(a) of the Act;
(xii) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the Company
are then listed, subject to the satisfaction of the applicable listing
requirements of each such exchange;
(xiii) keep each seller of Registrable Securities advised
as to the initiation and progress of any registration under Section 3 or 4
hereunder;
(xiv) provide officers' certificates and other customary
closing documents;
(xv) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc. (the "NASD") or any stock exchange or other governmental or
non-governmental regulatory agency; and
(xvi) use its best efforts to take all other steps
necessary to effect the registration of the Registrable Securities contemplated
hereby.
(b) Seller Information. The Company may require each seller of
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding the distribution of such securities as
the Company may from time to time reasonably request in writing.
(c) Notice to Discontinue. Each Holder agrees that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in Section 6(a)(vi), the Company's obligations pursuant to this
Agreement shall be suspended for a period not to exceed 60 days and such Holder
shall forthwith discontinue disposition of Registrable Securities pursuant to
the registration statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 6(a)(vi) and, if so directed by the Company, such Holder
shall deliver to the Company (at the Company's
<PAGE>
12
expense) all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such registration
statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 6(a)(ii)) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 6(a)(vi) to and including the date when the Holder shall
have received the copies of the supplemented or amended prospectus contemplated
by and meeting the requirements of Section 6(a)(vi).
7. Registration Expenses. The Company shall pay all expenses (other
than underwriting discounts and commissions) arising from or incident to the
performance of, or compliance with, this Agreement, including, without
limitation, (a) SEC, stock exchange and NASD registration and filing fees, (b)
all fees and expenses incurred in complying with securities or blue sky laws
(including, without limitation, reasonable fees, charges and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (c) all printing, messenger and delivery expenses, (d) the fees,
charges and disbursements of counsel to the Company and of its independent
public accountants and any other accounting and legal fees, charges and expenses
incurred by the Company (including, without limitation, any expenses arising
from any special audits incident to or required by any registration or
qualification) and (e) any liability insurance or other premiums for insurance
obtained (which insurance the Company agrees to use its best efforts to obtain
upon the reasonable request of any seller of Registrable Securities) and the
reasonable fees, charges and expenses of any special experts (provided that a
seller of Registrable Securities shall give notice to the Company, as soon as
practicable, of the retention of any such special experts) retained in
connection with any requested Demand Registration or Piggy-Back registration
pursuant to the terms of this Agreement, regardless of whether the registration
statement filed in connection with such registration is declared effective. In
connection with each registration hereunder, the Company shall reimburse the
Holders for the reasonable fees, charges and disburse ments of a single law firm
("Holders' Counsel") designated by the Holders holding in the aggregate a
majority of the Registrable Securities included in any such registration to
represent each of the Holders with respect to such registration. All of the
expenses described in this Section 7 are referred to in this Agreement as
"Registration Expenses."
8. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder, its directors, officers, partners,
employees, advisors and agents, and each Person who controls (within the meaning
of the Act or the Exchange Act) such Holder, to the extent permitted by law,
from and against any and all losses, claims, damages, expenses (including,
without limitation, reasonable costs of investigation and fees, disbursements
and other charges of counsel) or other liabilities resulting from or arising out
of or based upon any untrue, or alleged untrue, statement of a material fact
contained in any registration statement, prospectus or preliminary prospectus or
notification or offering circular (as amended or
<PAGE>
13
supplemented if the Company shall have furnished any amendments or supplements
thereto) or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
Holder expressly for use therein. The Company shall also indemnify any
underwriters of the Registrable Securities, their officers, directors and
employees, and each Person who controls any such underwriter (within the meaning
of the Act and the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities.
(b) Indemnification by Holders. In connection with any
registration in which a Holder is participating pursuant to Section 3 or 4
hereof, each such Holder, as applicable, shall furnish to the Company in writing
such information with respect to such Holder, as applicable, as the Company may
reasonably request or as may be required by law for use in connection with any
registration statement or prospectus to be used in connection with such
registration and each Holder agrees to indemnify and hold harmless the Company,
any underwriter retained by the Company and their respective directors,
officers, employees and each Person who controls (within the meaning of the Act
and the Exchange Act) the Company or such underwriter to the same extent as the
foregoing indemnity from the Company to the Holders (subject to the proviso to
this sentence and applicable law), but only with respect to any such information
furnished in writing by such Holder expressly for use therein; provided,
however, that the liability of any Holder under this Section 8(b) and 8(d) shall
be limited to the amount of the net proceeds received by such Holder in the
offering giving rise to such liability.
(c) Conduct of Indemnification Proceedings. Any Person entitled
to indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, that, the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder unless materially prejudiced
by such delay. If notice of commencement of any such action is given to the
Indemnifying Party as above provided, the Indemnifying Party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
Indemnifying Party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and reasonably satisfactory to such
Indemnified Party. The Indemnified Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the Indemnified Party unless (i) the Indemnifying Party agrees
to pay the same, (ii) the Indemnifying Party fails to assume the defense of such
action within 10 days with counsel satisfactory to the Indemnified Party in its
reasonable judgment, (iii) the Indemnified Party reasonably determines after
consulting with counsel, that either (A) representation of such Indemnified
Party and the Indemnifying Party by the same counsel may be
<PAGE>
14
inappropriate under applicable standards of professional conduct or (B) there
may be one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party. In either of such cases
the Indemnifying Party shall not have the right to assume the defense of such
action on behalf of such Indemnified Party. Unless the provisions of clause (ii)
of the preceding sentence apply, no Indemnifying Party shall be liable for any
settlement entered into without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall settle any matter for which
indemnification is deemed hereunder unless such settlement includes solely the
payment of money and the Indemnified Party receives an unconditional release
from all liability in connection therewith. The rights accorded to any
Indemnified Party hereunder shall be in addition to any rights that such
Indemnified Party may have at common law, by separate agreement or otherwise.
(d) Contribution. If the indemnification provided for in Section
8(a) from the Indemnifying Party is unavailable to an Indemnified Party in
respect of any losses, claims, damages, expenses or other liabilities referred
to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, expenses or other
liabilities in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party and Indemnified Party in connection with the actions
which resulted in such losses, claims, damages, expenses or other liabilities,
as well as any other relevant equitable considerations. The relative faults of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, was made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the Indemnifying Party's and
Indemnified Party's relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, expenses or other liabilities
referred to above shall be deemed to include, subject to the limitations set
forth in Sections 8(a), 8(b) and 8(c), any legal or other fees, charges or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable con siderations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution pursuant to this
Section 8(d).
9. Rule 144; Other Exemptions. The Company covenants that it
shall file any reports required to be filed by it under the Exchange Act and the
rules and regulations adopted by the SEC thereunder, and that it shall take such
further action as any of the Parties may reasonably request (including, but not
limited to, providing any information necessary to comply with Rules 144 and
144A under the Act), all to the extent required from time to time to enable the
Holders to sell Registrable Securities without registration under the Act within
the limitation of the
<PAGE>
15
exemptions provided by (a) Rule 144 or Rule 144A under the Act, as such rules
may be amended from time to time, or (b) any other rules or regulations now
existing or hereafter adopted by the SEC. The Company shall, upon the request of
any Holder, deliver to such Holder a written statement as to whether the Company
has complied with such requirements. Nothing in this Section 9 shall be deemed
to grant to any Party any right to dispose of its Registrable Securities
(whether pursuant to Rule 144 or Rule 144A or otherwise) where such disposition
is prohibited under the terms of the Shareholders' Agreement.
10. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of this
Agreement shall apply, to the full extent set forth herein with respect to the
Company's Common Stock, to any and all shares of capital stock of the Company or
any successor or assign of the Company (whether by merger, consolidation, sale
of assets or otherwise) which may be issued in respect of, in exchange for or in
substitution of, the Common Stock and shall be appropriately adjusted for any
stock dividends, splits, reverse splits, combinations, recapitalizations and the
like occurring after the date hereof.
(b) No Inconsistent Agreements; Other Registration Rights. The
Company shall not enter into any agreement with respect to its securities that
is inconsistent with or adversely affects the rights granted to the Holders in
this Agreement. The Company shall not grant any other Person registration rights
without the written consent of Wellspring. If the Company shall at any time
hereafter provide to any holder of any securities of the Company rights with
respect to the registration of such securities and such rights are provided on
terms or conditions more favorable to such holder than the terms and conditions
applicable to the Holders herein, the Company shall provide (by way of amendment
to this Agreement or otherwise) such more favorable terms or conditions to the
Holders under this Agreement.
(c) Remedies. The Holders, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive in any action for specific performance the defense
that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided herein,
any amendment, supplement or modification of or to any provision of this
Agreement, any waiver of any provision of this Agreement, and any consent to any
departure by any Party from the terms and provisions of this Agreement, shall be
effective upon the prior written consent of all of the Parties.
(e) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
<PAGE>
16
(i) if to Wellspring:
c/o Wellspring Capital Management LLC
620 Fifth Avenue, Suite 216
New York, New York 10020-1579
Telecopier No.: (212) 337-7575
Attention: David C. Mariano
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Robert Drain, Esq.
(ii) if to CIP:
Co-Investment Partners, L.P.
660 Madison Avenue, 23rd Floor
New York, New York 10021
Telecopier No.: (212) 754-1494
Attention: Christian A. Melhado
with a copy to:
Kramer Levin Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Attention: Michael Nelson, Esq.
(iii) if to Ontario:
Ontario Teachers' Pension Plan Board
5650 Yonge Street, 5th floor
Toronto, Ontario M2M 4H5
Canada
Attention: Dean Metcalf
Telecopy: (416) 730-5374
<PAGE>
17
with a copy to:
Cleary Gottlieb Steen & Hamilton
One Liberty Plaza
New York, NY 10006-1470
Attention: Filip Moerman, Esq.
(iv) if to the Company:
Paragon Trade Boards, Inc.
180 Technology Parkway
Norcross, GA 30092
Telecopier No.: (678) 969-5001
Attention: Bobby Abraham
(v) if to an Other Shareholder, to the address set forth in
the Other Shareholder Acknowledgement executed by such
Other Shareholder.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto;
provided, however, that the registration rights and the other obligations of the
Company contained in this Agreement shall, with respect to any Registrable
Security, be automatically transferred from a Holder to any subsequent holder of
such Registrable Security (including any pledgee). Notwithstanding any transfer
of such rights, all of the obligations of the Company hereunder shall survive
any such transfer and shall continue to inure to the benefit of all transferees.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law of such State.
<PAGE>
18
(j) Jurisdiction. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated hereby
may be brought in the Federal or State courts located in the State of New York,
City of New York, County of New York and hereby expressly submits to the
personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 10(e), such service to
become effective 10 days after such mailing.
(k) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Holders shall be enforceable to the fullest
extent permitted by law.
(l) Rules of Construction. Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
(m) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings in respect of the subject matter contained
herein, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(n) Further Assurances. Each of the parties shall execute such
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
(o) Other Shareholders. Subject to the consent of each of the
Company and Wellspring, any other stockholder of the Company may become a party
hereto, and shall have the rights and be subject to the obligations of an Other
Shareholder hereunder, by executing and delivering to the Company, with a copy
to each of Wellspring, CIP and Ontario, the Other Shareholder Acknowledgement
which follows the signature page hereof.
<PAGE>
19
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
PTB ACQUISITION COMPANY, LLC
By: /s/ Carl M. Stanton
-----------------------
Name: Carl M. Stanton
Title: Vice President
CO-INVESTMENT PARTNERS, L.P.
By: CIP Partners LLC, its general partner
By: /s/ Christian A. Melhado
----------------------------
Name: Christian A. Melhado
Title: Member
ONTARIO TEACHERS PENSION PLAN
BOARD
By: /s/ Dean Metcalf
--------------------
Name: Dean Metcalf
Title: Portfolio Manager
PARAGON TRADE BRANDS, INC.
By: /s/ Alan J. Cyron
---------------------
Name: Alan J. Cyron
Title: Chief Financial Officer
<PAGE>
20
OTHER SHAREHOLDER ACKNOWLEDGEMENT
THE UNDERSIGNED, has received a copy of and has reviewed the
foregoing Registration Rights Agreement and agrees to become a party thereto and
be bound thereby as an Other Shareholder (as defined therein) as of the date set
forth below:
Date:_________ __, 20__ ________________________________________
Name: ___________________________
Address: ________________________
________________________
________________________
Telecopier:_______________________
Exhibit 5
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Option Agreement") is entered into as of
January 28, 2000, by and between Paragon Trade Brands, Inc., a Delaware
corporation (the "Company"), and PTB Acquisition Company, LLC, a Delaware
limited liability company (the "Grantee").
RECITALS
WHEREAS, simultaneously herewith the Company has been reorganized
pursuant to a Modified Second Amended Plan of Reorganization, dated as of
January 13, 2000 (the "Plan"), approved by the United States Bankruptcy Court of
the Northern District of Georgia (the "Bankruptcy Court") in Chapter 11 case no.
98-60390 (the "Case");
WHEREAS, in accordance with the Plan, and as contemplated by a Stock
Purchase Agreement, dated as of November 16, 1999 (the "Stock Purchase
Agreement"), the Grantee (together with its assignees) is today purchasing from
the Company, and the Company is today issuing and selling to the Grantee
(together with its assignees), up to 11,712,635 newly issued shares (the
"Purchased Shares") of the Company's Common Stock, par value $.01 per share (the
"Common Stock");
WHEREAS, the Stock Purchase Agreement provides that the Company and
the Grantee shall enter into an option agreement which provides for the matters
specified in Section 12 of the Stock Purchase Agreement; and
WHEREAS, in connection with the purchase of the Purchased Shares, the
Company, the Grantee and certain other persons are today entering into a
Stockholders Agreement (the "Stockholders Agreement") and a Registration Rights
Agreement (the "Registration Rights Agreement");
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements contained in this Option
Agreement, the parties to this Option Agreement, intending to be legally bound,
agree as follows:
1. Certain Definitions. Capitalized terms used but not defined in
this Option Agreement shall have the meanings ascribed to such terms in the
Stock Purchase Agreement.
2. Grant of Option. Subject to the terms of this Option Agreement,
the Company hereby grants to the Grantee an irrevocable option (the "Option") to
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2
purchase, out of the authorized but unissued shares of Common Stock, 2,500,000
shares of Common Stock (subject to adjustment as set forth herein, the "Option
Shares") as of the first date, if any, upon which an Exercise Event (as defined
in Section 4(b) of this Option Agreement) occurs, at a price per Option Share
equal to $10.00 per share (as adjusted as set forth herein, the "Exercise
Price").
3. Term. The Option shall terminate on the first anniversary of the
date hereof, unless on or prior to such date, an Exercise Event (as defined
below) shall have occurred. If an Exercise Event shall have occurred on or prior
to first anniversary of the date hereof, this Option shall terminate, unless
theretofore exercised, on the first anniversary of the Exercise Event. The date
on which this Option terminates is referred to as the "Termination Date." This
Option may not be exercised prior to the occurrence of an Exercise Event.
4. Exercise of Option.
(a) The Grantee may exercise the Option, in whole or in part, at
any time on or before the Termination Date following the occurrence of an
Exercise Event. Notwithstanding the occurrence of the Termination Date, the
Grantee shall be entitled to purchase those Option Shares with respect to which
it has validly exercised the Option in accordance with the terms hereof prior to
the Termination Date.
(b) As used herein, an "Exercise Event" shall mean the exercise
by the Company, Paragon Trade Brands International, Inc., a Delaware corporation
and a wholly-owned subsidiary of the Company ("PTBI"), or any other person
controlling, controlled by or under common control with the Company (an
"Exercising Person"), of PTBI's option to acquire up to an additional 34%
interest in Groupo P.I. Mabe, S.A. de C.V., a Mexican corporation ("Mabesa")
pursuant to an option existing as of the date of this Option Agreement (the
"Mabesa Option"). For purposes hereof, the Exercise Event shall be deemed to
have occurred on the date on which the Company's (or PTBI's or such other
Exercising Person's) Board of Directors shall authorize or approve the exercise
of the Mabesa Option. The Company shall promptly notify the Grantee in writing
of the occurrence of an Exercise Event. The foregoing notwithstanding, the
Company's Board of Directors may, by written notice (a "Conditional Notice") to
the Grantee, inform the Grantee that it (or PTBI or another Exercising Person)
intends to exercise the Mabesa Option but only if the Grantee intends to
exercise this Option, in which event the Exercise Event shall be deemed to have
commenced on the date that the Grantee receives the Conditional Notice. If the
Grantee elects to exercise this Option following the delivery of a Conditional
Notice, the Company must, unless otherwise required by law or other legal
impediment or expressly permitted by the Grantee, at its sole discretion,
exercise (or cause PTBI or another Exercising Person to exercise) the Mabesa
Option.
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3
(c) In the event the Grantee wishes to exercise the Option, the
Grantee shall send to the Company a written notice (the date of which being
herein referred to as the "Notice Date") stating that it is exercising the
Option. The closing of the purchase of such Option Shares (the "Closing") shall
take place at the Company's corporate headquarters, or at such other place as
the Grantee and the Company may agree on the earliest date practicable, in view
of the need of the Company to comply with the terms of Article 5 (Limited
Preemptive Rights) of the Company's Amended and Restated Certificate of
Incorporation, but in no event sooner than 30 days following the Notice Date
(the date on which the Closing takes place is referred to herein as the "Closing
Date"); provided, however, that: (i) if such purchase cannot be consummated by
reason of any applicable law, regulation, order, judgment, decree or other legal
impediment, the Closing Date may be extended by the Grantee or the Company to a
date not more than 10 days after the date on which such impediment is removed;
and (ii) if prior notification to or approval of any governmental authority is
required (or if any waiting period must expire or be terminated) in connection
with such purchase, the Grantee shall promptly cause to be filed the required
notice or application for approval and shall expeditiously process the same (and
the Company shall cooperate with the Grantee in the filing of any such notice or
application required to be filed by the Grantee and the obtaining of any such
approval required to be obtained by the Grantee), and the Closing Date may be
extended by the Grantee or the Company to a date not more than 10 days after the
date on which any required notification has been made, approval has been
obtained or waiting period has expired or been terminated.
(d) Notwithstanding anything else herein to the contrary, the
exercise of the Option and the purchase of Option Shares shall be subject to (x)
compliance with applicable laws and regulations, which may, among other things,
prohibit the purchase of all or a portion of the Option Shares without first
obtaining or making certain consents, approvals, orders, notifications or
authorizations, and (y) the absence of any preliminary or permanent injunction
or other order by any court of competent jurisdiction prohibiting or otherwise
restraining such exercise or purchase.
5. Payment and Delivery of Certificates.
(a) On the Closing Date, the Grantee shall pay to the Company by
wire transfer in immediately available funds to a bank account designated by the
Company an amount equal to the Exercise Price multiplied by the number of Option
Shares purchased on such Closing Date.
(b) At the Closing, simultaneously with the delivery of
immediately available funds as provided in Section 5(a) of this Option
Agreement, the Company shall deliver to the Grantee or its designee a
certificate or certificates representing the Option Shares to be purchased at
such Closing, which Option Shares shall be duly authorized, validly issued,
fully paid and nonassessable and free and clear
<PAGE>
4
of all liens, security interests, charges or other encumbrances (collectively,
the "Encumbrances") other than Encumbrances under applicable law.
(c) Certificates for the Option Shares delivered at the Closing
shall be endorsed with a restrictive legend (in addition to any legend required
under applicable state securities laws) that shall read substantially as
follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE LAW GOVERNING THE OFFER OR SALE OF SECURITIES. NO
TRANSFER OR OTHER DISPOSITION OF THESE SHARES MAY BE MADE EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH OTHER STATE
LAWS OR PURSUANT TO EXEMPTIONS FROM REGISTRATION UNDER THE ACT, SUCH OTHER
STATE LAWS AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
IN ADDITION, THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE TERMS OF A STOCKHOLDERS
AGREEMENT AND A REGISTRATION RIGHTS AGREEMENT, EACH DATED AS OF ________
__, 2000. A COPY OF SUCH AGREEMENTS WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR.
A new certificate or certificates evidencing the same number of shares of Common
Stock will be issued to the Grantee in lieu of the certificate bearing the above
legend, and such new certificate shall not bear the first paragraph of such
legend, insofar as it applies to the Securities Act, if the Grantee shall have
delivered to the Company a copy of a letter from the Staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to the Company
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act.
6. Adjustment Upon Changes in Capitalization, etc.
(a) In the event of any change in the Common Stock issued and
outstanding by reason of a distribution, reclassification, stock dividend,
split-up (including a reverse stock split), combination, recapitalization,
exchange of shares or similar transaction, the type and number of shares or
securities subject to the Option, and the Exercise Price therefor, shall be
adjusted appropriately, and proper provision shall be made in the agreements
governing such transaction so that the Grantee shall receive upon exercise of
the Option the same class and number of outstanding shares or other securities
or property that Grantee would have received upon exercise of the Option if the
<PAGE>
5
Option had been exercised immediately prior to such event or the record date
therefor, as applicable.
(b) If the Company shall enter into an agreement (i) to
consolidate, exchange shares or merge with any person, and, in the case of a
merger, shall not be the continuing or surviving corporation, (ii) to permit any
person to merge into the Company and the Company shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of the Company or any other person or cash or any other property, or
the shares of Common Stock outstanding immediately before such merger shall
after such merger represent less than 50% of the common shares and common share
equivalents of the Company outstanding immediately after the merger, or (iii) to
sell, lease or otherwise transfer all or substantially all of its assets to any
Person, then, and in each such case, proper provision shall be made in the
agreement governing such transactions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, become exercisable for the stock, securities, cash or other property
that would have been received by the Grantee upon exercise of the Option if the
Grantee had exercised this Option immediately prior to such transaction or the
record date for determining the stockholders entitled to participate therein, as
appropriate.
(c) The Grantee recognizes and understands that pursuant to
Section 5 of the Shareholders Agreement, dated the date hereof, by and among the
Company, the Grantee, Co-Investment Partners, L.P., Ontario Teachers Pension
Plan Board and certain individuals, the exercise of this Option by the Grantee
may require the Company to provide certain other stockholders with an
opportunity to subscribe for and purchase a ratable share of the Option Shares.
Grantee agrees that the number of shares which may be purchased by Grantee upon
exercise hereof may be reduced by the number of shares purchased by other
stockholders of the Company exercising their rights under said Section 5.
7. Representations and Warranties.
(a) The Company hereby represents and warrants to the Grantee
that it has taken all necessary action to authorize and reserve for issuance and
subject to applicable law to permit it to issue, and at all times from the date
of this Option Agreement through the Termination Date will have reserved for
issuance upon exercise of the Option, a sufficient number of authorized shares
of Common Stock for issuance upon exercise of the Option, each of which, upon
issuance pursuant to this Option Agreement and when paid for as provided herein,
will be validly issued, fully paid and nonassessable, and shall be delivered
free and clear of all Encumbrances other than Encumbrances under applicable law.
<PAGE>
6
(b) The Grantee hereby represents and warrants to the Company
that the Grantee is acquiring the Option and it will acquire the Option Shares
issuable upon the exercise thereof for its own account and not with a view to
the distribution or resale thereof in any manner not in accordance with
applicable law. Neither the Option nor any of the Option Shares will be offered,
sold, pledged, or otherwise transferred except in compliance with, or pursuant
to an exemption from, the registration requirements of the Securities Act, and
in compliance with the terms of this Option Agreement.
8. Listing. If at the time of the occurrence of an Exercise Event the
Common Stock is (or any other securities subject to the Option are) then listed
on the New York Stock Exchange, the American Stock Exchange or NASDAQ/NMS or on
any other market or exchange, the Company, upon the occurrence of an Exercise
Event, shall promptly file an application to list on the New York Stock
Exchange, the American Stock Exchange or NASDAQ/NMS, as the case may be, and if
not then listed on the New York Stock Exchange, the American Stock Exchange or
NASDAQ/NMS on such other market or exchange the shares of the Common Stock or
other securities then subject to the Option, and shall use all reasonable
efforts to cause such listing application to be approved as promptly as
practicable.
9. Stockholders and Registration Rights Agreements. The parties agree
that the Grantee shall hold any Option Shares purchased by it pursuant hereto in
accordance with, and that the Grantee, in respect of such shares shall be
entitled to all rights and benefits under, each of the Stockholders Agreement
and the Registration Rights Agreement.
10. Replacement of Agreement. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Option Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Option Agreement, if mutilated, the Company will execute and deliver a new
Option Agreement of like tenor and date.
11. Miscellaneous.
(a) Extension; Waiver. At any time prior to the Termination
Date, the parties hereto may (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, or (ii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. Except as provided in this Option Agreement, no action taken pursuant to
this Option Agreement shall be deemed to constitute a waiver by the party taking
such action of compliance with any covenants or agreements contained in this
Option Agreement. The waiver by any party hereto of a breach of any provision
<PAGE>
7
hereunder shall not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provision hereunder.
(b) Amendment and Modification. Subject to applicable law, any
term or condition hereof for the benefit of one party may be waived by the party
to be protected by or entitled to enforce such provision. This Option Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
(c) Further Actions. Each of the parties hereto agrees that,
subject to its legal obligations, it will use its reasonable efforts to do all
things reasonably necessary to consummate the transactions contemplated hereby.
(d) Non-Exclusivity. The rights and remedies of the Grantee
under this Option Agreement are not exclusive of or limited by any other rights
or remedies which it may have, whether at law, in equity, by contract or
otherwise, all of which shall be cumulative (and not alternative). Without
limiting the generality of the foregoing, the rights, remedies, obligations and
liabilities of each of the Grantee and the Company under this Option Agreement,
are in addition to their respective rights, remedies, obligations and
liabilities under common law requirements and under all applicable statutes,
rules and regulations. The covenants and obligations of the Company and the
Grantee set forth in this Option Agreement shall be construed as independent of
any other agreement or arrangement between the Company, on the one hand, and the
Grantee, on the other. The existence of any claim or cause of action by the
Company against the Grantee or by the Grantee against the Company shall not
constitute a defense to the enforcement of any of such covenants or obligations
against the Company or the Grantee, as the case may be.
(e) Counterparts. This Option Agreement may be executed in any
number of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
(f) GOVERNING LAW AND VENUE.. THIS OPTION AGREEMENT SHALL BE
DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND
GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES. The parties irrevocably submit
to the jurisdiction of the courts of the State of Delaware solely in respect of
the interpretation and enforcement of the provisions of this Option Agreement
and of the documents referred to in this Option Agreement, and in respect of the
transactions contemplated by this Option Agreement and by those documents, and
hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement of this Option Agreement or of
any such document, that it is not subject to this Option Agreement or that such
action, suit or proceeding may not be brought or is
<PAGE>
8
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Option Agreement or any such document may not be enforced in or by
such courts, and the parties hereto irrevocably agree that all claims with
respect to such action or proceeding shall be heard and determined in such a
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 14(g) or in such other manner as
may be permitted by law, shall be valid and sufficient service thereof.
(g) Notices. Any notice, request, instruction or other document
to be given hereunder by any party to the others shall be in writing and
delivered personally, sent by reputable overnight courier, sent by registered or
certified mail, postage prepaid, or by facsimile.
if to the Grantee:
PTB Acquisition Company, LLC
c/o Wellspring Capital Management, LLC
620 Fifth Avenue
New York, NY 10020-6064
Attention: David C. Mariano
Fax: (212) 332-7575
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert D. Drain, Esq.
Fax: (212) 757-3990
if to the Company:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, GA 30092
Attention: General Counsel
Fax: (678) 969-4959
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
(h) Entire Agreement. This Option Agreement, the Stock Purchase
Agreement, the Stockholders Agreement and the Registration Rights
<PAGE>
9
Agreement collectively constitute the entire agreement and supersede all other
prior agreements, understandings, representations and warranties, both written
and oral, among the parties, with respect to the subject matter of this Option
Agreement.
(i) No Third Party Beneficiaries. This Option Agreement is not
intended to confer upon any person other than the parties to this Option
Agreement any rights or remedies under this Option Agreement.
(j) Severability. The provisions of this Option Agreement shall
be deemed severable and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions of this
Option Agreement. If any provision of this Option Agreement, or the application
of that provision to any person or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted for
that provision in order to carry out, so far as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable provision and (ii) the
remainder of this Option Agreement and the application of the provision to other
persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of the provision, or the application of that
provision, in any other jurisdiction.
(k) Interpretation. The headings in this Option Agreement are
for convenience of reference only, do not constitute part of this Option
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Option Agreement. Where a reference in this Option Agreement
is made to a Section, that reference shall be to a section of this Option
Agreement unless otherwise indicated. Wherever the words "include," "includes"
or "including" are used in this Option Agreement, they shall be deemed to be
followed by the words "without limitation."
(l) Specific Performance. The parties to this Option Agreement
agree that irreparable damage would occur in the event that any of the
provisions of this Option Agreement were not performed in accordance with their
specific terms or were otherwise reached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Option Agreement and to enforce specifically the terms and provisions of
this Option Agreement in any court of the United States or any state court in
each case in the State of Delaware, this being in addition to any other remedy
to which they are entitled at law or in equity.
<PAGE>
10
IN WITNESS WHEREOF, the Company and the Grantee have caused this
Option Agreement to be signed by their respective officers thereupon duly
authorized, all as of the day and year first written above.
PARAGON TRADE BRANDS, INC.
By: /s/ Alan J. Cyron
-----------------
Name: Alan J. Cyron
Title: Chief Financial Officer
PTB ACQUISITION COMPANY, LLC
By: /s/ Carl M. Stanton
-------------------
Name: Carl M. Stanton
Title: Vice President
