SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-11368
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
PARAGON RETIREMENT INVESTMENT SAVINGS MANAGEMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Page 1
Exhibit Index at Page 20
<PAGE>
I. REPORT
Audited Financial Statements and Supplemental Schedule, Paragon Retirement
Investment Savings Management Plan, Year ended December 31, 1999 and as of
December 31, 1998 with Report of Independent Auditors, prepared in accordance
with the financial reporting requirements of ERISA.
2
<PAGE>
AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Paragon Retirement Investment Savings Management Plan
YEAR ENDED DECEMBER 31, 1999 AND AS OF DECEMBER 31, 1998
WITH REPORT OF INDEPENDENT AUDITORS
3
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Audited Financial Statements
and Supplemental Schedule
Year ended December 31, 1999 and as of December 31, 1998
CONTENTS
Report of Independent Auditors (Ernst & Young LLP).............................5
Report of Independent Auditors (Arthur Andersen LLP)...........................6
Audited Financial Statements
Statements of Net Assets Available for Benefits................................7
Statement of Changes in Net Assets Available for Benefits......................8
Notes to Audited Financial Statements..........................................9
Supplemental Schedule
Schedule of Assets Held for Investment Purposes at End of Year................18
4
<PAGE>
Report of Independent Auditors
Plan Administrator of Paragon Retirement
Savings Management Plan
We have audited the accompanying statement of net assets available for benefits
of Paragon Retirement Investment Savings Management Plan as of December 31, 1999
and the related statement of changes in net assets available for benefits for
the year then ended. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1999 and the changes in its net assets available for benefits for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
held for investment purposes at end of year as of December 31, 1999, is
presented for purposes of additional analysis and is not a required part of the
financial statements but is supplementary information required by the Department
of Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This schedule is the responsibility of
the Plan's management. The schedule has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
June 23, 2000
Atlanta, Georgia
5
<PAGE>
Report of Independent Auditors
To the Plan Administrator of the
Paragon Retirement Investment
Savings Management Plan:
We have audited the accompanying statement of net assets available for benefits
of the PARAGON RETIREMENT INVESTMENT SAVINGS MANAGEMENT PLAN as of December 31,
1998. This financial statement is the responsibility of the Plan's management.
Our responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of net assets
available for benefits is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of net assets available for benefits. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of net assets available for benefits referred to
above presents fairly, in all material respects, the net assets available for
benefits of the Plan as of December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 8 to the accompanying financial statements, Paragon Trade
Brands, Inc., the plan sponsor, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. The accompanying financial statements
have been prepared assuming that the Paragon Retirement Investment Savings Plan
will continue as a going concern. However, because of the plan sponsor's Chapter
11 filing, there is substantial doubt about whether the Plan will continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 11, 1999
(except with respect to the matter discussed in the penultimate paragraph of
Note 8, as to which the date is June 22, 1999)
6
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Statements of Net Assets Available for Benefits
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
--------------------------------------------
<S> <C> <C>
ASSETS
Investments, at fair value $26,289,436 $19,849,733
Contributions receivable:
Participant 221,485 206,011
Employer 1,625,990 2,504,929
--------------------------------------------
Total contributions receivable 1,847,475 2,710,940
--------------------------------------------
Total assets 28,136,911 22,560,673
LIABILITIES
Refunds payable to participants - 89,682
--------------------------------------------
Net assets available for benefits $28,136,911 $22,470,991
============================================
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Additions to net assets attributed to:
Investment income:
Net appreciation in fair value of investments $ 523,040
Interest and dividends 1,503,092
----------------------
2,026,132
Contributions:
Employer 3,088,161
Participants 2,559,352
----------------------
5,647,513
----------------------
Total additions 7,673,645
Deductions from net assets attributed to:
Benefit payments 1,968,228
Administrative expenses 39,497
----------------------
2,007,725
----------------------
Net increase 5,665,920
Net assets available for benefits:
Beginning of year 22,470,991
----------------------
End of year $28,136,911
======================
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Notes to Financial Statements
December 31, 1999
1. DESCRIPTION OF THE PLAN
GENERAL
The Paragon Retirement Investment Savings Management Plan (the "Plan") is a
defined contribution plan under Sections 401(a) and 401(k) of the Internal
Revenue Code (the "Code"). The Plan is sponsored by Paragon Trade Brands, Inc.
(the "Company"). The following description of the Plan provides only general
information. Participants should refer to the Plan document for a more
comprehensive description of the Plan's provisions.
ELIGIBILITY
Employees of the Company who have completed six months of service are eligible
to participate in the Plan except for employees covered by a collective
bargaining unit (unless there is a written agreement providing for this
participation), employees who are nonresident aliens and earn no U.S.-source
income, employees classified as bag stickering, and hourly paid administrative
employees.
PLAN ADMINISTRATION
The Plan is administered by the plan administrative committee (the "Committee"),
which is appointed by the board of directors of the Company. The Plan's
investments were held under a trust agreement with Vanguard Fiduciary Trust
Company (the "Trustee").
CONTRIBUTIONS
Eligible employees may elect to defer up to 15% of their compensation through
payroll deductions, subject to certain limitations under the Code. The Company
matched employee deferral contributions at the rate of 50% for all contributions
up to 6% of each participant's eligible compensation that were made from January
1, 1999 to March 1, 1999. The Company made no matching contributions on employee
deferral contributions that were made after March 1, 1999.
9
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
CONTRIBUTIONS (CONTINUED)
Effective January 1, 1999, the Company began contributing 3% of eligible
compensation (also know as "employer retirement contributions") to the Plan for
all eligible participants regardless of whether or not they are actively
contributing to the Plan. In addition, the Company may, at its discretion, make
profit-sharing contributions to the Plan in amounts to be determined by the
Board of Directors. The Company made a $1,461,846 profit sharing contribution to
the Plan for the year ended December 31, 1999.
Effective May 15, 1999, employee contributions, employer contributions and
interfund transfers to the Paragon Common Stock Fund are no longer permitted.
PARTICIPANT LOANS
A participant may borrow up to the lesser of 50% of their vested account
balance, excluding profit-sharing contributions and retirement contributions, or
$50,000, reduced by the highest loan amount outstanding during the preceding
12-month period, with a minimum loan amount of $1,000. Loans are repayable
through payroll deductions over periods ranging up to 60 months, except for
loans used to purchase the participant's primary residence, which can be repaid
over a longer period. All loans bear interest at rates set by the Committee
based on the rates charged by commercial lenders for similar loans.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution and
allocations of the Company's contribution and Plan earnings. Allocations are
based on participant earnings or account balances, as defined in the Plan
document. The benefit to which a participant is entitled is the benefit that can
be provided from the participant's vested account.
10
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
VESTING
Participants are immediately vested in their employee deferral contributions and
employer retirement contributions plus actual earnings thereon. Vesting in the
employer contribution related to matching of the employee deferral and profit
sharing portion plus actual earnings thereon is based on the number of years of
service with the Company, including any years of service when the participant
was eligible and did not participate in the Plan. Participants are fully vested
with respect to profit sharing and employer matching contributions after
completing three years of credited service.
Forfeitures of employer contributions are used to offset employer matching
contributions or administrative expenses for the same and/or future Plan years.
The forfeiture account balance as of December 31, 1999 and 1998 was $89,720 and
$35,980, respectively. The Company used $35,889 of forfeitures to pay
administrative expenses in 1999.
PAYMENT OF BENEFITS
All amounts credited to a participant's account are distributed without
forfeiture upon termination of employment for death, total disability,
retirement at age 65, or after completion of three or more years of service.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared using the accrual method of
accounting.
11
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION
The Plan's investments are stated at fair value as established by Vanguard
Fiduciary Trust Company, the trustee of the Plan's investment assets. Shares of
registered investment companies are valued at quoted market prices which
represent the net asset value of shares held by the Plan. Units of the
Retirement Savings Trust are valued at net asset value at year-end. The Company
stock is valued at its quoted market price. Participant loans are valued at fair
value which is approximated by cost.
INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is recorded
as earned. Purchases and sales of securities are recorded on a trade date basis.
ADMINISTRATIVE EXPENSES
Administrative expenses of the Plan and investment management fees are paid out
of Plan assets, unless paid by the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
12
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Notes to Financial Statements (continued)
3. INVESTMENTS
The fair value of individual investments that represent 5% or more of the Plan's
net assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------------------------
<S> <C> <C>
Vanguard 500 Index Fund $7,467,405 $5,024,933
Vanguard U.S. Growth Fund 6,608,592 4,839,677
Vanguard Windsor II Fund 4,358,223 4,151,471
Vanguard Wellesley Income Fund 2,645,598 2,354,094
Vanguard Retirement Savings Trust 2,326,480 *
* Amount was less than 5%.
</TABLE>
The Plan's investments (including investments purchased, sold as well as held
during the year) appreciated/(depreciated) in fair value as determined by quoted
market prices as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
----------------------
<S> <C>
Mutual Funds $ 854,889
Paragon Common Stock Fund (331,849)
----------------------
$ 523,040
======================
</TABLE>
13
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Notes to Financial Statements (continued)
4. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated September 18, 1995, stating that the Plan is qualified under Section
401(a) of the Code and, therefore, the related trust is exempt from taxation.
Once qualified, the Plan is required to operate in conformity with the Code to
maintain its qualification. The Plan administrator believes the Plan is being
operated in compliance with the applicable requirements of the Code and,
therefore, believes that the Plan is qualified and the related trust is tax
exempt.
5. TRANSACTIONS WITH PARTIES-IN-INTEREST
During 1999, the Plan purchased 75,323 common shares of Paragon Trade Brands,
Inc. with a fair value of $232,331. During 1999, the Plan sold 196,361 common
shares of Paragon Trade Brands, Inc. for proceeds of $428,833, resulting in a
loss of $1,269,274 based on historical cost.
As of December 31, 1999 and 1998, the Plan held 143,085 and 264,123 shares of
Paragon Trade Brands, Inc. Common Stock with a fair value of $32,910 and
$561,261, respectively.
Certain Plan investments are shares of common trust funds managed by the
Trustee; therefore, these transactions qualify as party-in-interest. The Company
paid certain administrative expenses on behalf of the Plan for the year ended
December 31, 1999.
6. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become fully vested in their accounts.
14
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Notes to Financial Statements (continued)
7. DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to those per the Form 5500 as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
<S> <C> <C>
Net assets available for benefits per the financial statements $28,136,911 $22,470,991
Benefits payable to participants - (46,515)
-------------------- --------------------
Net assets available for benefits per the Form 5500 $28,136,911 $22,424,476
==================== ====================
</TABLE>
The following is a reconciliation of benefits paid to participants per the
financial statements to those per the Form 5500:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
----------------------
<S> <C>
Benefits paid per the financial statements $1,968,228
Benefits payable to participants at December 31, 1998 (46,515)
----------------------
Benefits paid per the Form 5500 $1,921,713
======================
</TABLE>
8. CHAPTER 11 BANKRUPTCY OF PLAN SPONSOR
Paragon Trade Brands, Inc., the Plan sponsor, filed a voluntary petition on
January 6, 1998 for relief under Chapter 11 of the U.S. Bankruptcy Code due to
the fact that the District Court for the District of Delaware issued a judgment
and opinion finding that the Company's diaper products infringe certain patents
held by the Proctor & Gamble Company ("P&G"). Kimberly Clark Corporation ("K-C")
had also filed a similar patent infringement lawsuit against the Company. During
the first quarter of 1999, the Company entered into settlement agreements with
P&G and K-C which, if approved by the Bankruptcy Court, will fully and finally
settle all matters related to these actions. In the event these settlement
agreements are approved and a plan of reorganization is approved by the
Bankruptcy Court, continuation of the business thereafter is dependent
15
<PAGE>
Paragon Retirement Investment
Savings Management Plan
Notes to Financial Statements (continued)
on the Company's ability to achieve successful future operations. The
accompanying financial statements have been prepared assuming that the Paragon
Retirement Investment Savings Management Plan will continue as a going concern.
However, should the Plan be terminated, the assets of the Plan would be
liquidated at their then fair value and distributed to participants. All assets
of the Plan are held in trust and are protected from the creditors of the
Company. However, because of the Plan sponsor's Chapter 11 filing, at December
31, 1998 there was substantial doubt about whether the Plan would continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
During the year ended December 31, 1999, the Company continued to negotiate
settlement alternatives related to this litigation. See Note 9 for a discussion
of the resolution of this matter.
On June 22, 1999, the Company in conjunction with the New York Stock Exchange
announced that trading in the common stock of the Company would be suspended
prior to the opening of trading on July 8, 1999, or such earlier date as (i) the
Company commenced trading in another securities marketplace, (ii) information
was received that the Company does not meet the listing requirements of the
other securities marketplace, or (iii) the Company made a material news
announcement.
On July 9, 1999, the common stock of the Company began trading on the National
Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board.
9. SUBSEQUENT EVENTS
On January 28, 2000, the Company emerged from bankruptcy after a management
reorganization plan and settlement of a patent infringement lawsuit against the
Company were approved by the Bankruptcy court. These events have had no
significant effect on the Plan's financial statements.
16
<PAGE>
Supplemental Schedule
17
<PAGE>
Paragon Retirement Investment
Savings Management Plan
EIN: 91-1554663 Plan No. 001
Schedule H, Line 4i
Schedule of Assets Held for Investment Purposes at End of Year
December 31, 1999
<TABLE>
<CAPTION>
(B)
IDENTITY OF ISSUE, (E)
BORROWER, LESSOR (C) CURRENT
(A) OR SIMILAR PARTY DESCRIPTION OF INVESTMENT VALUE
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COLLECTIVE TRUST FUND
* Vanguard Group, Inc. Vanguard Retirement Savings Trust $ 2,326,480
MUTUAL FUNDS
* Vanguard Group, Inc. Vanguard 500 Index Fund 7,467,405
* Vanguard Group, Inc. Vanguard International Growth Fund 880,231
* Vanguard Group, Inc. Vanguard Small Cap Index Fund 244,220
* Vanguard Group, Inc. Vanguard Total Bond Market Index Fund 915,929
* Vanguard Group, Inc. Vanguard U.S. Growth Fund 6,608,592
* Vanguard Group, Inc. Vanguard Wellesley Income Fund 2,645,598
* Vanguard Group, Inc. Vanguard Windsor II Fund 4,358,223
COMMON STOCK
* Paragon Trade Brands, Inc. Common stock 32,910
Participant Loans Interest Rates from 8% to 11% 809,848
--------------------
$ 26,289,436
====================
</TABLE>
* Indicates a party-in-interest to the Plan.
Note: Column (d) has not been presented as that information is not
required.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrative Committee has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
PARAGON TRADE BRANDS, INC.
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
By: /S/ KATHY L. EVENSON
------------------------
Kathy L. Evenson
Plan Administrator
July 13, 2000
19
<PAGE>
Exhibit Index
EXHIBIT NO. DESCRIPTION
23.1.1 Consent of Independent Auditors (Ernst & Young LLP)
23.1.2 Consent of Independent Auditors (Arthur Andersen LLP)
20
