UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO._____)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
[X] Definitive proxy statement. Commission only (as permitted
[ ] Definitive additional materials. by Rule 14a-6(e)(2)).
[ ] Soliciting material under Rule 14a-12.
PARAGON TRADE BRANDS, INC.
(Name of Registrant as Specified in Its Charter)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which the transaction applies:
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(2) Aggregate number of securities to which the transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date Filed:
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<PAGE>
[Paragon Trade Brands Logo]
November 10, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of Paragon Trade Brands, Inc. (the "Company"), at 9:00 a.m. on Thursday,
December 7, 2000, at the Company's headquarters located at 180 Technology
Parkway, Norcross, Georgia.
The Notice of Annual Meeting of Stockholders and the Proxy Statement that
follow provide details of the business to be conducted at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, we hope that you will
have your stock represented by completing, signing, dating and returning your
proxy card in the enclosed envelope as soon as possible.
Sincerely,
/s/ Michael T. Riordan
Michael T. Riordan
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
IMPORTANT
A proxy card is enclosed. All stockholders are urged to complete, sign, date and
mail the proxy card promptly. The enclosed envelope for return of the proxy card
requires no postage. Any stockholder attending the Annual Meeting may revoke his
or her signed proxy and personally vote on all matters that are considered.
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 7, 2000
To the Stockholders:
The 2000 Annual Meeting of Stockholders of Paragon Trade Brands, Inc. (the
"Company") will be held at 9:00 a.m. on Thursday, December 7, 2000, at the
Company's headquarters located at 180 Technology Parkway, Norcross, Georgia, for
the following purposes:
1. to elect nine (9) directors for a term expiring as of the 2001 annual
meeting of stockholders;
2. to approve the Paragon Trade Brands, Inc. Stock Option Plan;
3. to approve the Paragon Trade Brands, Inc. Stock Option Plan for
Non-Employee Directors; and
4. to transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.
The nominees for election as directors are named in the enclosed Proxy
Statement.
The Record Date for the Annual Meeting is October 13, 2000. Only
stockholders of record at the close of business on that date are entitled to
notice of and to vote at the Annual Meeting.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON, BUT,
EVEN IF YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION.
STOCKHOLDERS ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE
PREVIOUSLY SENT IN A PROXY.
By Order of the Board of Directors
/s/ Ward Council
Ward Council
SECRETARY
Norcross, Georgia
November 10, 2000
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 26, 1999 AND THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 24, 2000 ACCOMPANY THIS PROXY STATEMENT.
<PAGE>
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 7, 2000
GENERAL
The enclosed proxy is solicited by the Board of Directors of Paragon Trade
Brands, Inc. (the "Company") for use at the 2000 Annual Meeting of Stockholders
to be held at 9:00 a.m. on Thursday, December 7, 2000, at the Company's
headquarters located at 180 Technology Parkway, Norcross, Georgia, and at any
postponement or adjournment thereof (the "2000 Annual Meeting"). Only holders of
record of the Company's common stock, par value $.01 per share (the "Common
Stock"), at the close of business on October 13, 2000 (the "Record Date") will
be entitled to vote at the 2000 Annual Meeting. On that date, the Company had
11,996,300 shares of Common Stock outstanding. Each share of Common Stock
outstanding on the Record Date is entitled to one vote.
The address of the Company's principal executive offices is 180 Technology
Parkway, Norcross, Georgia 30092. This Proxy Statement and the accompanying
proxy card are first being mailed to the Company's stockholders on or about
November 10, 2000.
VOTING
The purpose of the 2000 Annual Meeting is (1) to elect nine (9) directors
for terms expiring at the 2001 annual meeting of stockholders (the "2001 Annual
Meeting"); (2) to approve the Paragon Trade Brands, Inc. Stock Option Plan (the
"Stock Option Plan"); (3) to approve the Paragon Trade Brands, Inc. Stock Option
Plan for Non-Employee Directors (the "Director Plan"); and (4) to transact such
other business as may properly come before the Annual Meeting or any
postponement or adjournment thereof.
Shares of Common Stock for which proxies are properly executed and returned
(and not revoked) prior to the 2000 Annual Meeting will be voted in accordance
with the directions noted thereon or, in the absence of directions, will be
voted "FOR" the election of each of the nominees for the Board of Directors
named herein, provided that if any of such nominees should become unavailable
for election for any reason, such shares will be voted for the election of such
substitute nominee as the Board of Directors may propose, and "FOR" approval of
each of the Stock Option Plan and the Director Plan. Under Delaware law, the
Company's Amended and Restated Certificate of Incorporation and the Company's
Amended and Restated By-Laws, the nominees receiving the greatest number of
votes cast for the election of directors by the shares present in person or
represented by proxy at the 2000 Annual Meeting and entitled to vote shall be
elected directors. In the election of directors, withholding authority to vote
with respect to the nominee will have no effect on the outcome of the election.
Under Delaware law, the Company's Amended and Restated Certificate of
Incorporation and the Company's Amended and Restated By-Laws, the Stock Option
Plan and the Director Plan will separately be approved if the majority of shares
present in person or represented by proxy at the 2000 Annual Meeting and
entitled to vote on the Stock Option Plan and the Director Plan, respectively,
vote in favor of approval. Abstentions from voting will have the practical
effect of voting against the respective proposals to approve the Stock Option
Plan and the Director Plan, and broker nonvotes will have no effect on the
outcome other than to reduce the number of "FOR" votes necessary to approve the
respective proposals.
Any stockholder giving a proxy may revoke it at any time before it is voted
by delivering to the Company's Secretary a written notice of revocation,
executing a proxy bearing a later date, or by attending the 2000 Annual Meeting
and voting in person. The presence of a majority of the outstanding shares of
Common Stock, present in person or by proxy, will constitute a quorum. Shares
represented by proxies marked "withhold authority" will be counted as shares
present for purposes of establishing a quorum.
<PAGE>
BACKGROUND
The Company has previously disclosed that The Procter & Gamble Company
("P&G") filed a lawsuit against it in the United States District Court for the
District of Delaware (the "Delaware District Court") alleging that the Company's
"Ultra" disposable baby diaper products infringed two of P&G's dual cuff diaper
patents.
On December 30, 1997, the Delaware District Court issued a Judgment and
Opinion which found that two of P&G's dual cuff diaper patents were valid and
infringed by certain of the Company's disposable diaper products, while also
rejecting the Company's patent infringement claims against P&G. While the final
damages number of approximately $178.4 million was not entered by the Delaware
District Court until June 2, 1998, the Company originally estimated the
liability and associated litigation costs to be approximately $200 million. The
amount of the award resulted in violation of certain covenants under the
Company's then-existing bank loan agreements. As a result, the issuance of the
Delaware Judgment and the uncertainty it created caused an immediate and
critical liquidity issue for the Company.
On January 6, 1998, the Company filed for relief under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq., in the United States Bankruptcy
Court for the Northern District of Georgia (Case No. 98-60390) (the "Chapter 11
filing"). None of the Company's subsidiaries were included in the Chapter 11
filing.
On February 2, 1999, the Company entered into a Settlement Agreement with
P&G which fully and finally settled all matters related to the Delaware
Judgment, the Company's appeal of the Delaware Judgment, P&G's motion to find
the Company in contempt of the Delaware Judgment and P&G's proof of claim filed
in the Company's Chapter 11 reorganization proceeding. The P&G Settlement
Agreement was approved by the Bankruptcy Court on August 6, 1999 (the "P&G
Approval Order"). The Official Committee of Equity Security Holders (the "Equity
Committee") appealed the P&G Approval Order.
On October 26, 1995, Kimberly-Clark Corporation ("K-C") filed a lawsuit
against the Company in U.S. District Court in Dallas, Texas, alleging
infringement by the Company's products of two K-C patents relating to dual
cuffs.
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settled all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The K-C Settlement Agreement was
approved by the Bankruptcy Court on August 6, 1999 (the "K-C Approval Order").
The Equity Committee appealed the K-C Approval Order.
On or about November 15, 1999, the Company and the Official Committee of
Unsecured Creditors (the "Creditors' Committee"), as co-proponents, filed the
Second Amended Plan of Reorganization (as subsequently modified through January
13, 2000, the "Plan") and a related Disclosure Statement (as subsequently
modified through November 18, 1999, the "Disclosure Statement") with the
Bankruptcy Court. The Plan incorporated a proposed investment by Wellspring
Capital Management LLC ("Wellspring"), a private investment company, to acquire
the Company as part of a plan of reorganization (the "Wellspring Transaction").
By order dated November 18, 1999, the Bankruptcy Court approved the Disclosure
Statement. At such time, the Bankruptcy Court also approved certain voting
procedures and established January 7, 2000, as the voting deadline for the Plan
and January 13, 2000, as the date for a hearing to consider confirmation of the
Plan. A confirmation hearing was held by the Bankruptcy Court on January 13,
2000. By Order dated January 13, 2000, the Bankruptcy Court confirmed the Plan.
On January 28, 2000, Paragon was reorganized pursuant to the Plan through
the consummation of the Wellspring Transaction. As contemplated under the Plan,
the Equity Committee has withdrawn with prejudice its appeals of the P&G
Approval Order and the K-C Approval Order.
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<PAGE>
As a result of the Chapter 11 filing, the Company incurred significant costs
for professional fees. The Company was also required to pay certain expenses of
the Creditors' Committee and the Equity Committee including professional fees,
to the extent allowed by the Bankruptcy Court. Pursuant to the Plan, a reserve
was established from which any remaining professional fees and expenses related
to the Chapter 11 reorganization proceeding will be paid.
Trading in the Common Stock of the Company on the New York Stock Exchange
("NYSE") was suspended prior to the opening of trading on July 8, 1999. As of
July 9, 1999, the National Association of Securities Dealers, Inc.
Over-the-Counter Bulletin Board (the "OTCBB") began publishing quotations of the
Company's Common Stock under the symbol PGNFQ. As a result of the Plan, on
February 2, 2000, the OTCBB ceased quotations of the Company's Common Stock.
Quotation of the Company's Common Stock resumed on the OTCBB as of March 30,
2000, under the symbol PGTR.
ELECTION OF DIRECTORS AND DIRECTOR INFORMATION
It is intended that votes will be cast pursuant to the accompanying proxy
for the election of the nominees named below, who at present are directors of
the Company. If any nominee should become unavailable for any reason, it is
intended that votes will be cast for a substitute nominee designated by the
Board of Directors. The Board of Directors has no reason to believe that any of
the nominees named will be unable to serve if elected.
The Company's Certificate of Incorporation provides that the Board of
Directors is authorized to fix the number of directors within the range of one
to 15 members; the number currently is nine. The nominees named immediately
below comprise the slate of individuals who have been nominated for election at
the 2000 Annual Meeting for a term expiring at the 2001 Annual Meeting.
NOMINEES FOR ELECTION
DAVID W. COLE. Mr. Cole (age 53) was appointed a director of the Company as
of January 28, 2000 pursuant to the provisions of the Plan. Mr. Cole currently
serves as President of Torbitt & Castleman Company, Inc., a private label
consumer food products manufacturer and supplier, a position he has held since
December 1999. Mr. Cole also serves as a director of Changing Paradigms LLC, a
private label cleaning chemicals and scented consumer products manufacturer. Mr.
Cole formerly served as the Company's President from 1993 to 1999.
Principal Occupation: President, Torbitt & Castleman Company, Inc.
GREG S. FELDMAN. Mr. Feldman (age 44) was appointed a director of the
Company as of January 28, 2000 pursuant to the provisions of the Plan. Mr.
Feldman is the Managing Partner of Wellspring Capital Management LLC, a private
equity fund management company and has been affiliated with Wellspring since
January 1995. Mr. Feldman also serves as a director of The Hockey Company, a
sporting goods manufacturer, Lionel LLC, a model train manufacturer, Brooks Mays
Music Company, a musical instrument retailer, and Far and Wide Travel
Corporation, a leading travel and tour operator.
Principal Occupation: Managing Partner, Wellspring Capital Management LLC
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<PAGE>
DAVID C. MARIANO. Mr. Mariano (age 38) was appointed a director of the
Company as of January 28, 2000 pursuant to the provisions of the Plan. Mr.
Mariano was appointed to the Executive and Compensation and Governance
Committees of the Board of Directors in February 2000 and serves as Chair of the
Compensation and Governance Committee. Mr. Mariano is a Partner in Wellspring
Capital Management LLC, a private equity fund management company and is also a
director of Far and Wide Travel Corporation, a leading travel and tour operator.
Prior to joining Wellspring in November 1997, Mr. Mariano was a Managing
Director of The Blackstone Group LP, an investment banking firm.
Principal Occupation: Partner, Wellspring Capital Management LLC
JAMES R. MCMANUS. Mr. McManus (age 66) was appointed a director of the
Company as of January 28, 2000 pursuant to the provisions of the Plan. Mr.
McManus is currently Chief Executive Officer of Beachside Capital, LLC, a
private investment company which he founded in September 1997. Mr. McManus
previously served as CEO of Marketing Corp. of America from its founding in
March 1971 to September 1999. Mr. McManus also serves as a director of Family
Time.Com, an internet content company, and is a trustee of Northwestern
University and Carnegie Hall, Inc.
Principal Occupation: Chief Executive Officer, Beachside Capital, LLC
MICHAEL T. RIORDAN. Mr. Riordan (age 50) was appointed President and Chief
Executive Officer of the Company on May 4, 2000 and Chairman of the Board on
August 10, 2000. Mr. Riordan was also appointed a member of the Executive
Committee of the Board of Directors on May 4, 2000. Before joining the Company,
Mr. Riordan formerly served as President and Chief Operating Officer of Fort
James Corp. from August 1997 to August 1998; and as Chairman and Chief Executive
Officer and President and Chief Operating Officer of Fort Howard Corp. from
September 1996 to August 1997, and from March 1992 to September 1996,
respectively. Mr. Riordan currently serves as a director of The Dial
Corporation, a manufacturer of consumer goods, Wallace Computer Services, Inc.,
a manufacturer of business forms and labels as well as a provider of print
management services, and American Medical Security, Inc., a provider of health
insurance for small to medium-sized employers.
Principal Occupation: Chairman, President and Chief Executive Officer,
Paragon Trade Brands, Inc.
THOMAS F. RYAN, JR. Mr. Ryan (age 59) was appointed a director of the
Company as of January 28, 2000 pursuant to the provisions of the Plan. Mr. Ryan
was appointed to the Audit Committee of the Board of Directors in February 2000.
Mr. Ryan is currently a private investor. Mr. Ryan formerly served as President
of the American Stock Exchange, a national securities exchange, from October
1995 to April 1999, and as Chairman of Kidder, Peabody & Co., Inc., a securities
trading and investment firm, from January 1995 to October 1995. Mr. Ryan
currently serves as a director of Mellon Personal Asset Management, a financial
management company, and the New York Independent System Operator, the power grid
and market for New York state.
Principal Occupation: Private Investor
J. DALE SHERRATT. Mr. Sherratt (age 62) was appointed a director of the
Company as of January 28, 2000 pursuant to the provisions of the Plan. Mr.
Sherratt was appointed to the Executive Committee of the Board of Directors in
February 2000. Mr. Sherratt has been the Managing General Partner of Wellfleet
Investments, a health care investment company, since May 1992 and also has
served as the Chief Executive Officer of Cambridge Nutraceuticals, a nutritional
products manufacturer, since May 1996. Mr. Sherratt serves as a Trustee of Mass.
Financial Services, a mutual fund company.
Principal Occupation: Managing General Partner, Wellfleet Investments
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<PAGE>
CARL M. STANTON. Mr. Stanton (age 32) was appointed a director of the
Company as of January 28, 2000 pursuant to the provisions of the Plan. Mr.
Stanton was appointed to the Executive, Audit and Compensation and Governance
Committees of the Board of Directors in February 2000. Mr. Stanton serves as
Chair of the Audit Committee. Mr. Stanton currently is a Principal in Wellspring
Capital Management, LLC, a private equity fund management company and has been
affiliated with Wellspring since 1998. Prior to joining Wellspring, Mr. Stanton
was a Principal with Dimeling, Schreiber & Park, a private equity fund
management company from 1994 to December 1998.
Principal Occupation: Principal, Wellspring Capital Management LLC
THOMAS J. VOLPE. Mr. Volpe (age 64) was appointed a director of the Company
as of January 28, 2000 pursuant to the provisions of the Plan. Mr. Volpe was
appointed to the Audit Committee in February 2000. Mr. Volpe has served as the
Senior Vice President - Financial Operations for The Interpublic Group of
Companies since March 1986. Mr. Volpe also serves as a director of American
Technical Ceramics, Inc, a capacitor manufacturer, Alliance Atlantic, Inc., a
movie and television production and distribution company, and Rent-A-Wreck, an
auto rental company.
Principal Occupation: Senior Vice President - Financial Operations,
The Interpublic Group of Companies
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Four regularly scheduled and 13 special meetings of the Board of Directors
were held in fiscal 1999. Each then-sitting member of the Board attended at
least 75 percent of the Board of Directors and Committee meetings that he was
eligible to attend.
The Company has established standing committees of its Board of Directors,
including an Executive Committee, an Audit Committee and a Compensation and
Governance Committee. Each of these committees is responsible to the full Board
of Directors. The functions performed by these committees are summarized as
follows:
EXECUTIVE COMMITTEE. The Executive Committee was established in February
2000 and has delegated authority to exercise any of the functions of the full
Board of Directors in the management of the business and affairs of the Company,
within the limits permitted by law. Members of the Executive Committee are Mr.
Mariano, Mr. Riordan, Mr. Sherratt and Mr. Stanton. Messrs. Mariano, Sherratt
and Stanton have served since their appointment in February 2000. Mr. Riordan
has served since his appointment on May 4, 2000. Mr. Riordan serves as the
committee's chair.
AUDIT COMMITTEE. The Audit Committee makes recommendations to the Board
of Directors with respect to the engagement of independent public accountants to
audit the Company's annual financial statements. In addition, the Audit
Committee reviews the Company's accounting and audit practices and procedures
and the reports of the independent public accountants. Members of the Audit
Committee are Mr. Ryan, Mr. Stanton and Mr. Volpe, all of whom have served since
their appointment in February 2000. Mr. Stanton serves as the committee's chair.
The Audit Committee met once in fiscal 1999.
COMPENSATION AND GOVERNANCE COMMITTEE. The Compensation and Governance
Committee was formed in February 2000 from a combination of the former, separate
Compensation and Governance committees. The Compensation and Governance
Committee establishes salaries, incentives and other forms of compensation for
the Company's directors and officers and administers the Company's various
incentive compensation and benefit plans, including recommending the
establishment of policies relating to such plans. The Compensation and
Governance Committee also reviews and reports to the full Board on various
issues of Board governance, such as Board performance and accountability, new
directorships and Board compensation matters. Members of the Compensation and
Governance Committee are Mr. Mariano and Mr. Stanton, each of whom has served
since his initial appointment in February 2000. Mr. Mariano
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<PAGE>
serves as the committee's chair. The predecessor Compensation Committee met
twice in fiscal 1999. The predecessor Governance Committee met once in fiscal
1999.
DIRECTOR COMPENSATION
FEES. Directors who are employees of the Company do not receive any fees for
their services as directors. As of February 23, 2000, directors who are not
employees of the Company are paid an annual retainer of $20,000 for serving on
the Board of Directors. Each nonemployee director receives an additional fee of
$1,250 per day for attending each meeting of the Board of Directors and $1,000
for attending each meeting of a committee of the Board of Directors. A
nonemployee director serving as a committee chairman receives an additional
$2,500 per annum.
OPTIONS. The Company's predecessor Stock Option Plan for Nonemployee
Directors (the "Old Director Plan") was suspended by the previous Board during
the pendancy of the Company's Chapter 11 reorganization proceeding. As such, no
options were granted to directors under the Old Director Plan in 1999. At the
closing of the Wellspring Transaction, the Plan Implementation Committee of the
Board of Directors of reorganized Paragon elected to terminate the Old Director
Plan. The new Board of Directors intends to qualify at the Annual Meeting the
Director Plan, which would provide that directors who are not employees of the
Company may receive grants of options to purchase Common Stock under such plan.
It is contemplated that under the Director Plan each nonemployee director would
be eligible to automatically receive an option to purchase 3,000 shares of
Common Stock on the first business day following his or her initial election as
a director of the Company, at an exercise price of $10.00 per share, and
thereafter would be eligible to receive annually, on the first business day
following the date of each annual meeting of stockholders of the Company, an
option to purchase 3,000 shares of Common Stock at its then fair market value.
SEE "Approval of the Director Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 26, 1999, members of the Compensation
Committee were Adrian D.P. Bellamy (Chairman), Thomas B. Boklund and Robert L.
Schuyler. No executive officers or employees of the Company served on the
Compensation Committee in 1999. Members of the Compensation and Governance
Committee, as reconstituted in February 2000 following consummation of the
Company's reorganization proceedings, are David C. Mariano (Chairman) and Carl
M. Stanton.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock
as of September 30, 2000, by (a) each stockholder known by the Company to be the
beneficial owner of more than 5 percent of the Common Stock, (b) the Company's
directors, (c) the Company's named executive officers, as defined herein, and
(d) all the Company's directors and executive officers, as a group. Each of the
named persons and members of the group has sole voting and investment power with
respect to the shares shown, except as otherwise stated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
------------------------------------ -------------------- -----------
<S> <C> <C>
PTB Acquisition Company, LLC
Wellspring Capital Partners II, LP and
Wellspring Capital Management LLC......... 11,516,405 (1) 96.85%
620 Fifth Avenue, Suite 216
New York, NY 10020-1579
Co-Investment Partners, L.P............... 2,401,953 (1) 20.2%
660 Madison Avenue
New York, NY 10021
Ontario Teachers' Pension Plan Board...... 2,401,953 (1) 20.2%
5650 Yonge Street
North York, Ontario M2M 4H5, Canada
Bobby V. Abraham.......................... 3,404 (2) *
David W. Cole............................. 690 (3) *
Greg S. Feldman........................... 0 (4) 0
David C. Mariano.......................... 14,100 (5) *
James R. McManus.......................... 10,000 *
Thomas F. Ryan, Jr........................ 19,000 (6) *
J. Dale Sherratt.......................... 5,000 *
Carl M. Stanton........................... 3,500 (7) *
Thomas J. Volpe........................... 5,000 *
Michael T. Riordan........................ 126,000 (8) 1.05%
Alan J. Cyron............................. 1,433 (9) *
Arrigo D. Jezzi........................... 101 (10) *
Robert E. McClain......................... 0 (11) 0
Christine I. Oliver....................... 6 (12) *
Catherine O. Hasbrouck.................... 13 (13) *
All directors and executive officers as a group
(22 persons) ............................. 188,159 (14) 1.57%
<FN>
----------
* Represents holdings of less than 1%.
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<PAGE>
(1) PTB Acquisition Company, LLC (of which Wellspring Capital Partners II, LP is
the sole member), an affiliate of Wellspring Capital Management LLC,
(collectively, "Wellspring"), agreed to acquire substantially all of the new
Common Stock of the Company as part of the Company's plan of reorganization (the
"Wellspring Transaction").
Prior to the consummation of the Wellspring Transaction, Wellspring
assigned (i) its right to purchase approximately 20.2% of the new Common Stock
of the Company to Co-Investment Partners, L.P. ("CIP"), and (ii) its right to
purchase approximately a further 20.2% of the new Common Stock of the Company to
Ontario Teachers' Pension Plan Board ("Ontario"). Pursuant to the Wellspring
Transaction, Wellspring, CIP and Ontario purchased, in the aggregate,
approximately 96.8% of the new Common Stock (the "Investor Shares") issued
pursuant to the Plan on January 28, 2000 for a purchase price equal to $10.00
per share of new Common Stock, or approximately $115 million, in cash.
After giving effect to the assignment by Wellspring of its rights under the
Stock Purchase Agreement as described above, Wellspring invested approximately
$67 million, which funds were provided by Wellspring Capital Partners II, L.P.
from funds contributed by its limited and general partners, to acquire
approximately 56.5% of the new Common Stock, CIP invested approximately $24
million, which funds were provided by its limited and general partners, to
acquire approximately 20.2% of the new Common Stock and Ontario invested
approximately $24 million, which funds came from the pension fund it manages, to
acquire approximately 20.2% of the new Common Stock.
Pursuant to proxies given on January 28, 2000 by CIP and Ontario,
Wellspring has sole voting power to vote all of the Investor Shares and shared
dispositive power with respect to all of the Investor Shares. Therefore,
Wellspring may be deemed to beneficially own these shares of new Common Stock.
(2) Mr. Abraham resigned effective May 8, 2000. Mr. Abraham's Section 16
reporting obligation terminated shortly following his resignation from the
Company. Information reported is based upon Mr. Abraham's final Form 4 filed
with the SEC for May 2000. Includes Warrants to purchase 2,650 shares of Common
Stock at $18.91 per share, exercisable immediately and expiring January 28,
2010.
(3) Includes Warrants to purchase 472 shares of Common Stock at $18.91 per
share, exercisable immediately and expiring January 28, 2010.
(4) Mr. Feldman is the sole managing member of Wellspring Capital Management,
LLC and also is sole managing member of Wellspring Capital Associates II, LLC, a
Delaware limited liability company and the entity that is the general partner of
Wellspring Capital Partners II, L.P. In such capacities Mr. Feldman has the
ability to direct the investment and voting decisions of Wellspring Capital
Management, LLC and, therefore, may be deemed to have investment and voting
discretion with respect to the 11,516,405 shares of common stock beneficially
owned by Wellspring Capital Management, LLC, Wellspring Capital Partners II,
L.P., and PTB Acquisition Company, LLC. However, Mr. Feldman disclaims
beneficial ownership of such securities.
(5) Includes Warrants to purchase 3,000 shares of Common Stock at $18.91 per
share, exercisable immediately and expiring January 28, 2010.
(6) Mr. Ryan shares voting and investment power jointly with his spouse as to
1,000 shares of Common Stock and 4,000 Warrants. Includes Warrants to purchase
5,000 shares of Common Stock at $18.91 per share, exercisable immediately and
expiring January 28, 2010.
(7) Includes Warrants to purchase 3,500 shares of Common Stock at $18.91 per
share, exercisable immediately and expiring January 28, 2010.
(8) Mr. Riordan was not employed by the Company in 1999 and is not a named
executive officer for purposes of this proxy statement. Mr. Riordan is included
in the group and his holdings are reported for
-8-
<PAGE>
clarity and convenience of the reader. Includes options to purchase 126,000
shares of Common Stock, exercisable within 60 days of the date of this Proxy
Statement if the Company meets certain performance goals.
(9) Mr. Cyron resigned effective October 6, 2000. Mr. Cyron's Section 16
reporting obligation terminated shortly following his resignation from the
Company. Information reported is based upon Mr. Cyron's final Form 4 filed with
the SEC for September 2000. Includes Warrants to purchase 914 shares of Common
Stock at $18.91 per share, exercisable immediately and expiring January 28,
2010.
(10) Mr. Jezzi resigned effective April 23, 1999. Mr. Jezzi's Section 16
reporting obligation terminated shortly following his resignation from the
Company. Information reported is based on Mr. Jezzi's final Form 4 filed with
the SEC for April 1999 and the assumption that such shares of old Common Stock
were exchanged for shares of new Common Stock and Warrants pursuant to the
Company's Plan of Reorganization. Includes Warrants to purchase 79 shares of
Common Stock at $18.91 per share, exercisable immediately and expiring January
28, 2010.
(11) Mr. McClain resigned effective June 23, 2000. Mr. McClain's Section 16
reporting obligation terminated shortly following his resignation from the
Company. Information reported is based upon Mr. McClain's final Form 4 filed
with the SEC for May 2000.
(12) Ms. Oliver has resigned effective as of December 6, 2000. Includes Warrants
to purchase 5 shares of Common Stock at $18.91 per share, exercisable
immediately and expiring January 28, 2010.
(13) Ms. Hasbrouck resigned effective March 15, 2000. Ms. Hasbrouck's Section 16
reporting obligation terminated shortly following her resignation from the
Company. Information reported is based upon Ms. Hasbrouck's final Form 4 filed
with the SEC for May 2000. Includes Warrants to purchase 10 shares of Common
Stock at $18.91 per share, exercisable immediately and expiring January 28,
2010.
(14) Includes options to purchase 126,000 shares of common Stock, exercisable
within 60 days of the date of this Proxy Statement if the Company meets certain
performance goals, and Warrants to purchase 15,945 shares of Common Stock at
$18.91 per share, exercisable immediately and expiring January 28, 2010.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation and Governance Committee of the Board of Directors (the
"Compensation Committee") is composed entirely of nonemployee directors. The
Compensation Committee is responsible for establishing and administering the
Company's executive compensation programs.
COMPENSATION POLICIES
The Compensation Committee, as noted above, is composed entirely of
nonemployee directors. The Compensation Committee is responsible for
establishing and administering the Company's executive compensation programs.
The Compensation Committee establishes compensation according to the following
guiding principles:
(a) Compensation should be directly linked to the Company's operating
and financial performance.
(b) Total compensation should be competitive when compared to
compensation levels of executives of companies against which the Company
competes for management.
-9-
<PAGE>
(c) Performance-related pay should be a significant component of total
compensation, placing a substantial portion of an executive's compensation
at risk.
COMPENSATION PRACTICES
Compensation for executives has historically included base salary, annual
bonuses and long-term incentive awards, including stock options, SARs and
restricted stock awards. Consistent with the above principles, a substantial
proportion of executive compensation has depended on Company performance and on
enhancing stockholder value.
BASE SALARY. The Company has historically used externally-developed
compensation surveys to assign a competitive salary range to each salaried
position, including executive positions. The companies included in the survey in
the past have been selected by the Company's outside compensation consultants
and include companies engaged in nondurable manufacturing with annual revenues
of between $400 million and $1 billion.
In the past, the Compensation Committee has set actual base salary levels
for the Company's executives based on recommendations by management. The
Compensation Committee intends to continue this practice, focusing primarily on
the executive's performance, the executive's position in the salary range, the
executive's experience and the Company's salary budget.
ANNUAL BONUS. The Company employs a formal system for developing measures
of and evaluating executive performance. Bonuses are determined with reference
to quantitative measures established by the Compensation Committee each year. At
the beginning of each year, the Compensation Committee also approves performance
targets relating to the quantitative measures that, if achieved, will establish
a bonus pool equal to the sum of the individual target bonuses for all
executives. The Compensation Committee also establishes performance targets that
could result in a range of bonus payouts from a minimum of zero to a maximum
bonus payout of 200 percent of target bonus. At the end of the year, Company
performance, as compared to the quantitative measures described above,
determines the bonus pool for the executive group. Target bonuses for individual
executives are in the range of 30 percent to 60 percent of base salary. The
Compensation Committee retains the discretion to adjust any individual bonus if
deemed appropriate.
In the event Company performance exceeds the performance targets
established for the maximum 200 percent bonus payout, the bonus pool is funded
in excess of such 200 percent payout. Such excess bonus funding is retained by
the Company and may be paid out, at the Compensation Committee's discretion, in
any year in which performance targets are not achieved, if the Compensation
Committee determines such event to be the result of factors unrelated to
management performance.
In 1999, the quantitative measure for bonus payments was earnings before
interest, taxes, depreciation and amortization ("EBITDA"). There was no upward
limit on the maximum possible bonus payout. The Company's performance in fiscal
1999 did not meet the minimum quantitative measures and the Compensation
Committee accordingly did not award any bonuses.
As a result of the Chapter 11 filing, and in recognition of the need to
drive the operating performance of the Company and to incent employees to remain
with the Company throughout the course of the Chapter 11 proceeding, the
Compensation Committee altered the Company's existing incentive compensation
plans. The revised plans included (i) a retention incentive for employees of the
Company, other than the top eight executives, following the Chapter 11 filing
and (ii) a Confirmation Retention Plan for Top Eight Executives (the
"Confirmation Retention Plan") described herein. SEE "--Employment Agreements;
Change in Control Arrangements: Confirmation Retention Plan for Top Eight
Executives." These revised plans were approved by the Bankruptcy Court in August
1998. As a result of the Company's
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<PAGE>
exit from Chapter 11 on January 28, 2000, all retention bonuses approved by the
Bankruptcy Court in August 1998 have been paid.
For 2000, the Compensation Committee has determined that the quantitative
measure for bonus payments will again be EBITDA. The plan will provide minimum,
target, and maximum payout levels.
LONG-TERM INCENTIVES. Long-term incentives are designed to link management
reward with the long-term interests of the Company's stockholders. Through 1997,
the Compensation Committee granted stock options, stock appreciation rights
("SARs") and restricted stock as long-term incentives. Individual stock option
and SAR grants were based on level of responsibility, the Company's stock
ownership objectives for management and upon the Company's performance versus
the financial performance objectives set each year for the annual bonus plan
described above.
In 1998, the Compensation Committee determined, in connection with the
Confirmation Retention Plan, that in light of the uncertainties associated with
the Chapter 11 process, the Company should discontinue future stock option and
SAR grants and restricted stock awards until its emergence from Chapter 11 and,
as such, no options, SARs or restricted stock awards were granted to employees
for 1999. As part of the Company's exit from Chapter 11 on January 28, 2000, all
outstanding stock options have been canceled. As a further part of the Company's
Plan of Reorganization, the Paragon Trade Brands, Inc. Stock Option Plan (the
"Stock Option Plan") was approved by the Bankruptcy Court. SEE "Approval of the
Stock Option Plan."
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the Company's ability to deduct compensation in excess of $1
million paid during a tax year to the Chief Executive Officer and the four other
highest paid executive officers of the Company. Certain performance-based
compensation is not subject to such deduction limit. The Company intends, at the
appropriate time, to qualify stock option and SAR grants for the
"performance-based" exception to the $1 million limitation on deductibility and
otherwise to maximize the deductibility of executive compensation while
retaining the discretion necessary to compensate executive officers in a manner
commensurate with performance and the competitive market of executive talent.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Abraham served as the Company's Chief Executive Officer since its
initial public offering in February 1993 until his resignation effective as of
May 8, 2000. Prior to service as the Company's Chief Executive Officer, Mr.
Abraham was in charge of the Company's operations as a division of Weyerhaeuser.
Mr. Abraham's base salary was realigned in 1996 from prior year levels to
$500,000.
Mr. Abraham did not receive an annual incentive bonus for 1999. Mr.
Abraham did participate in the Confirmation Bonus payable under the Confirmation
Retention Plan described above, receiving a bonus of $1,061,690 on January 28,
2000. This bonus will be reported as income for 2000. SEE "--CONFIRMATION
RETENTION PLAN FOR TOP EIGHT EXECUTIVES."
As discussed above, the Compensation Committee discontinued the use of
annual grants of stock options, SARs and restricted stock awards as incentive
compensation for Mr. Abraham while the Company was subject to Chapter 11
protection. In the past, annual stock option grants were determined by reference
to the external compensation survey data discussed above, as well as the
Company's performance versus the financial performance objectives set each year
for the annual bonus plan described above.
COMPENSATION AND GOVERNANCE COMMITTEE
David C. Mariano
Carl M. Stanton
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<PAGE>
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the cumulative total return on
the Common Stock during the period beginning on December 25, 1994 and ending on
December 26, 1999, the last day of the Company's 1999 fiscal year, with the
cumulative total return on the Standard & Poor's 500 Index and the combined
Value Line Household Products and Toiletries/Cosmetics Indices (weighted
equally). The comparison assumes $100 was invested on December 25, 1994 in the
Common Stock, the Standard & Poor's 500 Index and the combined Value Line
Household Products and Toiletries/Cosmetics Indices and assumes reinvestment of
dividends. The stock price performance shown on the graph is not necessarily
indicative of future price performance.
[Performance graph omitted]
PERFORMANCE GRAPH DATA POINTS
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN AS OF:
NAME 25-DEC-94 31-DEC-95 29-DEC-96 28-DEC-97 27-DEC-98 26-DEC-99
---- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PARAGON TRADE BRANDS, INC. 100.00 176.42 226.42 97.17 16.04 1.74
Combined Value Line 100.00 136.49 183.18 252.71 285.65 319.70
Household Products and
Toiletries/Cosmetics Indices
Standard & Poor's 500 100.00 137.58 169.17 225.61 290.09 351.13
<FN>
----------
(1) Tambrands, Inc. ("Tambrands") was a member of the Combined Value Line
Household Products and Toiletries/Cosmetics Indices ("Peer Group") for the years
1994-1996. Tambrands was acquired by P&G during 1997 and total return data for
1997 is not available. Tambrands was removed from the Value Line Household
Products and Toiletries/Cosmetics Indices as of 1997.
-12-
<PAGE>
(2) First Brands Corp. ("First Brands"), General Housewares Corp ("General
Housewares") and Rubbermaid, Incorporated ("Rubbermaid") were each members of
the Combined Value Line Household Products and Toiletries/Cosmetics Indices
("Peer Group") for the years 1994 through 1998. First Brands, General Housewares
and Rubbermaid were acquired by or merged with The Clorox Co., CCPC Acquisition
Corp. and Newell Co., respectively, during 1999 and total return data for 1999
is not available. First Brands, General Housewares and Rubbermaid were removed
from the Value Line Household Products and Toiletries/Cosmetics Indices as of
1999.
</FN>
</TABLE>
COMPENSATION OF EXECUTIVES
The following table discloses information concerning the annual and
long-term compensation received by those persons who were, at December 26, 1999,
the last day of the Company's 1999 fiscal year, the Company's Chief Executive
Officer and four other most highly compensated executive officers on that date
and two executive officers of the Company who had resigned their positions prior
to December 26, 1999 (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
OTHER
ANNUAL SECURITIES ALL OTHER
NAME AND FISCAL BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1)(2) ($)(3) OPTIONS/SARS(#) ($)(4)
-------------------- ---- --------- --------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bobby V. Abraham(5)..... 1999 500,006 0 0 0 14,988
Chief Executive Officer 1998 519,237 561,004 0 0 234,191
1997 500,006 0 0 30,000 104,885
David W. Cole(6)........ 1999 228,923 0 0 0 13,292
President 1998 269,537 224,400 0 0 18,143
1997 304,954 0 13,985 20,000 3,146
Alan J. Cyron(7)........ 1999 225,000 0 0 0 12,668
Executive Vice 1998 228,422 210,375 0 0 16,318
President and 1997 206,612 0 4,615 15,000 3,158
Chief Financial Officer
Arrigo D. Jezzi(8)...... 1999 73,558 0 0 0 473,146
Executive Vice 1998 224,423 210,375 0 0 18,289
President, Operations, 1997 173,679 0 32,179 10,000 4,250
Technology and
International
Robert E. McClain(9).... 1999 210,000 0 0 0 13,447
Executive Vice 1998 177,355 196,350 0 0 12,974
President, Sales and
Marketing
Christine I. Oliver(10). 1999 244,277 0 0 0 24,428
Executive Vice
President, Customer
Management
Catherine O. Hasbrouck(11) 1999 150,000 40,000 0 0 10,911
Vice President, General
Counsel and Secretary
-13-
<PAGE>
<FN>
----------
(1) As a result of the Company's performance in fiscal 1997 and 1999, no annual
bonus payment was made to any of the named executive officers for 1997 or 1999.
(2) In addition to amounts earned under the Company's Annual Bonus program, Mr.
McClain was paid a bonus in the amount of $71,210 in 1998. In 1999, Ms.
Hasbrouck received a bonus of $40,000 in connection with her role in the
settlement and compromise of certain creditor claims filed in the Company's
Chapter 11 reorganization proceeding.
(3) Messrs. Cole and Cyron received tax gross-up payments in 1997 for
reimbursements by the Company of taxable relocation expenses incurred in
connection with their relocation in 1996 from Washington to Georgia. Amounts
paid to Mr. Jezzi include $14,365 for reimbursement of taxable relocation
expenses, $6,904 for reimbursement of nontaxable relocation expenses and $10,190
for tax gross-up payments, each made in connection with his relocation in 1997
from Pennsylvania to Georgia. Included in such taxable and nontaxable relocation
expenses reported above for Mr. Jezzi were $6,583 in payment of moving expenses
and $9,873 reimbursement for loss on the sale of his Pennsylvania residence.
Messrs. Abraham, Cole and Cyron recognized income in 1997 in the amounts of
$84,721, $13,748 and $24,825, respectively, on the difference between the price
paid for shares of the Company's Common Stock purchased in lieu of the 1996
bonus and the fair market value of those shares on the date of purchase.
(4) The amounts shown for fiscal 1999 represent: (i) matching 401(k)
contributions under the Paragon Retirement Investment Savings Management Plan
(the "PRISM Plan") in the amounts of $2,308, $1,108, $1,038, $1,038, $767 and
$692 for Messrs. Abraham, Cole, Cyron, Jezzi, McClain and Ms. Hasbrouck,
respectively; (ii) retirement contributions under the PRISM Plan in the amounts
of $4,800 for each of Messrs. Abraham, Cole, Cyron, Jezzi, McClain and Ms.
Hasbrouck; (iii) profit sharing contributions under the PRISM Plan in the
amounts of $7,880, $6,830, $7,880 and $5,419 for Messrs. Abraham, Cyron, McClain
and Ms. Hasbrouck, respectively; (iv) employee and spouse contributions in the
amounts of $14,999.64 and $9,427.95, respectively under the Registered
Retirement Savings Plan (the "RRSP") for Ms. Oliver; (v) payments in the amount
of $450,000 and $17,308 for severance and accrued vacation, respectively, to Mr.
Jezzi pursuant to his Employment Contract; and (vi) payment in the amount of
$7,385 for accrued vacation to Mr. Cole upon his resignation.
(5) Mr. Abraham resigned effective as of May 8, 2000.
(6) Mr. Cole resigned effective as of December 8, 1999.
(7) Mr. Cyron resigned effective as of October 6, 2000.
(8) Mr. Jezzi resigned effective as of April 23, 1999.
(9) Mr. McClain resigned effective as of June 23, 2000.
(10) Ms. Oliver has resigned effective as of December 6, 2000. Ms. Oliver is a
Canadian citizen and is compensated in Canadian Dollars. The components of Ms.
Oliver's compensation are reported in Canadian dollars. The rate for conversion
of Canadian dollars to United States dollars for 1999 averaged US $0.67 per
Canadian dollar.
(11) Ms. Hasbrouck resigned effective as of March 15, 2000.
</FN>
</TABLE>
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<PAGE>
1999 OPTION GRANTS AND EXERCISES
There were no option grants under any of the Company's incentive
compensation plans in 1999. See "Report of Compensation Committee on Executive
Compensation: Long-Term Incentives" above.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
The following table provides information on the aggregated option/SAR
exercises by named executive officers in 1999 and the value of the named
executive officers' unexercised options/SARs at December 26, 1999. Pursuant to
the Company's Plan of Reorganization, all outstanding options were canceled
effective January 28, 2000. No new options have been granted to any of the named
executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED NUMBER OF SECURITIES
OPTIONS AT UNDERLYING UNEXERCISED
OPTION/SAR EXERCISES FISCAL YEAR-END(#) SARS AT FISCAL YEAR END(#)
-------------------- ------------------ --------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bobby V. Abraham........... 0 0 229,160 22,500 0 0
David W. Cole.............. 0 0 132,500 0 0 0
Alan J. Cyron.............. 0 0 38,750 11,250 0 0
Arrigo D. Jezzi............ 0 0 0 0 0 0
Robert E. McClain.......... 0 0 0 0 12,500 7,500
Christine I. Oliver........ 0 0 3,340 0 3,000 2,000
Catherine O. Hasbrouck..... 0 0 12,500 7,500 0 0
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS/SARS AT
FISCAL YEAR-END($)(1)
---------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
Bobby V. Abraham........... 0 0
David W. Cole.............. 0 0
Alan J. Cyron.............. 0 0
Arrigo D. Jezzi............ 0 0
Robert E. McClain.......... 0 0
Christine I. Oliver........ 0 0
Catherine O. Hasbrouck..... 0 0
<FN>
----------
(1) The value of the options/SARs on December 26, 1999 is based on the average
of the high and low sales price per share of the Common Stock as quoted on the
NASDAQ Over-the-Counter Bulletin Board on December 23, 1999 ($.235). None of the
outstanding options or SARs were in the money at December 26, 1999.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS; CHANGE-IN-CONTROL ARRANGEMENTS
CONFIRMATION RETENTION PLAN FOR TOP EIGHT EXECUTIVES. In August 1998, the
Company received Bankruptcy Court approval of its Confirmation Retention Plan
for Top Eight Executives (the "Confirmation Retention Plan"), which had
previously been adopted by the Compensation Committee of the Company's Board of
Directors (the "Committee"). The Confirmation Retention Plan was designed to
provide additional incentive for the Company's eligible executives to remain
with the Company through the conclusion of the Company's Chapter 11
reorganization proceeding and to ensure their continued dedication and efforts
without undue concern for their personal financial and employment security in
order
-15-
<PAGE>
to expedite the Company's emergence from Chapter 11. In particular, the
Confirmation Retention Plan included a bonus that was payable to the eligible
executives upon emergence from Chapter 11 (the "Confirmation Bonus") and
enhanced severance protection, as described below.
In conjunction with the Confirmation Retention Plan, each of the eligible
executives of the Company, including Mr. Abraham and certain of the other named
executive officers, entered into Employment Agreements with the Company which
provided, among other things, that those executives were eligible to participate
in the Confirmation Retention Plan. These Employment Agreements superseded any
prior employment agreement that any of those executives had with the Company.
Under the Confirmation Retention Plan, the Company paid Confirmation
Bonuses in cash totaling an aggregate $2,160,000 to the eligible executives upon
consummation of the Plan.
The Confirmation Retention Plan also contained a severance program pursuant
to which an eligible executive was entitled to receive severance benefits from
the Company equal to two times base salary, plus a continuation of benefits for
two years, upon a Board Requested Termination, Resignation for Good Reason, or
upon a termination based on Permanent Disability or death (each such capitalized
term as defined in the Confirmation Retention Plan). In general, severance
benefits were paid in a lump sum on the last day of employment. No severance
benefits were to be paid upon a termination for Cause or upon voluntary
termination of employment for any reason other than very limited circumstances
specified in the Confirmation Retention Plan. Under the Confirmation Retention
Plan, an executive could voluntarily resign and still receive severance benefits
if (i) the Company did not make an offer to the executive of continued
employment of at least one additional year during the tenth month after
confirmation of a plan of reorganization; (ii) the Company made such an offer,
but such offer contained terms that would provide the executive with the option
to Resign for Good Reason; or (iii) the executive Resigned for Good Reason. If
the Company made an offer to the executive of continued employment of at least
one additional year during the tenth month after confirmation of a plan, which
offer did not contain terms that would provide the executive with the option to
Resign for Good Reason, and the executive resigned anyway, then the executive
would receive a lump sum equal to only one times the executive's base salary
upon termination of employment. The remainder of the severance benefits would
then be paid in 12 monthly installments and would be reduced in an amount equal
to the salary compensation received by the executive due to other employment,
including fees from consulting services.
In addition to the above, the terms of the individual employment agreements
with the eligible executives also required that each executive diligently
performed all acts and duties and furnished such services as would be customary
for the position that such executive held. Each of the eligible executives were
also required to comply with a noncompete provision contained in their
respective employment agreements which would run during the tenure of the
executive's employment and for a period of two years thereafter. Each of the
eligible executives was also required, as part of their respective employment
agreements, to enter into a confidentiality agreement with the Company. A breach
by the executive of his or her obligations under either the employment agreement
or the confidentiality agreement would result in a forfeiture of the executive's
rights under their employment agreement and would make the executive ineligible
to participate in the Confirmation Retention Plan.
CONSULTING AND SEPARATION AGREEMENT WITH BOBBY V. ABRAHAM. Mr. Abraham and
the Company entered into a consulting and separation agreement effective as of
June 30, 2000, pursuant to which Mr. Abraham resigned from any and all
appointments as an officer, employee or director of the Company, including as
the Chief Executive Officer of the Company. In so terminating any and all
obligations by and among Mr. Abraham and the Company, the Company is obligated
to pay him a lump sum cash payment equal to any accrued wage benefits earned
prior to the termination date, including any unused accrued vacation and
personal time. In addition, Mr. Abraham is entitled to receive from the Company
a single lump sum severance payment of $1,000,000, a deferred compensation award
of $100,001.20 and an additional deferred compensation payment of $216,048. Mr.
Abraham is also entitled to continued coverage under the Company's health and
employee benefit plans at the Company's expense for a period of
-16-
<PAGE>
two (2) years
from the termination date. The agreement further contains a confidentiality and
nondisparagement agreement among the parties and a general release and waiver of
all claims against the Company by Mr. Abraham and against Mr. Abraham by the
Company. By the terms of this consulting and separation agreement, the
employment agreement by and among the Company and Mr. Abraham dated as of August
5, 1997 and the provisions therein are terminated and superseded.
As a part of this agreement, Mr. Abraham and the Company also entered into
a consultation agreement pursuant to which Mr. Abraham may serve as the
Company's consultant until December 31, 2000. Such consulting arrangement may be
terminated by the Company for cause before its expiration and may be extended by
mutual agreement of the parties. In exchange for his consulting services, Mr.
Abraham is entitled to a lump sum payment equal to the excess, if any, of
$500,000 over the total amount of fee advances previously made to Mr. Abraham.
Such fee advances are made to Mr. Abraham on a monthly basis in an amount equal
to the product of the number of days consulting services were actually rendered
during the preceding month multiplied by $5,000.
EMPLOYMENT AGREEMENT WITH MICHAEL T. RIORDAN. Mr. Riordan and the Company
entered into an employment agreement effective as of May 4, 2000, pursuant to
which he serves as the Company's President and Chief Executive Officer and
currently receives a base salary of $500,000 per year. In addition, Mr. Riordan
is entitled to receive an annual bonus based upon the achievement of targeted
levels of performance. The agreement grants Mr. Riordan options to purchase
700,000 shares of the Company's Common Stock and provides for the possibility of
future grants of options to Mr. Riordan as determined by the Board of Directors.
Mr. Riordan may participate in all of the Company's employee and fringe benefit
plans in addition to receiving five (5) weeks paid vacation per year,
reimbursement of specified reasonable expenses and coverage by a customary
director and officer indemnification policy. The agreement has a term of three
years, which term is automatically extended for additional one-year periods
unless either Mr. Riordan or the Company provides written notice of its
intention not to so extend. The Company can terminate the agreement with or
without good cause, and Mr. Riordan can terminate the agreement with or without
good reason. The Company is obligated to pay Mr. Riordan a lump sum equal to two
times his annual base salary and the average of his annual bonus for the two
preceding fiscal years if the termination is without cause or for good reason.
APPROVAL OF THE STOCK OPTION PLAN
PROPOSAL - ADOPTION OF THE STOCK OPTION PLAN
The Stock Option Plan was adopted by the Plan Implementation Committee of
the Board of Directors on January 28, 2000, in connection with the Company's
Plan of Reorganization, subject to approval by the Company's stockholders at the
2000 Annual Meeting. A copy of the Stock Option Plan is attached to this Proxy
Statement as Appendix A. The following description of the Stock Option Plan is a
summary and does not purport to be fully descriptive. Reference is made to
Appendix A for more detailed information.
SUMMARY OF THE STOCK OPTION PLAN
A summary of the Stock Option Plan is set forth below. The summary is
qualified in its entirety by reference to the full text of the Stock Option
Plan, which is attached to this Proxy Statement as Appendix A.
GENERAL. The purpose of the Stock Option Plan is to provide a means through
which the Company and its affiliates may attract able persons to enter and
remain in the employ of the Company and affiliates and to provide a means
whereby employees, directors and consultants of the Company and its affiliates
can acquire and maintain Common Stock ownership, thereby strengthening their
commitment to the welfare of the Company and affiliates and promoting an
identity of interest between stockholders and these
-17-
<PAGE>
employees. As of September 30, 2000, there were approximately 25 employees
(including all current executive officers) and directors eligible to participate
in the Stock Option Plan.
The Stock Option Plan authorizes the granting to employees, officers, and
directors of the Company or its affiliates options to purchase shares of Common
Stock ("Options"), which may be Incentive Stock Options or Nonqualified Stock
Options. The maximum number of shares of Common Stock with respect to one or
more Options that may be granted during any one calendar year under the Stock
Option Plan to any one participant is 750,000 (subject to adjustment as
described therein). The aggregate number of shares of Common Stock in respect of
which Options may be granted under the Stock Option Plan is 1,321,222 (subject
to adjustment as described therein).
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company may not deduct compensation in excess of $1 million
paid to the Chief Executive Officer and the four next most highly compensated
executive officers of the Company. The Stock Option Plan is designed to comply
with Code Section 162(m) so that the grant of Options under the Stock Option
Plan, will be excluded from the calculation of annual compensation for purposes
of Code Section 162(m) and will be fully deductible by the Company. The Board
has approved the Stock Option Plan for submission to the stockholders in order
to permit the grant of Awards thereunder that will constitute deductible
performance-based compensation for purposes of Code Section 162(m). The
effective date of the Stock Option Plan is January 28, 2000, provided that the
effectiveness of the Plan and the validity and exercisability of any Option
granted thereunder is contingent upon approval of the Stock Option Plan by the
stockholders of the Company, in a manner intended to comply with the
requirements of Sections 162(m) and 422(b)(i) of the Code. The expiration date
of the Stock Option Plan, on and after which Options may no longer be granted,
is the tenth anniversary of the effective date.
ADMINISTRATION. The Stock Option Plan will be administered by a committee
of the Board of Directors of the Company (the "Committee"). The Committee has
the power, authority and discretion to designate participants; determine the
type of Options to be granted to each participant and the number, terms and
conditions thereof; establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Stock Option Plan; and make
all other decisions and determinations that may be required under, or as the
Committee deems necessary or advisable to administer, the Stock Option Plan.
STOCK OPTIONS. The Committee is authorized to grant Options under the Stock
Option Plan, which may be Incentive Stock Options or Nonqualified Stock Options.
All Options will be evidenced by a written award agreement between the Company
and the participant, which will include such provisions as may be specified by
the Committee; provided, however that the exercise price of an Incentive Stock
Option may not be less than the fair market value of a share of Common Stock on
the date the Option is granted. The other terms of an Incentive Stock Option
must meet the requirements of Section 422 of the Code. In the case of
Nonqualified Stock Options, the exercise price may be less than, equal to or
greater than the fair market value of a share of Common Stock on the date the
Option is granted, PROVIDED, HOWEVER, that such exercise price may not be less
than the par value of a share of Common Stock and, PROVIDED, FURTHER, that any
option intended to qualify as "performance-based compensation" under Section
162(m) of the Code, will have an exercise price per share equal to no less than
the fair market value of a share of Common Stock on the date of grant.
Upon exercise of any Option, payment for shares of Common Stock as to which
the Option is exercised shall be made in such manner and at such time or times
as shall be provided in the Option Agreement, including cash, shares of Common
Stock previously acquired by the optionee, a broker-assisted cashless exercise,
or any combination thereof. If all or part of the exercise price is paid in
shares of Common Stock, the value of such shares will be equal to the fair
market value of such shares as of the date of exercise.
-18-
<PAGE>
LIMITATIONS ON TRANSFER. No Option will be assignable or transferable by a
participant other than by will or the laws of descent and distribution. Each
Option will be exercisable during the participant's lifetime, only by the
participant, or if permissible under applicable law, by the participant's legal
guardian or representative.
CHANGES TO OPTIONS UPON CERTAIN EVENTS. In the event (i) the Company is
merged or consolidated with another corporation or entity, and in connection
therewith, consideration is received by the Company's stockholders in a form
other than stock or other equity interests of the surviving entity, or (ii) all
or substantially all of the assets of the Company are acquired by another
person, or (iii) the Company is reorganized or liquidated, or the Company enters
into a written agreement to undergo an event described in (i), (ii) or (iii)
above, then the Committee may, in its discretion and upon at least 10 days
notice, cancel any outstanding Options, and pay to the holders thereof, in cash
or stock, the value of such Options based upon the price per share of Common
Stock received or to be received by other stockholders of the Company.
TERMINATION AND AMENDMENT. The Board may, at any time and from time to
time, suspend, terminate, amend or modify the Stock Option Plan without
stockholder approval; provided, however, that no such suspension, amendment,
termination or modification may be made without the approval of stockholders of
the Company if such approval is necessary with respect to tax, securities or
other applicable laws, policies or regulations. The Committee may amend, alter,
suspend, discontinue, cancel or terminate any outstanding Option, but such
action shall not, without the participant's consent, impair the rights of such
participant.
CERTAIN FEDERAL INCOME TAX EFFECTS
NONQUALIFIED STOCK OPTIONS. Generally, under present federal income tax
regulations, there will be no federal income tax consequences to either the
Company or the participant upon the grant of a Nonqualified Stock Option.
However, the participant will realize ordinary income on the exercise of the
Nonqualified Stock Option in an amount equal to the excess of the fair market
value of the Common Stock acquired upon the exercise of such Option over the
exercise price, and the Company will be entitled to a corresponding deduction
(subject to Code Section 162(m) limitations). The gain, if any, realized upon
the subsequent disposition by the participant of the Common Stock will
constitute short-term or long-term capital gain, depending on the participant's
holding period.
INCENTIVE STOCK OPTIONS. Under present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
participant upon the grant of an Incentive Stock Option. Although the
participant will not realize ordinary income upon his exercise of an Incentive
Stock Option, the difference between the exercise price and the fair market
value of the shares at the time of exercise of the Incentive Stock Option will
be treated as an item of tax preference for alternative minimum tax purposes. If
the participant holds the shares of Common Stock for the greater of two years
after the date the Incentive Stock Option was granted or one year after the
acquisition of such shares of Common Stock (the "required holding period"), the
difference between the aggregate exercise price and the amount realized upon
disposition of the shares of Common Stock will constitute long-term capital gain
or loss, and the Company will not be entitled to a federal income tax deduction.
If the shares of Common Stock are disposed of in a sale, exchange or other
"disqualifying disposition" during the required holding period, the participant
will realize taxable ordinary income in an amount equal to the lesser of (i) the
gain realized by the participant upon such disposition, or (ii) the excess of
the fair market value of the Common Stock purchased at the time of exercise over
the aggregate exercise price, and the Company will be entitled to a federal
income tax deduction equal to such amount (subject to Code Section 162(m)
limitations). The gain in excess of such amount realized by the participant as
ordinary income would be taxed as a capital gain (subject to the holding period
requirements for long-term or short-term capital gain treatment).
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<PAGE>
NEW PLAN BENEFITS
The following table sets forth the number of options, subject to
stockholder approval of the Stock Option Plan, that have been, and to the extent
determinable, will be granted to (i) all current executive officers as a group,
and to (ii) all employees (other than executive officers) as a group under the
Stock Option Plan. No options have been granted nor are anticipated to be
granted to any directors who are not executive officers or to any of the named
executive officers listed in the Summary Compensation Table.
NEW PLAN BENEFITS TABLE
NEW PLAN BENEFITS
PARAGON TRADE BRANDS, INC. STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
UNDERLYING OPTIONS EXERCISE PRICE
------------------ --------------
GRANTED(1)
----------
<S> <C> <C>
All current executive officers as a group (8 persons) 1,105,000 10.00*
All employees (excluding executive officers) as a group 149,000 10.00*
(approximately 22 persons)
<FN>
----------
* Weighted average exercise price per share.
</FN>
</TABLE>
ADDITIONAL INFORMATION
The closing price of the Common Stock, as reported by the Over-the-Counter
Bulletin Board on November 1, 2000, was $14.25.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE STOCK
OPTION PLAN. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
APPROVAL OF THE DIRECTOR PLAN
PROPOSAL - ADOPTION OF THE DIRECTOR PLAN
The Director plan was adopted by the Board of Directors on March 30, 2000,
subject to approval by the Company's stockholders at the 2000 Annual Meeting. A
copy of the Director Plan is attached to this Proxy Statement as Appendix B. The
following description of the Director Plan is a summary and does not purport to
be fully descriptive. Reference is made to Appendix B for more detailed
information.
SUMMARY OF THE DIRECTOR PLAN
A summary of the Director Plan is set forth below. The summary is qualified
in its entirety by reference to the full text of the Director Plan, which is
attached to this Proxy Statement as Appendix B.
GENERAL. The purpose of the Director Plan is to enable the Company to
attract and retain individuals of exceptional ability to serve as directors and
to promote alignment of the common interests of its directors and stockholders
in enhancing the value of the Common Stock. As of September 30, 2000, there were
eight (8) directors eligible to participate in the Director Plan.
-20-
<PAGE>
The Director Plan authorizes the granting to nonemployee directors of the
Company, options to purchase shares of Common Stock ("Options"), which will be
Nonqualified Stock Options. The aggregate number of shares of Common Stock in
respect of which Options may be granted under the Director Plan is 100,000
(subject to adjustment, as described therein).
The effective date of the Director Plan will be the date of approval of the
Director Plan by a favorable vote of a majority of the outstanding shares of
Common Stock. The Director Plan will remain in effect, as amended from time to
time, until terminated as provided therein.
ADMINISTRATION. The Director Plan will be administered by the Compensation
Committee of the Board of Directors of the Company unless the Board appoints
another committee of the Board to administer the plan (in either case, the
"Committee"). The Committee has the authority to construe and interpret the
Director Plan, to establish, amend and rescind rules relating to the plan and to
take all actions and make all determinations necessary in connection with the
Director Plan.
OPTIONS. On the first business day following the day of each annual meeting
of the stockholders of the Company, each nonemployee director of the Company or
any of its subsidiaries, will automatically be granted an Option to purchase
3,000 shares of Common Stock, subject to adjustment and substitution as provided
in the Director Plan. In addition, an Option to purchase 3,000 shares of Common
Stock will be granted to each nonemployee director on the first business day
following his or her initial election as a director of the Company.
The purchase price at which each Option granted under the Director Plan may
be exercised, will be 100% of the fair market value per share of the Common
Stock covered by the Option on the date of grant; provided that the exercise
price of the initial grant of Options under the Director Plan, on the day
following the 2000 Annual Meeting will be $10.00 per share.
The option price for each Option granted under the Director Plan must be
paid in full at the time of exercise in cash (or check or equivalent) or with
shares of previously acquired Common Stock. The date of exercise of Options
granted under the Plan will be determined pursuant to procedures established by
the Secretary of the Company, however, no Option (except in the case of death or
upon a change in control, as described below) will be exercisable during the
first twelve (12) months of its term. No Option will be exercisable following
the expiration of five (5) years from the date of grant.
If a nonemployee director ceases to be a director of the Company, any
outstanding Options granted under the Director Plan and then held by such
director will be exercisable and will terminate as follows: (i) if the director
ceases to serve as a director for any reason other than resignation, removal for
cause (as defined in the Director Plan) or death, any then outstanding Options
will be exercisable (to the extent exercisable immediately prior to such
termination) for a period equal to the lesser of one year or the time until the
expiration date of such Option; (ii) if a director resigns from service or is
removed for cause, any outstanding Option held by such director, to the extent
such option is not vested at such time, will terminate on the date of cessation
of service and any vested Option will generally be exercisable for a period of
90 days after the date of termination of service; (iii) upon the death of a
director during service, any outstanding Option held by such director (whether
or not exercisable immediately before such death) will be exercisable by the
person entitled to do so under the will of the director or by his or her
representative, for a period ending at the earlier of 90 days from the date of
death or the expiration date of such Option; (iv) upon the death of a director
occurring after ceasing to provide service, any outstanding exercisable Option
may be exercised by the person entitled to do so for a period ending upon the
earlier of one year from the date of death or the expiration date of such
Option. Each Option granted under the Director Plan, outstanding at the date of
a Change in Control of the Company, will become immediately exercisable in full
on such date.
-21-
<PAGE>
LIMITATIONS ON TRANSFER. No Option will be assignable or transferable by a
nonemployee director other than by will or the laws of descent and distribution.
Each Option will be exercisable during the participant's lifetime, only by the
participant, or if permissible under applicable law, by the participant's legal
guardian or representative.
TERMINATION AND AMENDMENT. The Board may, at any time and from time to
time, amend, modify, or terminate the Director Plan without stockholder
approval; provided, however, that no such amendment, modification or termination
may be made without the approval of stockholders of the Company if such approval
is necessary with respect to tax, securities or other applicable laws, policies
or regulations. The Director Plan will terminate on the second day following the
2005 annual meeting of stockholders of the Company or, on such date as there are
no further shares available for issuance thereunder, provided the Board may act
to terminate the Plan at any time prior to the occurrence of either such time.
CERTAIN FEDERAL INCOME TAX EFFECTS
NONQUALIFIED OPTIONS. Generally, under present federal income tax
regulations, there will be no federal income tax consequences to either the
Company or the participant upon the grant of a Nonqualified Option. However, the
participant will realize ordinary income on the exercise of the Nonqualified
Option in an amount equal to the excess of the fair market value of the Common
Stock acquired upon the exercise of such Option over the exercise price, and the
Company will be entitled to a corresponding deduction. The gain, if any,
realized upon the subsequent disposition by the participant of the Common Stock
will constitute short-term or long-term capital gain, depending on the
participant's holding period.
NEW PLAN BENEFITS TABLE
NEW PLAN BENEFITS
PARAGON TRADE BRANDS, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
TOTAL NUMBER OF
---------------
OPTIONS GRANTED(1) EXERCISE PRICE(2)
------------------ -----------------
<S> <C> <C>
All Non-Employee Directors as a group (8 persons) 24,000 _______
<FN>
----------
(1) Represents the aggregate number of options tentatively scheduled to be
granted collectively to the current non-employee/director group on the first
business day following the 2000 Annual Meeting subject to approval of the Plan
at such meeting. Such number does not include any other potential grants.
(2) The exercise price will not be determinable until the date of grant.
</FN>
</TABLE>
ADDITIONAL INFORMATION
The closing price of the Common Stock, as reported by the Over-the-Counter
Bulletin Board on November 1, 2000, was $14.25.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE DIRECTOR
PLAN. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
-22-
<PAGE>
INDEPENDENT AUDITORS
Arthur Andersen LLP ("AA") audited the Company's 1998 and 1999 financial
statements.
Effective April 12, 2000, the Audit Committee of the Company's Board of
Directors approved the dismissal of AA as the independent accountant engaged to
audit the Company's financial statements. Also effective April 12, 2000, the
Audit Committee approved the engagement of Ernst & Young LLP ("E&Y") as the new
independent accountant to replace AA and assigned to it the responsibility of
auditing the Company's 2000 financial statements.
AA's audit opinion for fiscal year 1998 contained an explanatory fourth
paragraph with respect to the Company's ability to continue as a going concern,
but contained no other qualifications, modifications or disclaimers. AA's audit
opinion for fiscal year 1999 was unqualified.
There were no disagreements with AA during the Company's last two fiscal
years and subsequent interim period through the date of dismissal with respect
to any matter of accounting principles or practice, financial statement
disclosure or auditing scope or procedure, which if not resolved to the
satisfaction of AA, would have caused AA to describe the subject matter of the
disagreement in its report. Likewise, there were no reportable events, as
specified under Item 304(a)(1)(v) of Regulation S-K, during the Company's last
two fiscal years.
During the last two fiscal years, the Company has not consulted with E&Y on
any matter related to the application of accounting principles to a specified
transaction or the type of audit opinion that E&Y might render on the Company's
financial statements and no advice, either oral or written, was received by the
Company from E&Y on such matter.
Representatives of E&Y and AA are expected to attend the 2000 Annual
Meeting and to have an opportunity to make a statement and/or respond to
appropriate questions from stockholders.
SOLICITATION OF PROXIES
The proxy card accompanying this Proxy Statement is solicited by the Board
of Directors. Proxies may be solicited by officers, directors and regular
supervisory and executive employees of the Company, none of whom will receive
any additional compensation for their services. Such solicitations may be made
personally, or by mail, facsimile, telephone, telegraph or messenger. The
Company will reimburse persons holding shares of Common Stock in their names or
in the names of nominees, but not owning such shares beneficially, such as
brokerage houses, banks and other fiduciaries, for the expense of forwarding
solicitation materials to their principals. All costs of soliciting proxies will
be paid by the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In accordance with Rule 405 of Regulation S-K of the Securities and
Exchange Act of 1934, as amended, the Company has reviewed the Forms 3 and 4
submitted to the Company by and on behalf of its directors and designated
officers during and with regard to the 1999 fiscal year. The Company knows of no
Forms 3 or 4 untimely filed during and with regard to the 1999 fiscal year, nor
is the Company aware of failure on the part of any of its directors or
designated officers to file a required form during and with regard to the 1999
fiscal year. Further, the Company has confirmed with each of its directors and
designated officers that no Form 5 filings are due by them with regard to the
1999 fiscal year.
-23-
<PAGE>
OTHER MATTERS
The Company knows of no other matters that are likely to be brought before
the 2000 Annual Meeting. If, however, other matters not now known or determined
come before the 2000 Annual Meeting, the persons named in the enclosed proxy or
their substitutes will vote such proxy in accordance with their judgment in such
matters.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders to be considered for inclusion in the Proxy
Statement and proxy card for the Company's 2001 Annual Meeting of Stockholders
must be received by the Secretary of the Company by January 15, 2001. Under the
Company's By-Laws, the Company must receive notice of any stockholder proposal
no later than the later of the 60th day prior to the 2001 Annual Meeting, or the
10th day following the day on which public announcement of the date of the 2001
Annual Meeting is made in order for the notice to be timely. If the Company does
not receive notice of a stockholder proposal prior to the date specified in the
foregoing sentence, the Company will retain discretionary voting authority over
the proxies returned by stockholders for the 2001 Annual Meeting with respect to
such stockholder proposal. Discretionary voting authority is the ability to vote
proxies that stockholders have executed and returned to the Company on matters
not specifically reflected on the proxy card, and on which stockholders have not
had an opportunity to vote by proxy.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 26, 1999 and a copy of the Company's Quarterly Report on Form
10-Q for the Quarter Ended September 24, 2000 are being mailed with this Proxy
Statement to each stockholder of record. Additional copies of such report may be
obtained by directing a written request to Investor Relations at 180 Technology
Parkway, Norcross, Georgia 30092, or by calling Investor Relations at (678)
969-5200.
By Order of the Board of Directors
/S/ Ward Council
Ward Council
SECRETARY
Norcross, Georgia
November 10, 2000
-24-
<PAGE>
APPENDIX A
PARAGON TRADE BRANDS, INC.
STOCK OPTION PLAN
(EFFECTIVE AS OF JANUARY 28, 2000)
1. PURPOSE
The purpose of the Plan is to provide a means through which
the Company and its Affiliates may attract able persons to enter and remain in
the employ of the Company and Affiliates and to provide a means whereby
employees, directors and consultants of the Company and its Affiliates can
acquire and maintain Common Stock ownership, thereby strengthening their
commitment to the welfare of the Company and Affiliates and promoting an
identity of interest between stockholders and these employees.
The Plan provides for granting Incentive Stock Options and
Nonqualified Stock Options.
2. DEFINITIONS
The following definitions shall be applicable throughout the
Plan.
(a) "Affiliate" means (i) any entity that
directly or indirectly is controlled by, or is under common control with the
Company and (ii) any entity in which the Company has a significant equity
interest, in either case as determined by the Committee.
(b) "Board" means the Board of Directors of the
Company.
(c) "Cause" means the Company or an Affiliate
having "cause" to terminate a Participant's employment or service, as defined in
any existing employment, consulting or any other agreement between the
Participant and the Company or an Affiliate or, in the absence of such an
employment, consulting or other agreement, upon (i) the determination by the
Committee that the Participant has ceased to perform his duties to the Company,
an Affiliate (other than as a result of his incapacity due to physical or mental
illness or injury), which failure amounts to an intentional and extended neglect
of his duties to such party, (ii) the Committee's determination that the
Participant has engaged or is about to engage in conduct materially injurious to
the Company or and Affiliate, (iii) the Participant having been convicted of, or
pleaded guilty or no contest to, a felony or (iv) the failure of the Participant
to follow instructions of the Board or his direct superiors.
(d) "Code" means the Internal Revenue Code of
1986, as amended. Reference in the Plan to any section of the Code shall be
deemed to include any amendments or successor provisions to such section and any
regulations under such section.
(e) "Committee" means a committee of at least
two people as the Board may appoint to administer the Plan or, if no such
committee has been appointed by the Board, the Board. Unless the Board is acting
as the Committee or the Board specifically determines otherwise, each member of
the Committee shall, at the time he takes any action with respect to a Option
under the Plan, be an Eligible
A-1
<PAGE>
Director, however the mere fact that a Committee member shall fail to qualify as
an Eligible Director shall not invalidate any Option granted by the Committee
which Option is otherwise validly made under the Plan.
(f) "Common Stock" means the common stock of the
Company.
(g) "Company" means Paragon Trade Brands, Inc.
(h) "Date of Grant" means the date on which the
granting of an Option is authorized, or such other date as may be specified in
such authorization or, if there is no such date, the date indicated on the
applicable Stock Option Agreement.
(i) "Disability" means, unless in the case of a
particular Option, the applicable Option Agreement states otherwise, entitled to
receive benefits under the long-term disability plan of the Company or an
Affiliate, as may be applicable to the Participant in question, or, in the
absence of such a plan, the complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which a
Participant was employed or served when such disability commenced or, as
determined by the Committee based upon medical evidence acceptable to it.
(j) "Effective Date" means January 28, 2000.
(k) "Eligible Director" means a person who is
(i) a "non-employee director" within the meaning of Rule 16b-3 under the
Exchange Act, or a person meeting any similar requirement under any successor
rule or regulation and (ii) an "outside director" within the meaning of Section
162(m) of the Code, and the Treasury Regulations promulgated thereunder;
PROVIDED, HOWEVER, that clause (ii) shall apply only with respect to grants of
Options with respect to which the Company's tax deduction could be limited by
Section 162(m) of the Code if such clause did not apply.
(l) "Eligible Person" means any (i) individual
regularly employed by the Company or an Affiliate who satisfies all of the
requirements of Section 6; PROVIDED, HOWEVER, that no such employee covered by a
collective bargaining agreement shall be an Eligible Person unless and to the
extent that such eligibility is set forth in such collective bargaining
agreement or in an agreement or instrument relating thereto; (ii) director of
the Company, or Affiliate or (iii) consultant or advisor to the Company, or an
Affiliate who is entitled to participate in an "employee benefit plan" within
the meaning of 17 CFR ss. 230.405 (which, as of the Effective Date, includes
those who (A) are natural persons and (B) provide BONA FIDE services to the
Company other than in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the Company's securities).
(m) "Exchange Act" means the Securities Exchange
Act of 1934.
(n) "Fair Market Value", on a given date means
(i) if the Stock is listed on a national securities exchange, the mean between
the highest and lowest sale prices reported as having occurred on the primary
exchange with which the Stock is listed and traded on the date prior to such
date, or, if there is no such sale on that date, then on the last preceding date
on which such a sale was reported; (ii) if the Stock is not listed on any
national securities exchange but is quoted in the National Market System of the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
on a last sale basis, the average between the high bid price and low ask price
reported on the date prior to such date, or, if there is no such sale on that
date, then on the last preceding date on which a sale was reported; or (iii) if
the Stock is not listed on a national securities exchange nor quoted in the
NASDAQ on a last sale basis, the amount determined by the Committee to be the
fair market value based upon a good faith attempt to value the Stock accurately
and computed in accordance with applicable regulations of the Internal Revenue
Service.
A-2
<PAGE>
(o) "Incentive Stock Option" means an Option
granted by the Committee to a Participant under the Plan which is designated by
the Committee as an incentive stock option as described in Section 422 of the
Code.
(p) "Nonqualified Stock Option" means an Option
granted by the Committee to a Participant under the Plan which is not designated
by the Committee as an Incentive Stock Option.
(q) "Normal Termination" means termination of
employment or service with the Company and Affiliates:
(i) upon retirement as approved by the
Committee;
(ii) on account of death or Disability;
(iii) by the Company, or an Affiliate
without Cause.
(r) "Option" means an award granted under
Section 5.
(s) "Option Period" means the period described
in Section 7.
3
<PAGE>
(t) "Option Price" means the exercise price for
an Option as described in Section 7.
(u) "Participant" means an Eligible Person who
has been selected by the Committee to participate in the Plan and to receive an
Option pursuant to Section 6.
(v) "Plan" means this Paragon Trade Brands, Inc.
Stock Option Plan.
(w) "Securities Act" means the Securities Act of
1933, as amended.
(aa) "Stock" means the Common Stock or such other
authorized shares of stock of the Company as the Committee may from time to time
authorize for use under the Plan.
(bb) "Stock Option Agreement" means the agreement
between the Company and a Participant who has been granted an Option pursuant
to Section 7 which defines the rights and obligations of the parties as required
therein.
(cc) "Subsidiary" means any subsidiary of the
Company as defined in Section 424(f) of the Code.
3. EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL
The Plan is effective as of the Effective Date. The
effectiveness of the Plan and the validity and exercisability of any and all
Options granted pursuant to the Plan is contingent upon approval of the Plan by
the shareholders of the Company in a manner intended to comply with the
shareholder approval requirements of Section 162(m) and 422(b)(i) of the Code.
The expiration date of the Plan, on and after which no Options
may be granted hereunder, shall be the tenth anniversary of the Effective Date;
PROVIDED, HOWEVER, that the administration of the Plan shall continue in effect
until all matters relating to the payment of Options previously granted have
been settled.
A-3
<PAGE>
4. ADMINISTRATION
The Committee shall administer the Plan. The majority of the
members of the Committee shall constitute a quorum. The acts of a majority of
the members present at any meeting at which a quorum is present or acts approved
in writing by a majority of the Committee shall be deemed the acts of the
Committee.
Subject to the provisions of the Plan and applicable law, the
Committee shall have the power, and in addition to other express powers and
authorizations conferred on the Committee by the Plan to: (i) designate
Participants; (ii) determine the type or types of Options to be granted to a
Participant; (iii) determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be calculated in
connection with, Options; (iv) determine the terms and conditions of any
Options; (v) determine whether, to what extent, and under what circumstances
Options may be settled or exercised in cash, Shares, other securities, other
Options, or other property, or canceled, forfeited, or suspended and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) determine whether, to what extent, and under what circumstances
cash, Shares, other securities, other Options, other property, and other amounts
payable with respect to an Option shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret,
administer reconcile any inconsistency, correct any default and/or supply any
omission in the Plan and any instrument or agreement relating to, or Option
granted under, the Plan; (viii) establish, amend, suspend, or waive such rules
and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; (ix) impose conditions, such as entering into
a shareholders' agreement (including without limitation the 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 party thereto), upon an optionee's
ability to exercise an Option; and (x) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Option or any documents evidencing Options shall be
within the sole discretion of the Committee, may be made at any time granted
pursuant to the Plan and shall be final, conclusive, and binding upon all
parties, including, without limitation, the Company, Affiliate, any Participant,
any holder or beneficiary of any Option, and any shareholder.
(c) No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Option
hereunder.
5. GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN
The Committee may, from time to time, grant Options to one or
more Eligible Persons; PROVIDED, HOWEVER, that:
(a) Subject to Section 9, the aggregate number
of shares of Stock in respect of which Options may be granted under the Plan is
1,321,222 shares;
(b) Such shares shall be deemed to have been
used in payment of Awards whether they are actually delivered. In the event any
Option shall be surrendered, terminate, expire, or be forfeited, the number
of shares of Stock no longer subject thereto shall thereupon be released and
shall thereafter be available for new grants under the Plan;
(c) Stock delivered by the Company in settlement
of Options granted under the Plan may be authorized and unissued Stock or Stock
held in the treasury of the Company or may be purchased on the open market or by
private purchase; and
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(d) Subject to Section 9, no person may be
granted Options under the Plan during any calendar year with respect to more
than 750,000 shares of Stock; provided that such number shall be adjusted
pursuant to Section 9, and shares otherwise counted against such number, only in
a manner which will not cause the Options granted under the Plan to fail to
qualify as "performance-based compensation" Section 162(m) of the Code.
(e) Without limiting the generality of the
preceding provisions of this Section 5, the Committee may, but solely with the
Participants consent, agree to cancel any Option under the Plan and issue a new
Option in substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted Option satisfies all
applicable Plan requirements as of the date such new Award is made.
6. ELIGIBILITY
Participation shall be limited to Eligible Persons who have
received written notification from the Committee, or from a person designated by
the Committee, that they have been selected to participate in the Plan.
7. TERMS OF OPTIONS
The Committee is authorized to grant one or more Incentive
Stock Options or Nonqualified Stock Options to any Eligible Person; PROVIDED,
HOWEVER, that no Incentive Stock Options shall be granted to any Eligible Person
who is not an employee of the Company. Each Option so granted shall be subject
to the following conditions, or to such other conditions as may be reflected in
the applicable Stock Option Agreement.
(a) OPTION PRICE. The exercise price ("Option
Price") per share of Stock for each Option shall be set by the Committee at the
time of grant but shall not be less than (i) in the case of an Incentive Stock
Option, and subject to Section 7, the Fair Market Value of a share of Stock at
the Date of Grant, and (ii) in the case of a Non-Qualified Stock Option, the par
value of a share of Stock; PROVIDED, HOWEVER, that all Options intended to
qualify as "performance-based compensation" under Section 162(m) of the Code
shall have an Option Price per share of Stock no less than the Fair Market Value
of a share of Stock on the Date of Grant.
(b) MANNER OF EXERCISE AND FORM OF PAYMENT. No
shares of Stock shall be delivered pursuant to any exercise of an Option until
payment in full of the aggregate exercise price therefor is received by the
Company. Options which have become exercisable may be exercised by delivery of
written notice of exercise to the Committee accompanied by payment of the Option
Price. The Option Price shall be payable in cash and/or, in the discretion of
the Committee, in shares of Stock valued at the Fair Market Value at the time
the Option is exercised (including by means of attestation of ownership of a
sufficient number of shares of Stock in lieu of actual delivery of such shares
to the Company); PROVIDED, HOWEVER, that such shares are not subject to any
pledge or other security interest and have either been held by the Participant
for six months, previously acquired by the Participant on the open market or
meet such other requirements as the Committee may determine necessary in order
to avoid an accounting earnings charge in respect of the Option) or, in the
discretion of the Committee, either (i) in other property having a fair market
value on the date of exercise equal to the Option Price, (ii) by delivering to
the Committee a copy of irrevocable instructions to a stockbroker to deliver
promptly to the Company an amount of loan proceeds, or proceeds of the sale of
the Stock subject to the Option, sufficient to pay the Option Price or (iii) by
such other method as the Committee may allow.
(c) VESTING. Option may vest based on continued
employment ("Time Options") or upon the attainment of stated performance
criteria ("Performance Options"). Unless otherwise set forth in the applicable
Stock Option Agreement, Time Options shall vest ratably at 20% per year on
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each of the first five anniversaries of the date of grant. Unless otherwise set
forth in the applicable Stock Option Agreement, Performance Options shall vest
ratably on at 20% per year cased on the attainment of performance targets as set
by the Board. In the event the performnace targets for a given year are not
attained, the Board may, in its discretion allocate the Option shares that did
not vest in such year to subsequent years. Notwithstanding any provision herein
to the contrary all Options shall become fully vested and exercisable on the
seventh anniversary of the date of grant.
(d) OPTION PERIOD AND EXPIRATION. Unless
otherwise set forth in the applicable Stock Option Agreement, an Option shall
expire ten years from the date of grant (the "Option Period"). If an Option is
exercisable in installments, such installments or portions thereof which become
exercisable shall remain exercisable until the Option expires. Unless otherwise
stated in the applicable Stock Option Agreement, the Option shall expire earlier
than the end of the Option Period in the following circumstances:
(i) If prior to the end of the Option
Period, the Participant shall undergo a Normal Termination, the Option
shall expire on the earlier of the last day of the Option Period or the
date that is three months after the date of such Normal Termination. In
such event, the Option shall remain exercisable by the Participant
until its expiration, only to the extent the Option was exercisable at
the time of such Normal Termination.
(ii) If the Participant dies or becomes
disabled (as determined by the Committee) prior to the end of the
Option Period and while still in the employ or service of the Company,
or an Affiliate, the Option shall expire on the earlier of the last day
of the Option Period or the date that is twelve months after the date
of death of the Participant. In such event, the Option shall remain
exercisable by the person or persons to whom the Participant's rights
under the Option pass by will or the applicable laws of descent and
distribution until its expiration, only to the extent the Option was
exercisable by the Participant at the time of death.
(iii) If the Participant ceases employment
or service with the Company and Affiliates for reasons other than
Normal Termination or death, the Option shall expire immediately upon
such cessation of employment or service.
(e) STOCK OPTION AGREEMENT - OTHER TERMS AND
CONDITIONS. Each Option granted under the Plan shall be evidenced by a Stock
Option Agreement, which shall contain such provisions as may be determined by
the Committee and, except as may be specifically stated otherwise in such Stock
Option Agreement, which shall be subject to the following terms and conditions:
(i) Each Option or portion thereof that
is exercisable shall be exercisable for the full amount or for any part
thereof.
(ii) Each share of Stock purchased
through the exercise of an Option shall be paid for in full at the time
of the exercise. Each Option shall cease to be exercisable, as to any
share of Stock, when the Participant purchases the share or when the
Option expires.
(iii) Subject to Section 8(h), Options
shall not be transferable by the Participant except by will or the laws
of descent and distribution and shall be exercisable during the
Participant's lifetime only by him.
(iv) Each Option shall vest and become
exercisable by the Participant in accordance with the vesting schedule
established by the Committee and set forth in the Stock Option
Agreement.
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(v) Each Stock Option Agreement may
contain a provision that, upon demand by the Committee for such a
representation, the Participant shall deliver to the Committee at the
time of any exercise of an Option a written representation that the
shares to be acquired upon such exercise are to be acquired for
investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the
delivery of any shares issued upon exercise of an Option shall be a
condition precedent to the right of the Participant or such other
person to purchase any shares. In the event certificates for Stock are
delivered under the Plan with respect to which such investment
representation has been obtained, the Committee may cause a legend or
legends to be placed on such certificates to make appropriate reference
to such representation and to restrict transfer in the absence of
compliance with applicable federal or state securities laws.
(vi) Each Incentive Stock Option
Agreement shall contain a provision requiring the Participant to notify
the Company in writing immediately after the Participant makes a
disqualifying disposition of any Stock acquired pursuant to the
exercise of such Incentive Stock Option. A disqualifying disposition
is any disposition (including any sale) of such Stock before the later
of (a) two years after the Date of Grant of the Incentive Stock Option
or (b) one year after the date the Participant acquired the Stock by
exercising the Incentive Stock Option.
(f) INCENTIVE STOCK OPTION GRANTS TO 10%
STOCKHOLDERS. Notwithstanding anything to the contrary in this Section 7, if an
Incentive Stock Option is granted to a Participant who owns stock representing
more than ten percent of the voting power of all classes of stock of the Company
or of a Subsidiary, the Option Period shall not exceed five years from the Date
of Grant of such Option and the Option Price shall be at least 110 percent of
the Fair Market Value (on the Date of Grant) of the Stock subject to the Option.
(g) $100,000 PER YEAR LIMITATION FOR INCENTIVE
STOCK OPTIONS. To the extent the aggregate Fair Market Value (determined as of
the Date of Grant) of Stock for which Incentive Stock Options are exercisable
for the first time by any Participant during any calendar year (under all plans
of the Company) exceeds $100,000, such excess Incentive Stock Options shall be
treated as Nonqualified Stock Options.
(h) VOLUNTARY SURRENDER. The Committee may
permit the voluntary surrender of all or any portion of any Nonqualified Stock
Option granted under the Plan to be conditioned upon the granting to the
Participant of a new option for the same or a different number of shares as the
option surrendered or require such voluntary surrender as a condition precedent
to a grant of a new Option to such Participant. Such new Option shall be
exercisable at an Option Price, during an Option Period, and in accordance with
any other terms or conditions specified by the Committee at the time the new
Option is granted, all determined in accordance with the provisions of the Plan
without regard to the Option Price, Option Period, or any other terms and
conditions of the Nonqualified Stock Option surrendered.
8. GENERAL
(a) ADDITIONAL PROVISIONS OF AN OPTION. Options
granted to a Participant under the Plan also may be subject to such other
provisions (whether or not applicable to the benefit awarded to any other
Participant) as the Committee determines appropriate including, without
limitation, provisions to assist the Participant in financing the purchase of
Stock upon the exercise of options, provisions for the forfeiture of or
restrictions on resale or other disposition of shares of Stock acquired under
any Option, provisions giving the Company the right to repurchase shares of
Stock acquired under any Option in the event the Participant elects to dispose
of such shares, provisions allowing the Participant to elect to defer the
receipt of shares of Stock upon the exercise of Options for a specified time or
until a specified event, and provisions to comply with Federal and state
securities laws and Federal and state tax
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withholding requirements. Any such provisions shall be reflected in the
applicable Stock Option Agreement.
(b) PRIVILEGES OF STOCK OWNERSHIP. Except as
otherwise specifically provided in the Plan, no person shall be entitled to the
privileges of ownership in respect of shares of Stock which are subject to
Options hereunder until such shares have been issued to that person.
(c) GOVERNMENT AND OTHER REGULATIONS. The
obligation of the Company to make payment of Options in Stock or otherwise shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by governmental agencies as may be required. Notwithstanding any terms or
conditions of any Option to the contrary, the Company shall be under no
obligation to offer to sell or to sell and shall be prohibited from offering to
sell or selling any shares of Stock pursuant to an Option unless such shares
have been properly registered for sale pursuant to the Securities Act with the
Securities and Exchange Commission or unless the Company has received an opinion
of counsel, satisfactory to the Company, that such shares may be offered or sold
without such registration pursuant to an available exemption therefrom and the
terms and conditions of such exemption have been fully complied with. The
Company shall be under no obligation to register for sale under the Securities
Act any of the shares of Stock to be offered or sold under the Plan. If the
shares of Stock offered for sale or sold under the Plan are offered or sold
pursuant to an exemption from registration under the Securities Act, the Company
may restrict the transfer of such shares and may legend the Stock certificates
representing such shares in such manner as it deems advisable to ensure the
availability of any such exemption.
(d) TAX WITHHOLDING.
(i) A Participant may be required to pay to
the Company or any Affiliate and the Company or any Affiliate shall have the
right and is hereby authorized to withhold from any Shares or other property
deliverable under any Option or from any compensation or other amounts owing to
a Participant the amount (in cash, Stock or other property) of any required tax
withholding and payroll taxes in respect of an Option, its exercise, or any
payment or transfer under an Option or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
(ii) Without limiting the generality of
clause (i) above, if so provided in a Stock Option Agreement, a Participant may
satisfy, in whole or in part, the foregoing withholding liability (but no more
than the minimum required withholding liability) by delivery of shares of Stock
owned by the Participant (which are not subject to any pledge or other security
interest and which have been owned by the Participant for at least 6 months or
purchased on the open market) with a Fair Market Value equal to such withholding
liability or by having the Company withhold from the number of shares of Stock
otherwise issuable pursuant to the exercise of the Option a number of shares
with a Fair Market Value equal to such withholding liability.
(e) CLAIM TO OPTIONS AND EMPLOYMENT RIGHTS. No
employee of the Company, or an Affiliate, or other person, shall have any claim
or right to be granted an Option under the Plan or, having been selected for the
grant of an Option, to be selected for a grant of any other Award. Neither the
Plan nor any action taken hereunder shall be construed as giving any Participant
any right to be retained in the employ or service of the Company or an
Affiliate.
(f) NO LIABILITY OF COMMITTEE MEMBERS. No
member of the Committee shall be personally liable by reason of any contract or
other instrument executed by such member or on his behalf in his capacity as a
member of the Committee nor for any mistake of judgment made in good faith, and
the Company shall indemnify and hold harmless each member of the Committee and
each other employee, officer or director of the Company to whom any duty or
power relating to the administration or interpretation of the Plan may be
allocated or delegated, against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim) arising out of any
act or omission to act
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in connection with the Plan unless arising out of such person's own fraud or
willful bad faith; PROVIDED, HOWEVER, that approval of the Board shall be
required for the payment of any amount in settlement of a claim against any such
person. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
(g) GOVERNING LAW. The Plan shall be governed by
and construed in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of law thereof, or principals of
conflicts of laws of any other jurisdiction which could cause the application of
the laws of any jurisdiction other than the State of Delaware.
(h) NONTRANSFERABILITY.
(i) Each Option shall be exercisable only
by the Participant during the Participant's lifetime, or, if permissible under
applicable law, by the Participant's legal guardian or representative. No Option
may be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant otherwise than by will or by the laws of descent and
distribution and any such purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance shall be void and unenforceable against the
Company or an Affiliate; provided that the designation of a beneficiary shall
not constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(ii) Notwithstanding the foregoing, the
Committee may in the applicable Stock Option Agreement or at any time after the
Date of Grant in an amendment to a Stock Option Agreement provide that Options
which are not intended to qualify as Incentive Stock Options may be transferred
by a Participant without consideration, subject to such rules as the Committee
may adopt consistent with any applicable Option agreement to preserve the
purposes of the Plan, to:
(A) any person who is a "family member" of the
Participant, as such term is used in the
instructions to Form S-8 (collectively, the
"Immediate Family Members");
(B) a trust solely for the benefit of the
Participant and his or her Immediate Family
Members;
(C) a partnership or limited liability company
whose only partners or shareholders are the
Participant and his or her Immediate Family
Members; or
(D) any other transferee as may be approved
either (a) by the Board or the Committee in
its sole discretion, or (b) as provided in
the applicable Stock Option Agreement;
(each transferee described in clauses (A), (B), (C) and (D) above is hereinafter
referred to as a "Permitted Transferee"); PROVIDED that the Participant gives
the Committee advance written notice describing the terms and conditions of the
proposed transfer and the Committee notifies the Participant in writing that
such a transfer would comply with the requirements of the Plan and any
applicable Stock Option Agreement.
(iii) The terms of any Option transferred
in accordance with the immediately preceding sentence shall apply to the
Permitted Transferee and any reference in the Plan or in a Stock Option
Agreement to a Participant shall be deemed to refer to the Permitted Transferee,
except that (a) Permitted Transferees shall not be entitled to transfer any
Options, other than by will or the laws of descent and distribution; (b)
Permitted Transferees shall not be entitled to exercise any transferred Options
unless there shall be in effect a registration statement on an appropriate form
covering the shares to be
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acquired pursuant to the exercise of such Option if the Committee determines,
consistent with any applicable Stock Option Agreement, that such a registration
statement is necessary or appropriate, (c) the Committee or the Company shall
not be required to provide any notice to a Permitted Transferee, whether or not
such notice is or would otherwise have been required to be given to the
Participant under the Plan or otherwise, and (d) the consequences of termination
of the Participant's employment by, or services to, the Company or an Affiliate
under the terms of the Plan and the applicable Stock Option Agreement shall
continue to be applied with respect to the Participant, following which the
Options shall be exercisable by the Permitted Transferee only to the extent, and
for the periods, specified in the Plan and the applicable Stock Option
Agreement.
(i) RELIANCE ON REPORTS. Each member of the
Committee and each member of the Board shall be fully justified in relying,
acting or failing to act, and shall not be liable for having so relied, acted or
failed to act in good faith, upon any report made by the independent public
accountant of the Company and Affiliates and upon any other information
furnished in connection with the Plan by any person or persons other than
himself.
(j) RELATIONSHIP TO OTHER BENEFITS. No payment
under the Plan shall be taken into account in determining any benefits under any
pension, retirement, profit sharing, group insurance or other benefit plan of
the Company or any Affiliate except as otherwise specifically provided in such
other plan.
(k) EXPENSES. The expenses of administering the
Plan shall be borne by the Company and Affiliates.
(l) PRONOUNS. Masculine pronouns and other
words of masculine gender shall refer to both men and women.
(m) TITLES AND HEADINGS. The titles and
headings of the sections in the Plan are for convenience of reference only, and
in the event of any conflict, the text of the Plan, rather than such titles or
headings shall control.
(n) TERMINATION OF EMPLOYMENT. For all purposes
herein, a person who transfers from employment or service with the Company to
employment or service with an Affiliate or vice versa shall not be deemed to
have terminated employment or service with the Company or an Affiliate.
(o) SEVERABILITY. If any provision of the Plan
or any Stock Option Agreement is or becomes or is deemed to be invalid, illegal,
or unenforceable in any jurisdiction or as to any person or Option, or would
disqualify the Plan or any Option under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to the
applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan or
the Option, such provision shall be stricken as to such jurisdiction, person or
Option and the remainder of the Plan and any such Option shall remain in full
force and effect.
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9. CHANGES IN CAPITAL STRUCTURE
Options granted under the Plan and any Stock Option
Agreements, the maximum number of shares of Stock subject to all Awards stated
in Section 5(a) and the maximum number of shares of Stock with respect to which
any one person may be granted Options during any period stated in Section 5(d)
shall be subject to adjustment or substitution, as determined by the Committee
in its sole discretion, as to the number, price or kind of a share of Stock or
other consideration subject to such Options or as otherwise determined by the
Committee to be equitable (i) in the event of changes in the outstanding Stock
or in the capital structure of the Company by reason of stock or extraordinary
cash dividends, stock splits, reverse stock splits, recapitalization,
reorganizations, mergers, consolidations, combinations, exchanges, or other
relevant changes in capitalization occurring after the Date of Grant of any such
Option or (ii) in the event of any change in applicable laws or any change in
circumstances which results in or would result in any substantial dilution or
enlargement of the rights granted to, or available for, Participants, or which
otherwise warrants equitable adjustment because it interferes with the intended
operation of the Plan. Any adjustment in Incentive Stock Options under this
Section 9 shall be made only to the extent not constituting a "modification"
within the meaning of Section 424(h)(3) of the Code, and any adjustments under
this Section 9 shall be made in a manner which does not adversely affect the
exemption provided pursuant to Rule 16b-3 under the Exchange Act. Further, with
respect to Options intended to qualify as "performance-based compensation" under
Section 162(m) of the Code, such adjustments or substitutions shall be made only
to the extent that the Committee determines that such adjustments or
substitutions may be made without causing Options granted under the Plan to fail
to qualify as "performance-based compensation" for purposes of Section 162(m) of
the Code. The Company shall give each Participant notice of an adjustment
hereunder and, upon notice, such adjustment shall be conclusive and binding for
all purposes.
Notwithstanding the above, in the event of any of the
following:
A. The Company is merged or consolidated with another
corporation or entity and, in connection therewith, consideration is received by
shareholders of the Company in a form other than stock or other equity interests
of the surviving entity;
B. All or substantially all of the assets of the Company
are acquired by another person;
C. The reorganization or liquidation of the Company; or
D. The Company shall enter into a written agreement to
undergo an event described in clauses A, B or C above,
then the Committee may, in its discretion and upon at least 10 days advance
notice to the affected persons, cancel any outstanding Options and pay to the
holders thereof, in cash or stock, or any combination thereof, the value of such
Options based upon the price per share of Stock received or to be received by
other shareholders of the Company in the event. The terms of this Section 9 may
be varied by the Committee in any particular Stock Option Agreement.
10. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of this Plan by the Board nor the
submission of this Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under this Plan, and
such arrangements may be either applicable generally or only in specific cases.
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11. AMENDMENTS AND TERMINATION
(a) AMENDMENT AND TERMINATION OF THE PLAN. The Board may
amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof
at any time; PROVIDED that no such amendment, alteration, suspension,
discontinuation or termination shall be made without shareholder approval if
such approval is necessary to comply with any tax or regulatory requirement
applicable to the Plan (including as necessary to prevent Options granted under
the Plan from failing to qualify as "performance-based compensation" for
purposes of Section 162(m) of the Code); and PROVIDED FURTHER that any such
amendment, alteration, suspension, discontinuance or termination that would
impair the rights of any Participant or any holder or beneficiary of any Option
theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.
(b) AMENDMENT OF STOCK OPTION AGREEMENTS. The Committee may,
to the extent consistent with the terms of any applicable Stock Option
Agreement, waive any conditions or rights under, amend any terms of, or alter,
suspend, discontinue, cancel or terminate, any Option theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that would
impair the rights of any Participant in respect of any Option theretofore
granted shall not to that extent be effective without the consent of the
affected Participant.
* * *
As adopted by the Plan Implementation Committee
of the Board of Directors of
Paragon Trade Brands, Inc. as of January 28, 2000
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APPENDIX B
PARAGON TRADE BRANDS, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. NAME OF PLAN. This plan shall be known as the "Paragon Trade
Brands, Inc. Stock Option Plan for Non-Employee Directors" and is hereinafter
referred to as the "Plan."
2. PURPOSE OF PLAN. The purpose of the Plan is to enable Paragon
Trade Brands, Inc. a Delaware corporation (the "Company"), to attract and retain
individuals of exceptional ability to serve as directors and to promote
alignment of the common interests of its directors and stockholders in enhancing
the value of the Company's common stock ("Common Stock").
3. EFFECTIVE DATE AND TERM. The Plan shall be effective as of
the date it is adopted by a favorable vote of majority of the outstanding shares
of Common Stock, and shall remain in effect, as amended from time to time, until
terminated as provided in the Plan.
4. ELIGIBLE PARTICIPANTS. Each member of the Board of Directors
of the Company (the "Board") from time to time who is not concurrently an
employee of the Company or any of its subsidiaries shall be a participant
("Participant") in the Plan.
5. SHARES AVAILABLE UNDER THE PLAN. The aggregate number of
shares which may be issued or delivered and as to which grants of stock options
may be made under the Plan is 100,000 shares of Common Stock, subject to
adjustment and substitution as set forth in Section 8. If any stock option
granted under the Plan is canceled by mutual consent or terminates or expires
for any reason without having been exercised in full, the number of shares
subject thereto and not exercised shall again be available for purposes of the
Plan. The shares which may be issued or delivered under the Plan may be either
authorized but unissued shares or reacquired shares or a combination of
previously unissued shares and reacquired shares.
6. GRANT OF STOCK OPTIONS.
(a) On the first business day following the day of each annual meeting
of the stockholders of the Company, each person who is then a member of the
Board and who is not then an employee of the Company or any of its subsidiaries
( a "non-employee Director") shall automatically and without further action by
the Board or the Committee be granted a stock option to purchase 3,000 shares of
Common Stock, subject to adjustment and substitution as set forth in Section 8.
If the number of shares then remaining available for the grant of stock options
under the Plan is not sufficient for each non-employee Director to be granted an
option for such number of shares (or the number of adjusted or substituted
shares pursuant to Section 8), then each such non-employee Director shall be
granted an option for a number of whole shares equal to the number of shares
then remaining available divided by the number of non-employee Directors,
disregarding any fractions of a share.
(b) A stock option to purchase 3,000 shares of Common Stock, subject to
adjustment and substitution as set forth in Section 8, shall automatically and
without further action by the Board or the Committee be granted to each
non-employee Director on the first business day following his or her initial
election as a director of the Company.
(c) Nothing contained in the Plan or in any option granted pursuant to
the Plan shall in itself confer upon the individual to whom the option is
granted any right to continue to serve as a director of the Company or interfere
in any way with any right of the Board or the stockholders of the Company to
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remove such director pursuant to the Certificate of Incorporation or By-Laws of
the Company or applicable law.
7. TERMS AND CONDITIONS OF STOCK OPTIONS. Stock options granted
under the Plan shall be subject to the following terms and conditions:
(a) The purchase price at which each stock option may be exercised (the
"option price") shall be one hundred percent (100%) of the Fair Market Value per
share of the Common Stock covered by the stock option on the date of grant;
provided, however that the initial grant of options under the Plan on the day
following the 2000 annual meeting of stockholders shall have an option price of
$10.00 per share.
(b) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars (by check, bank
draft, money order or electronic bank transfer) or with shares of Common Stock.
The date of exercise of a stock option shall be determined under procedures
established by the Secretary of the Company. Payment of the option price with
shares shall not increase the number of shares of the Common Stock which may be
issued or delivered under the Plan.
(c) No stock option shall be exercisable during the first twelve (12)
months of its term except in case of death as provided in Section 7(e). No stock
option shall be exercisable after the earlier of (i) the expiration of five (5)
years from the date of grant and (ii) the applicable expiration date as provided
in Section 7(e). A stock option to the extent exercisable at any time may be
exercised in whole or in part.
(d) No stock option shall be transferable by the grantee otherwise than
by will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death. All
stock options shall be exercisable during the lifetime of the grantee only by
the grantee or the grantee's personal representative.
(e) If a grantee ceases to be a director of the Company, any
outstanding stock options held by the grantee shall be exercisable and shall
terminate according to the following provisions:
(i) If a grantee ceases to be a Director of the
Company for any reason other than resignation, removal for cause or death, any
then outstanding stock option held by such grantee shall be exercisable by the
grantee (but only to the extent exercisable by the grantee immediately prior to
ceasing to be a Director) at any time prior to the expiration date of such stock
option or within one year after the date the grantee ceases to be a Director,
whichever is the shorter period (for purposes of the Plan, "cause" shall mean
any act of (a) fraud or intentional misrepresentation or (b) embezzlement,
misappropriation, conversion of assets or opportunities of the Company or any
direct or indirect majority-owned subsidiary of the Company);
(ii) If during his or her term of office as a
Director a grantee resigns from the Board or is removed from office for cause,
any outstanding stock option held by the grantee which is not exercisable by the
grantee immediately prior to resignation or removal shall terminate as of the
date of resignation or removal, and any outstanding stock option held by the
grantee which is exercisable by the grantee immediately prior to resignation or
removal shall be exercisable by the grantee at any time prior to the expiration
date of such stock option or within 90 days after the date of resignation or
removal, whichever is the shorter period;
(iii) Following the death of a grantee during service
as a Director of the Company, any outstanding stock option held by the grantee
at the time of death (whether or not exercisable by the grantee immediately
prior to death) shall be exercisable by the person entitled to do so under the
will of the grantee, or by such personal representative, at any time prior to
the expiration date of such stock option or within 90 days after the date of
death, whichever is the shorter period;
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(iv) Following the death of a grantee after ceasing
to be a Director and during a period when a stock option is exercisable, any
outstanding stock option held by the grantee at the time of death shall be
exercisable by such person entitled to do so under the will of the grantee, or
by such personal representative, at any time prior to the expiration date of
such stock option or within one year after the date of death, whichever is the
shorter period.
(f) Each stock option granted under the Plan prior to the date of a
Change in Control shall be immediately exercisable in full beginning on such
date, notwithstanding any contrary or inconsistent provisions of the Plan.
(g) All stock options shall be confirmed by an agreement, or an
amendment thereto, which shall be executed on behalf of the Company by the Chief
Executive Officer (if other than the President), the President or any Vice
President and by the grantee.
(h) Fair Market Value of the Common Stock, as of any given date, means
(i) if the Common Stock is listed on a securities exchange or is traded over the
NASDAQ National Market, the mean between the high and low sales prices on such
exchange or over such system on such date or, in the absence of reported sales
on such date, the mean between the high and low sales prices on the immediately
preceding date on which sales were reported, or (ii) if the Common Stock is not
listed on a securities exchange or traded over the NASDAQ National Market, the
mean between the bid and offered prices as quoted by NASDAQ for such date,
provided that if it is determined that the fair market value is not properly
reflected by such NASDAQ quotations, Fair Market Value will be determined by
such other method as the Committee determines in good faith to be reasonable.
(i) The obligation of the Company to issue or deliver shares of Common
Stock under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended, with respect to such
shares, if deemed necessary or appropriate by counsel for the Company; and (ii)
all other applicable laws, regulations, rules and orders which may be in effect.
Subject to the foregoing provisions of this Section and the other
provisions of the Plan, any stock option granted under the Plan may be subject
to such restrictions and other terms and conditions, if any, as shall be
determined, in its discretion, by the Committee and set forth in the agreement
referred to in Section 7(g), or an amendment thereto.
8. ADJUSTMENT AND SUBSTITUTION OF SHARES.
(a) If a dividend or other distribution shall be declared upon the
Common Stock payable in shares of Common Stock the number of shares of Common
stock set forth in Sections 5 and 6, the number of shares of Common Stock then
subject to any outstanding stock options and the number of shares of Common
Stock which may be issued or delivered under the Plan but which are not then
subject to outstanding stock options shall be adjusted by adding thereto the
number of shares of Common Stock which would have been distributable thereon if
such shares had been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend or distribution.
(b) If the outstanding shares of Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Company or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, statutory stock exchange, merger or consolidation, then there shall
be substituted for the numbers of shares of Common Stock set forth in Sections 5
and 6, for the number of shares of Common Stock subject to then outstanding
stock options, and for shares of Common Stock which may be issued or delivered
under the Plan but which are not then subject to outstanding stock options, the
numbers and kind of shares of stock or other securities into which such
outstanding shares of Common Stock shall be so changed or for which such shares
shall be exchangeable.
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(c) In case of any adjustment or substitution as provided for in this
Section 8, the aggregate option price for all shares subject to each outstanding
stock option prior to such adjustment or substitution shall be the aggregate
option price for all shares of stock or other securities (including any
fraction) to which such shares shall have been adjusted or which shall have been
substituted for such shares. Any new option price per share shall be carried to
at least three decimal places with the last decimal place rounded upwards to the
nearest whole number.
(d) No adjustment or substitution provided for in this Section 8 shall
require the Company to issue or deliver or sell a fraction of a share or other
security. Accordingly, all fractional shares or other securities which result
from any such adjustment or substitution shall be eliminated and not carried
forward to any subsequent adjustment or substitution.
9. CHANGE IN CONTROL. "Change in Control" means any of the
following:
(i) The acquisition, other than from the Company, by
any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act)), of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the then outstanding shares of Common
Stock or the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors, but
excluding for this purpose, any such acquisition by the Company or any of its
subsidiaries, or any employee benefit plan (or related trust) of the Company or
its subsidiaries, or any corporation with respect to which, following such
acquisition, more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
the individuals and entities who were the beneficial owners, respectively of the
common stock and voting securities of the company immediately prior to such
acquisition in substantially the same proportion as their ownership, immediately
prior to such acquisition, of the then outstanding shares of Common Stock or the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors, as the case may be; or
(ii) individuals who, as of the effective date of
the Plan, constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any individual
becoming a director subsequent to the effective date of the Plan whose election
or nomination for election by the Company's stockholders was approved by a vote
of at least a majority of the directors comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial election as a
Director of the Company is in connection with an actual or threatened election
contest relating to the election of the Directors of the Company (as such terms
are used in Rule 4a-11 of Regulation 14A promulgated under the Exchange Act); or
(iii) approval by the stockholders of the Company of
a reorganization, merger or consolidation, in each case, with respect to which
the individuals and entities who were the respective beneficial owners of the
Common Stock and voting securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation, or a complete
liquidation or dissolution of the Company or its sale or other disposition of
all or substantially all of the assets of the Company.
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10. ADMINISTRATION.
(a) The Plan shall be administered by the Compensation Committee of the
Board, unless the Board shall appoint another committee of the Board to
administer the Plan (in either case, the "Committee"), which shall have full
authority to construe and interpret the Plan, to establish, amend and rescind
rules and regulations relating to the Plan, and to take all such actions and
make all such determinations in connection with the Plan as it may deem
necessary or desirable. The Board may, at any time and from time to time, amend,
modify or terminate the Plan without stockholder approval; provided, however
that the Board may condition any amendment or modification on the approval of
stockholders of the Company if such approval is necessary or deemed advisable
with respect to tax, securities or other applicable laws, policies or
regulations.
(b) Notwithstanding the provisions of Section 10(a), the selection of
Directors to whom stock options are to be granted, the timing of such grants the
number of shares subject to any stock option, the exercise price of any stock
option, the periods during which any stock option may be exercised and the term
of any stock option shall be as provided in the Plan, and the Committee shall
have no discretion as to such matters.
11. GOVERNING LAW. The Plan and all actions taken thereunder
shall be governed and construed in accordance with the laws of the State of
Delaware.
12. TERMINATION OF PLAN. The Plan shall terminate on the second day
following the 2005 annual meeting of stockholders of the Company or on such date
as there are no further shares available for issuance under the Plan, but the
Board may terminate the Plan at any time prior to either such time.
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