<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES
UNDER THE TRUST INDENTURE ACT OF 1939
............
PARAGON TRADE BRANDS, INC.
(NAME OF APPLICANT)
180 TECHNOLOGY PARKWAY, NORCROSS, GEORGIA 30092
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
............
TITLE OF CLASS AMOUNT
............
Senior Subordinated Notes Due 2005 $182,000,000
Approximate date of proposed issuance: January 28, 2000
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
(Name and address of agent for service)
With a copy to:
H. Sadler Poe, Esq.
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
(404) 881-7000
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GENERAL
1. GENERAL INFORMATION. Furnish the following as to the applicant.
(a) Form of organization:
A corporation.
(b) State or other sovereign power under the laws of which
organized:
Delaware.
2. SECURITIES ACT EXEMPTION APPLICABLE. State briefly the facts relied
upon by the applicant as a basis for the claim that registration of the
indenture securities under the Securities Act of 1933 is not required.
On January 6, 1998, Paragon Trade Brands, Inc., a Delaware corporation
(the "Company"), filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"), thereby commencing Case
No. 98-60390 (the "Bankruptcy Case"), in the United States Bankruptcy Court for
the Northern District of Georgia (the "Bankruptcy Court"). On or about November
15, 1999, the Company and its Official Committee of Unsecured Creditors filed a
Second Amended Plan of Reorganization (as subsequently modified through January
13, 2000, the "Plan") and related Disclosure Statement (as subsequently modified
through January 13, 2000, the "Disclosure Statement") with the Bankruptcy Court.
By order dated November 18, 1999, the Bankruptcy Court approved the Disclosure
Statement as containing "adequate information" as such term is defined in the
Bankruptcy Code. By order dated January 13, 2000, the Bankruptcy Court confirmed
the Plan.
The Effective Date (as defined below) of the Plan is conditioned upon,
among other things, the Company's obtaining exit financing as contemplated in
the Plan, and upon the execution and delivery of all documents required to be
executed and delivered under the terms of the Plan or any agreement incorporated
therein. Accordingly, if these and certain other conditions precedent are
satisfied or waived as set forth in the Plan, the Effective Date (as defined
below) may occur, and the Notes (as defined below) may be issued, on or about
January 28, 2000.
Under the Plan, the existing equity stock of the Company will be
canceled, and new shares will be issued as set forth in the Plan. In general,
Wellspring Capital Management, LLC (or its designee) ("Wellspring") will
purchase approximately 97.5% of the stock in the Company (after giving effect to
the reorganization) for $117 million cash, with the balance of the equity stock
going to old shareholders pro rata. In addition, the existing shareholders and
creditors had the right to elect to exercise rights to purchase a portion of
Wellspring's shares at $10.00 per share. In the aggregate, certain shareholders
exercised such rights to purchase approximately 220,000 shares of the equity in
the Company (after reorganization) from Wellspring (approximately 1%). The
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"Effective Date" of the Plan is expected to occur on the date the Wellspring
stock purchase agreement is closed. On the Effective Date, the creditors of the
Company will receive, pursuant to the Plan, among other things, a pro rata share
of (i) the $117 million purchase price being invested by Wellspring; and (ii)
the $146 million in aggregate principal amount of 11.25% Senior Subordinated
Notes due 2005 (the "Notes"), to be issued under the indenture to be qualified,
and guarantees (the "Guarantees") of such Notes by PTB International, Inc., PTB
Acquisition Sub, Inc., And PTB Holdings, Inc. In addition, subject to the
satisfaction of certain conditions contained in the Indenture, the Company may
issue up to approximately $36 million in additional Notes pursuant to the
Indenture in lieu of paying interest in cash.
The issuance of the Notes will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), but instead the Notes will be
issued pursuant to the exemption from the registration requirements of the
Securities Act provided by Section 1145 of the Bankruptcy Code. Generally,
section 1145 of the Bankruptcy Code exempts the offer or sale of securities
under a plan of reorganization from registration under the Securities Act and
under equivalent state securities and "blue sky" laws if the following
requirements are satisfied: (i) the securities are issued by the debtor or its
successor under a plan of reorganization; (ii) the recipients of the securities
hold a claim against the debtor, an interest in the debtor or a claim for an
administrative expense against the debtor; and (iii) the securities are issued
entirely in exchange for the recipient's claim against or interest in the debtor
or are issued "principally" in such exchange and "partly" for cash or property.
The Company believes that the issuance of the Notes under the Plan will satisfy
such requirements of section 1145 of the Bankruptcy Code and, therefore, such
issuance is exempt from the registration requirements referred to above.
AFFILIATIONS
3. AFFILIATES. Furnish a list or diagram of all affiliates of the
applicant and indicate the respective percentages of voting securities or other
bases of control.
As of January 17, 2000
13.71% of the voting common stock of the Company is held by Wellington
Management Company, LLP, based on publicly available information
reported as of January 29, 1999.
Bobby V. Abraham is a Director and Chief Executive Officer of the
Company.
Adrian D.P. Bellamy is a Director of the Company.
Thomas B. Boklund is a Director of the Company.
Robert L. Schuyler is a Director of the Company.
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Alan J. Cyron is the Executive Vice President, Chief Financial Officer,
and Assistant Secretary of the Company.
Robert E. McClain is the Executive Vice President - Sales and Marketing
of the Company.
John R. Cook is the Vice President - Technical Support of the Company.
Kathy L. Evenson is the Director of Human Resources of the Company.
Catherine O. Hasbrouck is the Vice President, General Counsel and
Secretary of the Company.
Stanley Littman is the Vice President - Technology and Materials of the
Company.
Christine I. Oliver is the Executive Vice President - Customer
Management of the Company.
Jeffrey S. Schoen is the Vice President - Manufacturing of the Company.
100% of the voting common stock of Paragon Trade Brands (Canada) Inc.
is held by the Company.
100% of the voting common stock of Paragon Trade Brands FSC, Inc. is
held by the Company.
100% of the voting common stock of PTB International, Inc. is held by
the Company.
100% of the voting common stock of PTB Acquisition Sub, Inc. is held by
the Company.
100% of the voting common stock of PTB Holdings, Inc. is held by the
Company.
49% of the ownership interests of Paragon-Mabesa International, S.A. de
C.V. is held by PTB International, Inc.
49% of the ownership interests of Stronger Corporation, S.A. is held by
PTB International, Inc.
40% of the ownership interests of Goodbaby Paragon Hygienic Products
Co. Ltd. is held by the Company.
As of the Effective Date:
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Approximately 97.5% of the voting common stock of the Company will be
held by PTB Acquisition Company LLC;
100% of the membership interests of PTB Acquisition Company LLC will be
held by Wellspring Capital Partners II, L.P.
58% of the voting common stock of Far & Wide Travel Corp. will be held
by Wellspring Capital Partners II, LP.
6% of the partnership interests of Wellspring Capital Partners II, L.P.
will be held by Wellspring Associates II LLC.
By virtue of a management agreement between Wellspring Capital
Management, LLC and Wellspring Capital Partners II, L.P., Wellspring
Capital Management, LLC will exercise managerial control over
Wellspring Capital Partners II, L.P.
50% of the membership interests of Wellspring Capital Management, LLC
will be held by Greg Feldman.
Greg Feldman will be the managing member of WS Acquisition LLC and
Train Acquisition LLC and a director of the Company.
53% of the voting common stock of The Hockey Company will be held by WS
Acquisition LLC.
75% of the membership interests of Lionel LLC will be held by Train
Acquisition LLC
100% of the voting common stock of PTB Acquisition Sub, Inc. will be
held by the Company.
100% of the voting common stock of Paragon Trade Brands FSC, Inc. will
be held by the Company.
100% of the voting common stock of PTB International, Inc. will be
held by the Company.
100% of the voting common stock of Paragon Trade Brands (Canada) Inc.
will be held by the Company.
100% of the voting common stock of PTB Holdings, Inc. will be held by
the Company.
49% of the ownership interests of Paragon-Mabesa International, S.A. de
C.V. will be held by PTB International, Inc.
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49% of the ownership interests of Stronger Corporation, S.A. will be
held by PTB International, Inc.
40% of the ownership interests of Goodbaby Paragon Hygienic Products
Co. Ltd., will be held by PTB International, Inc.
Bobby V. Abraham will be a director and the chief executive officer of
the Company.
David W. Cole will be a director of the Company.
David Mariano will be a director of the Company.
James R. McManus will be a director of the Company.
Thomas F. Ryan, Jr. will be a director of the Company.
J. Dale Sherratt will be a director of the Company.
Carl Stanton will be a director of the Company.
Thomas J. Volpe will be a director of the Company.
Alan J. Cyron will be the Executive Vice President, Chief Financial
Officer and Assistant Secretary of the Company.
Robert E. McClain will be the Executive Vice President - Sales and
Marketing of the Company.
John R. Cook will be the Vice President - Technical Support of the
Company.
Kathy L. Evenson will be the Director of Human Resources of the
Company.
Catherine O. Hasbrouck will be the Vice President, General Counsel and
Secretary of the Company.
Stanley Littman will be the Vice President - Technology and Materials
of the Company.
Christine I. Oliver will be the Executive Vice President - Customer
Management of the Company.
Jeffrey S. Schoen will be the Vice President - Manufacturing of the
Company.
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MANAGEMENT AND CONTROL
4. DIRECTORS AND EXECUTIVE OFFICERS. List the names and complete mailing
addresses of all directors and executive officers of the applicant and
all persons chosen to become directors or executive offices. Indicate
all offices with the applicant held or to be held by each person named.
As of January 17, 2000
<TABLE>
<CAPTION>
Name and Mailing Address Title
-----------------------------------------------------------------------------------------
<S> <C>
Bobby V. Abraham Director and Chief Executive Officer
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Adrian D.P. Bellamy Director
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Thomas B. Boklund Director
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Robert L. Schuyler Director
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Alan J. Cyron Executive Vice President, Chief
Paragon Trade Brands, Inc. Financial Officer, Assistant Secretary
180 Technology Parkway
Norcross, Georgia 30092
Robert E. McClain Executive Vice President - Sales and
Paragon Trade Brands, Inc. Marketing
180 Technology Parkway
Norcross, Georgia 30092
John R. Cook Vice President - Technical Support
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
</TABLE>
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<TABLE>
<S> <C>
Kathy L. Evenson Director of Human Resources
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Catherine O. Hasbrouck Vice President, General Counsel and
Paragon Trade Brands, Inc. Secretary
180 Technology Parkway
Norcross, Georgia 30092
Stanley Littman Vice President - Technology and Materials
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Christine I. Oliver Executive Vice President - Customer
Paragon Trade Brands, Inc. Management
180 Technology Parkway
Norcross, Georgia 30092
Jeffrey S. Schoen Vice President - Manufacturing
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
As of the Effective Date
Name and Mailing Address Title
----------------------------------------------------------------------------------------------
Bobby V. Abraham Director and Chief Executive Officer
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Alan J. Cyron Executive Vice President, Chief
Paragon Trade Brands, Inc. Financial Officer, Assistant Secretary
180 Technology Parkway
Norcross, Georgia 30092
David W. Cole Director
Torbitt & Castleman, Inc.
One Quality Place
Buckner, Kentucky 40010
</TABLE>
-8-
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<TABLE>
<S> <C>
Greg Feldman Director
Wellspring Capital Management, LLC
620 Fifth Avenue, Suite 216
New York, New York 10020
David Mariano Director
Wellspring Capital Management, LLC
620 Fifth Avenue, Suite 216
New York, New York 10020
James R. McManus Director
Timesoft
285 Riverside Avenue
Westport, Connecticut 06880
Thomas F. Ryan, Jr. Director
Hill, Holiday, Connors,
Cosmopulos, Inc.
200 Clarendon Street, 39th Floor
Boston, Massachusetts 02116
J. Dale Sherratt Director
Cambridge Nutraceuticals, Inc.
294 Washington Street, Suite 601
Boston, Massachusetts 02108-4608
Carl Stanton Director
Wellspring Capital Management, LLC
620 Fifth Avenue, Suite 216
New York, New York 10020
Thomas J. Volpe Director
Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, New York 10020
Robert E. McClain Executive Vice President - Sales and
Paragon Trade Brands, Inc. Marketing
180 Technology Parkway
Norcross, Georgia 30092
John R. Cook Vice President - Technical Support
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
</TABLE>
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<TABLE>
<S> <C>
Kathy L. Evenson Director of Human Resources
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Catherine O. Hasbrouck Vice President, General Counsel and
Paragon Trade Brands, Inc. Secretary
180 Technology Parkway
Norcross, Georgia 30092
Stanley Littman Vice President - Technology and Materials
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Christine I. Oliver Executive Vice President - Customer
Paragon Trade Brands, Inc. Management
180 Technology Parkway
Norcross, Georgia 30092
Jeffrey S. Schoen Vice President - Manufacturing
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
</TABLE>
5. PRINCIPAL OWNERS OF VOTING SECURITIES. Furnish the following
information as to each person owning 10 percent or more of the voting securities
of the applicant.
As of January 17, 2000, based on publicly available information reported
as of January 29, 1999:
<TABLE>
<CAPTION>
Name and Complete Title of Class Percentage of
Mailing Address Owned Amount Owned Securities Owned
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wellington Management Common 1,637,800 13.71%
Company, LLP Stock
75 State Street
Boston, MA 02109
</TABLE>
As of the Effective Date:
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<TABLE>
<CAPTION>
Name and Complete Title of Class Percentage of
Mailing Address Owned Amount Owned Securities Owned
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PTB Acquisition Common 11,561,204 97.5%
Company LLC Stock
c/o Wellspring Capital
Management, LLC
620 Fifth Avenue, Suite 216
New York, NY 10020
</TABLE>
6. UNDERWRITERS. Give the name and complete mailing address of (a) each
person who, within three years prior to the date of filing the application,
acted as an underwriter of any securities of the obligor which were outstanding
on the date of filing the application, and (b) each proposed principal
underwriter of the securities proposed to be offered, As to each person
specified in (a), give the title of each class of securities underwritten.
(a) Within three years prior to the date of the filing of this
Application, no person acted as an underwriter of any securities of the Company
which are currently outstanding.
CAPITAL SECURITIES
7. CAPITALIZATION. (a) Furnish the following information as to each
authorized class of securities of the applicant.
As of January 14, 2000:
<TABLE>
<CAPTION>
Title of Class Amount Authorized Amount Outstanding
--------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock, 10,000,000 shares 0
Par value $0.01 per share
Common Stock, 25,000,000 shares 11,949,694
Par value $0.01 per share
</TABLE>
As of the Effective Date:
<TABLE>
<CAPTION>
Title of Class Amount Authorized Amount Outstanding
--------------------------------------------------------------------------
<S> <C> <C>
Preferred Stock, 5,000,000 shares 0
Par value $0.01 per share
</TABLE>
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<TABLE>
<S> <C> <C>
Common Stock, 20,000,000 shares 11,891,000 (1)
Par value $0.01 per share
11.25% Senior Subordinated $182,000,000 $146,000,000
Notes due 2005 aggregate principal aggregate principal
amount amount
</TABLE>
(1) Warrants to purchase up to an aggregate of 625,821 shares of common
stock of the Company will be outstanding after the Effective Date. Such
warrants will be exercisable at any time after the Effective Date at an
exercise price of $18.91 per share until the earlier of the tenth
anniversary of the Effective Date or, in the event that the warrants
are called pursuant to the warrant agreement governing the terms of the
warrants, the business day immediately preceding the call date. The
exercise price is subject to customary anti-dilution provisions upon
the happening of certain corporate events specified in the warrant
agreement.
(b) Give a brief outline of the voting rights of each class of
voting securities referred to in paragraph (a) above.
Each series of shares of Preferred Stock may have such voting power,
full or limited, or may be without voting powers, as the Board of Directors may
decide. Subject to the provisions of any applicable law, the Company's
certificate of incorporation, resolutions of the Board of Directors authorizing
a series of Preferred Stock or the Company's By-laws, the holders of outstanding
shares of Common Stock shall exclusively possess voting power for the election
of directors and for all other purposes, each holder of record of shares of
Common Stock being entitled to one vote for each share of Common Stock standing
in his or her name on the books of the Corporation.
Holders of the Notes do not have any voting rights by reason of
ownership of those securities. Holders of the Warrants do not have any voting
rights unless and until such Warrants are exercised for shares of the Company's
Common Stock, at which time the holders of the Warrants will vote as holders of
the Common Stock.
INDENTURE SECURITIES
8. ANALYSIS OF INDENTURE PROVISIONS. Insert at this point the analysis of
indenture provisions required under section 305(a)(2) of the Trust Indenture Act
of 1939, as amended (the "TIA").
The Notes will be issued under an indenture (the "Indenture") to be
dated as of the Effective Date, among the Company, as issuer, PTB International,
Inc., PTB Acquisition Sub, Inc. and PTB Holdings, Inc. as guarantors, and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee"), a copy
of which is included as Exhibit T3C hereto. Capitalized terms used in this
Section 8 which are not otherwise defined below or elsewhere in the Application
have the respective meanings assigned to them in the
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Indenture. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety, by
reference to all of the provisions of the Indenture.
(A) EVENTS OF DEFAULT. The following are Events of Default under
the Indenture:
(1) the Company defaults in any payment of interest with
respect to any Note when the same becomes due and payable, whether or not such
payment shall be prohibited by the subordination provisions of the Indenture,
and such default continues for a period of 30 days;
(2) the Company (i) defaults in the payment of the
principal of, or premium, if any, on any Note when the same becomes due and
payable at its Stated Maturity, upon redemption, upon declaration or otherwise,
whether or not such payment shall be prohibited by the subordination provisions
of the Indenture or (ii) fails to redeem or purchase Notes when required
pursuant to this Indenture or the Notes, whether or not such redemption or
purchase shall be prohibited by the subordination provisions of the Indenture;
(3) the Company fails to observe or perform any covenant,
condition or agreement on the part of the Company to be observed or performed
pursuant to the convenants contained in the Indenture relating to limitations on
the Indebtedness, Restricted Payments, sales of Assets and Subsidary Stock,
Change of Control and mergers, consolidations and sales of substantially all of
the Company's assets;
(4) the Company fails to comply with any of its other
agreements or covenants in or provisions of the Notes or this Indenture and such
failure continues for 30 days after the notice specified below;
(5) Indebtedness of the Company or any Significant
Subsidiary is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness accelerated exceeds $15,000,000 or its foreign
currency equivalent at the time;
(6) certain events of bankruptcy, insolvency or
restructuring in respect of either the Company or a Significant Subsidiary;
(7) any judgment or decree for the payment of money in
excess of $15,000,000 above any applicable insurance coverage or its foreign
currency equivalent at the time is entered against the Company or any
Significant Subsidiary, remains outstanding and unstayed for a period of 60 days
following the entry of such judgment or decree; or
(8) the Note Guarantee of any Note Guarantor ceases to be
in full force and effect (other than (x) in accordance with the terms of such
Note Guarantee or (y) with respect to any Note Guarantor that is not a
Significant Subsidiary, as a result of the occurrence of an event described in
clause (6) above) or any Note Guarantor denies or disaffirms its obligations
under its Note Guarantee.
A Default under clause (4) is not an Event of Default until the Trustee
or the Holders of at least 25% in principal amount of the Notes notify the
Company of the Default and the Company does not cure such Default within the
time specified after receipt of such
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notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
If an Event of Default (other than an Event of Default specified in (6)
above with respect to the Company) occurs and is continuing, the Trustee by
written notice to the Company, or the Holders of at least 25% in principal
amount of the Notes by written notice to the Company and the Trustee, may
declare the principal of, premium, if any, and accrued but unpaid interest on
all the Notes to be due and payable. Upon such a declaration, such principal,
premium, if any, and interest shall be due and payable immediately. If an Event
of Default specified in (6) above with respect to the Company occurs, the
principal of, premium, if any, and interest on all the Notes shall automatically
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Noteholders. The Holders of no less than a
majority in aggregate principal amount of then outstanding Notes generally are
authorized to rescind such acceleration if the recission would not conflict with
any judgment or decree and if all existing Events of Default, other than the
non-payment of amounts which have become due solely by such acceleration, have
been cured or waived.
If a Default occurs and is continuing and if it is actually known to
the Trustee, the Trustee shall mail to each Noteholder notice of the Default
within 30 days after it occurs. Except in the case of a Default in the payment
of principal of, premium, if any, or interest on any Note (including payments
pursuant to the mandatory redemption provisions of such Note, if any), the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Noteholders.
(B) AUTHENTICATION AND DELIVERY; APPLICATION OF PROCEEDS.
The Notes must be executed on behalf of the Company by its Chief
Executive Officer, President, Chief Operating Officer, Chief Financial Officer,
Treasurer or any Vice President, and shall be attested by the Company's
Secretary or one of its Assistant Secretaries, in each case by manual or
facsimile signature. The Notes must be authenticated by manual signature of an
authorized signatory of the Trustee and will not be valid for any purpose unless
so authenticated. The Trustee shall, upon receipt of a Company Order requesting
such action, authenticate Notes, excluding Secondary Securities, for original
issue up to the aggregate principal amount not to exceed $146,000,000
outstanding at any given time, except for any Secondary Securities that may be
issued pursuant to the terms of the Indenture, and other exceptions contained in
the Indenture. The Company Order will specify the amount of Notes to be
authenticated and the date on which the Notes are to be authenticated and must
further provide instructions concerning registration, amounts for each Holder
and delivery. In the case of Secondary Securities, the Company shall give
written notice to the Trustee of the amount of interest to be paid in Secondary
Securities not less than five Business Days prior to the applicable Interest
Payment Date, and the Trustee or an authenticating agent (upon written order of
the Company signed by an Authorized Representative of the Company given not
less than
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<PAGE> 15
five nor more than 45 days prior to such Interest Payment Date) shall
authenticate for original issue (pro rata to each Holder of any Notes on the
applicable Record Date) Secondary Securities in an aggregate principal amount
equal to the amount of cash interest not paid on such Interest Payment Date.
A Note will not be valid or entitled to any benefits under the
Indenture or obligatory for any purpose unless executed by the Company and
authenticated by the manual signature of one of the authorized signatories of
the Trustee as provided in the Indenture. The Trustee may appoint an
authenticating agent reasonably acceptable to the Company to authenticate the
Notes.
There will be no proceeds from the issuance of the Notes because such
securities (together with other securities of the Company) will be issued or
distributed pursuant to the Plan in exchange for the satisfaction and discharge
of certain claims arising from the ownership of certain securities of or claims
against the Company in the Bankruptcy Case. Accordingly, no provisions are
contained in the Indenture with respect to the use by the Company of proceeds of
the issuance of the Notes.
(C) RELEASE AND SUBSTITUTION OF PROPERTY SUBJECT TO THE LIEN OF
THE INDENTURE.
The Notes are unsecured and as such, there is no property subject to a
lien of the indenture.
(D) SATISFACTION AND DISCHARGE.
If the Company delivers to the Trustee all outstanding Notes (other
than Notes replaced pursuant to the terms of the Indenture) for cancellation or
(ii) all outstanding Notes have become due and payable and the Company
irrevocably deposits with the Trustee funds sufficient to pay at Stated Maturity
or, in the case of a redemption, upon redemption all outstanding Notes (other
than Notes replaced pursuant to the terms of the Indenture), together with
accrued but unpaid interest thereon to Stated Maturity or such Redemption Date
(absent any subsequent order or judgment enjoining, restraining or prohibiting
the application of such funds), and, in either case, the Company pays all other
sums payable thereunder by the Company, then the obligations of the Company
under the Notes and the Indenture will terminate (except for certain obligations
of the Company to indemnify the Trustee under certain circumstances and certain
obligations with respect to unclaimed funds).
In addition, the Company may, at its option and at any time, elect to
have its obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes, and the Indenture shall cease to be of further effect as to all
outstanding Notes and Guarantees except as to the following obligations which
will survive unless otherwise terminated or discharged under
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<PAGE> 16
the Indenture (a) the rights of Holders of outstanding Notes to receive payments
in respect of the principal of, premium, if any, and interest on such Notes when
such payments are due from the trust referred to below; (b) the Company's
obligations with respect to the Notes concerning, among other things, issuing
temporary Notes, transfer and exchange of Notes, mutilated, destroyed, lost or
stolen Notes, and the maintenance of an office or agency for payment and money
for security payments held in trust and the maintenance of its corporate
existence; (c) the rights, powers, trusts, duties, and immunities of the
Trustee, and the Company's obligations in connection therewith; (d) the
provisions of the Indenture relating to redemption of the Notes; and (d) the
Legal Defeasance provisions of the Indenture. The Company may cause Legal
Defeasance to occur at any time. In addition, the Company may, at its option and
at any time, elect to have its obligations released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, U.S. Legal Tender or non-callable US
Government Obligations for the payment of the principal of and interest on the
outstanding Notes to maturity or redemption, as the case may be; (b) the Company
must deliver to the Trustee a certificate from a nationally recognized firm of
independent accountants expressing its opinion that the payments of principal
and interest when due and without reinvestment of the deposited US Government
Obligations plus any deposited money without investment will provide cash at
such times and in such amounts as will be sufficient to pay principal of,
premium, if any, and interest when due on all the Notes to Stated Maturity or
redemption, as the case may be; (c) 91 days must pass after the deposit is made
and during the 91-day period no Default specified in clause (6) of the Events of
Default described above with respect to the Company occurs which is continuing
at the end of the period; (d) the deposit must not result in a breach or
violation of, or constitute a default under any other agreement or instrument
binding on the Company or any of its Subsidiaries and is not prohibited by the
subordination provisions of the Indenture; (e) the Company must deliver to the
Trustee an Opinion of Counsel to the effect that the trust resulting from the
deposit does not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940; (f) in the case of the Legal
Defeasance option, the Company must deliver to the Trustee an Opinion of Counsel
stating that (i) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the date of
this Indenture there has been a change in the applicable Federal income tax law,
in either case to the effect that, and based thereon such Opinion of Counsel
shall confirm that, the Noteholders will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and will be subject
to Federal income tax
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<PAGE> 17
on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred; (g) in the case of the Covenant
Defeasance option, the Company must deliver to the Trustee an Opinion of Counsel
to the effect that the Noteholders will not recognize income, gain or loss for
Federal income tax purposes as a result of such Covenant Defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (h) the Company must deliver to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes have been complied with; (i) the Company
must deliver to the Trustee an Officer's Certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders over any
other creditors of the Company or the Note Guarantors or with the intent of
defeating, hindering, delaying or defrauding any other creditors of the Company,
the Note Guarantors or others; and (j) such legal defeasance or covenant
defeasance much not cause the Trustee to have a conflicting interest within the
meaning of the TIA (assuming for the purposes of this clause (j) that all Notes
are in default within the meaning of such Act).
(E) EVIDENCE AS TO COMPLIANCE WITH CONDITIONS AND COVENANTS.
The Company must deliver to the Trustee within 120 days after the end
of each fiscal year of the Company an Officers' Certificate stating that in the
course of the performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Company also shall
comply with TIA Section 314(a)(4). Additionally, the Company is required to
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice in the form of an Officers' Certificate of any Event of Default described
under clause (3), (5) or (8) above, and any event which with the giving of
notice or the lapse of time would become an Event of Default under clause (4),
under certain circumstances, (6), or (7) above, its status and what action the
Company is taking or proposes to take with respect thereto. Any such certificate
or opinion must comply with the requirements of the TIA and the Indenture.
9. OTHER OBLIGORS. Give the name and complete mailing address of any
person, other than the applicant, who is an obligor upon the indenture
securities.
PTB International, Inc., 180 Technology Parkway, Norcross, Georgia
30092, is a guarantor of the Notes.
PTB Acquisition Sub, Inc., 180 Technology Parkway, Norcross, Georgia
30092, is a guarantor of the Notes.
PTB Holdings, Inc., 180 Technology Parkway, Norcross, Georgia 30092, is
a guarantor of the Notes.
CONTENTS OF APPLICATION FOR QUALIFICATION. This application for qualification
comprises:
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<PAGE> 18
(a) Pages numbered 1 to 20, consecutively.(l)
(b) The statement of eligibility and qualification of the trustee
under the indenture to be qualified.
(c) The following exhibits in addition to those filed as part of
the statement of eligibility and qualification of the trustee:
<TABLE>
<S> <C>
Exhibit T3A.1 Existing Certificate of Incorporation
of the Company. Incorporated by reference
from Paragon Trade Brands, Inc.'s Annual
Report on Form 10-K for the fiscal year
ended December 25, 1994.
Exhibit T3A.2 Amended and Restated Certificate of
Incorporation to be in effect simultaneously
with the Effective Date.
Exhibit T3B.1 Existing Bylaws of the Company. Incorporated by
reference from Paragon Trade Brands, Inc.'s
Quarterly Report on Form 10-Q for the quarter
ended June 25, 1995.
Exhibit T3B.2 Bylaws to be in effect simultaneously with the
Effective Date.
Exhibit T3C Form of Indenture to be qualified for Senior
Subordinated Notes due 2005.
Exhibit T3D Not applicable.
Exhibit T3E.1 Debtors' Second Amended Plan of Reorganization
dated as of November 15, 1999, and exhibits thereto.
Exhibit T3E.2 Debtors' Disclosure Statement for Second Amended
Plan of Reorganization dated November 15, 1999, and
exhibits thereto.
Exhibit T3E.3 Order Approving Disclosure Statement and Establishing
Solicitation and Confirmation Process Procedures.
Exhibit T3E.4 Notification of Non-Voting Status to Class 1.
Exhibit T3E.5 Notification of Non-Voting Status to Class 2.
</TABLE>
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<PAGE> 19
<TABLE>
<S> <C>
Exhibit T3E.6 Notification of Deemed Rejection.
Exhibit T3E.7 Letter from the Equity Committee to Holders of Common Stock
Issued by the Company.
Exhibit T3E.8 Notice of Rights Offering to Holders of Class 3A Claims.
Exhibit T3E.9 Notice of Rights Offering to Holders of Class 4A Interests.
Exhibit T3E.10 Notice of Procedures and Deadlines Concerning Wholly Contingent,
Unliquidated and/or Undetermined Claims Against the Debtor.
Exhibit T3E.11 Ballots for Class 3A, 3B, 4A (Master and Beneficial Holders)
Exhibit T3F See Exhibit T3C for cross reference sheet showing the
location in the Indenture of the provisions inserted therein
Exhibit 99.1 Statement of Eligibility and Qualification of the Trustee.
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C>
pursuant to Section 310 through 318(a), inclusive,
of the TIA.
</TABLE>
................
(1) Pursuant to Rule 309(a) of Regulation S-T, requirements as to
sequential numbering shall not apply to this electronic format
document.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
applicant, Paragon Trade Brands, Inc., a corporation organized and existing
under the laws of Delaware, has duly caused this application to be signed on its
behalf by the undersigned, thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Atlanta and State of Georgia,
on the 18th day of January, 2000.
PARAGON TRADE BRANDS, INC.
By: /s/ Catherine O. Hasbrouck
------------------------------------
Name: Catherine O. Hasbrouck
------------------------------------
Title: Vice President, General Counsel
-----------------------------------
and Secretary
-----------------------------------
Attest: /s/ Melanie Y. Zeller
---------------------------
Name: Melanie Y. Zeller
----------------------
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<PAGE> 1
EXHIBIT T3A.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
PARAGON TRADE BRANDS, INC.
-------------------------------------
(Pursuant to Sections 242, 245 and 303 of the General
Corporation Law of the State of Delaware)
PARAGON TRADE BRANDS, INC., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The Corporation's name is Paragon Trade Brands, Inc.,
and it was originally incorporated under such name. The original Certificate of
Incorporation was filed with the Secretary of State on June 30, 1992.
SECOND: On January 6, 1998, the Corporation filed a voluntary
petition pursuant to Chapter 11 of title 11 of the United States Code, 11 U.S.C.
ss.ss. 101, et seq. (the "Bankruptcy Code"), in the United States Bankruptcy
Court for the Norther District of Georgia (the "Bankruptcy Court"), case number
98-60390 (the "Bankruptcy Case").
THIRD: This Amended and Restated Certificate of Incorporation
has been duly executed and acknowledged by an officer of the Corporation and is
authorized under the Second Amended Plan of Reorganization of Paragon Trade
Brands, Inc., dated November 15, 1999, approved and confirmed by an order dated
January __, 2000 of the Bankruptcy Court.
<PAGE> 2
FOURTH: This Amended and Restated Certificate of Incorporation
amends, restates and integrates the Certificate of Incorporation of the
Corporation, as now in effect, to read as follows:
1. Name. The name of the corporation is Paragon Trade Brands,
Inc. (the "Corporation").
2. Address; Registered Office and Agent. The address of the
Corporation's registered office is 32 Loockerman Square, Suite L-100, City of
Dover, County of Kent, State of Delaware; and its registered agent at such
address is Prentice-Hall Corporation System, Inc.
3. Purposes. The purpose of the Corporation is to engage in,
carry on and conduct any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware (the
"General Corporation Law").
4. Number of Shares.
4.1 The total number of shares of stock that the
Corporation shall have authority to issue is 25,000,000 of which 5,000,000
shares shall be shares of preferred stock of the par value of One Cent ($.01)
per share (hereinafter called "Preferred Stock"), and 20,000,000 shares shall be
shares of common stock of the par value of One Cent ($.01) per share
(hereinafter called "Common Stock").
4.2 The designation, relative rights, preferences and
limitations of the shares of each class are as follows:
4.2.1 The shares of Preferred Stock may be issued from
time to time in one or more series of any number of shares, provided that the
aggregate number of shares issued and not cancelled of any and all such series
shall not exceed the total number of shares of Preferred Stock hereinabove
authorized, and with distinctive serial designations, all as shall hereafter be
stated and expressed in the resolution or resolutions providing for the issue of
such shares of Preferred Stock from time to time adopted by the Board pursuant
to authority so to do which is hereby vested in the Board. Each series of shares
of Preferred Stock (a) may have such voting powers, full or limited, or may be
without voting powers; (b) may be subject to redemption at such time or times
and at such prices; (c) may be entitled to receive dividends (which may
2
<PAGE> 3
be cumulative or non-cumulative) at such rate or rates, on such conditions and
at such times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or series of stock; (d) may have
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; (e) may be made convertible into or exchangeable for, shares of
any other class or classes or of any other series of the same or any other class
or classes of shares of the Corporation at such price or prices or at such rates
of exchange and with such adjustments; (f) may be entitled to the benefit of a
sinking fund to be applied to the purchase or redemption of shares of such
series in such amount or amounts; (g) may be entitled to the benefit of
conditions and restrictions upon the creation of indebtedness of the Corporation
or any subsidiary, upon the issue of any additional shares (including additional
shares of such series or of any other series) and upon the payment of dividends
or the making of other distributions on, and the purchase, redemption or other
acquisition by the Corporation or any subsidiary of, any outstanding shares of
the Corporation and (h) may have such other relative, participating, optional or
other special rights, qualifications, limitations or restrictions thereof; all
as shall be stated in said resolution or resolutions providing for the issue of
such shares of Preferred Stock. Any of the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of any such
series of Preferred Stock may be made dependent upon facts ascertainable outside
of the resolution or resolutions providing for the issue of such Preferred Stock
adopted by the Board pursuant to the authority vested in it by this Section
4.2.1, provided that the manner in which such facts shall operate upon the
voting powers, designations, preferences, rights and qualifications, limitations
or restrictions of such series of Preferred Stock is clearly and expressly set
forth in the resolution or resolutions providing for the issue of such Preferred
Stock. The term "facts" as used in the next preceding sentence shall have the
meaning given to it in section 151(a) of the General Corporation Law. Shares of
Preferred Stock of any series that have been redeemed (whether through the
operation of a sinking fund or otherwise) or that if convertible or
exchangeable, have been converted into or exchanged for shares of any other
class or classes shall have the status of authorized and unissued shares of
Preferred Stock of the same series and may be reissued as a part of the series
of which they were originally a part or may be reclassified and reissued as part
of a new series of shares of Preferred Stock to be created by resolution or
resolutions of the Board or as part of any other series of shares of Preferred
Stock, all subject to the conditions or restrictions on issuance set forth in
the resolution or resolutions adopted by the Board providing for the issue of
any series of shares of Preferred Stock.
4.2.2 Subject to the provisions of any applicable law or
of the By-laws of the Corporation, as from time to time amended, with respect to
the
3
<PAGE> 4
closing of the transfer books or the fixing of a record date for the
determination of stockholders entitled to vote and except as otherwise provided
by law or by the resolution or resolutions providing for the issue of any series
of shares of Preferred Stock, the holders of outstanding shares of Common Stock
shall exclusively possess voting power for the election of directors and for all
other purposes, each holder of record of shares of Common Stock being entitled
to one vote for each share of Common Stock standing in his or her name on the
books of the Corporation. Except as otherwise provided by the resolution or
resolutions providing for the issue of any series of shares of Preferred Stock,
the holders of shares of Common Stock shall be entitled, to the exclusion of the
holders of shares of Preferred Stock of any and all series, to receive such
dividends as from time to time may be declared by the Board. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made to the holders of shares of
Preferred Stock of the full amount to which they shall be entitled pursuant to
the resolution or resolutions providing for the issue of any series of shares of
Preferred Stock, the holders of shares of Common Stock shall be entitled, to the
exclusion of the holders of shares of Preferred Stock of any and all series, to
share, ratably according to the number of shares of Common Stock held by them,
in all remaining assets of the Corporation available for distribution to its
stockholders.
4.2.3 Subject to the provisions of this Certificate of
Incorporation and except as otherwise provided by law, the stock of the
Corporation, regardless of class, may be issued for such consideration and for
such corporate purposes as the Board may from time to time determine.
4.2.4 The Corporation shall not issue any non-voting
stock, provided, however, that this provision is included in this Certificate of
Incorporation in compliance with section 1123(a)(6) of the Bankruptcy Code and
shall have no force or effect beyond that required by section 1123(a)(6) of the
Bankruptcy Code and shall be effective only for so long as section 1123(a)(6) of
the Bankruptcy Code is in effect and applicable to the Corporation.
5. Limited Preemptive Rights.
5.1 Subject to Section 5.5 hereof, if the Corporation or
any of its Subsidiaries shall propose to issue or sell to an Identified Investor
Affiliated Entity (as defined in Section 5.4 hereof) any additional shares of
Common Stock or any other class of capital stock of the Corporation or any
rights to subscribe for or purchase pursuant to any option or otherwise any
shares of any class of capital stock of the Corporation or any securities
convertible into or exchangeable for shares of any class
4
<PAGE> 5
of capital stock of the Corporation (collectively, the "Additional Securities")
or enter into any contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance or sale to any Identified
Investor Affiliated Entity of any Additional Securities, each Stockholder other
than such Identified Investor Affiliated Entity (each, an "Other Stockholder")
shall have the right to purchase that number of Additional Securities at the
same price and on the same terms proposed to be issued and sold to the
Identified Affiliated Entity so that each Other Stockholder would, after the
issuance or sale of all of such Additional Securities (and assuming the exercise
in full by each Other Stockholder of its right to purchase its Proportionate
Percentage (as defined below)), hold the same proportional interest of the
outstanding shares of the capital stock of the Corporation (assuming that any
securities or other rights convertible into or exchangeable or exercisable for
shares of the capital stock have been converted, exchanged or exercised) as was
held by it prior to such issuance and sale (the "Proportionate Percentage"). For
purposes of determining each Other Stockholder's Proportionate Percentage, if
the issuance and sale of Additional Securities to an Identified Investor
Affiliated Entity will coincide with the issuance and sale to any person other
than such Identified Investor Affiliated Entity or an Other Stockholder
exercising its rights under this Section 5 (such person being a "New Investor")
of any shares of Common Stock or any other class of capital stock of the
Corporation or any rights to subscribe for or purchase pursuant to any option or
otherwise any shares of any class of capital stock of the Corporation or any
securities convertible into or exchangeable for shares of any class of capital
stock of the Corporation, the issuance and sale to the New Investor shall be
deemed to have occurred prior to the issuance or sale to the Identified Investor
Affiliated Entity. The Corporation shall offer to sell to each Other Stockholder
its Proportionate Percentage of such Additional Securities (the "Offered
Securities") at the price and on the terms described above, which shall be
specified by the Corporation in a written notice delivered to each Other
Stockholder (the "Preemptive Offer"). The Preemptive Offer shall by its terms
remain open for a period of at least 15 business days from the date of receipt
thereof and shall specify the date on which the Offered Securities will be sold
to accepting Other Stockholders.
5.2 Each Other Stockholder shall have the right, during the
period of the Preemptive Offer referred to in Section 5.1 above, to purchase any
or all of its Proportionate Percentage of the Offered Securities at the purchase
price and on the terms stated in the Preemptive Offer. Notice by any Other
Stockholder of its acceptance, in whole or in part, of a Preemptive Offer shall
be in writing (a "Notice of Acceptance") signed by such Other Stockholder and
delivered to the Corporation prior to the end of the specified period of the
Preemptive Offer, setting forth the number of Offered Securities such Other
Stockholder elects to purchase.
5
<PAGE> 6
5.3 In the case of any Preemptive Offer, if Notices of
Acceptance given by the Other Stockholders do not cover in the aggregate all of
the Offered Securities, the Corporation may during the period of 180 days
following the date of expiration of such Preemptive Offer sell to any other
Person or Persons, including, without limitation, an Identified Investor
Affiliated Entity, all or any part of the Offered Securities not covered by a
Notice of Acceptance, and also may sell to any Person or Persons the Additional
Securities giving rise to these preemptive rights, but only on terms and
conditions that are no more favorable to such Person or Persons or less
favorable to the Corporation than those set forth in the Preemptive Offer.
5.4 As used herein, an "Identified Investor Affiliated Entity"
shall mean any Wellspring Affiliated Entity, any Ontario Affiliated Entity or
any CIP Affiliated Entity (each as defined below). A "Wellspring Affiliated
Entity" shall mean Wellspring Capital Management, LLC and any other person
(within the meaning of the Securities Exchange Act of 1934, as amended),
including, without limitation, PTB Acquisition Company, LLC, directly or
indirectly controlling, controlled by, or under common control with Wellspring
Capital Management, LLC, and shall also mean the direct and indirect general
partners or managing members and the direct and indirect limited partners and
members of any Wellspring Affiliated Entity that is a partnership or a limited
liability company. An "Ontario Affiliated Entity" shall mean the Ontario
Teachers Pension Plan Board and any other person directly or indirectly
controlling, controlled by or under common control with Ontario Teachers Pension
Plan Board. A "CIP Affiliated Entity" shall mean Co-Investment Partners, L.P.
and any other person directly or indirectly controlling, controlled by or under
common control with Co-Investment Partners, L.P. Any reference herein to an
Identified Investor Affiliated Entity shall be deemed to refer, in the case of
(i) a Wellspring Affiliated Entity, to all of the Wellspring Affiliated
Entities, considered as a single person, (ii) an Ontario Affiliated Entity, to
all of the Ontario Affiliated Entities, considered as a single person, or (iii)
a CIP Affiliated Entity, to all CIP Affiliated Entities, considered as a single
person.
5.5 The foregoing Sections 5.1 through 5.4 shall be
inapplicable to any issuance or sale by the Corporation to any Identified
Investor Affiliated Entity (i) if the Corporation has obtained an opinion from a
nationally recognized investment banking firm to the effect that the
consideration being paid by the Identified Investor Affiliated Entity to the
Corporation in connection with such issuance or sale represents not less than
the fair market value of the securities being offered, (ii) if at the time of
such sale or as a direct result of such sale either (1), the Identified
Investors Affiliated Entities, taken as a whole, beneficially own (determined in
the manner specified in Rule 13d-3 promulgated by the Securities and Exchange
6
<PAGE> 7
Commission under the Securities Exchange Act of 1934, as amended), or will
beneficially own, shares of capital stock of the Corporation entitling the
Identified Investor Affiliated Entities, taken as a whole, to cast less than
thirty percent (30%) of the votes for the election of directors of the
Corporation, or (2) any person (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) shall beneficially own shares of
capital stock of the Corporation entitling such person to cast a greater number
of votes for the election of directors of the Corporation than the number of
votes entitled to be cast by the shares beneficially owned by the Identified
Investor Affiliated Entities, taken as a whole, or (iii) where such issuance and
sale results from the exercise of a stock option granted to a Wellspring
Affiliate as contemplated by that certain Stock Purchase Agreement, dated
November 16, 1999, between the Corporation and PTB Acquisition Company, LLC. In
addition, the foregoing Sections 5.1 through 5.4 notwithstanding, nothing set
forth in this Section 5 shall be deemed to grant any Other Stockholder any
Preemptive Rights in connection with, or otherwise limit or prevent (x) the
offering and sale by the Corporation or any Subsidiary of any shares of its
capital stock, or other securities convertible into or exchangeable therefor,
pursuant to an underwritten public offering registered under the Securities Act
of 1933, as amended, or (y) the purchase by any Identified Investor Affiliated
Entity of any shares of the Corporation's or any Subsidiary's capital stock, or
other securities convertible into or exchangeable therefor, offered in any such
underwritten public offering.
6. Election of Directors. Members of the Board of Directors of
the Corporation (the "Board") may be elected either by written ballot or by
voice vote.
7. Limitation of Liability. No director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that this provision
shall not eliminate or limit the liability of a director (a) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the General Corporation Law
or (d) for any transaction from which the director derived any improper personal
benefits.
Any repeal or modification of the foregoing provision shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
7
<PAGE> 8
8. Indemnification.
8.1 To the extent not prohibited by law, the Corporation
shall indemnify any person who is or was made, or threatened to be made, a party
to any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Section 8.
8.2 The Corporation shall, from time to time, reimburse or
advance to any director or officer or other person entitled to indemnification
hereunder the funds necessary for payment of expenses, including attorneys' fees
and disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that, if required by
the General Corporation Law, such expenses incurred by or on behalf of any
director or officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 8
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, this Certificate of Incorporation, the
By-laws of the Corporation (the "By-laws"), any agreement, any vote of
stockholders or disinterested directors or
8
<PAGE> 9
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
8.4 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 8
shall continue as to a person who has ceased to be a director or officer (or
other person indemnified hereunder) and shall inure to the benefit of the
executors, administrators, legatees and distributees of such person.
8.5 The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of an Other Entity,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability under the provisions of this Section 8, the By-laws or under Section
145 of the General Corporation Law or any other provision of law.
8.6 The provisions of this Section 8 shall be a contract
between the Corporation, on the one hand, and each director and officer who
serves in such capacity at any time while this Section 8 is in effect and any
other person entitled to indemnification hereunder, on the other hand, pursuant
to which the Corporation and each such director, officer, or other person intend
to be, and shall be, legally bound. No repeal or modification of this Section 8
shall affect any rights or obligations with respect to any state of facts then
or theretofore existing or there after arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
8.7 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 8
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Board, its independent legal counsel and its
stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Corporation
(including its Board, its independent legal counsel and its stockholders) that
such person is not entitled to such indemnification or
9
<PAGE> 10
reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that such person is not so entitled. Such a
person shall also be indemnified for any expenses incurred in connection with
successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.
8.8 Any director or officer of the Corporation serving in
any capacity of (a) another corporation of which a majority of the shares
entitled to vote in the election of its directors is held, directly or
indirectly, by the Corporation or (b) any employee benefit plan of the
Corporation or any corporation referred to in clause (a) shall be deemed to be
doing so at the request of the Corporation.
8.9 Any person entitled to be indemnified or to
reimbursement or advancement of expenses as a matter of right pursuant to this
Section 8 may elect to have the right to indemnification or reimbursement or
advancement of expenses interpreted on the basis of the applicable law in effect
at the time of the occurrence of the event or events giving rise to the
applicable Proceeding, to the extent permitted by law, or on the basis of the
applicable law in effect at the time such indemnification or reimbursement or
advancement of expenses is sought. Such election shall be made, by a notice in
writing to the Corporation, at the time indemnification or reimbursement or
advancement of expenses is sought; provided, however, that if no such notice is
given, the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
9. Adoption, Amendment and/or Repeal of By-Laws. The Board
may from time to time adopt, amend or repeal the By-laws of the Corporation;
provided, however, that any By-laws adopted or amended by the Board may be
amended or repealed, and any By-laws may be adopted, by the stockholders of the
Corporation by vote of a majority of the holders of shares of stock of the
Corporation entitled to vote in the election of directors of the Corporation.
10. Action by Stockholders. Notwithstanding the provisions of
Section 228 of the General Corporation Law (or any successor statute), any
action required or permitted by the General Corporation Law to be taken at any
annual or special meeting of stockholders of the Corporation may be taken at
such an annual or special meeting of stockholders or by written consent without
a meeting.
10
<PAGE> 11
IN WITNESS WHEREOF, PARAGON TRADE BRANDS, INC. has caused this
certificate to be signed by its President, and attested by its Secretary, on the
____ day of January, 2000.
PARAGON TRADE BRANDS, INC.
By:
--------------------------------
Name:
President
Attest:
- -----------------------------
Name:
Secretary
11
<PAGE> 1
EXHIBIT T3B.2
AMENDED AND RESTATED
BY-LAWS
of
PARAGON TRADE BRANDS, INC.
(A Delaware Corporation)
------------------------
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise
requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of the
Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the
Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "By-laws" means the initial by-laws of the Corporation, as
amended from time to time.
1.5 "Certificate of Incorporation" means the amended and
restated certificate of incorporation of the Corporation, as further amended,
supplemented or restated from time to time.
<PAGE> 2
2
1.6 "Chairman" means the Chairman of the Board of Directors of
the Corporation.
1.7 "Corporation" means Paragon Trade Brands, Inc.
1.8 "Directors" means directors of the Corporation.
1.9 "Entire Board" means all directors of the Corporation in
office, whether or not present at a meeting of the Board, but disregarding
vacancies.
1.10 "General Corporation Law" means the General Corporation
Law of the State of Delaware, as amended from time to time.
1.11 "Office of the Corporation" means the executive office of
the Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.12 "President" means the President of the Corporation.
1.13 "Secretary" means the Secretary of the Corporation.
1.14 "Stockholders" means stockholders of the Corporation.
1.15 "Treasurer" means the Treasurer of the Corporation.
1.16 "Vice President" means a Vice President of the
Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 Place of Meetings. Every meeting of Stockholders shall be
held at the office of the Corporation or at such other place within or without
the State of
<PAGE> 3
3
Delaware as shall be specified or fixed in the notice of such meeting or in
the waiver of notice thereof.
2.2 Annual Meeting. A meeting of Stockholders shall be held
annually for the election of Directors and the transaction of other business at
such hour and on such business day in each year as may be determined by
resolution adopted by affirmative vote of the Entire Board and designated in the
notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If the
annual meeting of Stockholders for the election of Directors and the transaction
of other business is not held on the date designated therefor or at any
adjournment of a meeting convened on such date, the Board, by resolution adopted
by affirmative vote of the Entire Board, shall call a meeting of Stockholders
for the election of Directors and the transaction of other business as soon
thereafter as convenient.
2.4 Other Special Meetings. A special meeting of Stockholders
(other than a special meeting for the election of Directors), unless otherwise
prescribed by statute, may be called at any time by the Board or by the Chairman
or by the President. At any special meeting of Stockholders only such business
may be transacted as is related to the purpose or purposes of such meeting set
forth in the notice thereof given pursuant to Section 2.6 hereof or in any
waiver of notice thereof given pursuant to Section 2.7 hereof.
2.5 Fixing Record Date. For the purpose of (a) determining the
Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders
or any
<PAGE> 4
4
adjournment thereof, (ii) unless otherwise provided in the Certificate of
Incorporation, to express consent to corporate action in writing without a
meeting or (iii) to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock; or (b) any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date was adopted by the Board and which
record date shall not be (x) in the case of clause (a)(i) above, more than sixty
nor less than ten days before the date of such meeting, (y) in the case of
clause (a)(ii) above, more than 10 days after the date upon which the resolution
fixing the record date was adopted by the Board and (z) in the case of clause
(a)(iii) or (b) above, more than sixty days prior to such action. If no such
record date is fixed:
2.5.1 the record date for determining
Stockholders entitled to notice of or to vote at a meeting of
Stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the
meeting is held;
2.5.2 the record date for determining
Stockholders entitled to express consent to corporate action in writing
without a meeting (unless otherwise provided in the Certificate of
Incorporation), when no prior action by the Board is required under the
General Corporation Law, shall be the first day on which a signed
written consent setting forth the action taken or
<PAGE> 5
5
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of Stockholders are recorded;
and when prior action by the Board is required under the General
Corporation Law, the record date for determining Stockholders entitled
to consent to corporate action in writing without a meeting shall be at
the close of business on the date on which the Board adopts the
resolution taking such prior action; and
2.5.3 the record date for determining
Stockholders for any purpose other than those specified in Sections
2.5.1 and 2.5.2 shall be at the close of business on the day on which
the Board adopts the resolution relating thereto.
When a determination of Stockholders entitled to notice of or to vote at any
meeting of Stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting. Delivery made to the Corporation's
registered office in accordance with Section 2.5.2 shall be by hand or by
certified or registered mail, return receipt requested.
2.6 Notice of Meetings of Stockholders. Except as otherwise
provided in Sections 2.5 and 2.7 hereof, whenever under the provisions of any
statute, the Certificate of Incorporation or these By-laws, Stockholders are
required or
<PAGE> 6
6
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten nor more than sixty days before the date of the meeting, to each
Stockholder entitled to notice of or to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
with postage prepaid, directed to the Stockholder at his or her address as it
appears on the records of the Corporation. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the Corporation that the notice
required by this Section 2.6 has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted at the meeting as originally called. If, however, the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Stockholder of record entitled to vote at the
meeting.
2.7 Waivers of Notice. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a waiver
thereof,
<PAGE> 7
7
in writing, signed by the Stockholder or Stockholders entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance by a Stockholder at a meeting
shall constitute a waiver of notice of such meeting except when the Stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Stockholders need be
specified in any written waiver of notice unless so required by statute, the
Certificate of Incorporation or these By-laws.
2.8 List of Stockholders. The Secretary shall prepare and
make, or cause to be prepared and made, at least ten days before every meeting
of Stockholders, a complete list of the Stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
Stockholder and the number of shares registered in the name of each Stockholder.
Such list shall be open to the examination of any Stockholder, the Stockholder's
agent, or attorney, at the Stockholder's expense, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Stockholder who is
<PAGE> 8
8
present. The Corporation shall maintain the Stockholder list in written form or
in another form capable of conversion into written form within a reasonable
time. The stock ledger shall be the only evidence as to who are the Stockholders
entitled to examine the stock ledger, the list of Stockholders or the books of
the Corporation, or to vote in person or by proxy at any meeting of
Stockholders.
2.9 Quorum of Stockholders; Adjournment. Except as otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, the
holders of a majority in voting power of all outstanding shares of stock
entitled to vote at any meeting of Stockholders, present in person or
represented by proxy, shall constitute a quorum for the transaction of any
business at such meeting. When a quorum is once present to organize a meeting of
Stockholders, it is not broken by the subsequent withdrawal of any Stockholders.
The holders of a majority of the shares of stock present in person or
represented by proxy at any meeting of Stockholders, including an adjourned
meeting, whether or not a quorum is present, may adjourn such meeting to another
time and place. Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
<PAGE> 9
9
2.10 Voting; Proxies. Unless otherwise provided in the
Certificate of Incorporation or in the Board resolutions authorizing the
issuance of any Series of Preferred Stock, every Stockholder of record shall be
entitled at every meeting of Stockholders to one vote for each share of capital
stock standing in his or her name on the record of Stockholders determined in
accordance with Section 2.5 hereof. If the Certificate of Incorporation provides
for more or less than one vote for any share on any matter, each reference in
the By-laws or the General Corporation Law to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such
stock. The provisions of Sections 212 and 217 of the General Corporation Law
shall apply in determining whether any shares of capital stock may be voted and
the persons, if any, entitled to vote such shares; but the Corporation shall be
protected in assuming that the persons in whose names shares of capital stock
stand on the stock ledger of the Corporation are entitled to vote such shares.
Holders of redeemable shares of stock are not entitled to vote after the notice
of redemption is mailed to such holders and a sum sufficient to redeem the
stocks has been deposited with a bank, trust company, or other financial
institution under an irrevocable obligation to pay the holders the redemption
price on surrender of the shares of stock. At any meeting of Stockholders (at
which a quorum was present to organize the meeting), all matters, except as
otherwise provided by statute or by the Certificate of Incorporation or by these
By-laws, shall be decided by a majority of the votes cast at such meeting by the
holders of shares present in person or represented by proxy and
<PAGE> 10
10
entitled to vote thereon, whether or not a quorum is present when the vote is
taken. All elections of Directors shall be by written ballot unless otherwise
provided in the Certificate of Incorporation. In voting on any other question on
which a vote by ballot is required by law or is demanded by any Stockholder
entitled to vote, the voting shall be by ballot. Each ballot shall be signed by
the Stockholder voting or the Stockholder's proxy and shall state the number of
shares voted. On all other questions, the voting may be viva voce. Each
Stockholder entitled to vote at a meeting of Stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for such Stockholder by proxy. The validity and
enforceability of any proxy shall be determined in accordance with Section 212
of the General Corporation Law. A Stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary.
2.11 Voting Procedures and Inspectors of Election at Meetings
of Stockholders. The Board, in advance of any meeting of Stockholders, may
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Board may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed or is able to act at a meeting, the person presiding at the meeting
may appoint, and on the request of any Stockholder entitled to vote thereat
shall appoint, one or more inspectors to act at the
<PAGE> 11
11
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall (a) ascertain the number of shares outstanding and
the voting power of each, (b) determine the shares represented at the meeting
and the validity of proxies and ballots, (c) count all votes and ballots, (d)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (e) certify their
determination of the number of shares represented at the meeting and their count
of all votes and ballots. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of their duties. Unless
otherwise provided by the Board, the date and time of the opening and the
closing of the polls for each matter upon which the Stockholders will vote at a
meeting shall be determined by the person presiding at the meeting and shall be
announced at the meeting. No ballot, proxies or votes, or any revocation thereof
or change thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery of the State of Delaware upon
application by a Stockholder shall determine otherwise.
2.12 Organization. At each meeting of Stockholders, the
President, or in the absence of the President, the Chairman, or if there is no
Chairman or if there be one and the Chairman is absent, a Vice President, and in
case more than one Vice President shall be present, that Vice President
designated by the Board (or in the absence of any such designation, the most
senior Vice President, based on age,
<PAGE> 12
12
present), shall act as chairman of the meeting. The Secretary, or in his or her
absence, one of the Assistant Secretaries, shall act as secretary of the
meeting. In case none of the officers above designated to act as chairman or
secretary of the meeting, respectively, shall be present, a chairman or a
secretary of the meeting, as the case may be, shall be chosen by a majority of
the votes cast at such meeting by the holders of shares of capital stock present
in person or represented by proxy and entitled to vote at the meeting.
2.13 Order of Business. The order of business at all meetings
of Stockholders shall be as determined by the chairman of the meeting.
2.14 Advance Notice of Stockholder Proposals. At any meeting
of Stockholders, only such business shall be conducted as shall have been
brought before the meeting (i) by or at the direction of the Board or (ii) by
any Stockholder of the Corporation who complies with the notice procedures set
forth in this Section 2.14. For business to be properly brought before any
meeting of the Stockholders by a Stockholder, the Stockholder must have given
notice thereof in writing to the Secretary of the Corporation not less than 60
nor more than 90 days in advance of the anniversary of the previous year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days earlier or more than 60 days later than such
anniversary date, notice by the Stockholder to be timely must be so given not
earlier than the 90th day prior to such annual meeting and not later than the
<PAGE> 13
13
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made. A Stockholder's notice to the Secretary shall set forth
as to each matter the Stockholder proposes to bring before the meeting (1) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (2) the name and
address, as they appear on the Corporation's books, of the Stockholder proposing
such business, (3) the class and number of shares of the Corporation that are
beneficially owned by the Stockholder, (4) any material interest of the
Stockholder in such business, and (5) a representation that the Stockholder
intends to appear in person or by proxy at the meeting to present such business.
In addition, the Stockholder making such proposal shall promptly provide any
other information reasonably requested by the Corporation. Notwithstanding
anything in these By-laws to the contrary, no business shall be conducted at any
meeting of Stockholders except in accordance with the procedures set forth in
this Section 2.14. The chairman of any such meeting shall direct that any
business not properly brought before the meeting shall not be considered. The
procedures set forth in this Section for business to be properly brought before
an annual meeting by a Stockholder are in addition to, and not in lieu of, the
requirements set forth in Rule 14a-8 under Section 14 of the Securities Exchange
Act of 1934, as amended, or any successor provision.
<PAGE> 14
14
2.15 Advance Notice of Stockholder Nominations. Nominations
for the election of Directors may be made by the Board or by any Stockholder
entitled to vote in the election of Directors; provided, however, that a
Stockholder may nominate a person for election as a director at a meeting only
if written notice of such Stockholder's intent to make such nomination has been
given to the Secretary of the Corporation not later than 60 nor more than 90
days in advance of the anniversary of the previous year's annual meeting;
provided further, however, that in the event that the date of the annual meeting
is more than 30 days earlier or more than 60 days later than such anniversary
date, notice by the Stockholder to be timely must be so given not earlier than
the 90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made. Each such notice shall set forth: (i) the name and address of the
Stockholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the Stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to present the nomination of the
person or persons specified in the notice; (iii) a description of all
arrangements or understandings between the Stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are made by the Stockholder; (iv) such other
information regarding each nominee proposed by such
<PAGE> 15
15
Stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the United States Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
Board; and (v) the consent of each nominee to serve as a Director of the
Corporation if so elected. In addition, the Stockholder making such nomination
shall promptly provide any other information reasonably requested by the
Corporation. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2.15. The chairman of any meeting of Stockholders shall direct that any
nomination not made in accordance with these procedures be disregarded.
2.16 Notice to Corporation. Any written notice required to be
delivered by a Stockholder to the Corporation pursuant to Sections 2.14 or 2.15
hereof must be given, either by personal delivery or by registered or certified
mail, postage prepaid, to the Secretary at the Corporation's executive offices,
180 Technology Parkway, Norcross, Georgia 30092.
2.17 Written Consent of Stockholders Without a Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required by
the General Corporation Law to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be
<PAGE> 16
16
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered (by hand
or by certified or registered mail, return receipt requested) to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless, within 60 days of the earliest dated consent
delivered in the manner required by this Section 2.17, written consents signed
by a sufficient number of holders to take action are delivered to the
Corporation as aforesaid. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
Stockholders who have not consented in writing.
ARTICLE 3
Directors
3.1 General Powers. Except as otherwise provided in the
Certificate of Incorporation, the business and affairs of the Corporation shall
be managed by or under the direction of the Board. The Board may adopt such
rules and regulations, not inconsistent with the Certificate of Incorporation or
these By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by these By-laws, the
<PAGE> 17
17
Board may exercise all powers and perform all acts that are not required, by
these By-laws or the Certificate of Incorporation or by statute, to be exercised
and performed by the Stockholders.
3.2 Number; Qualification; Term of Office. The Board shall
consist of not fewer than one nor more than fifteen members. The number of
Directors shall be fixed initially at nine and may thereafter be changed from
time to time by the affirmative vote of a majority of the Stockholders or by the
affirmative vote of a majority of the Entire Board, provided that such action
does not remove a Director other than in a manner prescribed in the Certificate
of Incorporation or these By-laws. Directors need not be Stockholders. Each
Director shall hold office until a successor is elected and qualified or until
the Director's death, resignation or removal.
3.3 Election. Directors shall, except as otherwise required by
statute or by the Certificate of Incorporation, be elected by a plurality of the
votes cast at a meeting of Stockholders by the holders of shares entitled to
vote in the election.
3.4 Newly Created Directorships and Vacancies. Unless
otherwise provided in the Certificate of Incorporation, newly created
Directorships resulting from an increase in the number of Directors and
vacancies occurring in the Board for any other reason, including the removal of
Directors without cause, may be filled by the affirmative votes of a majority of
the Entire Board, although less than a quorum, or by a sole remaining Director,
or may be elected by a plurality of the votes cast by the holders of shares of
capital stock entitled to vote in the election at a special meeting of
<PAGE> 18
18
Stockholders called for that purpose. A Director elected to fill a vacancy shall
be elected to hold office until a successor is elected and qualified, or until
the Director's earlier death, resignation or removal.
3.5 Resignation. Any Director may resign at any time by
written notice to the Corporation. Such resignation shall take effect at the
time therein specified, and, unless otherwise specified in such resignation, the
acceptance of such resignation shall not be necessary to make it effective.
3.6 Removal. Subject to the provisions of Section 141(k) of
the General Corporation Law, any or all of the Directors may be removed with or
without cause by vote of the holders of a majority of the shares then entitled
to vote at an election of Directors.
3.7 Compensation. Each Director, in consideration of his or
her service as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at Directors' meetings, or both, as
the Board may from time to time determine, together with reimbursement for the
reasonable out-of-pocket expenses, if any, incurred by such Director in
connection with the performance of his or her duties. Each Director who shall
serve as a member of any committee of Directors in consideration of serving as
such shall be entitled to such additional amount per annum or such fees for
attendance at committee meetings, or both, as the Board may from time to time
determine, together with reimbursement for the reasonable out-of-pocket
expenses, if any, incurred by such Director in the performance of his or her
<PAGE> 19
19
duties. Nothing contained in this Section 3.7 shall preclude any Director from
serving the Corporation or its subsidiaries in any other capacity and receiving
proper compensation therefor.
3.8 Times and Places of Meetings. The Board may hold meetings,
both regular and special, either within or without the State of Delaware. The
times and places for holding meetings of the Board may be fixed from time to
time by resolution of the Board or (unless contrary to a resolution of the
Board) in the notice of the meeting.
3.9 Annual Meetings. On the day when and at the place where
the annual meeting of Stockholders for the election of Directors is held, and as
soon as practicable thereafter, the Board may hold its annual meeting, without
notice of such meeting, for the purposes of organization, the election of
officers and the transaction of other business. The annual meeting of the Board
may be held at any other time and place specified in a notice given as provided
in Section 3.11 hereof for special meetings of the Board or in a waiver of
notice thereof.
3.10 Regular Meetings. Regular meetings of the Board may be
held without notice at such times and at such places as shall from time to time
be determined by the Board.
3.11 Special Meetings. Special meetings of the Board may be
called by the Chairman, the President or the Secretary or by any two or more
Directors then serving on at least one day's notice to each Director given by
one of the means
<PAGE> 20
20
specified in Section 3.14 hereof other than by mail, or on at least three days'
notice if given by mail. Special meetings shall be called by the Chairman,
President or Secretary in like manner and on like notice on the written request
of any two or more of the Directors then serving.
3.12 Telephone Meetings. Directors or members of any committee
designated by the Board may participate in a meeting of the Board or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
3.13 Adjourned Meetings. A majority of the Directors present
at any meeting of the Board, including an adjourned meeting, whether or not a
quorum is present, may adjourn such meeting to another time and place. Any
business may be transacted at an adjourned meeting that might have been
transacted at the meeting as originally called.
3.14 Notice Procedure. Subject to Sections 3.11 and 3.17
hereof, whenever, under the provisions of any statute, the Certificate of
Incorporation or these By-laws, notice is required to be given to any Director,
such notice shall be deemed given effectively if given in person or by
telephone, by mail addressed to such Director at such Director's address as it
appears on the records of the Corporation, with postage
<PAGE> 21
21
thereon prepaid, or by telegram, telex, telecopy, electronic mail or similar
means addressed as aforesaid.
3.15 Waiver of Notice. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a waiver
thereof, in writing, signed by the person or persons entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business on the ground that the meeting has not been
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Directors or a committee of
Directors need be specified in any written waiver of notice unless so required
by statute, the Certificate of Incorporation or these By-laws.
3.16 Organization. At each meeting of the Board, the Chairman,
or in the absence of the Chairman, the President, or in the absence of the
President, a chairman chosen by a majority of the Directors present, shall
preside. The Secretary shall act as secretary at each meeting of the Board. In
case the Secretary shall be absent from any meeting of the Board, an Assistant
Secretary shall perform the duties of secretary at such meeting; and in the
absence from any such meeting of the Secretary and all Assistant Secretaries,
the person presiding at the meeting may appoint any person to act as secretary
of the meeting.
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3.17 Quorum of Directors. The presence in person of a majority
of the Entire Board shall be necessary and sufficient to constitute a quorum for
the transaction of business at any meeting of the Board, but a majority of a
smaller number may adjourn any such meeting to a later date.
3.18 Action by Majority Vote. Except as otherwise expressly
required by statute, the Certificate of Incorporation or these By-laws, the act
of a majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board.
3.19 Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting if all Directors or members of such committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
ARTICLE 4
COMMITTEES OF THE BOARD
4.1 Executive Committee. The Board may, by resolution adopted
by a majority of the Entire Board, designate one or more of its members to
constitute an Executive Committee. The Executive Committee shall have and may
exercise all of the authority of the Board in the management of the business and
affairs of the Corporation within the limits permitted by law, including,
without limitation, the power and
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authority of the Board: (i) to authorize the seal of the Corporation to be
affixed to all papers; (ii) to declare a dividend; (iii) to authorize the
issuance of stock; (iv) to adopt a certificate of ownership and merger pursuant
to Section 253 of the General Corporation Law; and (v) to the extent authorized
in the resolution or resolutions providing for the issuance of shares of stock
adopted by the Board, to fix any of the preference rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of shares for, shares of
any other class or classes or any other series of the same of any other class or
classes of stock of the Corporation.
4.2 Audit Committee. The Board, by resolution adopted by a
majority of the Entire Board, may designate not less than three (3) of the
Directors then in office to constitute an Audit Committee. At least a majority
of such Directors must be independent of management and free from any
relationship that, in the opinion of the Board, would interfere with such
Directors' exercise of independent judgment as a committee member. The Audit
Committee, if established, shall (i) consider and make recommendations to the
Board with respect to the employment of a firm of independent public
accountants, (ii) confer with the Corporation's independent public accountants
to determine the scope of the audit that such accountants will perform, (iii)
receive reports from the independent public accountants and transmit such
reports to the Board, and after the close of the fiscal year, transmit to the
Board the financial statements certified by such accountants, (iv) inquire into,
examine and make comments on the accounting
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procedures of the Corporation and the reports of the independent public
accountants, and (v) consider and make recommendations to the Board upon matters
presented to it by the officers of the Corporation pertaining to the audit
practices and procedures adhered to by the Corporation. The Board may designate
one member of the Audit Committee to act as its chairman.
4.3 Compensation Committee. The Board, by resolution adopted
by a majority of the Entire Board, may designate not less than two (2) of the
Directors then in office to constitute a Compensation Committee. All of such
Directors shall be independent of management and free from any relationship
that, in the opinion of the Board, would interfere with such Director's exercise
of independent judgment as a committee member. The Compensation Committee may
exercise all of the authority of the Board in administering the Corporation's
executive compensation plans.
4.4 Other Committees. In addition to the Executive Committee,
the Audit Committee and the Compensation Committee, the Board may, by resolution
adopted by a majority of the Entire Board, designate one or more other
committees of the Board, each committee to consist of one or more of the
Directors of the Corporation, which, to the extent provided in the resolution,
shall have and may exercise the powers of the Board in the management of the
business and affairs of the Corporation. Such committee or committees shall have
such name or names as may be determined from time to time by the Board. A
majority of the members of a committee shall constitute a quorum. The member or
members of any such committee (other than
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the Audit Committee or the Executive Committee) present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board to act at the meeting in the
place of any absent or disqualified member. At meetings of such committees, the
act of a majority of the members or alternate members at any meeting at which
there is a quorum shall be the act of the committee. Unless the Board otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules such
committee shall conduct its business in the same manner as the Board conducts
its business pursuant to Article 3 of these By-laws.
4.5 Committee Minutes. The committee shall keep regular
minutes of its proceedings and report the same to the Board.
ARTICLE 5
OFFICERS
5.1 Positions. The officers of the Corporation shall consist
of those elected by the Board of Directors and those appointed by the chief
executive officer. The officers of the Corporation to be elected by the Board of
Directors shall be: a Chairman; a President; one or more Executive Vice
Presidents; a Secretary; a Treasurer; a Controller; and a General Counsel. The
officers of the Corporation which may be appointed by the chief executive
officer shall be one or more Vice Presidents and Senior Vice Presidents and such
additional officers and assistant officers as the
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chief executive officer determines. Any number of offices may be held by the
same person unless the Certificate of Incorporation or these By-laws otherwise
provide.
5.2 Appointment. The officers of the Corporation shall be
chosen by the Board at its annual meeting or at such other time or times as the
Board shall determine.
5.3 Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that the officer
is also a Director.
5.4 Term of Office. Each officer of the Corporation shall hold
office for the term for which he or she is elected and until such officer's
successor is chosen and qualifies or until such officer's earlier death,
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Such resignation shall take effect at the date of receipt of
such notice or at such later time as is therein specified, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. The resignation of an officer shall be without prejudice to the
contract rights of the Corporation, if any. Any officer elected or appointed by
the Board may be removed at any time, with or without cause, by vote of a
majority of the Entire Board. Any vacancy occurring in any office of the
Corporation shall be filled by the Board. The removal of an officer without
cause shall be without prejudice to the officer's contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
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5.5 Fidelity Bonds. The Corporation may secure the fidelity of
any or all of its officers or agents by bond or otherwise.
5.6 Chairman. The Chairman, if one shall have been appointed,
shall preside at all meetings of the Board and shall exercise such powers and
perform such other duties as shall be determined from time to time by the Board.
5.7 President. The President shall be the Chief Executive
Officer of the Corporation and shall have general supervision over the business
of the Corporation, subject, however, to the control of the Board and of any
duly authorized committee of Directors. The President shall preside at all
meetings of the Stockholders and at all meetings of the Board at which the
Chairman (if there be one) is not present. The President may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts and other
instruments except in cases in which the signing and execution thereof shall be
expressly delegated by the Board or by these By-laws to some other officer or
agent of the Corporation or shall be required by statute otherwise to be signed
or executed and, in general, the President shall perform all duties incident to
the office of President of a corporation and such other duties as may from time
to time be assigned to the President by the Board.
5.8 Chief Financial Officer. The chief financial officer of
the Corporation, if any, shall have general supervision and direction over the
duties and function of the Treasurer; shall render to the Board, whenever the
Board may require, an account of the financial condition of the Corporation;
shall provide for the
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continuous review of all accounts and reports; and shall perform such other
duties as from time to time may be assigned to the chief financial officer by
the Board, by these By-laws, by the chief executive officer or by the President.
5.9 Vice Presidents. Each Vice President and Senior Vice
President shall have such powers and perform such duties as from time to time
may be assigned to such Vice President by the Board, by these By-laws, by the
chief executive officer or by the President. At the request of the President,
or, in the President's absence, at the request of the Board, the Vice Presidents
shall (in such order as may be desig nated by the Board, or, in the absence of
any such designation, in order of seniority based on age first among Senior Vice
Presidents and then among Vice Presidents) perform all of the duties of the
President and, in so performing, shall have all the powers of, and be subject to
all restrictions upon, the President. Any Vice President may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts or other
instruments, except in cases in which the signing and execution thereof shall be
expressly delegated by the Board or by these By-laws to some other officer or
agent of the Corporation, or shall be required by statute otherwise to be signed
or executed, and each Vice President shall perform such other duties as from
time to time may be assigned to such Vice President by the Board or by the
President.
5.10 Secretary. The Secretary shall attend all meetings of the
Board and of the Stockholders and shall record all the proceedings of the
meetings of the Board and of the stockholders in a book to be kept for that
purpose, and shall perform
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like duties for committees of the Board, when required. The Secretary shall
give, or cause to be given, notice of all special meetings of the Board and of
the stockholders and shall perform such other duties as may be prescribed by the
Board or by the President, under whose supervision the Secretary shall be. The
Secretary shall have custody of the corporate seal of the Corporation, and the
Secretary, or an Assistant Secretary, shall have authority to impress the same
on any instrument requiring it, and when so impressed the seal may be attested
by the signature of the Secretary or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to impress
the seal of the Corporation and to attest the same by such officer's signature.
The Secretary or an Assistant Secretary may also attest all instruments signed
by the President or any Vice President. The Secretary shall have charge of all
the books, records and papers of the Corporation relating to its organization
and management, shall see that the reports, statements and other documents
required by statute are properly kept and filed and, in general, shall perform
all duties incident to the office of Secretary of a corporation and such other
duties as may from time to time be assigned to the Secretary by the Board or by
the President.
5.11 Treasurer. The Treasurer, subject to the review and
authority of the chief financial officer, if any, shall have charge and custody
of, and be responsible for, all funds, securities and notes of the Corporation;
receive and give receipts for moneys due and payable to the Corporation from any
sources whatsoever; deposit all such moneys and valuable effects in the name and
to the credit of the Corporation in
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such depositaries as may be designated by the Board; against proper vouchers,
cause such funds to be disbursed by checks or drafts on the authorized
depositaries of the Corporation signed in such manner as shall be determined by
the Board and be responsible for the accuracy of the amounts of all moneys so
disbursed; regularly enter or cause to be entered in books or other records
maintained for the purpose full and adequate account of all moneys received or
paid for the account of the Corporation; have the right to require from time to
time reports or statements giving such information as the Treasurer may desire
with respect to any and all financial transactions of the Corporation from the
officers or agents transacting the same; make, sign and file financial, tax and
similar reports to any state, federal or municipal government, agency or
department, or any self-regulatory organization; render to the Chairman, the
President or the Board, whenever the Chairman, the President or the Board shall
require the Treasurer so to do, an account of the financial condition of the
Corporation and of all financial transactions of the Corporation; exhibit at all
reasonable times the records and books of account to any of the Directors upon
application at the office of the Corporation where such records and books are
kept; disburse the funds of the Corporation as ordered by the Board; and, in
general, perform all duties incident to the office of treasurer of a corporation
and such other duties as may from time to time be assigned to the Treasurer by
the Board, by these By-laws, by the chief executive officer, by the President or
by the chief financial
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officer. In the absence of the Treasurer, an Assistant Treasurer may perform the
duties of the Treasurer.
5.12 Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board, by these By-laws or by the chief executive officer.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board, except as otherwise
provided in these By-laws, may prospectively or retroactively authorize any
officer or officers, employee or employees or agent or agents, in the name and
on behalf of the Corporation, to enter into any contract or execute and deliver
any instrument, and any such authority may be general or confined to specific
instances, or otherwise limited.
6.2 Loans. The Board may prospectively or retroactively
authorize the President or any other officer, employee or agent of the
Corporation to effect loans and advances at any time for the Corporation from
any bank, trust company or other institution, or from any firm, corporation or
individual, and for such loans and advances the person so authorized may make,
execute and deliver promissory notes, bonds or other certificates or evidences
of indebtedness of the Corporation, and, when authorized by the Board so to do,
may pledge and hypothecate or transfer any securities or other property of the
Corporation as security for any such loans or advances. Such
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authority conferred by the Board may be general or confined to specific
instances, or otherwise limited.
6.3 Checks, Drafts, Etc. All checks, drafts and other orders
for the payment of money out of the funds of the Corporation and all evidences
of indebtedness of the Corporation shall be signed on behalf of the Corporation
in such manner as shall from time to time be determined by resolution of the
Board.
6.4 Deposits. The funds of the Corporation not otherwise
employed shall be deposited from time to time to the order of the Corporation
with such banks, trust companies, investment banking firms, financial
institutions or other depositaries as the Board may select or as may be selected
by an officer, employee or agent of the Corporation to whom such power to select
may from time to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital
stock of the Corporation shall be represented by certificates in such form
(consistent with the provisions of Section 158 of the General Corporation Law)
as shall be approved by the Board. Such certificates shall be signed by the
Chairman, the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with
the seal of the Corporation or a facsimile thereof. The signatures of the
officers upon a certificate may be facsimiles, if
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the certificate is countersigned by a transfer agent or registrar other than the
Corporation itself or its employee. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may, unless otherwise
ordered by the Board, be issued by the Corporation with the same effect as if
such person were such officer, transfer agent or registrar at the date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock
of the Corporation shall be made only on the books of the Corporation by the
holder thereof or by the holder's duly authorized attorney appointed by a power
of attorney duly executed and filed with the Secretary or a transfer agent of
the Corporation, and on surrender of the certificate or certificates
representing such shares of capital stock properly endorsed for transfer and
upon payment of all necessary transfer taxes. Every certificate exchanged,
returned or surrendered to the Corporation shall be marked "Cancelled," with the
date of cancellation, by the Secretary or an Assistant Secretary or the transfer
agent of the Corporation. A person in whose name shares of capital stock shall
stand on the books of the Corporation shall be deemed the owner thereof to
receive dividends, to vote as such owner and for all other purposes as respects
the Corporation. No transfer of shares of capital stock shall be valid as
against the Corporation, its stockholders and creditors for any purpose, except
to render the transferee liable for the debts of the Corporation to the extent
provided by law, until
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such transfer shall have been entered on the books of the Corporation by an
entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from
time to time maintain one or more transfer offices or agents and registry
offices or agents at such place or places as may be determined from time to time
by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The
holder of any shares of capital stock of the Corporation shall immediately
notify the Corporation of any loss, destruction, theft or mutilation of the
certificate representing such shares, and the Corporation may issue a new
certificate to replace the certificate alleged to have been lost, destroyed,
stolen or mutilated. The Board may, in its discretion, as a condition to the
issue of any such new certificate, require the owner of the lost, destroyed,
stolen or mutilated certificate, or his or her legal representatives, to make
proof satisfactory to the Board of such loss, destruction, theft or mutilation
and to advertise such fact in such manner as the Board may require, and to give
the Corporation and its transfer agents and registrars, or such of them as the
Board may require, a bond in such form, in such sums and with such surety or
sureties as the Board may direct, to indemnify the Corporation and its transfer
agents and registrars against any claim that may be made against any of them on
account of the continued existence of any such certificate so alleged to have
been lost, destroyed, stolen or mutilated and against any expense in connection
with such claim.
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7.5 Rules and Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws or
with the Certificate of Incorporation, concerning the issue, transfer and
registration of certif icates representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on
the transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock or any successor or transferee of the
holder, including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or registration of
transfer of capital stock of the Corporation may be imposed either by the
Certificate of Incorporation or by an agreement among any number of stockholders
or among such stockholders and the Corporation. No restriction so imposed shall
be binding with respect to capital stock issued prior to the adoption of the
restriction unless the holders of such capital stock are parties to an agreement
or voted in favor of the restriction.
7.7 Dividends, Surplus, Etc. Subject to the provisions of the
Certificate of Incorporation and of law, the Board:
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7.7.1 may declare and pay dividends or make
other distributions on the outstanding shares of capital stock in such
amounts and at such time or times as it, in its discretion, shall deem
advisable giving due consideration to the condition of the affairs of
the Corporation;
7.7.2 may use and apply, in its discretion,
any of the surplus of the Corporation in purchasing or acquiring any
shares of capital stock of the Corporation, or purchase warrants
therefor, in accordance with law, or any of its bonds, debentures,
notes, scrip or other securities or evidences of indebtedness; and
7.7.3 may set aside from time to time out
of such surplus or net profits such sum or sums as, in its discretion,
it may think proper, as a reserve fund to meet contingencies, or for
equalizing dividends or for the purpose of maintaining or increasing
the property or business of the Corporation, or for any purpose it may
think conducive to the best interests of the Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnity Undertaking. To the extent not prohibited by
law, the Corporation shall indemnify any person who is or was made, or
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or
investigative, including,
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without limitation, an action by or in the right of the Corporation to procure a
judgment in its favor, by reason of the fact that such person, or a person of
whom such person is the legal representative, is or was a Director or officer of
the Corporation, or, at the request of the Corporation, is or was serving as a
director or officer of any other corporation or in a capacity with comparable
authority or responsibilities for any partnership, joint venture, trust,
employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Article 8.
8.2 Advancement of Expenses. The Corporation shall, from time
to time, reimburse or advance to any Director or officer or other person
entitled to indemnification hereunder the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in connection
with any Proceeding, in advance of the final disposition of such Proceeding;
provided, however, that, if required by the General Corporation Law, such
expenses incurred by or on behalf of any Director or officer or other person may
be paid in advance of the final disposition of a Proceeding only upon receipt by
the Corporation of an undertaking, by or on
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behalf of such Director or officer (or other person indemnified hereunder), to
repay any such amount so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right of appeal that such
Director, officer or other person is not entitled to be indemnified for such
expenses.
8.3 Rights Not Exclusive. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall not be deemed exclusive of any other rights to which a
person seeking indemnification or reimbursement or advancement of expenses may
have or hereafter be entitled under any statute, the Certificate of
Incorporation, these By-laws, any agreement, any vote of stockholders or
disinterested Directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
8.4 Continuation of Benefits. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted pursuant
to, this Article 8 shall continue as to a person who has ceased to be a Director
or officer (or other person indemnified hereunder) and shall inure to the
benefit of the executors, administrators, legatees and distributees of such
person.
8.5 Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of an Other
Entity, against any liability asserted
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against such person and incurred by such person in any such capacity, or arising
out of such person's status as such, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of this Article 8, the Certificate of Incorporation or under Section 145 of the
General Corporation Law or any other provision of law.
8.6 Binding Effect. The provisions of this Article 8 shall be
a contract between the Corporation, on the one hand, and each Director and
officer who serves in such capacity at any time while this Article 8 is in
effect and any other person entitled to indemnification hereunder, on the other
hand, pursuant to which the Corporation and each such Director, officer or other
person intend to be, and shall be legally bound. No repeal or modification of
this Article 8 shall affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising or any proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
8.7 Procedural Rights. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its
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stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel and its
stockholders) that such person is not entitled to such indemnification or
reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that such person is not so entitled. Such a
person shall also be indemnified for any expenses incurred in connection with
successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.
8.8 Service Deemed at Corporation's Request. Any Director or
officer of the Corporation serving in any capacity (a) another corporation of
which a majority of the shares entitled to vote in the election of its directors
is held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
8.9 Election of Applicable Law. Any person entitled to be
indemni fied or to reimbursement or advancement of expenses as a matter of right
pursuant to this Article 8 may elect to have the right to indemnification or
reimbursement or advancement of expenses interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the applicable Proceeding,
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to the extent permitted by law, or on the basis of the applicable law in effect
at the time such indemnification or reimbursement or advancement of expenses is
sought. Such election shall be made, by a notice in writing to the Corporation,
at the time indemnification or reimbursement or advancement of expenses is
sought; provided, however, that if no such notice is given, the right to
indemnification or reimburse ment or advancement of expenses shall be determined
by the law in effect at the time indemnification or reimbursement or advancement
of expenses is sought.
ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. There shall be kept at the principal
office of the Corporation correct and complete records and books of account
recording the financial transactions of the Corporation and minutes of the
proceedings of the stockholders, the Board and any committee of the Board. The
Corporation shall keep at its principal office, or at the office of the transfer
agent or registrar of the Corporation, a record containing the names and
addresses of all stockholders, the number and class of shares held by each and
the dates when they respectively became the owners of record thereof.
9.2 Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, discs, CD-ROM or any other
information storage
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device, provided that the records so kept can be converted into clearly legible
written form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise
provided by law, the Board shall determine from time to time whether, and, if
allowed, when and under what conditions and regulations, the accounts, books,
minutes and other records of the Corporation, or any of them, shall be open to
the stockholders for inspection.
ARTICLE 10
SEAL
The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and may be
changed, by resolution of the Board.
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ARTICLE 12
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the
President, any Vice President, the Secretary or the Treasurer, or any one of
them, may execute and deliver on behalf of the Corporation proxies respecting
any and all shares or other ownership interests of any Other Entity owned by the
Corporation appointing such person or persons as the officer executing the same
shall deem proper to represent and vote the shares or other ownership interests
so owned at any and all meetings of holders of shares or other ownership
interests, whether general or special, and/or to execute and deliver consents
respecting such shares or other ownership interests; or any of the aforesaid
officers may attend any meeting of the holders of shares or other ownership
interests of such Other Entity and thereat vote or exercise any or all other
powers of the Corporation as the holder of such shares or other ownership
interests.
ARTICLE 13
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the
following provisions of this Article 13 shall be effective during an emergency,
which is defined as when a quorum of the Corporation's Directors cannot be
readily assembled because of some catastrophic event. During such emergency:
13.1 Notice to Board Members. Any one member of the Board or
any one of the following officers: Chairman, President, any Vice President,
Secretary,
<PAGE> 44
44
or Treasurer, may call a meeting of the Board. Notice of such meeting need be
given only to those Directors whom it is practicable to reach, and may be given
in any practical manner, including by publication and radio. Such notice shall
be given at least six hours prior to commencement of the meeting.
13.2 Temporary Directors and Quorum. One or more officers of
the Corporation present at the emergency Board meeting, as is necessary to
achieve a quorum, shall be considered to be Directors for the meeting, and shall
so serve in order of rank, and within the same rank, in order of seniority. In
the event that less than a quorum of the Directors are present (including any
officers who are to serve as Directors for the meeting), those Directors present
(including the officers serving as Directors) shall constitute a quorum.
13.3 Actions Permitted To Be Taken. The Board as constituted
in Section 13.2, and after notice as set forth in Section 13.1 may:
13.3.1 prescribe emergency powers to any officer of
the Corporation;
13.3.2 delegate to any officer or Director,
any of the powers of the Board;
13.3.3 designate lines of succession of officers and
agents, in the event that any of them are unable to discharge their
duties;
13.3.4 relocate the principal place of business, or
designate successive or simultaneous principal places of business; and
<PAGE> 45
45
13.3.5 take any other convenient, helpful or
necessary action to carry on the business of the Corporation.
ARTICLE 14
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may
be adopted by a majority vote of the holders of shares entitled to vote in the
election of Directors or by the Board. Any By-laws adopted or amended by the
Board may be amended or repealed by the Stockholders entitled to vote thereon.
<PAGE> 1
EXHIBIT T3C
- --------------------------------------------------------------------------------
PARAGON TRADE BRANDS, INC.
AS ISSUER
PTB INTERNATIONAL, INC.,
PTB ACQUISITION SUB, INC.,
AND
PTB HOLDINGS, INC.,
AS GUARANTORS
$182,000,000
11.25% SENIOR SUBORDINATED NOTES DUE 2005
INDENTURE
DATED AS OF JANUARY __, 2000
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
AS TRUSTEE
- --------------------------------------------------------------------------------
<PAGE> 2
EXHIBIT A
FORM OF GLOBAL NOTE
FACE OF GLOBAL NOTE
PARAGON TRADE BRANDS, INC. CUSIP No 69912KAA5
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO:
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO PARAGON TRADE
BRANDS, INC. OR A SUCCESSOR THEREOF OR THE REGISTRAR FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO OR TO SUCH
OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF TDTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO, HAS AN INTEREST
HEREIN.
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL
NOTE SHALL BE LIMITED TO TRANSFERS WHICH COMPLY WITH THE RESTRICTIONS SET FORTH
IN SECTION 2.06 OF THE INDENTURE, DATED AS OF JANUARY ___, 2000 AMONG PARAGON
TRADE BRANDS, INC., AS ISSUER, AND PTB INTERNATIONAL, INC.,PTB ACQUISITION SUB,
INC., AND PTB HOLDINGS, INC., AS GUARANTORS, AND NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, AS TRUSTEE, PURSUANT TO WHICH THIS NOTE WAS ISSUED.
A-1
<PAGE> 3
GLOBAL NOTE
REPRESENTING 11.25% SENIOR SUBORDINATED NOTES DUE 2005.
Paragon Trade Brands, Inc., a Delaware corporation, for value received,
hereby promises to pay to Cede & Co, or its registered assigns, the principal
sum indicated on Schedule A hereof, on [February 1], 2005.
Interest Payment Dates: [February 1] and [August 1], commencing [August
1], 2000.
Record Dates: [January 15] and [July 15].
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, Paragon Trade Brands, Inc. has caused this Note to
be duly executed.
PARAGON TRADE BRANDS, INC.
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
Attest:
------------------------------
Dated:
------------------------------
A-2
<PAGE> 4
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Norwest Bank Minnesota, National Association, as Trustee, certifies that this is
one of the Notes referred to in the Indenture.
By:
--------------------
Authorized Signatory
A-3
<PAGE> 5
REVERSE SIDE OF GLOBAL NOTE
PARAGON TRADE BRANDS, INC.
GLOBAL NOTE
REPRESENTING 11.25% SENIOR SUBORDINATED NOTES DUE 2005
1. Indenture.
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its "11.25% Senior Subordinated Notes
Due 2005" (herein called the "Notes") limited in aggregate principal amount to
$182,000,000, issued under an indenture dated as of January __, 2000 (as amended
or supplemented from time to time, the "Indenture") among the Company, as
issuer, and PTB International, Inc., PTB Acquisition Sub, Inc. and PTB Holdings,
Inc., as guarantors (collectively, the "Note Guarantors"), and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee," which term includes
any successor trustee under the Indenture). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (15 US Code ss.ss. 77aaa-77bbbb). The
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and such Act for a statement of the respective rights, limitations of
rights, duties and immunities thereunder of the Company, the Note Guarantors,
the Trustee and each Holder and of the terms upon which the Notes are, and are
to be, authenticated and delivered. The summary of the terms of this Note
contained herein does not purport to be complete and is qualified by reference
to the Indenture. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control. All capitalized terms used in this Note
which are not defined herein shall have the meanings assigned to them in the
Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness, pay dividends or make certain other restricted
payments, incur liens to secure pari passu or subordinated indebtedness, sell
stock of Restricted Subsidiaries, apply net proceeds from certain asset sales,
merge or consolidate with any other person, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company,
enter into certain transactions with affiliates or incur indebtedness that is
subordinate in right of payment to any Senior Indebtedness and senior in right
of payment to the Notes. The Indenture permits, under certain circumstances,
Restricted Subsidiaries of the Company to be deemed Unrestricted Subsidiaries
and thus not subject to the restrictions of the Indenture.
A-4
<PAGE> 6
2. Principal and Interest.
Paragon Trade Brands, Inc., a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay the principal amount set
forth on Schedule A of this Note to the Holder hereof on [February 1], 2005.
The Company shall pay interest at a rate of 11.25% per annum, from the
Issue Date or from the most recent Interest Payment Date thereafter to which
interest has been paid or duly provided for, semiannually in arrears on
[February 1] and [August 1] of each year, commencing on [August 1], 2000, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such Interest
Payment Date. The Record Date for any interest payment is the close of business
on [January 15] or [July 15], as the case may be, whether or not a Business Day,
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided in Section 2.11 of the Indenture
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
If the Company's Cash Flow for a period specified below is less than
the amount specified for such period in the table below, then the Company may on
the Interest Payment Date set opposite such period, at the Company's option and
in its sole discretion, pay interest in additional Notes ("Secondary
Securities") in lieu of the payment in whole or in part of interest in cash on
the Notes; PROVIDED, HOWEVER, that the Company may at its option pay cash in
lieu of issuing Secondary Securities in any denominations of less than $1.00.
<TABLE>
<CAPTION>
PERIOD SPECIFIED CASH FLOW AMOUNT INTEREST PAYMENT DATE
------ -------------------------- ---------------------
<S> <C> <C>
Issue Date--June 25, 2000 $10,742,000 First Interest Payment Date
June 26, 2000--December 31, 2000 $16,930,000 Second Interest Payment Date
January 1, 2001--July 1, 2001 $18,016,000 Third Interest Payment Date
July 2, 2001--December 30, 2001 $20,253,000 Fourth Interest Payment Date
</TABLE>
If, pursuant to this paragraph, the Company issues Secondary Securities in lieu
of cash payment, in whole or in part, of interest, it shall give notice to the
Trustee not less than five Business Days prior to the applicable Interest
Payment Date, and shall instruct the Trustee (upon written order of the Company
signed by an Officer of the Company given
A-5
<PAGE> 7
not less than five nor more than 45 days prior to such Interest Payment Date) to
authenticate Secondary Securities, dated such Interest Payment Date, in a
principal amount equal to the amount of interest not paid in cash in respect of
this Security on such Interest Payment Date. Each issuance of Secondary
Securities in lieu of cash payments of interest on the Securities shall be made
pro rata with respect to the outstanding Securities. Any such Secondary
Securities shall be governed by the Indenture and shall be subject to the same
terms (including the maturity date and the rate of interest from time to time
payable thereon) as this Security (except, as the case may be, with respect to
the title, issuance date and aggregate principal amount). The term "Notes" shall
include the Secondary Securities that may be issued under the Indenture. Except
as otherwise allowed by the foregoing, interest shall be paid in cash.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium and Defaulted Interest (without regard to any
applicable grace period) at the interest rate borne on this Note. The Company's
obligation pursuant to the previous sentence shall apply whether such overdue
amount is due at its maturity, as a result of the Company's obligations pursuant
to Section 3.05, Section 4.11 or Section 4.13 of the Indenture, or otherwise.
3. RESERVED.
4. Method of Payment.
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The Company
will pay principal, premium, if any, and interest in money of the United States
that at the time of payment is legal tender for payment of all debts public and
private. Principal, premium, if any, and interest, other than such interest paid
in Secondary Securities, shall be paid by check mailed to the registered Holders
at their registered addresses; provided that all such payments with respect to
Notes the Holders of which have given wire transfer instructions to the Company
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof. Payments of interest made in
Secondary Securities shall be made by mailing such Secondary Securities to the
registered Holders at their registered addresses.
5. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar under the
Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying
A-6
<PAGE> 8
Agent or Registrar. The Company or any of its Affiliates may act as Paying Agent
or Registrar, provided that if the Company or such Affiliate is acting as Paying
Agent, the Company or such Affiliate shall segregate all funds and Secondary
Securities held by it as Paying Agent and hold them in trust for the benefit of
the Holders or the Trustee Note Guarantees.
6. Guarantees
This Note is initially entitled to the benefits of the Note Guarantees
made by PTB International, Inc., a Delaware corporation, PTB Acquisition Sub,
Inc., a Delaware corporation, and PTB Holdings, Inc., an Ohio corporation, and
may thereafter be entitled to Note Guarantees made by other Note Guarantors for
the benefit of the Holders of Notes. Each present Note Guarantor has, and each
future Note Guarantor will, irrevocably and unconditionally, jointly and
severally, guarantee on a senior subordinated basis the punctual payment when
due, whether at Stated Maturity, by acceleration, in connection with a Change of
Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, or interest on the Notes, expenses,
indemnification or otherwise. A Note Guarantor shall be released from its Note
Guarantee upon the terms and subject to the conditions set forth in the
Indenture.
7. Subordination.
This Note and the Note Guarantees are subordinated in right of payment,
as set forth in the Indenture, to the prior payment in full of all existing and
future Senior Indebtedness. Each of the Company and the Note Guarantors agrees,
and each Holder by accepting a Note agrees, to the subordination provisions set
forth in the Indenture, authorizes the Trustee to give them effect and appoints
the Trustee as attorney-in-fact for such purpose.
8. Redemption.
Except as set forth in the following paragraph, the Notes are not
redeemable at the option of the Company prior to [February 1], 2003. Thereafter,
the Notes will be subject to redemption at the option of the Company, in whole
or in part, on at least 30 calendar days' but not more than 60 calendar days'
prior notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest thereon, if any, to
the applicable Redemption Date (subject to the right of each Holder of record on
the relevant Record Date to receive interest due on the relevant Interest
Payment Date), if redeemed during the twelve-month period beginning [February 1]
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 5.6250%
2004 2.8125%
</TABLE>
A-7
<PAGE> 9
In addition, at any time and from time to time prior to [February 1],
2003 the Company, at its option, may redeem in the aggregate up to 35.0% of the
original principal amount of the Notes with the Net Cash Proceeds of one or more
Public Equity Offerings following which there is a Public Market, at a
redemption price (expressed as a percentage of principal amount) of 11.25% of
the aggregate principal amount so redeemed, plus accrued and unpaid interest
thereon to the redemption date (subject to the right of Holders of record on the
relevant Record Date to receive interest due on the relevant Interest Payment
Date); provided, however, that at least 65.0% of the original principal amount
of the Notes must remain outstanding after each such redemption; and provided,
further, that each such redemption shall occur within 60 days of the date of
closing of the related Public Equity Offering.
9. Notice of Redemption.
At least 20 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall deliver to the Trustee and send, by
first-class mail, postage prepaid, to Holders of Notes to be redeemed at the
addresses of such Holders as they appear in the Note Register, a notice of
redemption.
If fewer than all the Notes are to be redeemed at any time, the Trustee
shall select the Notes to be redeemed pro rata or by lot or by a method that
complies with applicable legal and securities exchange requirements, if any, and
that the Trustee considers fair and appropriate and in accordance with methods
generally used at the time of selection by fiduciaries in similar circumstances.
The Trustee shall make the selection from outstanding Notes not previously
called for redemption; provided that the Trustee may select for redemption
portions (equal to $1.00 or any integral multiple thereof) of the principal of
Notes that have denominations larger than $1.00 (Notes in denominations of $1.00
or less may be redeemed only in whole). If any Note is redeemed subsequent to a
Record Date with respect to any Interest Payment Date specified above and on or
prior to such Interest Payment Date, then any accrued interest will be paid on
such Interest Payment Date to the Holder of the Note on such Record Date. If
money in an amount sufficient to pay the Redemption Price of all Notes (or
portions thereof) to be redeemed on the Redemption Date is deposited with the
Paying Agent on or before the applicable Redemption Date and certain other
conditions are satisfied, interest on the Notes or portions thereof to be
redeemed on the applicable Redemption Date will cease to accrue. 10. Repurchase
at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1.00, pursuant to a Change of Control
Offer, at a purchase price in cash equal to
A-8
<PAGE> 10
101% of the principal amount of such Notes (or portions thereof) plus accrued
and unpaid interest to the Change of Control Payment Date.
Within 30 calendar days following any Change of Control, the Company
shall send, or cause to be sent, by first-class mail, postage prepaid, a notice
regarding the Change of Control Offer to each Holder with a copy to the Trustee.
The Holder of this Note may elect to have this Note or a portion hereof in an
authorized denomination purchased by completing the form entitled "Option of
Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Change of Control Offer. Unless the Company defaults in the payment of the
Change of Control Purchase Price with respect thereto, all Notes or portions
thereof accepted for payment pursuant to the Change of Control Offer will cease
to accrue interest from and after the Change of Control Payment Date.
Prior to complying with the provisions of the Indenture governing
Change of Control Offers, but in any event within 30 calendar days following a
Change of Control, the Company shall either repay all outstanding Senior
Indebtedness or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Indebtedness to permit the repurchase of Notes
required by the provisions of the Indenture governing Change of Control Offers.
11. Repurchase at the Option of Holders upon Asset Sale.
If at any time the Company or any Restricted Subsidiary engages in any
Asset Sale, as a result of which the aggregate amount of Excess Proceeds exceeds
$10 million, the Company shall, within 30 calendar days of the date the amount
of Excess Proceeds exceeds $10 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to the to the
date of purchase by the Company pursuant to an Asset Sale Offer (subject to the
right of each Holder of record on the relevant Record Date to receive interest
due on the relevant Interest Payment Date). Upon completion of an Asset Sale
Offer (including payment of the Asset Sale Purchase Price for accepted Notes),
any surplus Excess Proceeds that were the subject of such offer shall cease to
be Excess Proceeds, and the Company may then use such amounts for general
corporate purposes.
Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $10 million, the Company shall send, or cause to be sent, by first-class
mail, postage prepaid, a notice regarding the Asset Sale Offer to each Holder.
The Holder of this Note may elect to have this Note or a portion hereof in an
authorized denomination purchased by completing the form entitled "Option of
Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Notes or portions thereof selected
for payment pursuant to the Asset Sale Offer will cease to accrue interest
A-9
<PAGE> 11
from and after the to the date of purchase by the Company pursuant to an Asset
Sale Offer.
12. The Global Note.
So long as this Global Note is registered in the name of the Depositary
or its nominee, members of, or participants in, the Depositary ("Agent Members")
shall have no rights under the Indenture with respect to this Global Note held
on their behalf by the Depositary or the Trustee as its custodian, and the
Depositary may be treated by the Company, the Note Guarantors, the Trustee and
any agent of the Company, the Note Guarantors or the Trustee as the absolute
owner of this Global Note for all purposes. Notwithstanding the foregoing,
nothing herein shall (i) prevent the Company, the Note Guarantors, the Trustee
or any agent of the Company, the Note Guarantors or the Trustee, from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or (ii) impair, as between the Depositary and its Agent Members,
the operation of customary practices governing the exercise of the rights of a
Holder.
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder is entitled to take under the Indenture or the Notes.
Whenever, as a result of optional redemption by the Company, a Change
of Control Offer, an Asset Sale Offer or an exchange for Certificated Notes,
this Global Note is redeemed, repurchased or exchanged in part, this Global Note
shall be surrendered by the Holder thereof to the Trustee who shall cause an
adjustment to be made to Schedule A hereof so that the principal amount of this
Global Note will be equal to the portion not redeemed, repurchased or exchanged
and shall thereafter return this Global Note to such Holder; provided that this
Global Note shall be in a principal amount of $1.00 or an integral multiple of
$1.00.
13. RESERVED.
14. Transfer and Exchange.
A Holder may transfer or as provided in the Indenture and subject to
certain limitations therein set forth. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements or transfer documents and to
pay any taxes, fees and expenses required by law or permitted by the Indenture.
15. Denominations.
The Notes are issuable only in registered form without coupons in
denominations of $1.00 and integral multiples thereof of principal amount.
A-10
<PAGE> 12
16. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may terminate
some or all of the obligations of the Company and the Note Guarantors under the
Notes, the Note Guarantees and the Indenture if the Company irrevocably deposits
in trust with the Trustee cash or US Government Obligations for the payment of
principal, premium, if any, interest on the Notes to redemption or maturity, as
the case may be.
17. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any past Default and its consequences or any
compliance with any provisions of the Indenture may be waived with the written
consent of the Holders of at least a majority in principal amount of the
outstanding Notes. Subject to certain exceptions set forth in the Indenture,
without the consent of any Holder, the Company and the Trustee may amend the
Indenture or the Notes (i) to evidence the succession of another Person to the
Company and the assumption by such successor of the covenants of the Company
under the Indenture and contained in the Notes; (ii) to add to the covenants of
the Company, for the benefit of the Holders of all of the Notes, or to surrender
any right or power conferred on the Company under the Indenture; (iii) to
provide for uncertificated Notes in addition to or in place of Certificated
Notes; (iv) to secure the Notes; (v) to cure any ambiguity, omission, defect or
inconsistency in the Indenture, provided that such actions shall not adversely
affect the interests of the Holders of Notes in any material respect; (vi) to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the TIA; or (vii) to evidence the agreement
or acknowledgment of a Restricted Subsidiary that it is a Note Guarantor for all
purposes under the Indenture (including, without limitation, Article XII
thereof).
18. Defaults and Remedies.
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on the Notes (whether or not prohibited
by the subordination provisions of the Indenture); (ii) a default in the payment
when due of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company to observe or perform certain covenants, conditions, agreements or
other provisions of the Indenture or this Note (and, in the case of certain
covenants, agreements or other provisions, such failure has continued for 30
calendar days after written notice by the Trustee or the Holders of at least 25%
in principal amount of the Notes); (iv) acceleration of Indebtedness of the
Company or any of its Significant Subsidiaries in an amount in excess of $15
million in the aggregate; (v) certain events of bankruptcy or insolvency with
respect to the Company or any of its Significant Subsidiaries; (vi) certain
undischarged judgments not covered by insurance in excess of $15 million against
the Company or any of its Significant Subsidiaries; or (vii) the Note Guarantee
of any Note Guarantor ceasing for certain reasons to be in full force and effect
(other than in
A-11
<PAGE> 13
accordance with the terms of the Indenture) or any Note Guarantor denying or
disaffirming its obligations under its Note Guarantee.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security Subject to certain
limitations, Holders of a majority in principal amount of the Notes may direct
the Trustee in its exercise of any trust or power under the Indenture. The
Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest or premium that has become due
solely because of acceleration. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
19. Individual Rights of Trustee.
Subject to certain limitations imposed by the TIA, the Trustee or any
Paying Agent or Registrar, in its individual or any other capacity, may become
the owner or pledgee of Notes and may otherwise deal with the Company, the Note
Guarantors or their Affiliates with the same rights it would have if it were not
Trustee, Paying Agent or Registrar, as the case may be, under the Indenture.
20. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of the
Company or any Note Guarantor, as such, shall have any liability for any
obligations of the Company or such Note Guarantor under the Notes, the Note
Guarantees or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation, solely by reason of its status as
a director, officer, employee, incorporator or stockholder of the Company or
such Note Guarantor. By accepting a Note, each Holder waives and releases all
such liability (but only such liability) as part of the consideration for
issuance of such Note to such Holder.
21. Authentication.
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
A-12
<PAGE> 14
22. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
23. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
24. Governing Law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request and without
charge to the Holder a copy of the Indenture Requests may be made to:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Attention: Chief Financial Officer
A-13
<PAGE> 15
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT.
The initial principal amount at maturity of this Note shall be $146,000,000. The
following decreases/increase in the principal amount in denominations of $1.00
or integral multiples thereof at maturity of this Note have been made:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total Principal Amount Notation Decrease Increase in Made by or on Date of
at in in Behalf of Maturity
Maturity Principal Principal Trustee
</TABLE>
A-14
<PAGE> 16
ASSIGNMENT
(To be executed by the registered Holder if such Holder desires to transfer this
Note).
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto_________________
- -----------------------------------
- -----------------------------------
- -----------------------------------
(Please print name and address of transferee)
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE.
- --------------------------------.
This Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ___________ ___________________________
Attorney to transfer this Note on the Note Register, with full power of
substitution.
Dated: _______________
- --------------------------- ----------------------------------
Signature of Holder Signature Guaranteed
NOTICE: The signature to the foregoing Assignment must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
A-15
<PAGE> 17
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate).
_____ In connection with the Change of Control Offer made pursuant to Section
4.13 of the Indenture, the undersigned hereby elects to have:
_____ the entire principal amount; or
_____ $________________ ($1.00 in principal amount or an integral
multiple thereof) of this Note repurchased by the Company.
The undersigned hereby directs the Trustee or Paying Agent to
_____ pay it; or
_____ pay ______________________
an amount in cash equal to 101% of the principal amount indicated in
the preceding sentence plus accrued and unpaid interest to the Change
of Control Payment Date.
_____ In connection with the Asset Sale Offer made pursuant to Section 4.10
of the Indenture, the undersigned hereby elects to have:
_____ the entire principal amount
_____ $________________ ($1.00 in principal amount or an integral
multiple thereof), of this Note repurchased by the Company.
The undersigned hereby directs the Trustee or Paying Agent to
_____ pay it; or
_____ pay _________________ an amount in cash equal to 100% of the
principal amount indicated in the preceding sentence plus accrued and
unpaid interest to the to the date of purchase by the Company pursuant
to an Asset Sale Offer.
Dated: _______________.
- ----------------------- -----------------------------
Signature of Holder Signature Guaranteed
A-16
<PAGE> 18
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
A-17
<PAGE> 19
EXHIBIT B
FORM OF CERTIFICATED NOTE.
FACE OF CERTIFICATED NOTE.
PARAGON TRADE BRANDS, INC. CUSIP No 69912KAA5.
11.25% SENIOR SUBORDINATED NOTE DUE 2005.
PARAGON TRADE BRANDS, INC., a Delaware corporation, for value received,
hereby promises to pay to __________________________, or its registered assigns,
the principal amount of ____________, on [February 1], 2005.
Interest Payment Dates: [February 1] and [August 1], commencing [August
1], 2000.
Record Dates: [January 15] and [July 15].
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purposes.
IN WITNESS WHEREOF, PARAGON TRADE BRANDS, INC. has caused this Note to
be duly executed.
PARAGON TRADE BRANDS, INC.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
Attest:
------------------------------
Dated:
-------------------------------
B-1
<PAGE> 20
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Norwest Bank Minnesota, National Association, as Trustee, certifies that this is
one of the Notes referred to in the Indenture.
By:
---------------------------------
Authorized Signatory.
B-2
<PAGE> 21
REVERSE SIDE OF INITIAL CERTIFICATED NOTE.
PARAGON TRADE BRANDS, INC.
11.25% SENIOR SUBORDINATED NOTE DUE 2005.
1. Indenture.
This Note is one of a duly authorized issue of debt securities of the
Company (as defined below) designated as its 11.25% Senior Subordinated Notes
Due 2005" (herein called the "Notes") limited in aggregate principal amount to
$146,000,000, exclusive of any Secondary Securities, issued under an indenture
dated as of January ___, 2000 (as amended or supplemented from time to time, the
"Indenture") among the Company, as issuer, and PTB International, Inc., PTB
Acquisition Sub, Inc. and PTB Holdings, Inc., as guarantors (collectively, the
"Note Guarantors"), and Norwest Bank Minnesota, National Association, as trustee
(the "Trustee," which term includes any successor trustee under the Indenture).
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
US Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and such Act for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Note Guarantors, the Trustee and each Holder and of the
terms upon which the Notes are, and are to be, authenticated and delivered. The
summary of the terms of this Note contained herein does not purport to be
complete and is qualified by reference to the Indenture. To the extent permitted
by applicable law, in the event of any inconsistency between the terms of this
Note and the terms of the Indenture, the terms of the Indenture shall control.
All capitalized terms used in this Note which are not defined herein shall have
the meanings assigned to them in the Indenture.
The Indenture restricts, among other things, the Company's ability to
incur additional indebtedness, pay dividends or make certain other restricted
payments, incur liens to secure pari passu or subordinated indebtedness, sell
stock of Restricted Subsidiaries, apply net proceeds from certain asset sales,
merge or consolidate with any other person, sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of the assets of the Company,
enter into certain transactions with affiliates or incur indebtedness that is
subordinate in right of payment to any Senior Indebtedness and senior in right
of payment to the Notes. The Indenture permits, under certain circumstances,
Restricted Subsidiaries of the Company to be deemed Unrestricted Subsidiaries
and thus not subject to the restrictions of the Indenture.
2. Principal and Interest.
Paragon Trade Brands, Inc., a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay the principal amount set
forth on Schedule A of this Note to the Holder hereof on [February 1], 2005.
B-3
<PAGE> 22
The Company shall pay interest at a rate of 11.25% per annum, from the
Issue Date or from the most recent Interest Payment Date thereafter to which
interest has been paid or duly provided for, semiannually in arrears on
[February 1] and [August 1] of each year, commencing on [August 1], 2000, to the
Holder hereof until the principal amount hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such Interest
Payment Date. The Record Date for any interest payment is the close of business
on [January 15] or [July 15] as the case may be, whether or not a Business Day,
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided in Section 2.11 of the Indenture
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
If the Company's Cash Flow for a period specified below is less than
the amount specified for such period in the table below, then the Company may on
the Interest Payment Date set opposite such period, at the Company's option and
in its sole discretion, pay interest in additional Notes ("Secondary
Securities") in lieu of the payment in whole or in part of interest in cash on
the Notes; PROVIDED, HOWEVER, that the Company may at its option pay cash in
lieu of issuing Secondary Securities in any denominations of less than $1.00.
<TABLE>
<CAPTION>
PERIOD SPECIFIED CASH FLOWAMOUNT INTEREST PAYMENT DATE
------ ------------------------- ---------------------
<S> <C> <C>
Issue Date--June 25, 2000 $10,742,000 First Interest Payment Date
June 26, 2000--December 31, 2000 $16,930,000 Second Interest Payment Date
January 1, 2001--July 1, 2001 $18,016,000 Third Interest Payment Date
July 2, 2001--December 30, 2001 $20,253,000 Fourth Interest Payment Date
</TABLE>
If, pursuant to this paragraph, the Company issues Secondary Securities in lieu
of cash payment, in whole or in part, of interest, it shall give notice to the
Trustee not less than five Business Days prior to the applicable Interest
Payment Date, and shall instruct the Trustee (upon written order of the Company
signed by an Officer of the Company given not less than five nor more than 45
days prior to such Interest Payment Date) to authenticate Secondary Securities,
dated such Interest Payment Date, in a principal amount equal to the amount of
interest not paid in cash in respect of this Security on such Interest Payment
Date. Each issuance of Secondary Securities in lieu of cash payments of interest
on the Securities shall be made pro rata with respect to the outstanding
Securities. Any such Secondary Securities shall be governed by the Indenture and
shall be subject to the same terms (including the maturity date and the rate of
interest from time to time payable thereon) as this Security (except, as the
case may be, with respect to
B-4
<PAGE> 23
the title, issuance date and aggregate principal amount). The term "Notes" shall
include the Secondary Securities that may be issued under the Indenture. Except
as otherwise allowed by the foregoing, interest shall be paid in cash.
Each payment of interest in respect of an Interest Payment Date will
include interest accrued through the day before such Interest Payment Date. If
an Interest Payment Date falls on a day that is not a Business Day, the interest
payment to be made on such Interest Payment Date will be made on the next
succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium and Defaulted Interest (without regard to any
applicable grace period) at the interest rate borne on this Note. The Company's
obligation pursuant to the previous sentence shall apply whether such overdue
amount is due at its maturity, as a result of the Company's obligations pursuant
to Section 3.05, Section 4.10 or Section 4.13 of the Indenture, or otherwise.
3. RESERVED.
4. Method of Payment.
The Company, through the Paying Agent, shall pay interest on this Note
to the registered Holder of this Note, as provided above. The Holder must
surrender this Note to a Paying Agent to collect principal payments. The Company
will pay principal, premium, if any, and interest in money of the United States
that at the time of payment is legal tender for payment of all debts public and
private. Principal, premium, if any, and interest, other than such interest paid
in Secondary Securities, shall be paid by check mailed to the registered Holders
at their registered addresses; provided that all such payments with respect to
Notes the Holders of which have given wire transfer instructions to the Company
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof. Payments of interest made in
Secondary Securities shall be made by mailing such Secondary Securities to the
registered Holders at their registered addresses.
5. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar under the
Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its Affiliates may
act as Paying Agent or Registrar, provided that if the Company or such Affiliate
is acting as Paying Agent, the Company or such Affiliate shall segregate all
funds and Secondary Securities held by it as Paying Agent and hold them in trust
for the benefit of the Holders or the Trustee Note Guarantees.
B-5
<PAGE> 24
6. Note Guarantees.
This Note is initially entitled to the benefits of the Note Guarantees
made by PTB International, Inc., a Delaware corporation, PTB Acquisition Sub,
Inc., a Delaware corporation, and PTB Holdings, Inc., an Ohio corporation, and
may thereafter be entitled to Note Guarantees made by other Note Guarantors for
the benefit of the Holders of Notes. Each present Note Guarantor has, and each
future Note Guarantor will, irrevocably and unconditionally, jointly and
severally, guarantee on a senior subordinated basis the punctual payment when
due, whether at Stated Maturity, by acceleration, in connection with a Change of
Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, and interest on the Notes, expenses,
indemnification or otherwise. A Note Guarantor shall be released from its Note
Guarantee upon the terms and subject to the conditions set forth in the
Indenture.
7. Subordination.
This Note and the Note Guarantees are subordinated in right of payment,
as set forth in the Indenture, to the prior payment in full of all existing and
future Senior Indebtedness. Each of the Company and the Note Guarantors agrees,
and each Holder by accepting a Note agrees, to the subordination provisions set
forth in the Indenture, authorizes the Trustee to give them effect and appoints
the Trustee as attorney-in-fact for such purpose. 8. Redemption.
Except as set forth in the following paragraph, the Notes are not
redeemable at the option of the Company prior to [February 1], 2003. Thereafter,
the Notes will be subject to redemption at the option of the Company, in whole
or in part, on at least 30 calendar days' but not more than 60 calendar days'
prior notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest thereon, if any, to
the applicable Redemption Date (subject to the right of each Holder of record on
the relevant Record Date to receive interest due on the relevant Interest
Payment Date), if redeemed during the twelve-month period beginning [February1]
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 5.6250%
2004 2.8125%
</TABLE>
In addition, at any time and from time to time prior to [February 1],
2003 the Company, at its option, may redeem in the aggregate up to 35.0% of the
original principal
B-6
<PAGE> 25
amount of the Notes with the Net Cash Proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 111.25% of the aggregate
principal amount so redeemed, plus accrued and unpaid interest thereon to the
redemption date (subject to the right of Holders of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date);
provided, however, that at least 65.0% of the original principal amount of the
Notes must remain outstanding after each such redemption; and provided, further,
that each such redemption shall occur within 60 days of the date of closing of
the related Public Equity Offering.
9. Notice of Redemption.
At least 20 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall deliver to the Trustee and send, by
first-class mail, postage prepaid, to Holders of Notes to be redeemed at the
addresses of such Holders as they appear in the Note Register, a notice of
redemption.
If fewer than all the Notes are to be redeemed at any time, the Trustee
shall select the Notes to be redeemed pro rata or by lot or by a method that
complies with applicable legal and securities exchange requirements, if any, and
that the Trustee considers fair and appropriate and in accordance with methods
generally used at the time of selection by fiduciaries in similar circumstances.
The Trustee shall make the selection from outstanding Notes not previously
called for redemption; provided that the Trustee may select for redemption
portions (equal to $1.00 or any integral multiple thereof) of the principal of
Notes that have denominations larger than $1.00 (Notes in denominations of $1.00
or less may be redeemed only in whole). If any Note is redeemed subsequent to a
Record Date with respect to any Interest Payment Date specified above and on or
prior to such Interest Payment Date, then any accrued interest will be paid on
such Interest Payment Date to the Holder of the Note on such Record Date. If
money in an amount sufficient to pay the Redemption Price of all Notes (or
portions thereof) to be redeemed on the Redemption Date is deposited with the
Paying Agent on or before the applicable Redemption Date and certain other
conditions are satisfied, interest on the Notes or portions thereof to be
redeemed on the applicable Redemption Date will cease to accrue.
10. Repurchase at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder shall have the
right in accordance with the terms hereof and the Indenture to require the
Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1.00, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest to the Change of
Control Payment Date.
Within 30 calendar days following any Change of Control, the Company
shall send, or cause to be sent, by first-class mail, postage prepaid, a notice
regarding the Change of Control Offer to each Holder with a copy to the Trustee.
The Holder of this Note may elect to have this Note or a portion hereof in an
authorized denomination
B-7
<PAGE> 26
purchased by completing the form entitled "Option of Holder to Elect Purchase"
appearing below and tendering this Note pursuant to the Change of Control Offer.
Unless the Company defaults in the payment of the purchase price with respect
thereto, all Notes or portions thereof accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest from and after the Change
of Control Payment Date.
Prior to complying with the provisions of the Indenture governing
Change of Control Offers, but in any event within 30 calendar days following a
Change of Control, the Company shall either repay all outstanding Senior
Indebtedness or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Indebtedness to permit the repurchase of Notes
required by the provisions of the Indenture governing Change of Control Offers.
11. Repurchase at the Option of Holders upon Asset Sale.
If at any time the Company or any Restricted Subsidiary engages in any
Asset Sale, as a result of which the aggregate amount of Excess Proceeds exceeds
$10 million, the Company shall, within 30 calendar days of the date the amount
of Excess Proceeds exceeds $10 million, use the then-existing Excess Proceeds to
make an offer to purchase from all Holders of Notes, on a pro rata basis, Notes
in an aggregate principal amount equal in amount to the then-existing Excess
Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
purchase by the Company pursuant to an Asset Sale Offer (subject to the right of
each Holder of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date). Upon completion of an Asset Sale Offer
(including payment of the Asset Sale Purchase Price for accepted Notes), any
surplus Excess Proceeds that were the subject of such offer shall cease to be
Excess Proceeds, and the Company may then use such amounts for general corporate
purposes.
Within 30 calendar days of the date the amount of Excess Proceeds
exceeds $10 million, the Company shall send, or cause to be sent, by first-class
mail, postage prepaid, a notice regarding the Asset Sale Offer to each Holder.
The Holder of this Note may elect to have this Note or a portion hereof in an
authorized denomination purchased by completing the form entitled "Option of
Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Asset Sale Offer. Unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Notes or portions thereof selected
for payment pursuant to the Asset Sale Offer will cease to accrue interest from
and after the to the date of purchase by the Company pursuant to an Asset Sale
Offer.
12. RESERVED.
13. Transfer and Exchange.
A Holder may transfer or as provided in the Indenture and subject to
certain limitations therein set forth. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements or transfer documents and to
pay any taxes, fees and
B-8
<PAGE> 27
expenses required by law or permitted by the Indenture. The Registrar need not
register the transfer or exchange of Certificated Notes or portions thereof
selected for redemption (except, in the case of a Certificated Note to be
redeemed in part, the portion of such Certificated Note not to be redeemed) or
any Certificated Notes for a period of 15 calendar days before a selection of
Notes to be redeemed.
14. Denominations.
The Notes are issuable only in registered form without coupons in
denominations of $1.00 and integral multiples thereof of principal amount;
provided that Certificated Notes, except those issued pursuant to Section
2.06(a), shall be subject to a minimum denomination of $250,000.
15. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may terminate
some or all of the obligations of the Company and the Note Guarantors under the
Notes, the Note Guarantees and the Indenture if the Company irrevocably deposits
in trust with the Trustee cash or US Government Obligations for the payment of
principal, premium, if any, interest on the Notes to redemption or maturity, as
the case may be.
16. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders of
at least a majority in principal amount of the outstanding Notes (which consent
may, but need not, be given in connection with any tender offer or exchange
offer for the Notes) and (ii) any past Default and its consequences or any
compliance with any provisions of the Indenture may be waived with the written
consent of the Holders of at least a majority in principal amount of the
outstanding Notes. Subject to certain exceptions set forth in the Indenture,
without the consent of any Holder, the Company and the Trustee may amend the
Indenture or the Notes (i) to evidence the succession of another Person to the
Company and the assumption by such successor of the covenants of the Company
under the Indenture and contained in the Notes; (ii) to add to the covenants of
the Company, for the benefit of the Holders of all of the Notes, or to surrender
any right or power conferred on the Company under the Indenture; (iii) to
provide for uncertificated Notes in addition to or in place of Certificated
Notes; (iv) to secure the Notes; (v) to cure any ambiguity, omission, defect or
inconsistency in the Indenture, provided that such actions shall not adversely
affect the interests of the Holders of Notes in any material respect; (vi) to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the TIA; or (vii) to evidence the agreement
or acknowledgment of a Restricted Subsidiary that it is a Note Guarantor for all
purposes under the Indenture (including, without limitation, Article XII
thereof).
17. Defaults and Remedies.
Under the Indenture, Events of Default include: (i) a default for 30
days in the payment when due of interest on the Notes (whether or not prohibited
by the
B-9
<PAGE> 28
subordination provisions of the Indenture); (ii) a default in the payment when
due of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company to observe or perform certain covenants, conditions, agreements or
other provisions of the Indenture or this Note (and, in the case of certain
covenants, agreements or other provisions, such failure has continued for 30
calendar days after written notice by the Trustee or the Holders of at least 25%
in principal amount of the Notes); (iv) a default in the payment of Indebtedness
acceleration of the Company or any of its Significant Subsidiaries Indebtedness
in an amount in excess of $15 million in the aggregate; (v) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries; (vi) certain undischarged judgments not covered by insurance in
excess of $15 million against the Company or any of its Significant
Subsidiaries; or (vii) the Note Guarantee of any Note Guarantor ceasing certain
reasons to be in full force and effect (other than in accordance with the terms
of the Indenture) or any Note Guarantor denying or disaffirming its obligations
under its Note Guarantee.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Notes, subject to certain
limitations, may declare all the Notes to be immediately due and payable.
Certain events of bankruptcy or insolvency shall result in the Notes being
immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives reasonable indemnity or security Subject to certain
limitations, Holders of a majority in principal amount of the Notes may direct
the Trustee in its exercise of any trust or power under the Indenture. The
Holders of a majority in principal amount of the then outstanding Notes, by
written notice to the Trustee and the Company, may rescind any declaration of
acceleration and its consequences if the rescission would not conflict with any
judgment or decree, and if all existing Events of Default have been cured or
waived, except nonpayment of principal, interest or premium that has become due
solely because of acceleration. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
18. Individual Rights of Trustee.
Subject to certain limitations imposed by the TIA, the Trustee or any
Paying Agent or Registrar, in its individual or any other capacity, may become
the owner or pledgee of Notes and may otherwise deal with the Company, the Note
Guarantors or their Affiliates with the same rights it would have if it were not
Trustee, Paying Agent or Registrar, as the case may be, under the Indenture.
19. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of the
Company or any Note Guarantor, as such, shall have any liability for any
obligations of the Company
B-10
<PAGE> 29
or such Note Guarantor under the Notes, the Note Guarantees or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation, solely by reason of its status as a director, officer, employee,
incorporator or stockholder of the Company or such Note Guarantor. By accepting
a Note, each Holder waives and releases all such liability (but only such
liability) as part of the consideration for issuance of such Note to such
Holder.
20. Authentication.
This Note shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Note.
21. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon. 23. Governing Law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request and without
charge to the Holder a copy of the Indenture Requests may be made to:
PARAGON TRADE BRANDS, INC.
180 Technology Parkway
Norcross, Georgia 30092
Attention: Chief Financial Officer
B-11
<PAGE> 30
ASSIGNMENT
(To be executed by the registered Holder if such Holder desires to transfer this
Note).
FOR VALUE RECEIVED ___________________________________________ hereby sells,
assigns and transfers unto
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
(Please print name and address of transferee).
- ----------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR
OTHER TAX IDENTIFYING NUMBER OF
TRANSFEREE.
This Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ______________
________________________________ Attorney to transfer this Note on the Note
Register, with full power of substitution.
Dated: ______________.__________
- ------------------------- --------------------------------
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
B-12
<PAGE> 31
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate).
_____ In connection with the Change of Control Offer made pursuant to Section
4.13 of the Indenture, the undersigned hereby elects to have:
_____ the entire principal amount; or
_____ $________________ ($1.00 in principal amount or an integral
multiple thereof) of this Note repurchased by the Company.
The undersigned hereby directs the Trustee or Paying Agent to
_____ pay it; or
_____ pay ______________________
an amount in cash equal to 101% of the principal amount indicated in
the preceding sentence plus accrued and unpaid interest to the Change
of Control Payment Date.
_____ In connection with the Asset Sale Offer made pursuant to Section 4.10
of the Indenture, the undersigned hereby elects to have:
_____ the entire principal amount
_____ $________________ ($1.00 in principal amount or an integral
multiple thereof), of this Note repurchased by the Company.
The undersigned hereby directs the Trustee or Paying Agent to
_____ pay it; or
_____ pay _________________
an amount in cash equal to 100% of the principal amount indicated in
the preceding sentence plus accrued and unpaid interest to the to the
date of purchase by the Company pursuant to an Asset Sale Offer.
Dated: _______________.
- ------------------------- --------------------------------
Signature of Holder Signature Guaranteed:
B-13
<PAGE> 32
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
<PAGE> 33
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section Indenture Section
- ----------- -----------------
<S> <C>
ss. 310 (a)(1)............................................................7.10
(a)(2)............................................................7.10
(a)(3)............................................................N.A.
(a)(4)............................................................N.A.
(b).........................................................7.08; 7.10
(c)...............................................................N.A.
ss. 311 (a)...............................................................7.11
(b)...............................................................7.11
(c)...............................................................N.A.
ss. 312 (a)...............................................................7.13
(b)..............................................................13.03
(c)..............................................................13.03
ss. 313 (a)...............................................................7.06
(b)(1)............................................................N.A.
(b)(2)............................................................7.06
(c)........................................................7.06; 13.02
(d)...............................................................7.06
ss. 314 (a).........................................................4.07; 4.18
(b)...............................................................N.A.
(c)(1)...........................................................13.04
(c)(2)...........................................................13.04
(c)(3)............................................................N.A.
(d)...............................................................N.A.
(e)..............................................................13.05
(f)...............................................................N.A.
ss. 315 (a)...............................................................7.01
(b)........................................................7.05; 13.02
(c)...............................................................7.01
(d)...............................................................7.01
(e)...............................................................6.11
ss. 316 (a)(last sentence)...............................................13.06
(a)(1)(A).........................................................6.05
(a)(1)(B).........................................................6.04
(a)(2)............................................................N.A.
(b)...............................................................6.07
(c).........................................................1.01; 2.11
ss. 317 (a)(1)............................................................6.08
(a)(2)............................................................6.09
(b)...............................................................2.04
ss. 318 (a)..............................................................13.01
</TABLE>
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE........................................1
Section 1.01 Incorporation by Reference of Trust Indenture Act............................28
Section 1.02 Rules of Construction........................................................28
ARTICLE II. THE NOTES........................................................................29
Section 2.01 Form and Dating..............................................................29
Section 2.02 Execution and Authentication.................................................30
Section 2.03 Registrar and Paying Agent...................................................31
Section 2.04 Paying Agent To Hold Money in Trust..........................................32
Section 2.05 Global Notes.................................................................32
Section 2.06 Transfer and Exchange........................................................33
Section 2.07 Replacement Notes............................................................34
Section 2.08 Outstanding Notes............................................................34
Section 2.09 Temporary Notes..............................................................35
Section 2.10 Cancellation.................................................................35
Section 2.11 Payment of Interest; Interest Rights Preserved...............................35
Section 2.12 CUSIP Numbers................................................................37
Section 2.13 Transfers, etc...............................................................38
ARTICLE III. REDEMPTION.......................................................................38
Section 3.01 Redemption of Notes; Notices to Trustee......................................38
Section 3.02 Selection of Notes To Be Redeemed............................................39
Section 3.03 Notice of Redemption.........................................................39
Section 3.04 Effect of Notice of Redemption...............................................40
Section 3.05 Deposit of Redemption Price..................................................40
Section 3.06 Notes Redeemed in Part.......................................................41
ARTICLE IV. COVENANTS........................................................................41
Section 4.01 Payment of Notes.............................................................41
Section 4.02 Maintenance of Office or Agency..............................................41
Section 4.03 Money for the Note Payments to be Held in Trust..............................42
Section 4.04 Corporate Existence..........................................................42
Section 4.05 Maintenance of Property......................................................43
Section 4.06 Payment of Taxes and Other Claims............................................43
Section 4.07 SEC Reports..................................................................43
Section 4.08 Limitation on Indebtedness...................................................44
Section 4.09 Limitation on Restricted Payments............................................44
Section 4.10 Limitation on Restrictions on Distributions from Restricted Subsidiaries.....47
Section 4.11 Limitation on Sales of Assets and Subsidiary Stock...........................49
Section 4.12 Limitation on Affiliate Transactions.........................................51
Section 4.13 Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries...............................................................53
</TABLE>
<PAGE> 35
<TABLE>
<S> <C> <C>
Section 4.14 Change of Control............................................................53
Section 4.15 Limitation on Liens..........................................................54
Section 4.16 Designation of Unrestricted Subsidiaries.....................................54
Section 4.17 Limitation on Layered Indebtedness...........................................55
Section 4.18 Compliance Certificate.......................................................56
Section 4.19 Waiver of Stay, Extension or Usury Laws......................................56
Section 4.20 Investment Company Act.......................................................56
Section 4.21 Further Instruments and Acts.................................................56
ARTICLE V. SUCCESSOR COMPANY................................................................56
Section 5.01 Merger, Consolidation and Sale of Assets.....................................56
ARTICLE VI. DEFAULTS AND REMEDIES............................................................58
Section 6.01 Events of Default............................................................58
Section 6.02 Acceleration.................................................................60
Section 6.03 Other Remedies...............................................................60
Section 6.04 Waiver of Past Defaults......................................................61
Section 6.05 Control by Majority..........................................................61
Section 6.06 Limitation on Suits..........................................................61
Section 6.07 Rights of Holders to Receive Payment.........................................62
Section 6.08 Collection Suit by Trustee...................................................62
Section 6.09 Trustee May File Proofs of Claim.............................................62
Section 6.10 Priorities...................................................................63
Section 6.11 Undertaking for Costs........................................................63
Section 6.12 Waiver of Stay or Extension Laws.............................................64
ARTICLE VII. TRUSTEE..........................................................................64
Section 7.01 Duties of Trustee............................................................64
Section 7.02 Rights of Trustee............................................................65
Section 7.03 Individual Rights of Trustee.................................................66
Section 7.04 Trustee's Disclaimer.........................................................66
Section 7.05 Notice of Defaults...........................................................66
Section 7.06 Reports by Trustee to Holders................................................66
Section 7.07 Compensation and Indemnity...................................................67
Section 7.08 Replacement of Trustee.......................................................68
Section 7.09 Successor Trustee by Merger..................................................68
Section 7.10 Eligibility; Disqualification................................................69
Section 7.11 Preferential Collection of Claims Against Company............................69
Section 7.12 Trustee's Application for Instructions from the Company......................70
Section 7.13 Company to Furnish Trustee Names and Addresses of Holders....................70
ARTICLE VIII. DISCHARGE OF INDENTURE; DEFEASANCE...............................................70
Section 8.01 Discharge of Liability on Notes; Defeasance..................................70
Section 8.02 Conditions to Defeasance.....................................................72
Section 8.03 Application of Trust Money...................................................73
Section 8.04 Repayment to Company.........................................................73
Section 8.05 Indemnity for Government Obligations.........................................73
Section 8.06 Reinstatement................................................................73
</TABLE>
ii
<PAGE> 36
<TABLE>
<S> <C> <C>
ARTICLE IX. AMENDMENTS.......................................................................74
Section 9.01 Without Consent of Holders...................................................74
Section 9.02 With Consent of Holders......................................................75
Section 9.03 Compliance with Trust Indenture Act..........................................76
Section 9.04 Revocation and Effect of Consents and Waivers................................76
Section 9.05 Notation on or Exchange of Notes.............................................76
Section 9.06 Trustee To Sign Amendments...................................................76
Section 9.07 Payment for Consent..........................................................77
ARTICLE X. SUBORDINATION OF THE NOTES.......................................................77
Section 10.01 Agreement to Subordinate.....................................................77
Section 10.02 Liquidation, Dissolution, Bankruptcy.........................................77
Section 10.03 Default on Senior Indebtedness of the Company................................78
Section 10.04 Acceleration of Payment of Notes.............................................79
Section 10.05 When Distribution Must Be Paid Over..........................................79
Section 10.06 Subrogation..................................................................79
Section 10.07 Relative Rights..............................................................79
Section 10.08 Subordination May Not Be Impaired by Company.................................80
Section 10.09 Rights of Trustee and Paying Agent...........................................80
Section 10.10 Distribution or Notice to Representative.....................................80
Section 10.11 Article 10 Not to Prevent Events of Default or Limit Right to Accelerate.....80
Section 10.12 Trust Moneys Not Subordinated................................................80
Section 10.13 Trustee Entitled to Rely upon Any Payment or Distribution....................81
Section 10.14 Trustee To Effectuate Subordination..........................................81
Section 10.15 Trustee not Fiduciary for Holders of Senior Indebtedness.....................81
Section 10.16 Reliance by Holders of Senior Indebtedness on Subordination Provisions.......82
ARTICLE XI. NOTE GUARANTEES; RELEASE OF NOTE GUARANTEES; ADDITIONAL NOTE GUARANTEES.........82
Section 11.01 Note Guarantees..............................................................82
Section 11.02 Successors and Assigns.......................................................84
Section 11.03 No Waiver....................................................................84
Section 11.04 Modification.................................................................84
Section 11.05 Limitation of Note Guarantor's Liability.....................................84
Section 11.06 Release of Note Guarantees...................................................85
Section 11.07 Additional Note Guarantees...................................................85
ARTICLE XII. SUBORDINATION OF THE NOTE GUARANTEES.............................................86
Section 12.01 Agreement to Subordinate.....................................................86
Section 12.02 Liquidation, Dissolution, Bankruptcy.........................................86
Section 12.03 Default on Senior Indebtedness of Note Guarantors............................86
Section 12.04 Demand for Payment...........................................................87
Section 12.05 When Distribution Must Be Paid Over..........................................87
</TABLE>
iii
<PAGE> 37
<TABLE>
<S> <C> <C>
Section 12.06 Subrogation..................................................................88
Section 12.07 Relative Rights..............................................................88
Section 12.08 Subordination May not Be Impaired by Note Guarantors.........................88
Section 12.09 Rights of Trustee and Paying Agent...........................................88
Section 12.10 Distribution or Notice to Representative.....................................89
Section 12.11 Article 12 not to Prevent Defaults Under the Note Guarantees or
Limit Right to Demand Payment.............................................89
Section 12.12 Trustee Entitled to Rely Upon Any Payment or Distribution....................89
Section 12.13 Trustee to Effectuate Subordination..........................................90
Section 12.14 Trustee not Fiduciary for Holders of Senior Indebtedness of Note Guarantors..90
Section 12.15 Reliance by Holders of Senior Indebtedness on Subordination Provisions.......90
ARTICLE XIII. MISCELLANEOUS....................................................................90
Section 13.01 Trust Indenture Act Controls.................................................90
Section 13.02 Notices......................................................................91
Section 13.03 Communication by Holders with Other Holders..................................91
Section 13.04 Certificate and Opinion as to Conditions Precedent...........................91
Section 13.05 Statements Required in Certificate or Opinion................................92
Section 13.06 When Notes Disregarded.......................................................92
Section 13.07 Rules by Trustee, Paying Agent and Registrar.................................92
Section 13.08 Legal Holidays...............................................................92
Section 13.09 Governing Law................................................................93
Section 13.10 No Recourse Against Others...................................................93
Section 13.11 Successors...................................................................93
Section 13.12 Multiple Originals...........................................................93
Section 13.13 Table of Contents; Headings..................................................94
Section 13.14 Severability.................................................................94
Section 13.15 Further Instruments and Acts.................................................94
FORM OF GLOBAL NOTE..............................................................................1
</TABLE>
iv
<PAGE> 38
INDEX OF DEFINED TERMS
1
11.25% Senior Subordinated Notes Due 2005, 4
A
ACQUIRED INDEBTEDNESS, 1
ADDITIONAL GUARANTEE, 1, 85
ADDITIONAL GUARANTOR, 1
adequately capitalized, 5
AFFILIATE, 2
AFFILIATE TRANSACTION, 2, 51
AGENT MEMBERS, 2, 32, 10
ASSET SALE, 2
ASSET SALE OFFER, 3, 50
ASSET SALE OFFER AMOUNT, 3, 50
B
BANKRUPTCY LAW, 3
beneficial ownership, 5, 6
beneficially owned, 5
BLOCKAGE NOTICE, 3, 78
BOARD OF DIRECTORS, 3
BOARD RESOLUTION, 4
BUSINESS ACQUISITION, 4
BUSINESS DAY, 4
BUSINESS DISPOSITION, 4
C
CAPITAL STOCK, 4
CAPITALIZED LEASE OBLIGATION, 4
CASH EQUIVALENTS, 4
CASH FLOW, 4
CERTIFICATED NOTES, 5
CHANGE OF CONTROL, 5
CHANGE OF CONTROL OFFER, 6, 53
CHANGE OF CONTROL PAYMENT DATE, 6, 54
CODE, 6
COMMISSION, 28
COMMODITY HEDGING AGREEMENTS, 6
Company, 1, 6, 5, 3
COMPANY ORDER, 6
CONSOLIDATED COVERAGE RATIO, 6
CONSOLIDATED EBITDA, 8
CONSOLIDATED FIXED CHARGES, 8
CONSOLIDATED INTEREST EXPENSE, 8
CONSOLIDATED NET INCOME, 8
CONSOLIDATED NON-CASH CHARGES, 9
CONSOLIDATED REVENUES, 9
control, 2
controlled by, 2
controlling, 2
CORPORATE NATIONAL TRUST OFFICE, 9
covenant defeasance option, 71
CUSIP, 37
CUSTODIAN, 10
D
DEFAULT, 10
DEFAULTED INTEREST, 10, 36, 5, 4
DEPOSITARY, 10
DESIGNATED SENIOR INDEBTEDNESS, 10
Designation, 54
Designation Amount, 55
DISQUALIFIED STOCK, 10
DOMESTIC RESTRICTED SUBSIDIARY, 10
E
EVENT OF DEFAULT, 10, 58
EXCESS PROCEEDS, 11, 50
EXCHANGE ACT, 11
EXTRAORDINARY EXPENSES, 11
F
FAIR MARKET VALUE, 11
FOREIGN INVESTMENT AGREEMENTS, 11
FOREIGN JOINT VENTURE, 12
FOREIGN SUBSIDIARY, 12
FOUR QUARTER PERIOD, 12
G
GAAP, 12
GLOBAL NOTE, 12
GUARANTEE, 12
Guarantee Obligations, 82
H
HOLDER, 13
I
INCUR, 13
INDEBTEDNESS, 13
INDENTURE, 14, 4, 3
INDENTURE SECURITIES, 28
INSOLVENCY OR LIQUIDATION PROCEEDING, 14
INTEREST PAYMENT DATE, 14
INTEREST RATE OR CURRENCY PROTECTION AGREEMENT, 14
INVESTMENT, 15
ISSUE DATE, 15
-i-
<PAGE> 39
J
JOINT VENTURE, 15
K
KC, 15
L
legal defeasance option, 71
LEGAL HOLIDAY, 15, 92
LIEN, 15
M
MABESA OPTION, 15
Moody's, 5
N
NET AVAILABLE CASH, 16
NET CASH PROCEEDS, 16
NET COST SAVINGS, 16
NEW JOINT VENTURE, 16
NON-US PERSON, 16
NOTE GUARANTEE, 17
NOTE GUARANTOR, 17
Note Guarantors, 1, 4, 3
NOTE REGISTER, 17, 31
NOTEHOLDER, 13
NOTES, 17, 4, 3
NOTICE OF DEFAULT, 17, 60
O
OBLIGATIONS, 17
OBLIGOR, 28
OFFICER, 17
OFFICERS'CERTIFICATE, 17
OPINION OF COUNSEL, 17
Option of Holder to Elect Purchase, 54, 9, 8
P
P&G, 17
pay its Note Guarantee, 86
pay the Notes, 78
PAYING AGENT, 17, 31
PAYMENT BLOCKAGE PERIOD, 17, 78
PERMITTED HOLDERS, 17
PERMITTED INDEBTEDNESS, 18
PERMITTED INVESTMENT, 19
PERMITTED LIENS, 21
person, 5
PERSON, 22
PLAN, 22
POST-PETITION INTEREST, 22
PREFERRED STOCK, 23
PRINCIPAL, 23
PROPERTY, 23
PUBLIC EQUITY OFFERING, 23
PUBLIC MARKET, 23
Q
QUALIFIED CAPITAL STOCK, 23
R
RECORD DATE, 23
REDEMPTION DATE, 23
REDEMPTION PRICE, 23
REFINANCE, 23
REFINANCING INDEBTEDNESS, 23
REGISTRAR, 24, 31
RELATED BUSINESS, 24
REPRESENTATIVE, 24
RESTRICTED PAYMENT, 24
RESTRICTED SUBSIDIARY, 25
Revocation, 55
S
S&P, 5
SALE AND LEASEBACK TRANSACTION, 25
SEC, 25
SECONDARY SECURITIES, 25
Secondary Securities, 35, 5, 4
SECURITIES ACT, 25
SENIOR CREDIT FACILITIES, 25
SENIOR INDEBTEDNESS, 25
SENIOR SUBORDINATED INDEBTEDNESS, 26
SIGNIFICANT SUBSIDIARY, 26
SPECIAL RECORD DATE, 26
STATED MATURITY, 26
STOCK PURCHASE LOAN, 26
SUBORDINATED OBLIGATION, 26
SUBORDINATED REORGANIZATION SECURITIES, 27, 77
SUBSIDIARY, 27
Surviving Entity, 57
SURVIVING ENTITY, 27
T
TIA, 27
Transaction Date, 27
TRUST OFFICER, 27
Trustee, 1, 27, 4, 3
U
under common control with, 2
UNIFORM COMMERCIAL CODE, 27
UNITED STATES, 27
UNRESTRICTED SUBSIDIARY, 27, 54
US, 27
US GOVERNMENT OBLIGATIONS, 27
V
VOTING STOCK, 27
W
WEIGHTED AVERAGE LIFE TO MATURITY, 28
WHOLLY-OWNED RESTRICTED SUBSIDIARY, 28
-ii-
<PAGE> 40
This INDENTURE dated as of January ___, 2000, is made by and among
PARAGON TRADE BRANDS, INC., a Delaware corporation (the "Company"), PTB
INTERNATIONAL, INC., a Delaware corporation, PTB ACQUISITION SUB, INC., a
Delaware corporation and PTB HOLDINGS, INC., an Ohio corporation (the "Note
Guarantors") AND NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (the "Trustee").
RECITALS
Pursuant to the Plan, the Company has duly authorized the creation and
issue of its 11.25% Senior Subordinated Notes Due 2005, and the Company has duly
authorized the execution and delivery of this Indenture.
Each of the Note Guarantors has duly authorized the execution and
delivery of this Indenture to provide a Guarantee of the Notes and of certain of
the obligations of the Company hereunder.
All things necessary to make the Notes, when executed by the Company
and authenticated and delivered by the Trustee hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid instrument of the Company and each of the Note Guarantors, in accordance
with their respective terms, have been done.
In consideration of the foregoing and the acceptance of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows.
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE
"ACQUIRED INDEBTEDNESS" means, with respect to any Person, (i) any
Indebtedness or Disqualified Stock of any other Person existing at the time such
Person is merged with or into or becomes a Restricted Subsidiary of such
specified Person, including, without limitation, Indebtedness Incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Restricted Subsidiary of such specified Person, and (ii)
indebtedness secured by a Lien encumbering any asset acquired by such specified
Person, and in either case for purposes of this Indenture shall be deemed to be
Incurred by such specified Person at the time such other Person is merged with
or into or becomes a Restricted Subsidiary of such specified Person or at the
time such asset is acquired by such specified Person, as the case may be.
"ADDITIONAL GUARANTEE" has the meaning assigned to it in Section 11.07.
"ADDITIONAL GUARANTOR" has the meaning assigned to it in Section 11.07.
-1-
<PAGE> 41
"AFFILIATE" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person and shall include, with respect to the
Company, all Foreign Joint Ventures. For the purposes of this definition,
"control" (including with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with") when used with respect to any
Person, means (i) the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise or (ii) the beneficial ownership of 10% or
more of the total voting power of the Voting Stock (on a fully diluted basis) of
such Person.
"AFFILIATE TRANSACTION" has the meaning assigned to it in Section 4.12.
"AGENT MEMBERS" has the meaning assigned to it in Section 2.05(a).
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, assignment or other transfer for value by the Company or any of its
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any
Person other than the Company or a Restricted Subsidiary (including a Person
that is or will become a Restricted Subsidiary immediately after such sale,
issuance, conveyance, transfer, assignment or other transfer for value) of:
(i) any Capital Stock of any Restricted Subsidiary; or,
(ii) any other property or assets (whether tangible or intangible) of
the Company or any Restricted Subsidiary other than in the ordinary
course of business; or
(iii) any deemed Asset Sale specified in Section 4.11(c);
PROVIDED, HOWEVER, that Asset Sale shall not include:
(a) any disposition of Cash Equivalents, receivables or inventory in
the ordinary course of business consistent with past practices of the
Company or any of its Restricted Subsidiaries or the lease or sublease
of any real or personal property in the ordinary course of business,
(b) exchanges of properties or assets for other properties or assets
(other than cash, Cash Equivalents, notes, Capital Stock or other
equity interests); PROVIDED, that the property or assets so acquired
(1) are used in a Related Business and (2) have a Fair Market Value at
least equal to the Fair Market Value of the assets or properties being
exchanged (as evidenced by a resolution of the Company's Board of
Directors);
(c) exchanges of properties or assets for the Capital Stock of a
Person; PROVIDED, that the property or assets of the Person the Capital
Stock of which is so acquired (1) are used in a Related Business and
(2) have a Fair Market Value at least equal to the Fair Market Value of
the assets or properties being exchanged
-2-
<PAGE> 42
(as evidenced by a resolution of the Company's Board of Directors) and
(3) the Investment in such Capital Stock is permitted by Section 4.09;
(d) for purposes of Section 4.11 only, a disposition which complies
with Section 4.09;
(e) dispositions of Capital Stock or other assets (whether in a single
transaction or a series of related transactions) for which the
consideration received is $500,000 or less;
(f) dispositions of Capital Stock or other assets the aggregate value
of which does not exceed $10,000,000 less the aggregate value of all
other dispositions of Capital Stock or other assets made subsequent to
the Issue Date pursuant to this clause (f);
(g) the sale, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries as permitted under Section 5.01;
(h) any sale of Capital Stock in, or Indebtedness or other securities
of an Unrestricted Subsidiary; and
(i) any sale of the Company's or a Restricted Subsidiary's equity in a
Foreign Joint Venture or a New Joint Venture concurrently with the
acquisition of such equity interest under the terms of any of the
Foreign Investment Agreements or otherwise.
"ASSET SALE OFFER" has the meaning assigned to it in Section 4.11.
"ASSET SALE OFFER AMOUNT" has the meaning assigned to it in Section
4.11.
"BANKRUPTCY LAW" means Title 11, United States Code, or any other
applicable federal, state, or foreign bankruptcy, insolvency or similar law as
now or hereafter constituted.
"BLOCKAGE NOTICE" has the meaning assigned to it in Section 10.03.
"BOARD OF DIRECTORS" means, as the context requires, the Board of
Directors of the Company or the applicable Restricted Subsidiary, as the case
may be, or any committee thereof duly authorized to act on behalf of such Board.
"BOARD RESOLUTION" means a duly adopted resolution of the Board of
Directors in full force and effect at the time of determination and certified as
such by the Secretary or Assistant Secretary of the Company or a Restricted
Subsidiary, as the case may be.
"BUSINESS ACQUISITION" means (i) an Investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of
-3-
<PAGE> 43
its Restricted Subsidiaries or (ii) an acquisition by the Company or any of its
Restricted Subsidiaries of the property and assets of any Person other than the
Company or any of its Restricted Subsidiaries that constitute substantially all
of the assets of such Person or of any division, brand, business unit or line of
business of such Person.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of Georgia or New York or
is a day on which banking institutions located in those States are authorized or
required by law or other governmental action to close.
"BUSINESS DISPOSITION" means any sale, transfer or other disposition
(including by way of merger or consolidation) in one transaction or a series of
related transactions by the Company or any of its Restricted Subsidiaries to any
Person other than the Company or any of its Restricted Subsidiaries of (i) all
or substantially all of the Capital Stock of any Restricted Subsidiary or (ii)
all or substantially all of the assets of any Restricted Subsidiary or of any
division, brand, business unit or line of business of the Company or any
Restricted Subsidiary.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations
of such Person under a lease that are required to be capitalized and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP;
PROVIDED, the term "Capitalized Lease Obligation" shall include Property subject
to a Sale and Leaseback Transaction only if such Sale and Leaseback Transaction
occurs within 90 days of the acquisition of the such Property.
"CAPITAL STOCK" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) the equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such equity.
"CASH FLOW" means for any period the Company's Consolidated EBITDA for
such period, less any Capital Expenditures of the Company and its Restricted
Subsidiaries for such period.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally Guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the time
of acquisition, having the highest rating obtainable from either Standard &
Poor's Rating Group ("S&P") or Moody's Investors Service, Inc. ("Moody's");
(iii) commercial paper maturing no more than one year from the date of creation
thereof and, at the time of acquisition, having the highest rating obtainable
from either S&P or Moody's; and (iv) certificates of deposit or bankers'
acceptances maturing
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<PAGE> 44
within one year from the date of acquisition thereof issued by any commercial
bank organized under the laws of the United States or any state thereof or the
District of Columbia that (a) is at least "adequately capitalized" (as defined
in the regulations of its primary Federal banking regulator) and (b) has Tier 1
capital (as defined in such regulations) of not less than $100,000,000; (v)
shares of any money market mutual fund that (a) has its assets invested
continuously in the types of investments referred to in clauses (i) and (ii)
above, (b) has net assets of not less than $500,000,000, and (c) has the highest
rating obtainable from either S&P or Moody's; and (vi) repurchase agreements
with respect to, and which are fully secured by a perfected security interest
in, obligations of a type described in clause (i) or clause (ii) above and are
with any commercial bank described in clause (iv) above.
"CERTIFICATED NOTES" has the meaning assigned to it in Section 2.01.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events:
(i) (A) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that for purposes of this
clause (i) such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50.0% of the total voting
power of the Voting Stock of the Company;
(ii) the Company consolidates with, or merges with or into,
another Person (other than the Company or a Wholly Owned Restricted
Subsidiary) or the Company or any of its Restricted Subsidiaries sells,
conveys, assigns, transfers, leases or otherwise disposes of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries (determined on a consolidated basis for the Company and
its Restricted Subsidiaries) to any Person (other than the Company or
any Wholly Owned Restricted Subsidiary), other than any such
transaction where immediately after such transaction the Person or
Persons that "beneficially owned" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time) immediately prior to such transaction, directly or
indirectly, a majority of the total voting power of the then
outstanding Voting Stock of the Company, taken as a whole,
"beneficially owns" (as so determined), directly or indirectly, a
majority of the total voting power of the then outstanding Voting Stock
of the surviving or transferee Person.
(iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66 2/3%
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<PAGE> 45
of the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors then in
office; or
(iv) the Company is liquidated or dissolves or adopts a plan
of liquidation or dissolution other than in connection with a
transaction which complies with the provisions described under Article
V.
"CHANGE OF CONTROL OFFER" has the meaning assigned to it in
Section 4.14.
"CHANGE OF CONTROL PAYMENT DATE" has the meaning assigned to it in
Section 4.14.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMODITY HEDGING AGREEMENTS" means agreements which protect against
losses by the Company as a result of upward or downward movements in the market
price of commodities, entered into in the ordinary course of business and not
for speculative purposes.
"COMPANY" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"COMPANY ORDER" means a written order signed in the name of the Company
by (i) the Chairman of the Board, Chief Executive Officer, President, Chief
Operating Officer, Chief Financial Officer or any Vice President of the Company
and (ii) the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee.
"CONSOLIDATED COVERAGE RATIO" means, as of any date of determination,
the ratio of the aggregate amount of Consolidated EBITDA for the Four Quarter
Period to Consolidated Fixed Charges for such Four Quarter Period. In addition
to and without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to
(i) the Incurrence or repayment of any Indebtedness of the Company or
any of its Restricted Subsidiaries (and the application of the proceeds
thereof), including the Incurrence of any Indebtedness (and the
application of the proceeds thereof) giving rise to the need to make
such determination, occurring during or after such Four Quarter Period
and on or prior to such date of determination, as if such Incurrence or
repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of such Four Quarter Period;
PROVIDED, HOWEVER, that for purposes of this clause (i), the amount of
Indebtedness under any revolving credit facility of the Senior Credit
Facilities shall be deemed to be the average daily amount outstanding
during such Four Quarter Period; and
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(ii) any Business Dispositions or Business Acquisitions (including any
Business Acquisition giving rise to the need to make such determination
as a result of the Company or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result
of the Business Acquisition) Incurring Acquired Indebtedness) occurring
during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to such date of
determination, as if such Business Disposition or Business Acquisition
(including the Incurrence of any Acquired Indebtedness in connection
with a Business Acquisition) occurred on the first day of the Four
Quarter Period. In giving pro forma effect to any Business Acquisitions
and Business Dispositions, the following shall be given pro forma
effect:
- any Net Cost Savings of such Business Acquisition; and
- any Consolidated EBITDA (provided that such pro forma
Consolidated EBITDA shall be calculated in a manner
consistent with the exclusions in the definition of
"Consolidated Net Income" but without giving effect to
clause (c) of the definition of Consolidated Net Income)
attributable to the assets which are the subject of the
Business Disposition or Business Acquisition during the Four
Quarter Period
If the Company or any of its Restricted Subsidiaries directly or indirectly
Guarantees Indebtedness of a third Person, the preceding clauses (i) and (ii)
shall give effect to the Incurrence of such Guaranteed Indebtedness as if the
Company or such Restricted Subsidiary, as the case may be, had directly Incurred
or otherwise assumed such Guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Coverage Ratio," (i) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (ii) if interest on any
Indebtedness actually Incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (iii) notwithstanding clause (i) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Rate or Currency Protection
Agreements shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"CONSOLIDATED EBITDA" means, with respect to the Company, for any
period, (a) the sum (without duplication) of (i) Consolidated Net Income and
(ii) to the extent Consolidated Net Income has been reduced thereby, (A) all
income taxes of the Company and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of
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<PAGE> 47
business); (B) Consolidated Interest Expense; (C) Consolidated Non-Cash Charges;
and (D) Extraordinary Expenses less (b) any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGES" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Capital Stock that
is not Disqualified Stock) paid, accrued or scheduled to be paid or accrued
during such period times and (ii) a fraction, the numerator of which is one and
the denominator of which is one minus the then-current effective consolidated
federal, state and local income tax rate of the Company, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum of,
without duplication: (i) the aggregate of all cash and non-cash interest expense
(minus amortization or write-off of deferred financing costs included in cash or
non-cash interest expense) of the Company and its Restricted Subsidiaries for
such period determined on a consolidated basis in accordance with GAAP,
including, without limitation, (a) any amortization of debt discount, (b) the
net costs under Interest Rate or Currency Protection Agreements, (c) all
capitalized interest and (d) the interest portion of any deferred payment
obligation; and (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by the Company and its
Restricted Subsidiaries during such period as determined on a consolidated basis
in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
on a consolidated basis, determined in accordance with GAAP; PROVIDED, that
principal payments received by the Company with respect to Indebtedness owed to
the Company by Affiliates thereof shall be included in Consolidated Net Income
only if (i) such Indebtedness remains an asset on the consolidated balance sheet
of the Company in accordance with GAAP as consistently applied and (ii) the
principal amount of such Indebtedness outstanding after such principal payment
is greater than twice the aggregate amount of all principal payments received by
the Company with respect to such Indebtedness in the 12 preceding calendar
months; PROVIDED, FURTHER, that there shall be excluded from Consolidated Net
Income (a) after-tax gains and losses from Asset Sales or abandonment or
reserves relating thereto, (b) items classified as extraordinary, nonrecurring
or unusual gains, losses or charges, and the related tax effects, each
determined in accordance with GAAP, (c) the net income of any Person acquired in
a "pooling of interests" transaction accrued prior to the date it becomes a
Restricted Subsidiary of the Company or is merged or consolidated with the
Company or any Restricted Subsidiary of the Company, (d) the net income (but not
loss) of any Restricted Subsidiary of the Company to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract,
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<PAGE> 48
operation of law or otherwise, (e) the net income of any Person, other than a
Restricted Subsidiary of the Company, except (without duplication) to the extent
of cash dividends or distributions paid to the Company or to a Wholly-Owned
Restricted Subsidiary of the Company by such Person, (f) any restoration to
income of any contingency reserve, except to the extent that provision for such
reserve was made out of Consolidated Net Income accrued at any time after the
Issue Date, (g) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period
whether or not such operations were classified as discontinued), and (h) in the
case of a successor to the Company by consolidation or merger or as a transferee
of the Company's assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets.
"CONSOLIDATED NON-CASH CHARGES" means with respect to the Company, for
any period, the aggregate depreciation, amortization and other non-cash expenses
of the Company and its Restricted Subsidiaries reducing Consolidated Net Income
of the Company for such period, determined on a consolidated basis in accordance
with GAAP (including any such charges constituting an extraordinary item or loss
or any such charge which requires an accrual of or a reserve for cash charges
for any future period).
"CONSOLIDATED REVENUES" means for any period the consolidated revenues
of the Company and its Restricted Subsidiaries, as determined in accordance with
GAAP.
"CORPORATE NATIONAL TRUST OFFICE" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
principally administered, which office is, at the date of execution of this
Indenture, Sixth and Marquette, N9303-120, Minneapolis, Minnesota 55479, Attn:
Corporate Trust Services; PROVIDED, that for purposes of Section 4.02 hereof,
"Corporate National Trust Office" shall mean the office of the Trustee located
at Sixth and Marquette, N9303-120, Minneapolis, Minnesota 55479, Attn:
Corporate Trust Services.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"DEFAULTED INTEREST" has the meaning set forth in Section 2.11 hereof.
"DEPOSITARY" means The Depository Trust Company, its nominees, and
their respective successors.
"DESIGNATED SENIOR INDEBTEDNESS" means, in respect of the Company,
(i) the Obligations in respect of the Senior Credit Facilities and
(ii) any other Senior Indebtedness of the Company which, in each case,
at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the
holders of such Senior Indebtedness are
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<PAGE> 49
committed to lend up to, at least $50,000,000 and is specifically
designated by the Company or in such Indebtedness as "Designated Senior
Indebtedness" and,
in respect of any Note Guarantor, any Guarantee by such Note Guarantor of
Designated Senior Indebtedness of the Company.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes; PROVIDED, however, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of a Business Disposition or Change of Control
occurring prior to the first anniversary of the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "business disposition" or "change
of control" provisions applicable to such Capital Stock are not more favorable
to the holders of such Capital Stock than the provisions described under Section
4.11 and Section 4.14.
"DOMESTIC RESTRICTED SUBSIDIARY" means any direct or indirect
Restricted Subsidiary of the Company that is organized under the laws of the
United States, any state thereof or the District of Columbia.
"EVENT OF DEFAULT" has the meaning assigned to it in Section 6.01.
"EXCESS PROCEEDS" has the meaning assigned to it in Section 4.11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXTRAORDINARY EXPENSES" shall have the meaning assigned to such term
by GAAP.
"FAIR MARKET VALUE" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction. The Fair Market Value of any such asset
or assets shall be determined conclusively by the Board of Directors of the
Company acting in good faith, and shall be evidenced by a Board Resolution.
"FOREIGN INVESTMENT AGREEMENTS" means (i) that certain Pledge Agreement
dated as of January 26, 1996 by and among PTB International, Inc., International
Disposable Products Investments, Ltd. and Danielson Trust Company; (ii) that
certain Investment Agreement dated January 26, 1996 by and among Mr. Gilberto
Marin Quintero, Grupo P.I. Mabe, S.A. de C.V., the Company. and PTB
International, Inc.; (iii) that certain Put and Call Option Agreement for Grupo
Mabe Shares dated as of January
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<PAGE> 50
26, 1996 between Mr. Gilberto Marin Quintero, the Company, PTB International,
Inc. and Grupo P.I. Mabe, S.A. de C.V.; (iv) that certain Joint Venture
Agreement dated January 26, 1996 by and between Mr. Gilberto Marin Quintero, the
Company, PTB International, Inc. and Paragon-Mabesa International, S.A. de C.V.;
(v) that certain Shareholder Agreement dated August 26, 1997 by and between PTB
International, Inc. and Euro American 2000 Trust; (vi) that certain Shareholders
Agreement of Serenity S.A. dated August 26, 1997 by and among Stronger
Corporation S.A., Cerro Moteado S.A., PTB International, Inc., Euro American
2000 Trust, Mr. Mario Walter Garcia and Mr. Juan Carlos Marshall; (vii) that
certain Irrevocable Call Option Agreement dated as of November 6, 1996 by and
between International Disposable Products Investments, Ltd. (now, Hortela
Investiments, S.A. by reason of merger), PTB International, Inc., Juliette
Research S.A. and the Company; (viii) that certain Facility Financing Side
Letter dated January 26, 1996 by and among Mr. Gilberto Marin Quintero, PTB
International, Inc. and the Company; (ix) Articles of Association of Goodbaby
paragon Hygienic Products Co. Ltd.; (x) that certain Joint Venture Contract
dated September 30, 1997 among Goodbaby Group Co., the Company and First
Shanghai Investments Ltd.; (xi) that certain Technology License Agreement dated
January 26, 1996 by and between Grupo P.I. Mabe, S.A. de C.V. and the Company;
(xii) that certain Technology License Agreement dated January 26, 1996 by and
between Paragon-Mabesa International, S.A. de C.V. and the Company; (xiii) that
certain Transfer of Technology and Licensing Contract dated on or about
September 30, 1997 by and between the Company and Goodbaby Paragon Hygienic
Products Co. Ltd.; (xiv) that certain Product Supply and Services Agreement
dated January 26, 1996 by and between Paragon-Mabesa International, S.A. de C.V.
and the Company, as amended by First Amendment to Product Supply and Services
Agreement dated March 14, 1997; (xv) those certain Purchase Loan and Security
Agreements by and between Paragon-Mabesa International, S.A. de C.V. and the
Company; (xvi) that certain Agreement as to Contingent Labor Liability regarding
the facility in Tijuana; and (xvii) any other document, instrument or agreement
relating to any of the foregoing, in each case, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.
"FOREIGN JOINT VENTURE" means Grupo P.I. Mabe S.A. de C.V., a Mexican
corporation, Paragon-Mabesa International, S.A. de C.V., a Mexican corporation,
Stronger Corporation S.A., a Uruguayan corporation, MPC Produtos para Higiene,
Ltda., a Brazilian company, Goodbaby Paragon Hygienic Products Co. Ltd., a
company formed under the laws of the People's Republic of China and Serenity
S.A., an Argentine corporation.
"FOREIGN SUBSIDIARY" means, with respect to any Person, any direct or
indirect Subsidiary of such Person that is organized under the laws of any
jurisdiction outside the United States, any state thereof or the District of
Columbia but shall not include any Foreign Joint Venture or New Joint Venture.
"FOUR QUARTER PERIOD" means, with respect to the determination of
Consolidated Coverage Ratio and Consolidated Revenues, (a) for all periods prior
to the time financial statements of the Company and its Restricted Subsidiaries
are available for four full fiscal quarters after the Issue Date, the period
from the Issue Date to the end of the latest fiscal
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<PAGE> 51
quarter for which financial statements are available ending prior to the
Transaction Date and (b) for all other periods, the four most recent full fiscal
quarters for which financial statements are available ending prior to the
Transaction Date; PROVIDED, that for the purposes of this definition of "Four
Quarter Period", the period from the Issue Date through March 26, 2000 shall be
treated as if such period were a full fiscal quarter.
"GAAP" means generally accepted accounting principles in the United
States as in effect as of the Issue Date, including those set forth (i) in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) in statements and pronouncements
of the Financial Accounting Standards Board, (iii) in such other statements by
such other entity as approved by a significant segment of the accounting
profession, and (iv) in the published rules and regulations of the Commission
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission.
"GLOBAL NOTE" has the meaning assigned to it in Section 2.01.
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any Person and any obligation, direct or indirect, contingent or otherwise,
of such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
or other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note is
registered on the Registrar's books.
"INCUR" means issue, assume, Guarantee, incur or otherwise become
liable for; PROVIDED, HOWEVER, that any Indebtedness or Disqualified Capital
Stock of a Person existing at the time such Person becomes a Restricted
Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Subsidiary at the time it becomes a Restricted
Subsidiary, and PROVIDED FURTHER, HOWEVER, the term "incur" may be modified by
Section 1.02 hereof. The term "Incurrence" when used as a noun shall have a
correlative meaning.
"INDEBTEDNESS" means, with respect to any Person, without duplication,
on any date of determination, the principal amount (or if less, the accreted
value) of all indebtedness, obligations and liabilities of such Person
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(i) for borrowed money;
(ii) evidenced by bonds, debentures, notes or other similar
instruments;
(iii) Capitalized Lease Obligations;
(iv) notes payable and drafts accepted representing extensions
of credit, whether or not representing obligations for borrowed money,
of such Person;
(v) any indebtedness, obligation or liability of such Person
owed for all or any part of the deferred purchase price of property or
services (excluding any such obligations Incurred under ERISA), which
purchase price is (a) due more than six months (or a longer period of
up to one year, if such terms are available from suppliers in the
ordinary course of business) from the date of Incurrence of the
obligation in respect thereof or (b) evidenced by a note or similar
written instrument;
(vi) Guarantees of such Person in respect of Indebtedness
referred to in clauses (i) through (v) above and clause (vii) below;
(vii) all indebtedness of any other Person of the type
referred to in clauses (i) through (vi) above which is secured by any
Lien on any property or asset of such Person regardless of whether the
indebtedness secured thereby shall have been assumed by such Person or
is nonrecourse to the credit of such Person, the amount of such
indebtedness being the lesser of the Fair Market Value of such property
or asset or the principal amount of the indebtedness so secured;
(viii) all obligations of such Person for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar
credit transaction, and
(ix) all Disqualified Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Stock being
equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding
accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were purchased on
any date on which Indebtedness shall be required to be determined
pursuant to this Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Disqualified Stock, such
Fair Market Value to be determined reasonably and in good faith by the
board of directors of the issuer of such Disqualified Stock.
"INDENTURE" means this Indenture as amended or supplemented from time
to time.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other
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similar case or proceeding in connection therewith, relating to the Company or
its assets, or (ii) any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary or whether or not involving insolvency
or bankruptcy, or (iii) any assignment for the benefit of creditors or any other
marshaling of assets or liabilities of the Company.
"INTEREST PAYMENT DATE" means each semiannual Interest Payment Date on
[August 1] and [February 1] of each year, commencing [August 1,] 2000, in
respect of the Notes. The "First Interest Payment Date" shall mean [August 1,]
2000. The "Second Interest Payment Date" shall mean [February 1,] 2001. The
"Third Interest Payment Date" shall mean [August 1,] 2001. The "Fourth Interest
Payment Date" shall mean [February 1,] 2002.
"INTEREST RATE OR CURRENCY PROTECTION AGREEMENT" of any Person means
any interest rate protection agreement (including, without limitation, interest
rate swaps, caps, floors, collars, derivative instruments and similar
agreements), and/or other types of interest hedging agreements and any currency
protection agreement (including foreign exchange contracts, currency swap
agreements or other currency hedging arrangements) in support of the Company's
business and not of a speculative nature.
"INVESTMENT" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are,
in conformity with GAAP, recorded as accounts receivable on the balance sheet of
such Person) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
indebtedness or other similar instruments issued by such Person. For purposes of
the definition of "Unrestricted Subsidiary," the definition of "Restricted
Payment" and the covenant described in Section 4.09, (i) "Investment" shall
include the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (x) the Company's "Investment" in such Unrestricted
Subsidiary at the time of such redesignation as a Restricted Subsidiary less (y)
the portion (proportionate to the Company's equity interest in such Unrestricted
Subsidiary) of the Fair Market Value of the net assets of such Unrestricted
Subsidiary at the time of such redesignation as a Restricted Subsidiary; and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its Fair Market Value at the time of such transfer, in each case as
determined in good faith by the Board of Directors.
"ISSUE DATE" means the date on which the Notes are originally issued.
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form, and with
respect to which the
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Company and its Restricted Subsidiaries own less than a majority of the
aggregate voting power of all classes of the Capital Stock.
"KC" means Kimberly-Clark Corporation.
"LEGAL HOLIDAY" has the meaning assigned to it in Section 13.08.
"LIEN" means any mortgage, pledge, assignment, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing.
"MABESA OPTION" means that certain Irrevocable Call Option Agreement
dated as of November 6, 1996 by and between International Disposable Products
Investments, ltd. (now Hortela Investimentos, S.A. by reason of merger), PTB
International, Inc., Juliette Research S.A. and the Company.
"NET AVAILABLE CASH" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents, including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents received by the Company or any of its Restricted Subsidiaries from
such Asset Sale, net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale,
(d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"NET CASH PROCEEDS" with respect to any issuance or sale of Capital
Stock, means, without duplication, the proceeds of such issuance or sale in the
form of cash or Cash Equivalents net of amounts specified in Section
4.09(a)(3)(B), attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
actually Incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof; PROVIDED, HOWEVER, in no event shall Net Cash
Proceeds be less than zero.
"NET COST SAVINGS" means the pro forma effect of net cost savings
resulting from a Business Acquisition (regardless of whether such cost savings
could then be reflected in pro forma financial statements under GAAP, Regulation
S-X promulgated by the SEC or any other regulation or policy or the SEC) that
the Company reasonably determines are
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probable based upon specifically identified actions that it has determined to
take (net of any reduction in Consolidated EBITDA as a result of the Business
Acquisition and such cost savings that the Company reasonably determines is
probable); PROVIDED, that the Company's chief financial officer shall have
certified in an Officer's Certificate delivered to the Trustee the specific
actions to be taken, the cost savings to be achieved from each such action, that
such savings have reasonably been determined to be probable, and the amount, if
any, of any reduction in Consolidated EBITDA as a result thereof or of the
Business Acquisition reasonably determined to be probable, and such certificate
shall be accompanied by a Board Resolution specifically approving such cost
savings and authorizing such certification to be delivered to the Trustee.
"NEW JOINT VENTURE" means a Joint Venture in which the Company or a
Restricted Subsidiary invests after the Issue Date.
"NON-US PERSON" means any Person who is not a "US Person," as defined
in Rule 902 under the Securities Act.
"NOTE CUSTODIAN" means, with respect to each Global Note, the custodian
with respect to such Global Note, the custodian with respect to such Global
Note (as appointed by the Depositary), or any successor Person thereto, and
shall initially be the Trustee.
"NOTE GUARANTEE" means the Guarantee of the Notes by each Note
Guarantor under Article XI hereof.
"NOTE GUARANTOR" means PTB International, Inc., a Delaware corporation,
PTB Acquisition Sub, Inc., a Delaware corporation, and PTB Holdings, Inc., an
Ohio corporation and each Additional Guarantor.
"NOTE REGISTER" has the meaning assigned to it in Section 2.03.
"NOTES" means the 11.25% Senior Subordinated Notes Due 2005, including
any Secondary Securities issued as interest thereon, in each case, issued under
this Indenture, as the same may be amended or modified from time to time in
accordance with the terms hereof.
"NOTICE OF DEFAULT" has the meaning assigned to it in Section 6.01.
"OBLIGATIONS" means, with respect to any Indebtedness, any principal,
interest (including, without limitation, Post-Petition Interest), penalties,
fees, indemnifications, reimbursements, including damages, and other liabilities
payable under the documentation governing such Indebtedness.
"OFFICER" means the Chairman of the Board, the President, Chief
Financial Officer, the Treasurer or the Secretary of the Company or any
Restricted Subsidiary, as the case may be.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company.
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"P&G" means The Procter & Gamble Company.
"PAYING AGENT" has the meaning assigned to it in Section 2.03.
"PAYMENT BLOCKAGE PERIOD" has the meaning assigned to it in Section
10.03.
"PERMITTED HOLDERS" means (i) P&G; (ii) KC; (iii) Wellspring Capital
Management L.L.C.; (iv) Co-Investment Partners, L.P.; (v) Ontario Teachers
Pension Plan Board; (vi) partnerships, corporations or limited liability
companies which control or are controlled by the Persons described in clauses
(i) through (v) above; and (vii) any direct and indirect general partner, member
or shareholder (the "Transferee") of any of the Persons described in clauses (i)
through (vi) above (the "Transferor"), but each such Transferee shall be a
Permitted Holder only with respect to the Capital Stock of the Company held by
such Transferee that was transferred to it by a Transferor.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the
following:
(i) Indebtedness in respect of the Notes outstanding hereunder from
time to time and the Note Guarantees in respect thereof;
(ii) Guarantees by any Note Guarantor of Indebtedness of the Company
(permitted under Section 4.08 hereof) other than the Notes; provided, however,
that if any such Guarantee is of Subordinated Obligations, then the Note
Guarantee of such Note Guarantor shall be senior to such Note Guarantor's
guarantee of such Subordinated Obligations;
(iii) Indebtedness Incurred pursuant to the Senior Credit Facilities in
an aggregate principal amount outstanding (at the time of Incurrence) not to
exceed the greater of (A) $75 million (less the amount of any permanent
prepayments of Indebtedness made with the Net Available Cash of an Asset Sale
pursuant to subsection (a)(2)(A) of Section 4.11) and (B) 25% of Consolidated
Revenues for the most recent Four Quarter Period;
(iv) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date, reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or permanent
reductions thereto;
(v) Interest Rate or Currency Protection Agreements or Commodity
Hedging Agreements entered into in the ordinary course of business or in
connection with the Senior Credit Facilities and not for speculative purposes;
PROVIDED, (i) the notional principal amount of such Interest Rate or Currency
Protection Agreements or Commodity Hedging Agreements does not exceed the amount
of Indebtedness hedged and (ii) such Interest Rate or Currency Protection
Agreements or Commodity Hedging Agreements do not increase the amount of
Indebtedness outstanding except as a result of fluctuations of the currency or
interest or commodity markets;
(vi) Indebtedness of any Restricted Subsidiary which was not Incurred
in violation of Section 4.09 and which is owed to and held by the Company or any
Note
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Guarantor for so long as such Indebtedness is held by the Company or such Note
Guarantor; in each case subject to no Lien securing Indebtedness other than
Liens Incurred in compliance with Section 4.15; provided, however, that if as of
any date any Person other than the Company or any Note Guarantor holds any such
Indebtedness or holds a Lien in respect of such Indebtedness securing
Indebtedness other than Permitted Liens, such date shall be deemed the
Incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer
of such Indebtedness;
(vii) Indebtedness of the Company which was not Incurred in violation
of Section 4.09 and which is owed to and held by any Note Guarantor that is
unsecured and subordinated in right of payment to the payment and performance of
the Company's obligations under any Senior Indebtedness, the Indenture, the
Notes and the Note Guarantees and subject to no Lien securing Indebtedness other
than Liens Incurred in compliance with Section 4.15; PROVIDED, HOWEVER, that if
as of any date any Person other than any Note Guarantor owns or holds any such
Indebtedness or any Person other than any Note Guarantor holds a Lien in respect
of such Indebtedness securing Indebtedness other than Permitted Liens, such date
shall be deemed the Incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
(viii) Indebtedness of the Company or any of its Restricted
Subsidiaries arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary course of
business; provided, however, that such Indebtedness is extinguished within two
business days of Incurrence;
(ix) Refinancing Indebtedness in respect of Indebtedness (other than
Permitted Indebtedness) Incurred pursuant to Section 4.08 or Indebtedness
Incurred pursuant to clause (i) or (iv) of this definition of Permitted
Indebtedness;
(x) Indebtedness of the Company and its Restricted Subsidiaries in an
aggregate principal amount not to exceed $20,000,000 at any one time outstanding
for Capitalized Lease Obligations or for purposes of financing the purchase
price or construction cost of equipment, fixtures or similar property;
(xi) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred in connection with the
disposition of any business, assets, or Restricted Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any portion
of such business, assets or Restricted Subsidiary for the purpose of financing
such acquisition; provided, that the maximum aggregate liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and the Restricted Subsidiary in connection with such
disposition; and
(xii) Indebtedness of the Company and its Restricted Subsidiaries
which, when taken together with all other Indebtedness incurred under this
clause (xii) and still outstanding, will not to exceed $10,000,000.
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"PERMITTED INVESTMENT" means any of the following:
(i) Investments existing on the Issue Date, together with any
extension, modification or renewal of any such Investments (but not additional
advances, contributions or other investments of cash or property or other
increases thereof, other than as a result of the accrual or accretion of
interest or original issue discount or payment-in-kind pursuant to the terms of
such Investment as of the Issue Date);
(ii) Investments by the Company or any Restricted Subsidiary in any
Person that is or will become immediately after such Investment a Restricted
Subsidiary and a Note Guarantor or that will merge or consolidate into the
Company or a Restricted Subsidiary that is also a Note Guarantor;
(iii) Investments in the Company by any Restricted Subsidiary; PROVIDED
that any Indebtedness evidencing such Investment is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under the Notes
and this Indenture;
(iv) Investments in cash and Cash Equivalents;
(iv) Loans or advances to employees in the ordinary course of business
in accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $2,000,000 in the aggregate
outstanding at any one time;
(v) Stock Purchase Loans;
(vi) loans made by the Company to certain employees to pay taxes
arising from the granting of stock to such employees in connection with
confirmation of the Plan;
(viii) Interest Rate or Currency Protection Agreements and Commodity
Hedging Agreements entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with this
Indenture; PROVIDED, (i) the notional principal amount of such Interest Rate or
Currency Protection Agreements or Commodity Hedging Agreements does not exceed
the amount of Indebtedness hedged and (ii) such Interest Rate or Currency
Protection Agreements or Commodity Hedging Agreements do not increase the amount
of Indebtedness outstanding except as a result of fluctuations of the currency
or interest or commodity markets;
(ix) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(x) Consideration other than cash and Cash Equivalents received by the
Company or its Restricted Subsidiaries in connection with an Asset Sale made in
compliance with Section 4.11;
(xi) Investments as contemplated by the Foreign Investment Agreements
as in effect on the Issue Date;
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(xii) Investments in New Joint Ventures approved by a majority of the
independent members of the Board of Directors; PROVIDED such New Joint Venture
is or will be engaged in a Related Business;
(xiii) Investments in Foreign Subsidiaries in an aggregate amount at
any time outstanding not to exceed $10,000,000; or
(xiv) Other Investments not to exceed $10,000,000 at any one time
outstanding.
"PERMITTED LIENS" means any of the following:
(i) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof;
(ii) Liens Incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security, including any Lien securing letters of credit issued in the
ordinary course of business consistent with past practice in connection
therewith, or to secure the performance of tenders, statutory obligations surety
and appeal bonds, bids, leases, government performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money);
(iii) judgment liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceedings may be initiated
shall not have expired;
(iv) any interest or title of a lessor under any Capitalized Lease
Obligation; provided, however, that such Liens do not extend to any property
which is not leased property subject to such Capitalized Lease Obligation;
(v) purchase money Liens to finance property of the Company or a
Restricted Subsidiary acquired in the ordinary course of business; provided,
however, that (A) the related purchase money Indebtedness shall not exceed the
cost of such property and shall not be secured by any property of the Company or
any Restricted Subsidiary other than the property so acquired and (B) the Lien
securing such Indebtedness shall be created within 90 days of such acquisition;
(vi) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
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(vii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(viii) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the Company
or a Restricted Subsidiary, including rights of offset and set-off relating to
such deposits;
(ix) Liens securing Interest Rate or Currency Protection Agreements and
Commodity Hedging Agreements that relate to Indebtedness that is Incurred in
accordance with the covenant described under Section 4.08;
(x) Liens existing on the Issue Date (including Liens securing the
Senior Credit Facilities) and Liens to secure any Refinancing Indebtedness which
is Incurred to Refinance any Indebtedness which has been secured by a Lien
permitted under the covenant described under Section 4.15 and which Indebtedness
has been Incurred in accordance with the covenant described under Section 4.08;
provided, however, that such new Liens (A) are not materially less favorable to
the Holders of Notes and are not materially more favorable to the lienholders
with respect to such Liens than the Liens in respect of the Indebtedness being
Refinanced and (B) do not extend to any property or assets other than the
property or assets securing the Indebtedness Refinanced by such Refinancing
Indebtedness;
(xi) Easements, rights-of-way zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or any
of its Subsidiaries;
(xii) Liens securing Acquired Indebtedness Incurred in accordance with
Section 4.08; PROVIDED, HOWEVER, that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the Incurrence by the Company or a
Restricted Subsidiary of such Acquired Indebtedness and were not granted in
connection with, or in anticipation of the Incurrence by the Company or a
Restricted Subsidiary of such Acquired Indebtedness and (B) such Liens do not
extend to or cover any property of the Company or any Restricted Subsidiary
other than the property that secured the Acquired Indebtedness prior to the time
such Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary and are no more favorable to the lienholders than the Liens securing
the Acquired Indebtedness prior to the Incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary; and
(xiii) Liens securing other Indebtedness not in excess of $5,000,000 at
any one time outstanding.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
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"PLAN" means the Second Amended Plan of Reorganization confirmed in
connection with In Re Paragon Trade Brands, Inc., Case No. 98-60390 pending in
the United States Bankruptcy Court, Northern District of Georgia, Atlanta
Division.
"POST-PETITION INTEREST" means all interest accrued or accruing after
the commencement of any Insolvency or Liquidation Proceeding (and interest that
would accrue but for the commencement of any Insolvency or Liquidation
Proceeding) in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"PREFERRED STOCK" means, as applied to the Capital Stock of any
corporation, Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"PRINCIPAL" of a Note means the principal of the Note plus the premium,
if any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"PROPERTY" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed,
tangible or intangible.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering
of any class of common stock of the Company pursuant to an effective
registration statement under the Securities Act.
"PUBLIC MARKET" means any time after (i) a Public Equity Offering of
the Company has been consummated and (ii) at least 10% of the total issued and
outstanding common stock of the Company has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not
Disqualified Stock.
"RECORD DATE" means, for the interest payable on any Interest Payment
Date, the date specified in Section 2.11 hereof.
"REDEMPTION DATE" means, when used with respect to any Note or part
thereof to be redeemed hereunder, the date fixed for redemption of such Notes
pursuant to the terms of the Notes and this Indenture.
"REDEMPTION PRICE" means, when used with respect to any Note or part
thereof to be redeemed hereunder, the price fixed for redemption of such Note
pursuant to the terms of the Notes and this Indenture, plus accrued and unpaid
interest thereon, if any, to the Redemption Date.
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"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used substantially concurrently to extend, Refinance, renew, replace,
defease or refund other Indebtedness of the Company or any of its Restricted
Subsidiaries; PROVIDED that: (i) the principal amount of such Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, Refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses Incurred in connection therewith); (ii) such Refinancing
Indebtedness has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
Refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, Refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Refinancing Indebtedness has
a final maturity date later than the final maturity date of, and is subordinated
in right of payment to, the Notes on terms at least as favorable to the Holders
of Notes as those contained in the documentation governing the Indebtedness
being extended, Refinanced, renewed, replaced, defeased or refunded; and (iv)
such Indebtedness is Incurred either by the Company or by the Restricted
Subsidiary of the Company that is the obligor on the Indebtedness being
extended, Refinanced, renewed, replaced, defeased or refunded.
"REGISTRAR" has the meaning assigned to it in Section 2.03.
"RELATED BUSINESS" means the businesses of the Company and the
Restricted Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"REPRESENTATIVE" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness of the Company.
"RESTRICTED PAYMENT" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Wholly-Owned
Restricted Subsidiary, and other than pro rata dividends or other distributions
made by a Restricted Subsidiary that is not a Wholly-Owned Restricted Subsidiary
to minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation)), (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock of
the Company or any Restricted Subsidiary held by any Person (other than the
Company or a Wholly-Owned Restricted Subsidiary), or any warrants, rights or
options to acquire shares of any class of such Capital Stock, (iii) the
purchase, repurchase, redemption, defeasance or other acquisition or retirement
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for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) the making of any Investment in any Person (other than a Permitted
Investment).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not
an Unrestricted Subsidiary.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect
arrangement with any Person or to which any such Person is a party providing for
the leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such Person or to any other Person by whom funds have
been or are to be advanced on the security of such Property.
"SEC" means the Securities and Exchange Commission.
"SECONDARY SECURITIES" has the meaning set forth in Section 2.11.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR CREDIT FACILITIES" means the Credit Agreement dated as of
January __, 2000 among the Company, the Lenders party thereto and Citicorp USA,
Inc., as administrative agent, together with the other Loan Documents (as
defined therein), as such agreements may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"SENIOR INDEBTEDNESS" means with respect to any Person, (i) all
Obligations in respect of the Senior Credit Facilities and (ii) all Obligations
in respect of other Indebtedness, whether outstanding on the Issue Date or
thereafter Incurred; PROVIDED, HOWEVER, that Senior Indebtedness shall not
include (1) any obligation of such Person to any Subsidiary of such Person, (2)
any liability for Federal, state, local or other taxes owed or owing by such
Person, (3) any accounts payable or other similar liability to trade creditors
(including Guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of such Person (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior in any respect to any other Indebtedness
or other obligation of such Person, (5) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of Section 4.08 or (6) any
Indebtedness that by the terms of the instrument creating or evidencing the same
or by which the same is assumed or affirmed,
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is not expressly designated as Senior Indebtedness. Notwithstanding the
foregoing, Senior Indebtedness shall not include any Acquired Indebtedness whose
maturity was shortened to a date prior to the Stated Maturity of the Notes
(i) with the consent of the holders of such Acquired Indebtedness
(other than consent obtained in connection with the restructuring or
bankruptcy of the obligor of such Indebtedness), and
(ii) in connection with or in anticipation of the Incurrence of such
Acquired Indebtedness by the Company or Restricted Subsidiary.
To the extent any payment of Senior Indebtedness is declared to be fraudulent or
preferential, set aside or required to be paid to a trustee, receiver or other
similar party under any bankruptcy, insolvency, receivership or similar law,
then if such payment is recovered by, or paid over to, such trustee, receiver of
similar party, the Senior Indebtedness or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if payment had not
occurred.
"SENIOR SUBORDINATED INDEBTEDNESS" means, with respect to the Company,
the Notes and, with respect to any Note Guarantor, such Note Guarantor's Note
Guarantee and any other Indebtedness of the Company or such Note Guarantor that
specifically provides that such Indebtedness is to rank pari passu in right of
payment with the Notes or such Note Guarantee, as the case may be, and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company or such Note Guarantor which is not Senior
Indebtedness.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"SPECIAL RECORD DATE" means a date fixed by the Trustee pursuant to
Section 2.11 for the payment of Defaulted Interest.
"STATED MATURITY" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"STOCK PURCHASE LOAN" means a loan made by the Company or a Restricted
Subsidiary to one of its employees, agents or directors, the proceeds of which
are used to purchase Capital Stock of the Company and the repayment of which is
secured by a pledge of such Capital Stock.
"SUBORDINATED OBLIGATION" means any Indebtedness of the Company or a
Restricted Subsidiary of the Company (whether outstanding on the Issue Date or
thereafter Incurred) which is subordinate or junior in right of payment to the
Notes or the Note Guarantees pursuant to a written agreement to that effect.
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"SUBORDINATED REORGANIZATION SECURITIES" has the meaning assigned to it
in Section 10.02.
"SUBSIDIARY" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of outstanding shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i) such
Person, (ii) such Person and one or more Subsidiaries of such Person or (iii)
one or more Subsidiaries of such Person.
"SURVIVING ENTITY" has the meaning assigned to it in Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 USC Section
77aaa-77bbbb) as in effect on the date of this Indenture.
"TRANSACTION DATE" means the date of the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio or Consolidated Revenues.
"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"TRUST OFFICER" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"UNIFORM COMMERCIAL CODE" means the New York Uniform Commercial Code as
in effect from time to time.
"UNRESTRICTED SUBSIDIARY" has the meaning assigned to it in
Section 4.16.
"US" or "UNITED STATES" means the United States of America.
"US GOVERNMENT OBLIGATIONS" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of the United States is pledged and which are not callable
at the issuer's option.
"VOTING STOCK" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payments at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that
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will elapse between such date and the making of such payment, by (ii) the then
outstanding principal amount of such Indebtedness.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means a Restricted Subsidiary all
the Capital Stock of which (other than directors' qualifying shares and shares
held by other Persons to the extent such shares are required by applicable law
to be held by a Person other than the Company or a Restricted Subsidiary) is
owned by the Company or one or more Wholly-Owned Restricted Subsidiaries.
SECTION 1.01 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture is subject to the mandatory provisions of the TIA which
are incorporated by reference in and made a part of this Indenture. The
following TIA terms have the following meanings:
"COMMISSION" means the SEC.
"INDENTURE SECURITIES" means the Notes; "indenture security holder"
means a Noteholder; "indenture to be qualified" means this Indenture; "indenture
trustee" or "institutional trustee" means the Trustee.
"OBLIGOR" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.02 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
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(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be shown
on a balance sheet of the issuer dated such date prepared in accordance with
GAAP and accretion of principal on such security shall be deemed to be the
Incurrence of Indebtedness; and
(8) all references to the date the Notes were originally issued shall
refer to Issue Date.
ARTICLE II. THE NOTES
SECTION 2.01 FORM AND DATING
(a) The Notes and the certificate of authentication of the Trustee
thereon shall be substantially in the form of Exhibit A or Exhibit B hereto, as
applicable, which are hereby incorporated in and expressly made a part of this
Indenture.
(b) The Notes may have such letters, numbers or other marks of
identification and such legends and endorsements, stamped, printed, lithographed
or engraved thereon, (i) as the Company may deem appropriate and as are not
inconsistent with the provisions of this Indenture, (ii) as may be required to
comply with this Indenture, any law or any rule of any securities exchange on
which the Notes may be listed and (iii) as may be necessary to conform to
customary usage. Each Note shall be dated the date of its authentication by the
Trustee. The Notes shall be issued only in fully registered form, without
coupons, in denominations of $1.00 and integral multiples thereof. Definitive
Notes shall be typed, printed, lithographed or engraved or produced by any
combination of such methods or produced in any other manner permitted by the
rules of any securities exchange on which such Notes may be listed, all as
determined by the officers of the Company executing such Notes, as evidenced by
their execution of such Notes.
(c) Notes shall be issued initially in the form of a single, permanent
global note in definitive, fully registered form, without coupons, substantially
in the form and bearing the legends set forth in Exhibit A hereto (the "Global
Note").
Upon issuance, such Global Note shall be registered in the name of the
Depositary or its nominee, duly executed by the Company and authenticated by the
Trustee as hereinafter provided and deposited on behalf of the purchasers of the
Notes represented thereby with the Trustee at its Corporate National Trust
Office, as custodian for the Depositary. Owners of beneficial interests in the
Global Note shall be entitled to receive physical delivery of a note in
definitive, fully registered form, without coupons, substantially in the form,
and bearing the legends, set forth in Exhibit B hereto ("Certificated Notes")
only upon the occurrence of the events specified in clauses (i) through (iii) of
Section 2.06(a). Upon issuance, any such Certificated Note shall be duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. Any Certificated Note may be exchanged for a beneficial interest in
the Global Note.
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SECTION 2.02 EXECUTION AND AUTHENTICATION
The Notes shall be issued in one series, except to the extent a
separate series of Notes may be issued under Section 2.11(b). The aggregate
principal amount of Notes outstanding at any time shall not exceed $182,000,000
except as provided in Section 2.07 and Section 2.11 hereof. The Notes shall be
executed on behalf of the Company by its Chief Executive Officer, President,
Chief Operating Officer, Chief Financial Officer, Treasurer or any Vice
President, and shall be attested by the Company's Secretary or one of its
Assistant Secretaries, in each case by manual or facsimile signature.
The Notes shall be authenticated by manual signature of an authorized
signatory of the Trustee and shall not be valid for any purpose unless so
authenticated.
In case any officer of the Company whose signature shall have been
placed upon any of the Notes shall cease to be such officer of the Company
before authentication of such Notes by the Trustee and the issuance and delivery
thereof, such Notes may, nevertheless, be authenticated by the Trustee and
issued and delivered with the same force and effect as though such Person had
not ceased to be such an officer of the Company.
The Trustee shall, upon receipt of a Company Order requesting such
action, authenticate Notes, excluding Secondary Securities, for original issue
up to the aggregate principal amount not to exceed $146,000,000 outstanding at
any given time, except for any Secondary Securities that may be issued pursuant
to Section 2.11 and except as provided in Section 2.07 or Section 2.08. Such
Company Order shall specify the amount of Notes to be authenticated and the date
on which the Notes are to be authenticated and shall further provide
instructions concerning registration, amounts for each Holder and delivery. Upon
the occurrence of any event specified in Section 2.06(a) hereof, the Company
shall execute and the Trustee shall authenticate and make available for delivery
to each beneficial owner identified by the Depositary, in exchange for such
beneficial owner's interest in the Global Note or Certificated Notes
representing Notes theretofore represented by the Global Note.
A Note shall not be valid or entitled to any benefits under this
Indenture or obligatory for any purpose unless executed by the Company and
authenticated by the manual signature of one of the authorized signatories of
the Trustee as provided herein. Such signature upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered under this Indenture and is entitled to the benefits of this
Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate the Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. Any authenticating agent of the
Trustee shall have the same rights hereunder as any Registrar or Paying Agent.
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Notwithstanding the foregoing, if any Note shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Note to the Trustee for cancellation as
provided in Section 2.10 together with a written statement (which need not be
accompanied by an Opinion of Counsel) stating that such Note has never been
issued and sold by the Company, for all purposes of this Indenture such Note
shall be deemed never to have been authenticated and delivered hereunder and
shall not be entitled to the benefits of this Indenture.
SECTION 2.03 REGISTRAR AND PAYING AGENT
The Company shall maintain, pursuant to Section 4.02 hereof, an office
or agency where the Notes may be presented for registration of transfer or for
exchange (the "Registrar"), an office or agency where Notes may be presented for
payment (the "Paying Agent") and an office or agency where notices and demands
to or upon the Company in respect of the Notes and this Indenture may be served.
The Company shall cause to be kept at such office a register (the "Note
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Notes and of transfers of
Notes entitled to be registered or transferred as provided herein.
The Trustee, at its Corporate National Trust Office, is initially
appointed Registrar for the purpose of registering Notes and transfers of Notes
as herein provided. The Company may, upon written notice to the Trustee, change
the designation of the Trustee as Registrar and appoint another Person to act as
Registrar for purposes of this Indenture. If any Person other than the Trustee
acts as Registrar, the Trustee shall have the right at any time, upon reasonable
notice, to inspect or examine the Note Register and to make such inquiries of
the Registrar as the Trustee shall in its discretion deem necessary or desirable
in performing its duties hereunder.
The Company shall enter into an appropriate agency agreement with any
Person designated by the Company as Registrar or Paying Agent that is not a
party to this Indenture, which agreement shall incorporate the provisions of the
TIA and shall implement the provisions of this Indenture that relate to such
Registrar or Paying Agent. Prior to the designation of any such Person, the
Company shall, by written notice (which notice shall include the name and
address of such Person), inform the Trustee of such designation. The Trustee, at
its Corporate National Trust Office, is initially appointed Paying Agent under
this Indenture. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such. Subject to Section 2.06(a) hereof, upon surrender
for registration of transfer of any Note at an office or agency of the Company
designated for such purpose, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, in the name of the designated
transferee or transferees, one or more new Notes of any authorized denomination
or denominations, of like tenor and aggregate principal amount, all as requested
by the transferor.
Every Note presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company, the Trustee or the Registrar) be
duly endorsed, or
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be accompanied by a duly executed instrument of transfer in form satisfactory to
the Company, the Trustee and the Registrar, by the Holder thereof or such
Holder's attorney duly authorized in writing.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to each due date of the principal, premium, if any, or any
payment of interest with respect to any Note, the Company shall deposit with the
Paying Agent a sum or, in compliance with Section 2.11, Secondary Securities,
sufficient to pay such principal, premium, if any, or interest when so becoming
due.
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that such Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money or Secondary Securities, held by such Paying
Agent for the payment of principal, premium, if any, or interest with respect to
the Notes, shall notify the Trustee of any default by the Company in making any
such payment and at any time during the continuance of any such default, upon
the written request of the Trustee, shall forthwith pay to the Trustee all sums
held in trust by such Paying Agent.
The Company at any time may require a Paying Agent to pay all money or
Secondary Securities held by it to the Trustee and to account for any funds or
Secondary Securities disbursed by such Paying Agent. Upon complying with this
Section 2.04, the Paying Agent shall have no further liability for the money or
Secondary Securities delivered to the Trustee.
SECTION 2.05 GLOBAL NOTES.
(a) So long as a Global Note is registered in the name of the
Depositary or its nominee, members of, or participants in, the Depositary
("Agent Members") shall have no rights under this Indenture with respect to the
Global Note held on their behalf by the Depositary or the Trustee as its
custodian, and the Depositary may be treated by the Company, the Note
Guarantors, the Trustee and any agent of the Company, the Note Guarantors or the
Trustee as the absolute owner of such Global Note for all purposes.
Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the
Note Guarantors, the Trustee or any agent of the Company, the Note Guarantors or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or (ii) impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder.
(b) The Holder of a Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in such Global Note through Agent Members, to take any action which a
Holder is entitled to take under this Indenture or the Notes.
(c) Whenever, as a result of an optional redemption of Notes by the
Company, a Change of Control Offer, an Asset Sale Offer or an exchange for
Certificated Notes pursuant to the provisions of Section 2.06(a) hereof, a
Global Note is redeemed,
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repurchased or exchanged in part, such Global Note shall be surrendered by the
Holder thereof to the Trustee who shall cause an adjustment to be made to
Schedule A thereof so that the principal amount of such Global Note will be
equal to the portion of such Global Note not redeemed, repurchased or exchanged
and shall thereafter return such Global Note to such Holder, PROVIDED that each
such Global Note shall be in a principal amount of $1.00 or an integral multiple
thereof.
SECTION 2.06 TRANSFER AND EXCHANGE.
(a) The Global Note shall be exchanged by the Company for one or more
Certificated Notes if (i) the Depositary has notified the Company that it is
unwilling or unable to continue as, or ceases to be, a clearing agency
registered under Section 17A of the Exchange Act and a successor to the
Depositary registered as a clearing agency under Section 17A of the Exchange Act
is not able to be appointed by the Company within 90 calendar days, or (ii) the
Depositary is at any time unwilling or unable to continue as Depositary and a
successor to the Depositary is not able to be appointed by the Company within 90
calendar days, or (iii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Notes in the form of
Certificated Notes. If an Event of Default occurs and is continuing, the Company
shall, at the request of the Holder thereof, exchange all or part of the Global
Note for one or more Certificated Notes; PROVIDED that the principal amount of
each of such Certificated Note and such Global Note, after such exchange, shall
be $1.00 or an integral multiple thereof. Whenever a Global Note is exchanged as
a whole for one or more Certificated Notes it shall be surrendered by the Holder
thereof to the Trustee for cancellation. Whenever a Global Note is exchanged in
part for one or more Certificated Notes it shall be surrendered by the Holder
thereof to the Trustee and the Trustee shall make the appropriate notations
thereon pursuant to Section 2.05(c) hereof. All Certificated Notes issued in
exchange for a Global Note or any portion thereof shall be registered in such
names, and delivered, as the Depositary shall instruct the Trustee.
(b) A Holder may transfer a Note only upon the surrender of such Note
for registration of transfer. No such transfer shall be effected until, and the
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of the transfer in the Note Register by the Registrar. When
Notes are presented to the Registrar with a request to register the transfer of,
or to exchange, such Notes, the Registrar shall register the transfer or make
such exchange as requested if its requirements for such transactions and any
applicable requirements hereunder are satisfied. To permit registrations of
transfers and exchanges of Certificated Notes issued in accordance with Section
2.06(a), the Company shall execute and the Trustee shall authenticate and
deliver Certificated Notes at the Registrar's request.
(c) The Company shall not be required to make and the Registrar need
not register the transfer or exchange of Certificated Notes or portions thereof
selected for redemption (except, in the case of a Certificated Note to be
redeemed in part, the portion of such Note not to be redeemed) or any
Certificated Notes for a period of 15 calendar days before a selection of Notes
to be redeemed.
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(d) No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer of Notes.
(e) All Notes issued upon any registration of transfer or exchange
pursuant to the terms of this Indenture will evidence the same debt and will be
entitled to the same benefits under this Indenture as the Notes surrendered for
such registration of transfer or exchange.
(f) Any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book-entry system maintained by such Holder (or its
agent), and that ownership of a beneficial interest in the Notes represented
thereby shall be required to be reflected in book-entry form Transfers of a
Global Note shall be limited to transfers in whole and not in part, to the
Depositary, its successors, and their respective nominees. Interests of
beneficial owners in a Global Note shall be transferred which complies with the
rules and procedures of the Depositary (or its successors).
SECTION 2.07 REPLACEMENT NOTES
If a mutilated Note is surrendered to the Registrar or if the Holder of
a Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note if the
requirements of Section 8-405 of the Uniform Commercial Code are met and the
Holder satisfies any other reasonable requirements of the Trustee. If required
by the Trustee or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from
any loss which any of them may suffer if a Note is replaced. The Company and the
Trustee may charge the Holder for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company.
SECTION 2.08 OUTSTANDING NOTES
Notes outstanding at any time are all Notes, including Secondary
Securities, authenticated by the Trustee except for those canceled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. A Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a Redemption Date or maturity date money sufficient to pay
all principal,
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premium, if any, and interest payable on that date with respect to the Notes (or
portions thereof) to be redeemed or maturing, as the case may be, and the Paying
Agent is not prohibited from paying such money to the Noteholders on that date
pursuant to the terms of this Indenture, then on and after that date such Notes
(or portions thereof) cease to be outstanding and interest on them ceases to
accrue.
SECTION 2.09 TEMPORARY NOTES
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate and deliver temporary Notes. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company considers appropriate for temporary Notes. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
Notes and deliver them in exchange for temporary Notes.
SECTION 2.10 CANCELLATION
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel and destroy (subject to the record
retention requirements of the Exchange Act) any Notes surrendered for
registration of transfer, exchange, payment or cancellation and deliver a
certificate of such destruction to the Company. The Company may not issue new
Notes to replace Notes it has redeemed, paid or delivered to the Trustee for
cancellation.
SECTION 2.11 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED
(a) The Notes shall bear interest at 11.25% per annum from the Issue
Date or from the most recent Interest Payment Date to which interest has been
paid or provided for. If the Company's Cash Flow for a period specified below is
less than the amount specified for such period in the table below, then the
Company may on the Interest Payment Date set opposite such period, at the
Company's option and in its sole discretion, pay interest in additional Notes
("Secondary Securities") in lieu of the payment in whole or in part of interest
in cash on the Notes; PROVIDED, HOWEVER, that the Company may at its option pay
cash in lieu of issuing Secondary Securities in any denominations of less than
$1.00.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PERIOD SPECIFIED CASH FLOWAMOUNT INTEREST PAYMENT DATE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Issue Date--June 25, 2000 $10,742,000 First Interest Payment Date
- -----------------------------------------------------------------------------------------------------------
June 26, 2000--December 31, 2000 $16,930,000 Second Interest Payment Date
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
January 1, 2001--July 1, 2001 $18,016,000 Third Interest Payment Date
- -----------------------------------------------------------------------------------------------------------
July 2, 2001--December 30, 2001 $20,253,000 Fourth Interest Payment Date
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Any such Secondary Securities shall be governed by this Indenture and shall be
subject to the same terms (including Stated Maturity and rates of interest from
time to time payable thereon (but not including the issuance date)) on all other
Notes. Except as otherwise allowed by the foregoing, interest shall be paid in
cash.
(b) The Company shall give written notice to the Trustee of the amount
of interest to be paid in Secondary Securities not less than five Business Days
prior to the applicable Interest Payment Date, and the Trustee or an
authenticating agent (upon written order of the Company signed by an Authorized
Representatives of the Company given not less than five nor more than 45 days
prior to such Interest Payment Date) shall authenticate for original issue (pro
rata to each Holder of any Notes on the applicable Record Date) Secondary
Securities in an aggregate principal amount equal to the amount of cash interest
not paid on such Interest Payment Date. Each issuance of Secondary Securities in
lieu of the payment of interest in cash on the Securities shall be made pro rata
with respect to the outstanding Notes, and the Company shall have the right to
aggregate amounts of interest payable in the form of Secondary Securities to a
Holder of outstanding Notes and issue to such holder a single Secondary Security
in payment thereof. Secondary Securities may be denominated a separate series if
the Company deems it necessary to do so in order to comply with any law or other
applicable regulation or requirement, with appropriate distinguishing
designations.
(c) Interest on any Note which is payable, and is paid, whether in cash
or Secondary Securities, or duly provided for, on any Interest Payment Date
shall be paid to the Person in whose name such Note is registered at the close
of business on the Record Date for such interest payment, which shall be the
[January 15] or [July 15] (whether or not a Business Day) immediately preceding
such Interest Payment Date.
(d) Any interest on any Note which is payable, but is not paid, either
in Secondary Securities or cash, or duly provided for, on any Interest Payment
Date (herein called "Defaulted Interest") shall forthwith cease to be payable to
the registered Holder on the relevant Record Date, and, except as hereinafter
provided, such Defaulted Interest, and any interest payable on such Defaulted
Interest, shall be paid by the Company, at its election, as provided in clause
(e)(i) or (e)(ii) below:
(e) (i) The Company may elect to make payment of any Defaulted
Interest, and any interest payable on such Defaulted Interest, to the Persons in
whose names the Notes are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on the Notes and the date of
the proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment,
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such money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as provided in this Section 2.11(e)(i).
Thereupon the Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 calendar days and not less
than 10 calendar days prior to the date of the proposed payment and not less
than 10 calendar days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such Special
Record Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be sent, first-class mail, postage prepaid, to each Holder at
such Holder's address as it appears in the Note Register, not less than 10
calendar days prior to such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having been
mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in
whose names the Notes are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause
(ii); or
(ii) The Company may make payment of any Defaulted Interest, and any
interest payable on such Defaulted Interest, on the Notes in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause (ii), such manner of payment shall be deemed
practicable by the Trustee.
(f) Subject to the foregoing provisions of this Section 2.11, each Note
delivered under this Indenture upon registration of transfer of, or in exchange
for, or in lieu of, any other Note, shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Note.
SECTION 2.12 CUSIP NUMBERS
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; PROVIDED, HOWEVER, that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Notes, and any such redemption shall not be affected by
any defect in or omission of such numbers.
SECTION 2.13 TRANSFERS, ETC
Each Holder of a Note agrees to indemnify the Company and the Trustee
against any liability that may result from the transfer, exchange or assignment
by such Holder of such Holder's Note in violation of any provision of this
Indenture and/or applicable US Federal or state securities law.
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ARTICLE III. REDEMPTION
SECTION 3.01 REDEMPTION OF NOTES; NOTICES TO TRUSTEE
(a) Except as set forth in clause (b) of this Section 3.01, the Notes
are not redeemable at the option of the Company prior to [February 1], 2003.
Thereafter, the Notes may be redeemed at the option of the Company, in whole or
in part, upon at least 30 calendar days' but not more than 60 calendar days'
prior notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest thereon, if any, to
the applicable Redemption Date (subject to the right of each Holder of record on
the relevant Record Date to receive interest due on the relevant Interest
Payment Date), if redeemed during the twelve-month period beginning [February 1]
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003 5.6250%
2004 2.8125%
</TABLE>
(b) At any time and from time to time prior to [February 1], 2003 the
Company, at its option, may redeem in the aggregate up to 35.0% of the original
principal amount of the Notes with the Net Cash Proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 111.25% of the aggregate
principal amount so redeemed, plus accrued and unpaid interest thereon to the
redemption date (subject to the right of Holders of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date);
PROVIDED, HOWEVER, that at least 65.0% of the original principal amount of the
Notes must remain outstanding after each such redemption; and PROVIDED, FURTHER,
that each such redemption shall occur within 60 days of the date of closing of
the related Public Equity Offering.
(c) If the Company elects to redeem Notes pursuant to clause (a) or (b)
of this Section 3.01, the Company shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed.
(d) The Company shall give each notice to the Trustee provided for in
Section 3.01(c) not less than 30 days nor more than 60 days before the
Redemption Date unless the Trustee consents to a shorter period. Such notice
shall be accompanied by an Officers' Certificate and an Opinion of Counsel from
the Company to the effect that such redemption will comply with the conditions
herein.
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SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED
If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed pro rata or by lot or by a method that complies
with applicable legal and securities exchange requirements, if any, and that the
Trustee considers fair and appropriate and which complies with methods generally
used at the time of selection by fiduciaries in similar circumstances. The
Trustee shall make the selection from outstanding Notes not previously called
for redemption. The Trustee may select for redemption portions of the principal
of Notes that have denominations larger than $1.00. Notes and portions of them
the Trustee selects shall be in amounts of $1.00 or a whole multiple of $1.00.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company promptly of the Notes or portions of Notes to be redeemed.
SECTION 3.03 NOTICE OF REDEMPTION
At least 20 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail, postage
prepaid, to each Holder of Notes to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price;
(5) if any Global Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the Redemption
Date, the Global Note, with a notation on Schedule A thereof adjusting the
principal amount thereof to be equal to the unredeemed portion, will be returned
to the Holder thereof;
(6) if any Certificated Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the Redemption
Date, a new Certificated Note or Certificated Notes in principal amount equal to
the unredeemed portion will be issued;
(7) if fewer than all the outstanding Notes are to be redeemed, the
identification and principal amounts of the particular Notes to be redeemed;
(8) that, unless the Company defaults in making such redemption payment
or the Paying Agent is prohibited from making such payment pursuant to the terms
of this
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Indenture, interest on Notes (or portion thereof) called for redemption ceases
to accrue on and after the Redemption Date; and
(9) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section 3.03.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed, Notes called for redemption become
due and payable on the Redemption Date and at the Redemption Price stated in the
notice. Upon surrender to the Paying Agent, such Notes shall be paid at the
Redemption Price stated in the notice, plus accrued interest to the Redemption
Date. Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE
On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company or a domestically incorporated Wholly-Owned
Subsidiary is the Paying Agent, shall segregate and hold in trust) money in
immediately available funds, sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions of Notes called for redemption which have been delivered by the Company
to the Trustee for cancellation.
So long as the Company complies with the preceding paragraph and the
other provisions of this Article I, interest on the Notes or portions thereof to
be redeemed on the applicable Redemption Date shall cease to accrue from and
after such date and such Notes or portions thereof shall be deemed not to be
entitled to any benefit under this Indenture except to receive payment of the
Redemption Price on the Redemption Date (subject to the right of each Holder of
record on the relevant Record Date to receive interest due on the relevant
Interest Payment Date). If any Note called for redemption shall not be so paid
upon surrender for redemption, then, from the Redemption Date until such
Redemption Price is paid, interest shall be paid on the unpaid principal and
premium and, to the extent permitted by law, on any accrued but unpaid interest
thereon, in each case at the rate prescribed therefor by such Notes.
SECTION 3.06 NOTES REDEEMED IN PART
Upon surrender of a Note that is redeemed in part, the Company shall
execute and the Trustee shall authenticate for the Holder of the Note being
surrendered (at the Company's expense) a new Note equal in principal amount to
the unredeemed portion of the Note surrendered.
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ARTICLE IV. COVENANTS
SECTION 4.01 PAYMENT OF NOTES
The Company shall promptly pay the principal of, premium, if any, and
interest on the Notes on the dates and in the manner provided in the Notes and
in this Indenture. Principal, premium, if any, and interest shall be considered
paid on the date due if on such date the Trustee or the Paying Agent holds in
accordance with this Indenture money or, to the extent permitted by Section
2.11, Secondary Securities, sufficient to pay all principal, premium, if any,
and interest then due and the Trustee or the Paying Agent, as the case may be,
is not prohibited from paying such money or Secondary Securities, as the case
may be, to the Noteholders on that date pursuant to the terms of this Indenture.
To the extent lawful, the Company shall pay interest on overdue
principal, overdue premium and Defaulted Interest (without regard to any
applicable grace period) at the interest rate borne on the Notes. The Company's
obligation pursuant to the previous sentence shall apply whether such overdue
amount is due at its maturity, as a result of the Company's obligations pursuant
to Section 3.05, Section 4.11 or Section 4.14 hereof, or otherwise.
All payments not made in Secondary Securities with respect to a Global
Note or a Certificated Note (including principal, premium, if any, and interest)
the Holders of which have given wire transfer instructions to the Company, will
be required to be made by wire transfer of immediately available funds to the
account or (in the case of a Global Note) accounts specified by the Holders
thereof or, if no such account is specified, by sending via first-class mail,
postage prepaid, a check to each such Holders' registered address.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY
The Company shall maintain in the Borough of Manhattan, The City of New
York, an office or agency where Notes may be presented or surrendered for
payment, where Notes may be surrendered for registration of transfer or exchange
and where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served, which office shall be initially the Corporate
Trust Office. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee its agent to
receive all presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all of such purposes, and may from time
to time rescind such designations; PROVIDED, that no such designation or
rescission shall in any manner
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relieve the Company of its obligation to maintain an office or agency in The
City of New York for such purposes. The Company shall give prompt written notice
to the Trustee of any such designation and any change in the location of any
such other office or agency. The Company hereby designates the Corporate Trust
Office of the Trustee as one such office or agency of the Company in accordance
with Section 2.03 hereof.
SECTION 4.03 MONEY FOR THE NOTE PAYMENTS TO BE HELD IN TRUST
If the Company, any Subsidiary of the Company or any of their
respective Affiliates shall at any time act as Paying Agent with respect to the
Notes, such Paying Agent shall, on or before each due date of the principal of,
premium, if any, or interest on any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto money, or if such interest
payment is to be made in Secondary Securities in accordance with the terms
hereof, Secondary Securities sufficient to pay interest so becoming due until
such money shall be paid (or in the case of Secondary Securities, issued) to
such Persons or otherwise disposed of as herein provided, and shall promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents with respect
to the Notes, it shall, prior to 10:00 am New York City time on each due date of
the principal of, premium, if any, or interest on any of the Notes, deposit with
a Paying Agent a sum or if such interest payment is to be made in Secondary
Securities in accordance with the terms hereof, Secondary Securities sufficient
to pay the principal, premium, if any, or interest so becoming due, such sum or
Secondary Securities to be held in trust for the benefit of the Persons entitled
to such principal, premium or interest and (unless such Paying Agent is the
Trustee) the Paying Agent shall promptly notify the Trustee of the Company's
action or failure so to act.
SECTION 4.04 CORPORATE EXISTENCE
Subject to the provisions of Article V and Section 4.11 hereof, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect the corporate existence, rights (charter and statutory)
and franchises of the Company and each of its Restricted Subsidiaries; PROVIDED,
that the Company and any such Restricted Subsidiary shall not be required to
preserve the corporate existence of any such Subsidiary or any such right or
franchise if the Board shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 4.05 MAINTENANCE OF PROPERTY
The Company shall cause all Property used or useful in the conduct of
its business or the business of any of its Restricted Subsidiaries to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as, in the
judgment of the Company, may be necessary so that
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the business carried on in connection therewith may be properly and
advantageously conducted at all times; PROVIDED, that nothing in this Section
4.05 shall prevent the Company from discontinuing the operation or maintenance
of any of such Property if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its business or the business of any of its
Subsidiaries and not disadvantageous in any material respect to the Holders.
SECTION 4.06 PAYMENT OF TAXES AND OTHER CLAIMS
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or Property of the Company or any of
its Subsidiaries and (b) all material lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon the Property of the
Company or any of its Subsidiaries; provided that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP or other appropriate provision has been made.
SECTION 4.07 SEC REPORTS
Notwithstanding that the Company may not be required to remain subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall:
(1) file with the Commission and provide the Trustee and Noteholders
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a
US corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing of
such information, documents and reports under such Sections;
(2) file with the Commission and provide the Trustee, in accordance
with rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company with the conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations; and
(3) transmit by mail to the Holders of the Notes, within 30 days after
the filing thereof with the Trustee, in the manner and to the extent provided in
TIA Section 313(c), such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of this
Section as may be required by rules and regulations prescribed from time to time
by the Commission; and
PROVIDED, delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute
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constructive notice of any information contained therein, including
the Company's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 4.08 LIMITATION ON INDEBTEDNESS
The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur, directly or indirectly, any Indebtedness (including without
limitation, any Acquired Indebtedness) other than Permitted Indebtedness.
Notwithstanding the foregoing, in addition to Permitted Indebtedness, the
Company or any Restricted Subsidiary may Incur Indebtedness (including, without
limitation, Acquired Indebtedness) if (i) no Default or Event of Default shall
have occurred and be continuing on the date of the proposed Incurrence thereof
or would result as a consequence of such proposed Incurrence and (ii) at the
time of and immediately after giving pro forma effect to such proposed
Incurrence and the application of the proceeds thereof, the Consolidated
Coverage Ratio is at least 2.0 to 1.0. For purposes of determining compliance
with, and the outstanding principal amount of any particular Indebtedness
Incurred pursuant to and in compliance with, this covenant, the amount of
Indebtedness issued at a price that is less than the principal amount thereof
will be equal to the amount of the liability in respect thereof determined in
accordance with GAAP.
SECTION 4.09 LIMITATION ON RESTRICTED PAYMENTS
(a) The Company shall not, and shall not permit any Restricted
Subsidiary, directly or indirectly, to make a Restricted Payment if at the time
of such Restricted Payment or immediately after giving pro forma effect thereto:
(1) a Default or Event of Default shall have occurred and be continuing
(or would result therefrom);
(2) the Company or such Restricted Subsidiary is not able to Incur,
after giving pro forma effect to such Restricted Payment, an additional $1.00 of
Indebtedness pursuant to the second sentence of Section 4.08; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued on a cumulative basis
during the period (treated as one accounting period) beginning on the
first day of the fiscal quarter beginning immediately following the
Issue Date to the end of the most recent fiscal quarter for which
consolidated financial information of the Company is available (or, in
case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of, or as a capital contribution in respect of, its
Capital Stock (other than Disqualified Stock) subsequent to the Issue
Date (other than an issuance or sale to
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a Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees);
PROVIDED, HOWEVER, that in determining Net Cash Proceeds for purposes
of this clause (B), there shall be deducted therefrom an amount equal
to the amount, if any, of such Net Cash Proceeds used by the Company
or a Restricted Subsidiary after the Issue Date to exercise the Mabesa
Option;
(C) the amount by which Indebtedness of the Company is reduced on the
Company's balance sheet upon the conversion or exchange (other than by
a Subsidiary of the Company) subsequent to the Issue Date of any
Indebtedness of the Company convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount
of any cash, or the fair value of any other property, distributed by
the Company upon such conversion or exchange);
(D) without duplication of any amounts included in clause (A) above or
clause (E) below, in the case of the disposition or repayment of, or
the receipt by the Company or any Restricted Subsidiary of any
dividends or distributions from, any Investment constituting a
Restricted Payment made after the Issue Date, an amount equal to the
lesser of the amount of such Investment and the amount received by the
Company or any Restricted Subsidiary upon such disposition, repayment,
dividend or distribution;
(E) without duplication of any amounts included in clause (D) above, in
the event the Company or any Restricted Subsidiary makes any Investment
in a Person that, as a result of or in connection with such Investment,
becomes a Restricted Subsidiary, an amount equal to the Company's or
any Restricted Subsidiary's existing Investment in such Person that was
previously treated as a Restricted Payment; and
(F) so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after
the Issue Date in accordance with Section 4.16, an amount equal to the
Company's Investment in such Unrestricted Subsidiary (provided that
such amount shall not in any case exceed the Designation Amount with
respect to such Restricted Subsidiary upon its Designation);
PROVIDED, HOWEVER, prior to the second anniversary of the Issue Date, Restricted
Payments (other than Investments) permitted only by virtue of the provisions of
this clause (3) may not be made if interest on the Notes has been paid in
Secondary Securities as provided in Section 2.11.
(b) The provisions of the foregoing subsection (a) shall not prohibit:
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(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted on the
date of declaration;
(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of Capital Stock of
the Company,
(A) solely in exchange for shares of Qualified Capital Stock of the
Company or any warrants, rights or options to purchase or acquire
shares of Qualified Capital Stock of the Company or
(B) through the application of the net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of Qualified
Capital Stock of the Company; provided, however, that the value of any
such Qualified Capital Stock or warrants, rights and options issued in
exchange for such acquired capital stock, warrants, rights or options
and any such net cash proceeds shall be excluded from clause (3)(B) of
subsection (a) above (and were not included therein at any time);
(3) if no Default or Event of Default shall have occurred and be
continuing, the voluntary prepayment, purchase, defeasance, redemption or other
acquisition or retirement for value of any Subordinated Obligations
(A) solely in exchange for shares of Capital Stock of the Company or
any warrants, rights or options to purchase or acquire shares of
Capital Stock of the Company; provided, however, that if such Capital
Stock is, or such warrants, rights or options to purchase such Capital
Stock are convertible into or exchangeable at the option of the holder
thereof for, Disqualified Stock, then such Disqualified Stock shall not
(i) by its terms, or upon the happening of any event, mature or be
mandatorily redeemable pursuant to a sinking fund obligation or
otherwise, or be redeemable at the option of the holder thereof, in any
case, on or prior to the final maturity of the Indebtedness permitted
to be prepaid, purchased, defeased, redeemed or acquired pursuant to
this clause (3) and (ii) have a Weighted Average Life to Maturity less
than the Indebtedness permitted to be prepaid, purchased, defeased,
redeemed or acquired pursuant to this clause (3) or
(B) in exchange for Refinancing Indebtedness or through the application
of net proceeds of a substantially concurrent sale for cash (other than
to a Restricted Subsidiary of the Company) of (A) shares of Qualified
Capital Stock of the Company or any warrants, rights or options to
purchase or acquire shares of Qualified Capital Stock of the Company or
(B) Refinancing Indebtedness; and provided, further, that the value of
such Qualified Capital Stock or warrants, rights or options issued in
exchange for such Subordinated Obligations and any such net cash
proceeds shall be excluded from clause (3)(B) of subsection (a) above
(and were not included therein at any time); or
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(C) in exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to
be Incurred under Section 4.08;
(4) the repurchase, redemption or other acquisition or retirement for
value of
(A) any Capital Stock (or interests under any stock appreciation rights
plan) of the Company held by any member of the Company's management
pursuant to any management equity subscription agreement or stock
option agreement in effect as of the date of this Indenture or entered
into thereafter with members of the management of any Person acquired
after the Issue Date in connection with the acquisition of such Person
or
(B) Capital Stock of the Company held by employees, former employees,
directors or former directors pursuant to the terms of agreements
(including employment agreements) approved by the Board of Directors;
PROVIDED, HOWEVER, that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Capital Stock (or interests
under any stock appreciation rights plan) set forth in subclauses (A)
and (B) of this clause (4) shall not exceed $1,000,000 in any
twelve-month period and no Default or Event of Default shall have
occurred and be continuing immediately after any such transaction.
In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date under Section 4.09(a)(3), amounts expended pursuant
to clauses (1) (without duplication for the declaration of the relevant
dividend) of this Section 4.09(b) shall be included in such calculation and
amounts expended pursuant to clauses (2), (3) and (4) of this Section 4.09(b)
shall not be included in such calculation.
SECTION 4.10 LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to
(a) pay dividends or make any other distributions on or in respect of
its Capital Stock to the Company or any other Restricted Subsidiary or pay any
Indebtedness owed to the Company or any other Restricted Subsidiary;
(b) make loans or advances to, or guarantee any Indebtedness or other
obligations of, or make any Investment in, the Company or any other Restricted
Subsidiary; or
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(c) transfer any of its property or assets to the Company or any other
Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of:
(1) applicable law;
(2) this Indenture;
(3) the Senior Credit Facilities as in effect on the Issue Date, and
any amendments, refinancings, replacements or restatements thereof;
provided, however, that any such amendment, refinancing, replacement or
restatement is not materially more restrictive with respect to such
encumbrances or restrictions than those in existence on the Issue Date;
(4) customary non-assignment provisions of any contract and customary
provisions restricting assignment or subletting in any lease governing
a leasehold interest of any Restricted Subsidiary, or any customary
restriction on the ability of a Restricted Subsidiary to dividend,
distribute or otherwise transfer any asset which secures purchase money
Indebtedness of such Restricted Subsidiary;
(5) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or assets
of the Person so acquired;
(6) restrictions with respect to a Restricted Subsidiary of the Company
imposed pursuant to a binding agreement which has been entered into for
the sale or disposition of Capital Stock or assets of such Subsidiary;
PROVIDED, HOWEVER, that such restrictions apply solely to the Capital
Stock or assets of such Restricted Subsidiary which are being sold;
(7) customary restrictions imposed on the transfer of copyrighted or
patented materials;
(8) secured Indebtedness otherwise permitted to be incurred pursuant to
Section 4.08 and Section 4.15, which encumbrance or restriction is not
applicable to any property or assets other than the property or assets
subject to the Lien securing such Indebtedness; or
(9) an agreement governing Indebtedness Incurred to Refinance the
Indebtedness issued, assumed or Incurred pursuant to an agreement
referred to in clause (3), (5) or (8) above; PROVIDED, HOWEVER, that
such refinancing agreement is not materially more restrictive with
respect to such encumbrances or restrictions than those contained in
the agreement referred to in such clause (3), (5) or (8) as determined
by the Board of Directors in their reasonable good faith judgment.
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SECTION 4.11 LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Sale unless:
(1) the Company or such Restricted Subsidiary (x) receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets subject to such Asset Sale (which Fair Market Value shall be
determined by the Board of Directors for any transaction (or series of
transactions) involving consideration in excess of $15,000,000) and (y) the
consideration received consists of cash, Cash Equivalents or other non-cash
consideration, the Fair Market Value of which and basis of valuation is set
forth in an Officer's Certificate; PROVIDED, HOWEVER, if at least 75% of the
consideration received by the Company or such Restricted Subsidiary in
connection with an Asset Sale is in the form of cash or Cash Equivalents, no
such Officer's Certificate shall be required; and PROVIDED FURTHER, HOWEVER,
that any securities, notes or other obligations received by the Company or a
Restricted Subsidiary from such transfers that are converted within 90 days of
receipt thereof by the Company or such Restricted Subsidiary into cash or Cash
Equivalents (to the extent so received), shall be deemed to be cash or Cash
Equivalents for purposes of this provision AND that the amount of any
Indebtedness of the Company or such Restricted Subsidiary (other than
Subordinated Obligations) that is actually assumed by the transferee in such
Asset Sale and from which the Company or such Restricted Subsidiary is fully and
unconditionally released shall be deemed to be cash for purposes of determining
the percentage of cash consideration received by the Company or such Restricted
Subsidiary;
(2) an amount equal to 100% of the Net Available Cash from such Asset
Sale is applied by the Company (or such Restricted Subsidiary, as the case may
be) at its election within 270 days from the date of such Asset Sale:
(A) to prepay or repay Senior Indebtedness and permanently reduce the
commitments, if any, with respect thereto; or
(B) (i) to make an investment in properties or assets that replace the
properties or assets that were the subject of such Asset Sale or in
properties or assets that will be used in a Related Business or (ii) to
acquire the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock;
PROVIDED that such Person is, at the time it becomes a Restricted
Subsidiary, engaged in a Related Business; PROVIDED FURTHER that, in
the case of items (i) and (ii), the Company may elect to deem such an
investment or acquisition made within 180 days prior to such Asset Sale
to have been made with Net Available Cash resulting from such Asset
Sale.
In determining whether an investment or acquisition of the type
referred to in (i) and (ii) above was made within the applicable time
limits, such investment or acquisition shall be deemed to have been
made, at the election of the Company, either on the date the Company or
Restricted Subsidiary actually made the investment or acquisition or
the date the Company or Restricted Subsidiary
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executed a binding commitment to consummate such investment or
acquisition and the closing of such investment or acquisition occurs
within 90 days of the date such commitment is executed.
(b) Any Net Available Cash not applied as provided in clause (2) of
paragraph (a) above will be deemed to constitute "Excess Proceeds". When the
aggregate amount of Excess Proceeds exceeds $10 million, the Company will be
required to make an offer to all Holders (an "Asset Sale Offer") to purchase, on
a pro rata basis, the principal amount of Notes equal in amount to the Excess
Proceeds (and not just the amount thereof that exceeds $10 million) (the "Asset
Sale Offer Amount"), at a purchase price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest thereon to the
date of purchase (subject to the right of each Holder of record on the relevant
Record Date to receive interest due on the relevant Interest Payment Date), in
accordance with the procedures set forth in this Indenture, and in accordance
with the following standards:
(1) If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee
shall select the Notes to be purchased on a pro rata basis, based on
the principal amount of Notes tendered, with such adjustments as may be
deemed appropriate by the Trustee, so that only Notes in denominations
of $1.00 or integral multiples thereof shall be purchased.
(2) If the aggregate principal amount of Notes tendered
pursuant to such Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds following the completion
of the Asset Sale Offer for general corporate purposes (subject to the
other provisions of this Indenture).
Upon completion of an Asset Sale Offer, the amount of Excess Proceeds then
required to be otherwise applied in accordance with this covenant shall be reset
to zero, subject to any subsequent Asset Sale.
(c) In the event of the transfer of substantially all (but not all) of
the property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01 below, the
successor shall be deemed to have sold the properties and assets of the Company
and its Subsidiaries not so transferred for purposes of this covenant, and shall
comply with the provisions of this covenant with respect to such deemed sale as
if it were an Asset Sale. In addition, the Fair Market Value of such properties
and assets of Company or its Subsidiaries deemed to be sold shall be deemed to
be Net Available Cash for purposes of this covenant.
(d) If at any time any non-cash consideration received by the Company
or any Subsidiary in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Available Cash thereof
shall be applied in accordance with this covenant.
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(e) Each Asset Sale Offer will be mailed to the record Holders as shown
on the register of Holders within 30 days following the date the amount of
Excess Proceeds exceeded $10 million, with a copy to the Trustee, and shall
comply with the procedures set forth herein. Upon receiving notice of the Asset
Sale Offer, Holders may elect to tender their Notes in whole or in part in
integral multiples of $1.00 in exchange for cash. To the extent Holders of Notes
and holders of other Senior Subordinated Indebtedness, if any, which are or is
the subject of an Asset Sale Offer properly tender Notes or such other Senior
Subordinated Indebtedness in an aggregate amount exceeding the amount of
unapplied Excess Proceeds, Notes of tendering Holders and such other Senior
Subordinated Indebtedness of tendering holders will be purchased on a pro rata
basis (based on amounts tendered).
(f) Upon surrender and cancellation of a Certificated Note that is
purchased in part, the Company shall promptly issue and the Trustee shall
authenticate and deliver to the surrendering Holder of such Certificated Note,
a new Certificated Note equal in principal amount to the unpurchased portion of
such surrendered Certificated Note; PROVIDED that each such new Certificated
Note shall be in a principal amount of $1.00 or an integral multiple thereof.
(g) Upon surrender of a Global Note that is purchased in part, the
Paying Agent shall forward such Global Note to the Trustee who shall make a
notation on Schedule A thereof to reduce the principal amount of such Global
Note, as provided in Section 2.05(c) hereof.
(h) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
Section 4.11. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section 4.11 by virtue thereof.
SECTION 4.12 LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with any Affiliate of the Company
(an "Affiliate Transaction") unless the terms thereof:
(i) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate;
(ii) if such Affiliate Transaction involves an amount in
excess of $1,000,000, (A) are set forth in writing and (B) have been
approved by a majority of the disinterested members of the Board of
Directors; and.
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(iii) if such Affiliate Transaction involves an amount in
excess of $5,000,000 (other than such an Affiliate Transaction
involving a Foreign Joint Venture or a New Joint Venture), have been
determined by a nationally recognized investment banking or accounting
firm having experience in such matters to be fair, from a financial
point of view, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment permitted to be paid pursuant to
Section 4.09;
(ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans or
similar employee benefit plans or arrangements approved by the Board of
Directors;
(iii) the grant of stock options or similar rights to
employees and directors of the Company pursuant to plans approved by
the Board of Directors;
(iv) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Company or its
Restricted Subsidiaries, but in any event not to exceed $2,000,000 in
the aggregate outstanding at any one time;
(v) Stock Purchase Loans or loans made by the Company to
certain employees to pay taxes arising from the granting of stock to
such employees in connection with confirmation of the Plan;
(vi) reasonable fees and compensation paid to, and any
indemnity provided on behalf of, officers, directors, employees,
consultants or agents of the Company or any Restricted Subsidiary as
determined in good faith by the Company's Board of Directors;
(vii) any Affiliate Transaction (v) between the Company and a
Restricted Subsidiary; (w) between Restricted Subsidiaries; (x) between
the Company or a Restricted Subsidiary and a Foreign Joint Venture; (y)
involving payments made pursuant to or contemplated by a Foreign
Investment Agreement (as in effect on the Issue Date); or (z) between
the Company or a Restricted Subsidiary, on the one hand, and P&G or KC,
on the other, relating to technology licenses; PROVIDED that, no
Affiliate of the Company other than a Restricted Subsidiary owns any
Capital Stock in or otherwise has a material financial interest in any
such Restricted Subsidiary or Joint Venture, as the case may be;
(viii) any transactions undertaken pursuant to any contractual
obligations or rights in existence on the Issue Date (as in effect on
the Issue Date); and
(ix) the entering into by the Company and any of its
consolidated Restricted Subsidiaries of a tax sharing or similar
arrangement.
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SECTION 4.13 LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Company will not sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary, and will not cause or permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock, except
(i) to the Company or a Wholly Owned Restricted Subsidiary;
(ii) the sale of 100% of the shares of the Capital Stock of any
Restricted Subsidiary owned by the Company or any Restricted Subsidiary effected
in compliance with either Section 4.11 or Section 5.01 hereof;
(iii) in the case of Restricted Subsidiaries other than Wholly Owned
Restricted Subsidiaries, issuance of Capital Stock on a pro rata basis to all
shareholders of such Restricted Subsidiary (or on less than a pro rata basis to
any such minority holder if such minority holder does not acquire its pro rata
amount); and
(iv) the sale of Capital Stock of a Restricted Subsidiary or issuance
by a Restricted Subsidiary of Capital Stock if following such sale or issuance,
(x) such Restricted Subsidiary is no longer a Subsidiary, (y) the Company's
continuing Investment in such former Restricted Subsidiary is in compliance with
Section 4.09 and (z) any sale of Capital Stock by the Company or such Restricted
Subsidiary is made in compliance with Section 4.11.
SECTION 4.14 CHANGE OF CONTROL
(a) Upon the occurrence of a Change of Control, each Holder
will have the right to require that the Company purchase all or a portion (in
integral multiples of $1.00) of such Holder's Notes pursuant to the offer
described in this Section 4.14 (the "Change of Control Offer"), at a purchase
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (subject to the right of Holders of
record on a record date to receive interest due on the related interest payment
date that is on or prior to such date of purchase). Not later than 30 days
following the date upon which the Change of Control occurred, the Company must
send, by first-class mail, a notice to each Holder, with a copy to the Trustee,
which notice shall govern the terms of the Change of Control Offer. Such notice
shall state, among other things, the purchase date, which must be no earlier
than 30 days nor later than 60 days from the date such notice is mailed, other
than as may be required by law (the "Change of Control Payment Date"). Holders
electing to have a Note purchased pursuant to a Change of Control Offer will be
required to surrender the Note, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date.
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(b) The Company will comply with the requirements of Rule 14e-1
under the Exchange Act of 1934, as amended (the "Exchange Act") and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the purchase of Notes pursuant to
a Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with this Section 4.14, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section 4.14 by virtue thereof.
SECTION 4.15 LIMITATION ON LIENS
Except for (A) Liens securing Indebtedness Incurred under the Senior
Credit Facilities and (B) Permitted Liens, the Company will not, and will not
cause or permit any of its Restricted Subsidiaries to, directly or indirectly,
Incur any Liens of any kind against or upon any of their respective properties
or assets, whether owned on the Issue Date or acquired after the Issue Date, or
any proceeds therefrom, to secure any Indebtedness unless contemporaneously
therewith effective provision is made, (i) in the case of the Company to secure
the Notes and all other amounts due hereunder and (ii) in the case of a Note
Guarantor, to secure such Note Guarantor's Note Guarantee and all other amounts
due hereunder, in each case, equally and ratably with such Indebtedness (or, in
the event that such Indebtedness is subordinated in right of payment to the
Notes or such Note Guarantee, prior to such Indebtedness) with a Lien on the
same properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien.
SECTION 4.16 DESIGNATION OF UNRESTRICTED SUBSIDIARIES
(a) The Company may designate after the Issue Date any Subsidiary of
the Company as an "Unrestricted Subsidiary" (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such
Designation, the Company could Incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to Section 4.08; and
(iii) the Company would be permitted to make an Investment at
the time of Designation (assuming the effectiveness of such Designation
and treating such Designation as an Investment at such time) pursuant
to Section 4.09(a) in an amount (the "Designation Amount") equal to the
amount of the Company's Investment in such Subsidiary on such date.
Neither the Company nor any Restricted Subsidiary shall at any time (x) provide
credit support for, subject any of its property or assets (other than the
Capital Stock of any Unrestricted Subsidiary) to the satisfaction, or guarantee
of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing
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such Indebtedness) unless such credit support or guarantee constitutes an
Investment permitted pursuant to Section 4.09, (y) be directly or indirectly
liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or
indirectly liable for any Indebtedness which provides that the holder thereof
may (upon notice, lapse of time or both) declare a default thereon or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity upon the occurrence of a default with respect to any Indebtedness of
any Unrestricted Subsidiary, except for any non-recourse guarantee given solely
to support the pledge by the Company or any Restricted Subsidiary of the Capital
Stock of any Unrestricted Subsidiary. For purposes of the foregoing, the
Designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall
be deemed to include the Designation of all of the Subsidiaries of such
Subsidiary.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation;
and
(ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if
Incurred at such time, have been permitted to be Incurred for all
purposes of this Indenture.
(c) All Designations and Revocations must be evidenced by resolutions
of the Board of Directors, delivered to the Trustee certifying compliance with
the foregoing provisions.
SECTION 4.17 LIMITATION ON LAYERED INDEBTEDNESS
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness that is
subordinate in right of payment to any other Indebtedness, unless such
Indebtedness is subordinate in right of payment to, or ranks pari passu with,
the Notes or, in the case of Restricted Subsidiaries that are Note Guarantors,
such Indebtedness is subordinate in right of payment to, or ranks pari passu
with, the Note Guarantees of such Note Guarantors.
(b) The Note Guarantors will not, directly or indirectly, Guarantee any
Indebtedness of the Company that is subordinate in right of payment to any other
Indebtedness of the Company unless such Guarantee is subordinate in right of
payment to, or ranks pari passu with, the Note Guarantees of such Note
Guarantors.
SECTION 4.18 COMPLIANCE CERTIFICATE
The Company shall deliver to the Trustee within 120 days after the end
of each fiscal year of the Company an Officers' Certificate stating that in the
course of the performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the
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Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA Section 314(a)(4).
SECTION 4.19 WAIVER OF STAY, EXTENSION OR USURY LAWS
The Company and each of the Note Guarantors will not at any time, to
the extent that they may lawfully not do so, insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Company or the Note Guarantors from paying all or any portion of the principal
of or premium, if any, or interest on the Notes as contemplated herein, wherever
enacted, now or at any time hereafter in force, or that may affect the covenants
or the performance of this Indenture; and, to the extent that they may lawfully
do so, the Company and the Note Guarantors hereby expressly waive all benefit or
advantage of any such law and expressly agree that they not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
SECTION 4.20 INVESTMENT COMPANY ACT
None of the Company or its Subsidiaries shall become an investment
company subject to registration under the Investment Company Act of 1940, as
amended.
SECTION 4.21 FURTHER INSTRUMENTS AND ACTS
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
ARTICLE V. SUCCESSOR COMPANY
SECTION 5.01 MERGER, CONSOLIDATION AND SALE OF ASSETS
(a) The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person (whether or not the
Company is the surviving Person), or sell, assign, transfer, lease, convey or
otherwise dispose of (or cause or permit any Restricted Subsidiary to sell,
assign, transfer, lease, convey or otherwise dispose of) all or substantially
all of the Company's and its Restricted Subsidiaries' properties and assets
(determined on a consolidated basis for the Company and its Restricted
Subsidiaries) to any Person unless:
(i) either (1) the Company shall be the surviving or
continuing entity or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person
which acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Company and of the
Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity") (x) shall be a corporation organized and validly
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existing under the laws of the United States or any State thereof and
(y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium,
if any, and interest on all of the Notes and the performance and
observance of every covenant of the Notes and this Indenture on the
part of the Company to be performed or observed;
(ii) immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including giving
effect on a pro forma basis to any Indebtedness, including any Acquired
Indebtedness, Incurred in connection with or in respect of such
transaction), the Company or such Surviving Entity, as the case may be,
shall be able to Incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to Section 4.08;
(iii) immediately before and immediately after giving effect
to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including, without limitation, giving effect on a pro forma
basis to any Indebtedness, including any Acquired Indebtedness,
Incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing;
(iv) each Note Guarantor (including Persons which become Note
Guarantors as a result of the transaction) shall have confirmed by
Supplemental Indenture that its Note Guarantee shall apply for such
Person's Guarantee Obligations in respect of this Indenture and the
Notes; and
(v) the Company or the Surviving Entity shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, sale, assignment, transfer,
lease, conveyance or other disposition and, if a supplemental indenture
is required in connection with such transaction, such supplemental
indenture, comply with the applicable provisions of this Indenture and
that all conditions precedent in this Indenture relating to such
transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The provisions of clause (ii) above shall not apply to (x) any transfer
of the properties or assets of a Restricted Subsidiary of the Company to the
Company or to a Wholly Owned Restricted Subsidiary, (y) any merger of a
Restricted Subsidiary into the Company or (z) any merger of the Company into a
Restricted Subsidiary.
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Upon any consolidation, combination or merger or any transfer of all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries in accordance with the foregoing, in which the Company is not the
continuing corporation, the successor Person formed by such consolidation or
into which the Company is merged or to which such conveyance, lease or transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company hereunder and under the Notes with the same effect as
if such surviving entity had been named as such.
(b) Each Note Guarantor (other than any Note Guarantor whose Note
Guarantee is to be released in accordance with Section 11.06) will not, and the
Company will not cause or permit any Note Guarantor to, consolidate with or
merge into any Person that is not a Note Guarantor unless such Person (if such
Person is the surviving entity) assumes by supplemental indenture all of the
obligations of such Note Guarantor in respect of its Note Guarantee.
ARTICLE VI. DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT
The term "Event of Default," wherever used herein with respect to the
Notes, means any one of the following events (whatever the reason for such
event, and whether it shall be voluntary or involuntary, or be effected by
operation of law, pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(1) the Company defaults in any payment of interest with respect to any
Note when the same becomes due and payable, whether or not such payment shall be
prohibited by Article X, and such default continues for a period of 30 days;
(2) the Company (i) defaults in the payment of the principal of, or
premium, if any, on any Note when the same becomes due and payable at its Stated
Maturity, upon redemption, upon declaration or otherwise, whether or not such
payment shall be prohibited by Article X or (ii) fails to redeem or purchase
Notes when required pursuant to this Indenture or the Notes, whether or not such
redemption or purchase shall be prohibited by Article X;
(3) the Company fails to observe or perform any covenant, condition or
agreement on the part of the Company to be observed or performed pursuant to
Section 4.08, Section 4.09, Section 4.11, Section 4.14 and Section 5.01;
(4) the Company fails to comply with any of its other agreements or
covenants in or provisions of the Notes or this Indenture and such failure
continues for 30 days after the notice specified below;
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(5) Indebtedness of the Company or any Significant Subsidiary is
accelerated by the holders thereof because of a default and the total amount of
such Indebtedness accelerated exceeds $15,000,000 or its foreign currency
equivalent at the time;
(6) any proceeding shall be instituted by or against the Company or any
Significant Subsidiary seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a custodian, receiver,
trustee or other similar official for it or for any substantial part of its
property and, in the case of any such proceedings instituted against the Company
or any Significant Subsidiary (but not instituted by it), either such
proceedings shall remain undismissed or unstayed for a period of 60 days or any
of the actions sought in such proceedings shall occur;
(7)(i) the commencement by the Company or any Significant Subsidiary of
the Company of a voluntary case or proceeding under any Bankruptcy Law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent; or (ii) the
consent by the Company or any Significant Subsidiary of the Company to the entry
of a decree or order for relief in respect of the Company or any Significant
Subsidiary of the Company in an involuntary case or proceeding under any
Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Significant Subsidiary of the Company; or
(iii) the filing by the Company or any Significant Subsidiary of the Company of
a petition or answer or consent seeking reorganization or relief under any
Bankruptcy Law; or (iv) the consent by the Company or any Significant Subsidiary
of the Company to the filing of such petition or to the appointment of or taking
possession by a Custodian of the Company or any Significant Subsidiary of the
Company or of any substantial part of the Property of the Company or any
Significant Subsidiary of the Company, or (v) the making by the Company or any
Significant Subsidiary of the Company of an assignment for the benefit of
creditors; or (vi) the admission by the Company or any Significant Subsidiary of
the Company in writing of its inability to pay its debts generally as they
become due; or (vii) the approval by stockholders of the Company or any
Significant Subsidiary of the Company of any plan or proposal for the
liquidation or dissolution of the Company or any Significant Subsidiary of the
Company; or (viii) the taking of corporate action by the Company or any
Significant Subsidiary of the Company in furtherance of any such action; or
(8) any judgment or decree for the payment of money in excess of
$15,000,000 above any applicable insurance coverage or its foreign currency
equivalent at the time is entered against the Company or any Significant
Subsidiary, remains outstanding and unstayed for a period of 60 days following
the entry of such judgment or decree; or
(9) the Note Guarantee of any Note Guarantor ceases to be in full force
and effect (other than (x) in accordance with the terms of such Note Guarantee
or (y) with respect to any Note Guarantor that is not a Significant Subsidiary,
as a result of the occurrence of an event described in clause (6) or clause (7)
above) or any Note Guarantor denies or disaffirms its obligations under its Note
Guarantee.
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A Default under clause (4) is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the
Notes notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such notice
Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (3), (5) or (9) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (6) or (8), its status and what action the Company is taking or
proposes to take with respect thereto.
SECTION 6.02 ACCELERATION
If an Event of Default (other than an Event of Default specified in
Section 6.01(6) or (7) with respect to the Company) occurs and is continuing,
the Trustee by written notice to the Company, or the Holders of at least 25% in
principal amount of the Notes by written notice to the Company and the Trustee,
may declare the principal of, premium, if any, and accrued but unpaid interest
on all the Notes to be due and payable. Upon such a declaration, such principal,
premium, if any, and interest shall be due and payable immediately. If an Event
of Default specified in Section 6.01(6) or (7) with respect to the Company
occurs, the principal of, premium, if any, and interest on all the Notes shall
automatically become and be immediately due and payable without any declaration
or other act on the part of the Trustee or any Noteholders. The Holders of a
majority in principal amount of the Notes by notice to the Trustee and the
Company may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal, premium, if any, or
interest that has become due solely because of such acceleration. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
SECTION 6.03 OTHER REMEDIES
The Company covenants that if an Event of Default specified in Section
6.01(1) or Section 6.01(2) occurs the Company shall, upon demand of the Trustee,
pay to the Trustee, for the benefit of the Holders, the whole amount then due
and payable on the Notes for principal, premium, if any, and interest and, to
the extent that payment of such interest shall be legally enforceable, interest
upon the overdue principal (and premium, if any) and upon Defaulted Interest at
the rate or rates prescribed therefor in the Notes, and, in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses of
collection, including reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and all other amounts due to the
Trustee pursuant to Section 7.07 hereof.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal of, premium, if any, or
interest on
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the Notes or to enforce the performance of any provision of the Notes or this
Indenture. The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04 WAIVER OF PAST DEFAULTS
The Holders of not less than a majority in principal amount of the
Notes by notice to the Trustee may, on behalf of the Holders of all the Notes,
waive an existing Default or Event of Default and its consequences except a
continuing Default or Event of Default (i) in the payment of the principal of,
premium, if any or interest on a Note (except a payment default resulting from
an acceleration that has been rescinded) or (ii) in respect of a provision that
under Section 9.02 cannot be amended without the consent of each Noteholder
affected.
SECTION 6.05 CONTROL BY MAJORITY
The Holders of not less than a majority in principal amount of the
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or of exercising any trust or power conferred on
the Trustee. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture or, subject to Section 7.01, that the
Trustee determines is unduly prejudicial to the rights of other Noteholders or
would involve the Trustee in personal liability; PROVIDED, HOWEVER, that the
Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction. Prior to taking any action hereunder, the
Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
SECTION 6.06 LIMITATION ON SUITS
A Noteholder may not pursue any remedy with respect to this Indenture
or the Notes unless:
(1) the Holder has previously given to the Trustee written notice
stating that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Notes have
made a written request to the Trustee to pursue the remedy in respect of such
Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
security or indemnity against any loss, liability or expense to be Incurred in
compliance with such request;
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(4) the Trustee has not complied with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Notes have not
given the Trustee a direction inconsistent with the request during such 60-day
period.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
SECTION 6.07 RIGHTS OF HOLDERS TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of, premium, if any, and interest on the
Notes held by such Holder, on or after the respective due dates expressed in the
Notes, or the Redemption Dates or purchase dates provided for therein or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder;
PROVIDED, that prior to the occurrence of any event giving rise to the
requirement that the Company make an Asset Sale Offer or Change of Control
Offer, nothing contained in this Section 6.07 shall be deemed to require the
consent of the Holders of 100% of the outstanding Notes to amend or supplement
the provisions of Section 4.11 or Section 4.14, respectively, or any other
provision of this Indenture or the Notes relating thereto.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE
If an Event of Default specified in Section 6.01(1) or (2) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount then due and owing
on the Notes for principal, premium, if any, and interest and, to the extent
that payment of such interest shall be legally enforceable, interest upon the
overdue principal (and premium, if any) and upon Defaulted Interest and the
amounts provided for in Section 7.07.
SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
the Noteholders allowed in any judicial proceedings relative to the Company, any
Note Guarantor, their respective creditors or its respective property and,
unless prohibited by law or applicable regulations, may vote on behalf of the
Holders in any election of a trustee in bankruptcy or other Person performing
similar functions, and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make payments to the Trustee. In the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and its counsel, and any
other amounts due the Trustee under Section 7.07.
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SECTION 6.10 PRIORITIES
Subject to the provisions of Article X and Article XII, if the
Trustee collects any money or property pursuant to this Article VI, it shall pay
out the money or property in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: if the Noteholders proceed against the Company
directly without the Trustee in accordance with this Indenture, to the
Noteholders for their collection costs;
THIRD: to the Noteholders for amounts due and unpaid on the
Notes for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for principal and interest, respectively; and
FOURTH: to the Company or, to the extent the Trustee collects
any amount pursuant to Article XI hereof from any Note Guarantor, to
such Note Guarantor.
The Trustee may fix a Record Date and payment date for any
payment to Noteholders pursuant to this Section. At least 15 days before such
Record Date, the Company shall mail to each Noteholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Notes.
SECTION 6.12 WAIVER OF STAY OR EXTENSION LAWS
The Company (to the extent it may lawfully do so) shall not at any time
insist upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of,
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any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture, and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and shall not hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.
ARTICLE VII. TRUSTEE
SECTION 7.01 DUTIES OF TRUSTEE
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent Person would
exercise or use under the circumstances in the conduct of such Person's own
affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) the Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
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(e) money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(f) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise Incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(g) every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 7.01 and to the provisions of the TIA.
SECTION 7.02 RIGHTS OF TRUSTEE
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on any
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall have full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in good faith and in accordance with the advice or opinion of such
counsel.
(f) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by an Officers' Certificate and any resolution of the
Board of Directors may be sufficiently evidenced by a Board Resolution.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be Incurred by it in compliance with such
request or direction.
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SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, the Note
Guarantors or their Affiliates with the same rights it would have if it were not
Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the
same with like rights. However, the Trustee must comply with Section 7.10 and
Section 7.11.
SECTION 7.04 TRUSTEE'S DISCLAIMER
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Company in this Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Trustee's certificate of authentication.
SECTION 7.05 NOTICE OF DEFAULTS
If a Default occurs and is continuing and if it is actually known to
the Trustee, the Trustee shall mail to each Noteholder notice of the Default
within 30 days after it occurs. Except in the case of a Default in the payment
of principal of, premium, if any, or interest on any Note (including payments
pursuant to the mandatory redemption provisions of such Note, if any), the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Noteholders.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS
As promptly as practicable after each [August 1] beginning with the
[August 1] following the date of this Indenture, and in any event prior to
[October 1] in each year, the Trustee shall mail to each Noteholder a brief
report dated as of [August 1] that complies with TIA Section 313(a). The Trustee
also shall comply with TIA Section 313(b) and 313(c).
A copy of each report at the time of its mailing to Noteholders shall
be filed with the SEC and each stock exchange (if any) on which the Notes are
listed. The Company agrees to notify promptly the Trustee whenever the Notes
become listed on any stock exchange and of any delisting thereof.
SECTION 7.07 COMPENSATION AND INDEMNITY
The Company shall pay to the Trustee from time to time compensation for
its services as the Company and the Trustee shall from time to time agree in
writing. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses Incurred or made
by it, including costs of collection,
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in addition to the compensation for its services. Such expenses shall include
the reasonable compensation and expenses, disbursements and advances of the
Trustee's agents and counsel. The Company shall indemnify the Trustee against
any and all loss, liability or expense (including reasonable attorneys' fees)
incurred by it in connection with the administration of this trust and the
performance of its duties hereunder.
The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder.
The Company shall defend the claim and the Trustee shall cooperate in
the defense of the claim; PROVIDED that the Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel if
the actual or potential defendants in, or the targets of, any such claim include
both the Trustee and the Company and the Trustee shall have reasonably concluded
that there may be legal defenses available to it which are different from or
additional to those available to the Company.
The Trustee will not, without the prior written consent of the Company,
settle or compromise or consent to the entry of any judgment with respect to any
claim in respect of which indemnification may be sought hereunder. The Company
need not reimburse any expense or indemnify against any loss, liability or
expense Incurred by the Trustee through the Trustee's own wilful misconduct,
negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of, premium, if any, and interest on particular Notes.
The Company's payment obligations pursuant to this Section 7.07 shall
survive the discharge of this Indenture. When the Trustee Incurs expenses after
the occurrence of a Default specified in Section 6.01(6) or (7) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.08 REPLACEMENT OF TRUSTEE
The Trustee may resign at any time by so notifying the Company. The
Holders of not less than a majority in principal amount of the Notes may remove
the Trustee by so notifying the Trustee and may appoint a successor Trustee. The
Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
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(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Notes and such Holders do not reasonably
promptly appoint a successor Trustee, or if a vacancy exists in the office of
Trustee for any reason (the Trustee in such event being referred to herein as
the retiring Trustee), the Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Noteholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the Lien
provided for in Section 7.07.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
not less than 10% in principal amount of the Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor to the Trustee, and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of authentication of the Trustee
shall have.
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SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
The Trustee shall at all times satisfy the requirements of TIA Section
310(a). The Trustee shall have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition. The Trustee shall comply with TIA Section 310(b); PROVIDED, HOWEVER,
that there shall be excluded from the operation of TIA Section 310(b)(1) any
indenture or indentures under which other securities or certificates of interest
or participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
SECTION 7.12 TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY
Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, be set forth in writing and shall
state any action proposed to be taken or omitted by the Trustee under this
Indenture and the date on and/or after which such action shall be taken or such
omission shall be effective. The Trustee shall not be liable for any action
taken by, or omission of, the Trustee in accordance with a proposal included in
such application on or after the date specified in such application (which date
shall not be less than three Business Days after the date any Officer of the
Company actually receives such application, unless any such Officer shall have
consented in writing to any earlier date) unless prior to taking any such action
(or the effective date in the case of an omission), the Trustee shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
SECTION 7.13 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not later than 15 days after the Record Date for
interest for the Notes, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders of the Notes as of such
Record Date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished, PROVIDED, HOWEVER, that, so long as the Trustee is the Registrar,
no such list shall be required to be furnished.
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ARTICLE VIII. DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01 DISCHARGE OF LIABILITY ON NOTES; DEFEASANCE
(a) When (i) the Company delivers to the Trustee all outstanding Notes
(other than Notes replaced pursuant to Section 2.07) for cancellation or (ii)
all outstanding Notes have become due and payable, whether at Stated Maturity or
as a result of the mailing of a notice of redemption pursuant to Article III
hereof and the Company irrevocably deposits with the Trustee funds sufficient to
pay at Stated Maturity or upon redemption all outstanding Notes, including
interest accrued and unpaid thereon to Stated Maturity or such Redemption Date
(other than Notes replaced pursuant to Section 2.07), and if in either case the
Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Section 8.01 (c), cease to be of further effect. The
Trustee shall acknowledge satisfaction and discharge of this Indenture on demand
of the Company accompanied by an Officers' Certificate and an Opinion of Counsel
and at the cost and expense of the Company.
(b) Subject to Section 8.01 (c) and Section 8.02, the Company at any
time may terminate:
(i) all its obligations under the Notes and this Indenture and
the Guarantee Obligations of the Note Guarantors under the Note
Guarantees, the Notes and the Indenture ("legal defeasance option")
subject to the following which shall survive until otherwise terminated
or discharged hereunder:
(A) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest
on such Notes when payments are due from the trust referred to below;
(B) the Company's obligations with respect to such Notes under
Section 2.03, Section 2.04, Section 2.06, Section 2.07, Section 2.09,
Section 4.02, Section 4.03 and Section 4.04 hereof;
(C) RESERVED
(D) the rights, powers, trusts, duties and immunities of the
Trustee under this Indenture and the Company's obligations in
connection therewith,
(E) Article III hereof, and
(F) this Article VIII; or
(ii) its obligations under Section 4.05 through Section 4.17
and the operation of Section 6.01(3) (but only as it applies to Section
5.01(a)(iii)), Section 6.01(5), Section 6.01(6), Section 6.01(7) and
Section 6.01(8) (but, in the case of Section 6.01(6) and (7), with
respect only to Significant Subsidiaries) or contained in Section
5.01(a)(iii) ("covenant defeasance option").
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The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Notes may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in Section 6.01(3), Section
6.01(4), and Section 6.01(9) or because of the failure of the Company to comply
with Section 5.01(a)(iii). If the Company exercise its legal defeasance option
or its covenant defeasance option, each Note Guarantor shall be released from
all of its obligations under its Note Guarantee.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Section 8.04, Section 8.05 and Section 8.06 shall survive.
SECTION 8.02 CONDITIONS TO DEFEASANCE
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money or
US Government Obligations for the payment of principal of and interest on the
Notes to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing its opinion that the
payments of principal and interest when due and without reinvestment on the
deposited US Government Obligations plus any deposited money without investment
will provide cash at such times and in such amounts as will be sufficient to pay
principal of, premium, if any, and interest when due on all the Notes to Stated
Maturity or redemption, as the case may be;
(3) 91 days pass after the deposit is made and during the 91-day period
no Default specified in Section 6.01(6) or (7) with respect to the Company
occurs which is continuing at the end of the period;
(4) the deposit does not result in a breach or violation of, or
constitute a default under any other agreement or instrument binding on the
Company or any of its Subsidiaries and is not prohibited by Article X;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company Act of
1940;
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(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (ii) since the date of this Indenture there has been a change in the
applicable Federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Noteholders will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Noteholders will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred;
(8) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the defeasance
and discharge of the Notes as contemplated by this Article VIII have been
complied with;
(9) the Company shall have delivered to the Trustee an Officer's
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or the Note
Guarantors or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Company, the Note Guarantors or others; and
(10) such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the TIA (assuming
for the purpose of this clause (10) that all Notes are in default within the
meaning of such Act).
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Notes at a future date in
accordance with Article I.
SECTION 8.03 APPLICATION OF TRUST MONEY
The Trustee shall hold in trust money or US Government Obligations
deposited with it pursuant to this Article VIII. It shall apply the deposited
money and the money from US Government Obligations through the Paying Agent and
in accordance with this Indenture to the payment of principal of, premium, if
any, and interest on the Notes. Money and securities so held in trust are not
subject to Article X.
SECTION 8.04 REPAYMENT TO COMPANY
The Trustee and the Paying Agent shall promptly turn over to the
Company upon request any excess money or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the Paying
Agent shall pay to the
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Company upon request any money held by them for the payment of principal of,
premium, if any, or interest that remains unclaimed for two years, and,
thereafter, Noteholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.05 INDEMNITY FOR GOVERNMENT OBLIGATIONS
The Company shall pay and shall indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against deposited US Government
Obligations or the principal and interest received on such US Government
Obligations.
SECTION 8.06 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any money or US
Government Obligations in accordance with this Article VIII by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to this
Article VIII until such time as the Trustee or Paying Agent is permitted to
apply all such money or US Government Obligations in accordance with this
Article VIII; PROVIDED, HOWEVER, that, if the Company has made any payment of
interest on or principal of any Notes because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or US Government Obligations
held by the Trustee or Paying Agent.
ARTICLE IX. AMENDMENTS
SECTION 9.01 WITHOUT CONSENT OF HOLDERS
The Company and the Trustee may amend this Indenture or the Notes
without notice to or consent of any Noteholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article V;
(3) to provide for uncertificated Notes in addition to or in place of
Certificated Notes; PROVIDED, HOWEVER, that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code;
(4) to make any change in Article X or Article XII that would limit or
terminate the benefits available to any holder of Senior Indebtedness (or
Representatives therefor) under Article X or Article XII;
(5) to add Guarantees with respect to the Notes or to secure the Notes;
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(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the TIA;
or
(8) to make any change that does not adversely affect the rights of any
Noteholder.
An amendment under this Section 9.01 may not make any change that
adversely affects the rights under Article X or Article XII of any holder of
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
After an amendment under this Section 9.01 becomes effective, the
Company shall mail to Noteholders a notice briefly describing such amendment.
The failure to give such notice to all Noteholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section 9.01.
SECTION 9.02 WITH CONSENT OF HOLDERS
The Company and the Trustee may amend this Indenture or the Notes
without notice to any Noteholder but with the written consent of the Holders of
at least a majority in principal amount of the Notes then outstanding and any
past Default or compliance with any provisions may also be waived with the
consent of the Holders of not less than a majority of the principal amount of
Notes then outstanding. However, without the consent of each Noteholder
affected, an amendment may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the premium payable upon the redemption of any Note or
change the time at which any Note must be redeemed in accordance with Article
III;
(5) make any Note payable in money other than that stated in the Note;
(6) make any change in Article X or Article XII that adversely affects
the rights of any Noteholder under Article X or Article XII;
(7) make any change in Section 6.04 or Section 6.07 or the second
sentence of this Section 9.02; or
(8) make any change in any Note Guarantee that would adversely affect
the Noteholders.
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It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section 9.02 may not make any change that
adversely affects the rights under Article X or Article XII of any holder of
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
After an amendment under this Section 9.02 becomes effective, the
Company shall mail to Noteholders a notice briefly describing such amendment.
The failure to give such notice to all Noteholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment to this Indenture or the Notes shall comply with the
TIA as then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS AND WAIVERS
A consent to an amendment or a waiver by a Holder of a Note shall bind
the Holder and every subsequent Holder of that Note or portion of the Note that
evidences the same debt as the consenting Holder's Note, even if notation of the
consent or waiver is not made on the Note. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Note or
portion of the Note if the Trustee receives the notice of revocation before the
date the amendment or waiver becomes effective. After an amendment or waiver
becomes effective, it shall bind every Noteholder. An amendment or waiver
becomes effective upon the execution of such amendment or waiver by the Trustee.
The Company may, but shall not be obligated to, fix a Record Date for
the purpose of determining the Noteholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a Record Date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Noteholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such Record Date. No such consent shall be valid or effective for more than 120
days after such Record Date.
SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES
If an amendment changes the terms of a Note, the Trustee may require
the Holder of the Note to deliver it to the Trustee. The Trustee may place an
appropriate notation on the Note regarding the changed terms and return it to
the Holder. Alternatively, if the
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Company or the Trustee so determines, the Company in exchange for the Note shall
issue and the Trustee shall authenticate and deliver a new Note that reflects
the changed terms. Failure to make the appropriate notation or to issue a new
Note shall not affect the validity of such amendment.
SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS
The Trustee shall sign any amendment authorized pursuant to this
Article IX if the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may but need
not sign it. In signing such amendment the Trustee shall be entitled to receive
indemnity reasonably satisfactory to it and to receive, and (subject to Section
7.01) shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that such amendment is authorized or permitted by
this Indenture and that such amendment constitutes the legal, valid and binding
obligation of the Company and each Note Guarantor, subject to customary
exceptions.
SECTION 9.07 PAYMENT FOR CONSENT
Neither the Company nor any Affiliate of the Company shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this Indenture
or the Notes unless such consideration is offered to be paid to all Holders that
so consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
ARTICLE X. SUBORDINATION OF THE NOTES
SECTION 10.01 AGREEMENT TO SUBORDINATE
The Company agrees, and each Noteholder by accepting a Note agrees,
that the Obligations in respect of the Notes and the Indenture are subordinated
in right of payment, to the extent and in the manner provided in this Article X,
to the prior payment in full in cash or Cash Equivalents of all Senior
Indebtedness of the Company and that the subordination is for the benefit of and
enforceable by the holders of such Senior Indebtedness. Only Obligations in
respect of Senior Indebtedness will rank senior to the Obligations in respect of
the Notes and the Indenture in accordance with the provisions set forth herein.
The Notes shall in all respects rank PARI PASSU with, or be senior to, all other
Indebtedness of the Company. All provisions of this Article X shall be subject
to Section 10.02.
SECTION 10.02 LIQUIDATION, DISSOLUTION, BANKRUPTCY
Upon any Insolvency or Liquidation Proceeding:
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(1) holders of Senior Indebtedness of the Company shall be entitled to
receive payment in full of such Senior Indebtedness in cash or Cash Equivalents
before Noteholders shall be entitled to receive any payment in respect of the
Obligations in respect of the Notes and the Indenture; and
(2) until such Senior Indebtedness is paid in full in cash or Cash
Equivalents, any distribution to which Noteholders would be entitled but for
this Article X shall be made to holders of such Senior Indebtedness as their
interests may appear, except that Noteholders may receive (a) securities of a
Person that are subordinated to such Senior Indebtedness to at least the same
extent as the Notes are subordinated to (A) Senior Indebtedness of the Company
and (B) any securities issued in exchange for Senior Indebtedness ("Subordinated
Reorganization Securities") and (b) payments and other distributions made from
any defeasance trust created pursuant to Section 8.01 hereof.
SECTION 10.03 DEFAULT ON SENIOR INDEBTEDNESS OF THE COMPANY
The Company may not pay any amount in respect of the Obligations in
respect of the Notes and the Indenture or make any deposit pursuant to Section
8.01 and may not repurchase, redeem or defease any Notes (collectively, "pay the
Notes") (other than with Subordinated Reorganization Securities and payments and
other distributions made from any defeasance trust created pursuant to Section
8.01 hereof) if (i) any Designated Senior Indebtedness of the Company is not
paid when due or (ii) any other default on such Designated Senior Indebtedness
occurs and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, (x) the default has been cured
or waived and any such acceleration has been rescinded or (y) such Designated
Senior Indebtedness has been paid in full in cash or Cash Equivalents; PROVIDED,
HOWEVER, that the Company may pay the Notes without regard to the foregoing if
the Company and the Trustee receive written notice approving such payment from
the Representative of such Designated Senior Indebtedness. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the preceding sentence) with respect to any Designated Senior Indebtedness of
the Company pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Company and the Trustee of written notice of
such default (a "Blockage Notice") from the Representative of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) by repayment in full in cash or
Cash Equivalents of such Designated Senior Indebtedness or (iii) because the
Representative of the holders of such Designated Senior Indebtedness shall have
notified the Trustee that the default giving rise to such Blockage Notice is no
longer continuing). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this Section 10.03), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders
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shall have accelerated the maturity of such Designated Senior Indebtedness, the
Company may resume payments on the Notes after such Payment Blockage Period. A
Payment Blockage Period instituted pursuant to this Section 10.03 shall also be
deemed to be a Payment Blockage Period pursuant to Section 12.03 hereof. During
any 360-day period, the aggregate of all Payment Blockage Periods under this
Article X and Article XII shall not exceed 179 days and there shall be a period
of at least 181 consecutive days in each consecutive 360-day period when no
Payment Blockage Period is in effect. For purposes of this Section 10.03, no
default or event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
SECTION 10.04 ACCELERATION OF PAYMENT OF NOTES
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness of the Company (or their Representative) of the
acceleration.
SECTION 10.05 WHEN DISTRIBUTION MUST BE PAID OVER
If, in contravention of the provisions of this Article X, the Trustee
or any Noteholder shall have received any payment or distribution before all
Senior Indebtedness is paid in full in cash or Cash Equivalents, then such
distribution shall be held in trust for the benefit of, and shall be forthwith
paid over and delivered, to the holders of Senior Indebtedness as their
interests may appear, or their Representative under the agreement pursuant to
which Senior Indebtedness may have been issued, as their respective interests
may appear, for application to the payment of Senior Indebtedness to the extent
necessary to pay all Senior Indebtedness in full.
SECTION 10.06 SUBROGATION
After all Senior Indebtedness of the Company is paid in full in cash or
Cash Equivalents and until the Notes are paid in full, Noteholders shall be
subrogated to the rights of holders of such Senior Indebtedness to receive
distributions applicable to such Senior Indebtedness. A distribution made under
this Article X to holders of such Senior Indebtedness which otherwise would have
been made to Noteholders is not, as between the Company and Noteholders, a
payment by the Company on such Senior Indebtedness.
SECTION 10.07 RELATIVE RIGHTS
This Article X defines the relative rights of Noteholders and holders
of Senior Indebtedness of the Company. Nothing in this Indenture shall:
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(1) impair, as between the Company and Noteholders, the obligation of
the Company, which is absolute and unconditional, to pay principal of, premium,
if any, and interest on the Notes in accordance with their terms; or
(2) prevent the Trustee or any Noteholder from exercising its
available remedies upon a Default, subject to the rights of holders of Senior
Indebtedness of the Company to receive distributions otherwise payable to
Noteholders.
SECTION 10.08 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY
No right of any holder of Senior Indebtedness of the Company to enforce
the subordination of the Indebtedness evidenced by the Notes shall be impaired
by any act or failure to act by the Company or by its failure to comply with
this Indenture.
SECTION 10.09 RIGHTS OF TRUSTEE AND PAYING AGENT
Notwithstanding Section 10.03, the Trustee or Paying Agent may continue
to make payments on the Notes and shall not be charged with knowledge of the
existence of facts that would prohibit the making of any such payments unless,
not less than two Business Days prior to the date of such payment, a Trust
Officer of the Trustee receives notice satisfactory to it that payments may not
be made under this Article X. The Company, the Registrar or co-registrar, the
Paying Agent, a Representative or a holder of Senior Indebtedness may give the
notice; PROVIDED, HOWEVER, that, if the holders of an issue of Senior
Indebtedness of the Company have a Representative, only the Representative may
give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness of the Company with the same rights it would have if it were not
the Trustee. The Registrar and co-registrar and the Paying Agent may do the same
with like rights. The Trustee shall be entitled to all the rights set forth in
this Article X with respect to any Senior Indebtedness of the Company which may
at any time be held by it, to the same extent as any other holder of such Senior
Indebtedness, and nothing in Article VII shall deprive the Trustee of any of its
rights as such holder Nothing in this Article X shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07.
SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness of the Company, the distribution may be made and the notice
given to their Representative (if any).
SECTION 10.11 ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT TO
ACCELERATE
The failure to make a payment pursuant to the Notes by reason of any
provision in this Article X shall not be construed as preventing the occurrence
of a Default. Nothing
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in this Article X shall have any effect on the right of the Noteholders or the
Trustee to accelerate the maturity of the Notes.
SECTION 10.12 TRUST MONEYS NOT SUBORDINATED
Notwithstanding anything contained herein to the contrary, payments
from money or the proceeds of US Government Obligations held in trust under
Article VIII by the Trustee for the payment of principal of, premium, if any,
and interest on the Notes shall not be subordinated to the prior payment of any
Senior Indebtedness or subject to the restrictions set forth in this Article X,
and none of the Noteholders shall be obligated to pay over any such amount to
the Company or any holder of Senior Indebtedness of the Company or any other
creditor of the Company.
SECTION 10.13 TRUSTEE ENTITLED TO RELY UPON ANY PAYMENT OR DISTRIBUTION
Pursuant to this Article X, the Trustee and the Noteholders shall be
entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Noteholders or (iii) upon the Representative for the holders of Senior
Indebtedness of the Company for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of such Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article X. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness of the Company to participate
in any payment or distribution pursuant to this Article X, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of such Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and other facts pertinent to the rights of such Person under this
Article X, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Section 7.01 and Section 7.02
shall be applicable to all actions or omissions of actions by the Trustee
pursuant to this Article X.
SECTION 10.14 TRUSTEE TO EFFECTUATE SUBORDINATION
Each Noteholder by accepting a Note authorizes and directs the Trustee
on such Noteholder's behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination between the
Noteholders and the holders of Senior Indebtedness of the Company as provided in
this Article X and appoints the Trustee as attorney-in-fact for any and all such
purposes.
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SECTION 10.15 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders,
absent gross negligence or wilful misconduct, if it shall mistakenly pay over or
distribute to Noteholders or the Company or any other Person, money or assets to
which any holders of Senior Indebtedness of the Company shall be entitled by
virtue of this Article X or otherwise.
SECTION 10.16 RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION
PROVISIONS
Each Noteholder by accepting a Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness of the Company,
whether such Senior Indebtedness was created or acquired before or after the
issuance of the Notes, to acquire and continue to hold, or to continue to hold,
such Senior Indebtedness and such holder of such Senior Indebtedness shall be
deemed conclusively to have relied on such subordination provisions in acquiring
and continuing to hold, or in continuing to hold, such Senior Indebtedness.
ARTICLE XI. NOTE GUARANTEES; RELEASE OF NOTE GUARANTEES;
ADDITIONAL NOTE GUARANTEES
SECTION 11.01 NOTE GUARANTEES
(a) Each Note Guarantor hereby unconditionally and irrevocably
Guarantees to each Holder and to the Trustee and its successors and assigns (a)
the full and punctual payment of principal of, premium, if any, and interest on
the Notes when due, whether at maturity, by acceleration, by redemption or
otherwise, and all other monetary obligations of the Company under this
Indenture and the Notes and (b) the full and punctual performance within
applicable grace periods of all other obligations of the Company under this
Indenture and the Notes (all the foregoing being hereinafter collectively called
the "Guarantee Obligations"). Each Note Guarantor further agrees that the
Guarantee Obligations may be extended or renewed, in whole or in part, without
notice or further assent from such Note Guarantor and that such Note Guarantor
will remain bound under this Article XI notwithstanding any extension or renewal
of any Guarantee Obligation.
(b) Each Note Guarantor waives presentation to, demand of, payment from
and protest to the Company of any of the Guarantee Obligations and also waives
notice of protest for nonpayment. Each Note Guarantor waives notice of any
default under the Notes or the Guarantee Obligations. The obligations of each
Note Guarantor hereunder shall not be affected by (a) the failure of any Holder
or the Trustee to assert any claim or demand or to enforce any right or remedy
against the Company or any other Person under this Indenture, the Notes or any
other agreement or otherwise; (b) any extension or renewal of any thereof, (c)
any rescission, waiver, amendment or modification of any of the terms or
provisions of this Indenture, the Notes or any other agreement; (d) the
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release of any security held by any Holder or the Trustee for the Guarantee
Obligations or any of them; (e) the failure of any Holder or Trustee to exercise
any right or remedy against any other guarantor of the Guarantee Obligations; or
(f) any change in the ownership of any Note Guarantor.
(c) Each Note Guarantor further agrees that its Note Guarantee herein
constitutes a Guarantee of payment, performance and compliance when due (and not
a Guarantee of collection) and waives any right to require that any resort be
had by any Holder or the Trustee to any security held for payment of the
Guarantee Obligations.
(d) Each Note Guarantee is, to the extent and in the manner set forth
in Article XII, subordinated and subject in right of payment to the prior
payment in full of all Senior Indebtedness of such Note Guarantor and is made
subject to such provisions of this Indenture.
(e) Except as expressly set forth in Section 8.01 (b) and Section
11.05, the Guarantee Obligations of each Note Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Guarantee Obligations or otherwise. Without limiting the
generality of the foregoing, the Guarantee Obligations of each Note Guarantor
herein shall not be discharged or impaired or otherwise affected by the failure
of any Holder or the Trustee to assert any claim or demand or to enforce any
remedy under this Indenture, the Notes or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, wilful or
otherwise, in the performance of the Guarantee Obligations, or by any other act
or thing or omission or delay to do any other act or thing which may or might in
any manner or to any extent vary the risk of each Note Guarantor or would
otherwise operate as a discharge of such Note Guarantor as a matter of law or
equity.
(f) Each Note Guarantor further agrees that its Note Guarantee herein
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of principal, premium, if any, or interest on
any Guarantee Obligation is rescinded or must otherwise be restored by any
Holder or the Trustee upon the bankruptcy or reorganization of the Company or
otherwise.
(g) In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any Note
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
of, premium, if any or interest on any Guarantee Obligation when and as the same
shall become due, whether at maturity, by acceleration, by redemption or
otherwise, or to perform or comply with any other Guarantee Obligation, each
Note Guarantor hereby promises to and will, upon receipt of written demand by
the Trustee, forthwith pay, or cause to be paid, in cash of Cash Equivalents, to
the Holders or the Trustee an amount equal to the sum of (i) the unpaid amount
of such Guarantee Obligations, (ii) accrued and unpaid interest on such
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Guarantee Obligations (but only to the extent not prohibited by law) and (iii)
all other monetary Guarantee Obligations of the Company to the Holders and the
Trustee.
(h) Each Note Guarantor agrees that it shall not be entitled to any
right of subrogation in respect of any Guarantee Obligations Guaranteed hereby
until payment in full in cash or Cash Equivalents of all Guarantee Obligations
and all obligations to which the Guarantee Obligations are subordinated as
provided in Article XII. Each Note Guarantor further agrees that, as between it,
on the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the Guarantee Obligations Guaranteed hereby may be accelerated as
provided in Article VI for the purposes of such Note Guarantor's Note Guarantee
herein, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Guarantee Obligations Guaranteed hereby, and
(y) in the event of any declaration of acceleration of such Guarantee
Obligations as provided in Article VI, such Guarantee Obligations (whether or
not due and payable) shall forthwith become due and payable by such Note
Guarantor for the purposes of this Section 11.01.
(i) Each Note Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) Incurred by the Trustee or any
Holder in enforcing any rights under this Section 11.01.
SECTION 11.02 SUCCESSORS AND ASSIGNS
This Article XI shall be binding upon each Note Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
conferred upon that party in this Indenture and in the Notes shall automatically
extend to and be vested in such transferee or assignee, all subject to the terms
and conditions of this Indenture.
SECTION 11.03 NO WAIVER
Neither a failure nor a delay on the part of either the Trustee or the
Holders in exercising any right, power or privilege under this Article XI shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any right, power or privilege. The
rights, remedies and benefits of the Trustee and the Holders herein expressly
specified are cumulative and not exclusive of any other rights, remedies or
benefits which either may have under this Article XI at law, in equity, by
statute or otherwise.
SECTION 11.04 MODIFICATION
No modification, amendment or waiver of any provision of this Article
XI, nor the consent to any departure by any Note Guarantor therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Trustee, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for
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which given. No notice to or demand on any Note Guarantor in any case shall
entitle such Note Guarantor to any other or further notice or demand in the
same, similar or other circumstances.
SECTION 11.05 LIMITATION OF NOTE GUARANTOR'S LIABILITY
Each Note Guarantor, and by its acceptance hereof each Holder, hereby
confirms that it is the intention of all such parties that the Note Guarantee of
such Note Guarantor not constitute a fraudulent transfer or conveyance for
purposes of the Bankruptcy Law, federal and state fraudulent conveyance laws or
any similar federal, state or foreign law. To effectuate the foregoing
intention, the Holders and each Note Guarantor hereby irrevocably agree that the
obligations of each Note Guarantor under this Article XI shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Note Guarantor and after giving effect to any collections
from or payments made by or on behalf of any other Note Guarantor in respect of
the Guarantee Obligations of such other Note Guarantor under this Article XI,
result in the obligations of such Note Guarantor under its Note Guarantee not
constituting a fraudulent transfer or conveyance under applicable federal, state
or foreign law.
SECTION 11.06 RELEASE OF NOTE GUARANTEES
In the event of a sale or other disposition of all or substantially all
of the assets of any Note Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Note Guarantor, by way of merger, consolidation or otherwise, such Note
Guarantor (in the event of a sale or other disposition of all of the Capital
Stock of such Note Guarantor) will be released and relieved of any Guarantee
Obligations under its Note Guarantee or the Person acquiring the property (in
the event of a sale or other disposition of all or substantially all of the
assets of such Note Guarantor) will not be required to enter into a Note
Guarantee; PROVIDED, in each case, that (i) such transaction is carried out
pursuant to and in accordance with Section 4.11 and Section 5.01 (if applicable)
hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate
and Opinion of Counsel, to the effect that such sale or other disposition was
made by the Company in accordance with the provisions of this Indenture,
including without limitation Section 4.11 and Section 5.01 (if applicable)
hereof, the Trustee shall execute any documents reasonably required in order to
evidence the release of any such Note Guarantor from its obligations under its
Note Guarantee.
SECTION 11.07 ADDITIONAL NOTE GUARANTEES
In the event that any Subsidiary shall, as of or after the Issue Date,
enter into a Guarantee of the Obligations in respect of the Senior Credit
Facilities, the Company will cause such Subsidiary to execute a Guarantee (an
"Additional Guarantee") of the Company's obligations under this Indenture and
the Notes to the same extent that the Note Guarantors have Guaranteed the
Guarantee Obligations pursuant to this Article XI, it being understood that such
Additional Guarantee shall be subordinated in right of
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payment to Senior Indebtedness of such Additional Guarantor including Guarantees
constituting Senior Indebtedness; PROVIDED, HOWEVER, each Subsidiary that
becomes a Note Guarantor will be automatically and unconditionally released and
discharged from its obligations under such Additional Guarantee in accordance
with Section 11.06 above.
ARTICLE XII. SUBORDINATION OF THE NOTE GUARANTEES
SECTION 12.01 AGREEMENT TO SUBORDINATE
Each Note Guarantor agrees, and each Noteholder by accepting a Note
agrees, that the Guarantee Obligations of such Note Guarantor are subordinated
in right of payment, to the extent and in the manner provided in this Article
XII, to the prior payment in full in cash or Cash Equivalents of all Senior
Indebtedness of such Note Guarantor and that the subordination is for the
benefit of and enforceable by the holders of such Senior Indebtedness. Only
Obligations in respect of Senior Indebtedness of each Note Guarantor shall rank
senior to the Guarantee Obligations of such Note Guarantor in accordance with
the provisions set forth herein. The Guarantee Obligations of each Note
Guarantor shall in all respects rank PARI PASSU with, or be senior to, all other
Indebtedness of such Note Guarantor.
SECTION 12.02 LIQUIDATION, DISSOLUTION, BANKRUPTCY
Upon any Insolvency or Liquidation Proceeding:
(1) holders of Senior Indebtedness of such Note Guarantor shall be
entitled to receive payment in full of such Senior Indebtedness in cash or Cash
Equivalents before Noteholders shall be entitled to receive any payment pursuant
to the Note Guarantee of such Note Guarantor; and
(2) until the Senior Indebtedness of such Note Guarantor is paid in
full in cash or Cash Equivalents, any distribution to which Noteholders would be
entitled but for this Article XII shall be made to holders of such Senior
Indebtedness as their interests may appear, except that Noteholders may receive
Subordinated Reorganization Securities and payments and other distributions made
from any defeasance trust created pursuant to Section 8.01 hereof.
SECTION 12.03 DEFAULT ON SENIOR INDEBTEDNESS OF NOTE GUARANTORS
Each Note Guarantor may not make any payment pursuant to any of its
Guarantee Obligations or repurchase, redeem or otherwise retire or defease any
Notes or other Guarantee Obligations (collectively, "pay its Note Guarantee")
(other than with Subordinated Reorganization Securities and payments and other
distributions from any defeasance trust created pursuant to Section 8.01 hereof)
if (i) any Designated Senior Indebtedness of the relevant Note Guarantor is not
paid when due or (ii) any other default on Designated Senior Indebtedness of
such Note Guarantor occurs and the maturity of
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such Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, (x) the default has been cured or waived and any such
acceleration has been rescinded or (y) such Designated Senior Indebtedness has
been paid in full in cash or Cash Equivalents; PROVIDED, HOWEVER, such Note
Guarantor may pay its Note Guarantee without regard to the foregoing if such
Note Guarantor and the Trustee receive written notice approving such payment
from the Representative of the Designated Senior Indebtedness. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the preceding sentence) with respect to any Designated Senior Indebtedness of
such Note Guarantor pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
such Note Guarantor may not pay its Note Guarantee for the Payment Blockage
Period commencing upon the receipt by the Trustee (with a copy to such Note
Guarantor) of a Blockage Notice from the Representative of the holders of such
Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and such Note
Guarantor from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full in cash or Cash Equivalents of such Designated Senior
Indebtedness, or (iii) because a Representative of the holders of such
Designated Senior Indebtedness has notified the Trustee that the default giving
rise to such Blockage Notice is no longer continuing. Notwithstanding the
provisions described in the immediately preceding sentence (but subject to the
first sentence of this Section 12.03), unless the holders of such Designated
Senior Indebtedness of such Note Guarantor or the Representative of such holders
has accelerated the maturity of such Designated Senior Indebtedness, such Note
Guarantor may resume payments on its Note Guarantee after the end of such
Payment Blockage Period. A Payment Blockage Period instituted pursuant to this
Section 12.03shall also be deemed to be a Payment Blockage Period pursuant to
Section 10.03 hereof. During any 360-day period, the aggregate of all Payment
Blockage Periods under this Article XII and Article X with respect to any Note
Guarantee shall not exceed 179 days and there shall be a period of at least 181
consecutive days in each consecutive 360-day period with respect to each Note
Guarantee when no Payment Blockage Period is in effect. For purposes of this
Section 12.03, no default or event of default that existed or was continuing on
the date of the commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness initiating such Payment Blockage Period shall be,
or be made, the basis of the commencement of a subsequent Payment Blockage
Period by the Representative of such Designated Senior Indebtedness, whether or
not within a period of 360 consecutive days, unless such default or event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
SECTION 12.04 DEMAND FOR PAYMENT
If a demand for payment is made on any Note Guarantor pursuant to
Article XI, the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representatives) of such Note Guarantor of such
demand.
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SECTION 12.05 WHEN DISTRIBUTION MUST BE PAID OVER
If, in contravention of the provisions of this Article XII, the Trustee
or any Noteholder shall have received any payment or distribution before all
Senior Indebtedness of any Note Guarantor is paid in full in cash or Cash
Equivalents, then such distribution shall be held in trust for the benefit of,
and shall be forthwith paid over and delivered, to the holders of Senior
Indebtedness of such Note Guarantor, as their interests may appear, or their
Representative under the agreement pursuant to which Senior Indebtedness of such
Note Guarantor may have been issued, as their respective interests may appear,
for application to the payment of Senior Indebtedness of such Note Guarantor to
the extent necessary to pay all Senior Indebtedness of such Note Guarantor in
full.
SECTION 12.06 SUBROGATION
After all Senior Indebtedness of each Note Guarantor is paid in full in
cash or Cash Equivalents and until the Notes are paid in full, Noteholders shall
be subrogated to the rights of holders of such Senior Indebtedness to receive
distributions applicable to such Senior Indebtedness. A distribution made under
this Article XII to holders of such Senior Indebtedness which otherwise would
have been made to Noteholders is not, as between each Note Guarantor and
Noteholders, a payment by such Note Guarantor on such Senior Indebtedness.
SECTION 12.07 RELATIVE RIGHTS
This Article XII defines the relative rights of Noteholders and holders
of Senior Indebtedness of each Note Guarantor. Nothing in this Indenture shall:
(1) impair, as between each Note Guarantor and the Noteholders, the
obligation of the such Note Guarantor, which is absolute and unconditional, to
pay its Guarantee Obligations to the extent set forth in Article XI; or
(2) prevent the Trustee or any Noteholder from exercising its available
remedies upon a default by any Note Guarantor under its Guarantee Obligations,
subject to the rights of holders of Senior Indebtedness of such Note Guarantor
to receive distributions otherwise payable to Noteholders.
SECTION 12.08 SUBORDINATION MAY NOT BE IMPAIRED BY NOTE GUARANTORS
No right of any holder of Senior Indebtedness of any Note Guarantor to
enforce the subordination of the Guarantee Obligations of such Note Guarantor
shall be impaired by any act or failure to act by such Note Guarantor or by its
failure to comply with this Indenture.
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SECTION 12.09 RIGHTS OF TRUSTEE AND PAYING AGENT
Notwithstanding Section 12.03, the Trustee or Paying Agent may continue
to make payments on each Note Guarantee and shall not be charged with knowledge
of the existence of facts that would prohibit the making of any such payments
unless, not less than two Business Days prior to the date of such payment, a
Trust Officer of the Trustee receives written notice satisfactory to it that
payments may not be made under this Article XII. The Company, each Note
Guarantor, the Registrar or co-registrar, the Paying Agent, a Representative or
a holder of Senior Indebtedness of any Note Guarantor may give the notice;
PROVIDED, HOWEVER, that, if an issue of Senior Indebtedness of any Note
Guarantor has a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article XII with respect to any Senior Indebtedness of any Note Guarantor which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in Article VII shall deprive the Trustee of any of its
rights as such holder Nothing in this Article XII shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07.
SECTION 12.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness of any Note Guarantor, the distribution may be made and the
notice given to their Representative (if any).
SECTION 12.11 ARTICLE 12 NOT TO PREVENT DEFAULTS UNDER THE NOTE GUARANTEES OR
LIMIT RIGHT TO DEMAND PAYMENT
The failure to make a payment pursuant to any Note Guarantee by reason
of any provision in this Article XII shall not be construed as preventing the
occurrence of a default under such Note Guarantee. Nothing in this Article XII
shall have any effect on the right of the Noteholders or the Trustee to make a
demand for payment on any Note Guarantor pursuant to Article XI.
SECTION 12.12 TRUSTEE ENTITLED TO RELY UPON ANY PAYMENT OR DISTRIBUTION
Pursuant to this Article XII, the Trustee and the Noteholders shall be
entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 12.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Noteholders or (iii) upon the Representative for the holders of Senior
Indebtedness of any Note Guarantor for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of such
Senior Indebtedness and other indebtedness of such Note Guarantor, the amount
thereof or payable thereon,
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the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XII. In the event that the Trustee determines, in
good faith, that evidence is required with respect to the right of any Person as
a holder of Senior Indebtedness of such Note Guarantor to participate in any
payment or distribution pursuant to this Article XII, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness of such Note Guarantor held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution and other facts pertinent to the rights of such Person under this
Article XII, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Section 7.01 and Section 7.02
shall be applicable to all actions or omissions of actions by the Trustee
pursuant to this Article XII.
SECTION 12.13 TRUSTEE TO EFFECTUATE SUBORDINATION
Each Noteholder by accepting a Note authorizes and directs the Trustee
on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Noteholders and the
holders of Senior Indebtedness of any Note Guarantor as provided in this Article
XII and appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 12.14 TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS OF NOTE
GUARANTORS
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness of any Note Guarantor and shall not be liable to
any such holders, absent gross negligence or wilful misconduct, if it shall
mistakenly pay over or distribute to Noteholders or the Company or any other
Person, money or assets to which any holders of such Senior Indebtedness shall
be entitled by virtue of this Article XII or otherwise.
SECTION 12.15 RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION
PROVISIONS
Each Noteholder by accepting a Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness of any Note
Guarantor, whether such Senior Indebtedness was created or acquired before or
after the issuance of the Notes, to acquire and continue to hold, or to continue
to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall
be deemed conclusively to have relied on such subordination provisions in
acquiring and continuing to hold, or in continuing to hold, such Senior
Indebtedness.
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ARTICLE XIII. MISCELLANEOUS
SECTION 13.01 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
SECTION 13.02 NOTICES
Any notice or communication shall be in writing and delivered in person
or mailed by first-class mail addressed as follows:
if to the Company or any Note Guarantor:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Attention: Chief Financial Officer
if to the Trustee:
Norwest Bank Minnesota, National Association
6th Street & Marquette Avenue
MAC N9307-120
Minneapolis, Minnesota 55479
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications. Any
notice or communication mailed to a Noteholder shall be mailed to the Noteholder
at the Noteholder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so mailed within the time
prescribed. Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 13.03 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS
Noteholders may communicate pursuant to TIA Section 312(b) with other
Noteholders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
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SECTION 13.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 13.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a covenant
or condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(3) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06 WHEN NOTES DISREGARDED
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or by any Affiliate of the Company shall be disregarded and deemed not
to be outstanding, except that, for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Notes outstanding at the time shall be considered
in any such determination.
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SECTION 13.07 RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR
The Trustee may make reasonable rules for action by or a meeting of
Noteholders. The Registrar and the Paying Agent may make reasonable rules for
their functions.
SECTION 13.08 LEGAL HOLIDAYS
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York or the State
of Georgia. If a payment date is a Legal Holiday, payment shall be made on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period. If a regular record date is a Legal Holiday, the
record date shall not be affected.
SECTION 13.09 GOVERNING LAW
(a) THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN SAID STATE.
(b) Each of the Company and each Note Guarantor hereby (i) agrees that
any suit, action or proceeding against it arising out of or relating to this
Indenture or the Notes, as the case may be, may be instituted in any Federal or
state court sitting in The City of New York, (ii) waives, to the extent
permitted by applicable law, any objection which it may now or hereafter have to
the laying of venue of any such suit, action or proceeding, and any claim that
any suit, action or proceeding in such a court has been brought in an
inconvenient forum, (iii) irrevocably submits to the non-exclusive jurisdiction
of such courts in any suit, action or proceeding, (iv) agrees that final
judgment in any such suit, action or proceeding brought in such a court shall be
conclusive and binding upon each and may be enforced in the courts of the
jurisdiction of which each is subject, respectively, by a suit upon judgment,
(v) agrees that service of process by mail to the addressed specified in Section
13.02 hereof shall constitute personal service of such process on it in any such
suit, action or proceeding.
SECTION 13.10 NO RECOURSE AGAINST OTHERS
No director, officer, employee, incorporator or stockholder of the
Company or any Note Guarantor, as such, shall have any liability for any
obligations of the Company or such Note Guarantor under the Notes, the Note
Guarantees or this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation, solely by reason of its status as
a director, officer, employee, incorporator or stockholder of the Company or
such Note Guarantor. By accepting a Note, each Holder waives and releases all
such liability (but only such liability) as part of the consideration for
issuance of such Note to such Holder.
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SECTION 13.11 SUCCESSORS
All agreements of the Company and each Note Guarantor in this Indenture
and the Notes shall bind their respective successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 13.12 MULTIPLE ORIGINALS
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.
SECTION 13.13 TABLE OF CONTENTS; HEADINGS
The table of contents, cross-reference table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms or provisions hereof.
SECTION 13.14 SEVERABILITY
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 13.15 FURTHER INSTRUMENTS AND ACTS
Upon request of the Trustee, the Company and each Note Guarantor will
execute and deliver such further instruments and do such further acts as may be
reasonably necessary or proper to carry out more effectively the purposes of
this Indenture.
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IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
PARAGON TRADE BRANDS, INC., as Issuer
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
PTB INTERNATIONAL, INC.,
as Guarantor
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
PTB ACQUISITION SUB, INC.,
as Guarantor
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
PTB HOLDINGS, INC., as Guarantor
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
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EXHIBIT T3E.1
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
- -----------------------------------------------x
IN RE) ) Case No. 98-60390
)
PARAGON TRADE BRANDS, INC., ) Chapter 11
)
Debtor. ) Judge Murphy
)
Federal Tax I.D. No. 91-1554663 )
)
- -----------------------------------------------x
SECOND AMENDED PLAN OF REORGANIZATION
<TABLE>
<S> <C>
ALSTON & BIRD LLP O'MELVENY & MYERS LLP
Attorneys for Debtor and Debtor in Attorneys for the Official Committee of Unsecured
Possession Creditors
1201 West Peachtree Street 153 East 53rd Street
Atlanta, Georgia 30309-3424 New York, New York 10022
(404) 881-7000 (212) 326-2000
and and
WILLKIE FARR & GALLAGHER PARKER HUDSON RAINER & DOBBS LLP
Special Reorganization Counsel for Debtor Attorneys for the Official Committee of
and Debtor in Possession Unsecured Creditors
787 Seventh Avenue Suite 1500
New York, New York 10019-6099 285 Peachtree Center Avenue
(212) 728-8000 Atlanta, Georgia 30303
(404) 523-5300
</TABLE>
Dated as of: November 15, 1999
<PAGE> 2
First Amended Plan of Reorganization
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
I. DEFINITIONS..................................................................................................1
1.1. ADMINISTRATIVE CLAIM..............................................................................1
1.2. AFFILIATE.........................................................................................1
1.3. ALLOWED CLAIM.....................................................................................1
1.4. ALLOWED INTEREST..................................................................................2
1.5. APPLICABLE BAR DATE...............................................................................2
1.6. BALLOT............................................................................................2
1.7. BANKRUPTCY CODE...................................................................................2
1.8. BANKRUPTCY COURT..................................................................................2
1.9. BANKRUPTCY RULES..................................................................................2
1.10. BOARD OF DIRECTORS................................................................................2
1.11. BUSINESS DAY......................................................................................3
1.12. BYLAWS............................................................................................3
1.13. CASH..............................................................................................3
1.14. CASH EQUIVALENTS..................................................................................3
1.15. CERTIFICATE OF INCORPORATION......................................................................3
1.16. CHAPTER 11 CASE...................................................................................3
1.17. CLAIM.............................................................................................3
1.18. CLAIMS OBJECTION DEADLINE.........................................................................3
1.19. CLASS.............................................................................................3
1.20. COMMISSION........................................................................................3
1.21. COMMITTEES........................................................................................3
1.22. CONFIRMATION......................................................................................3
1.23. CONFIRMATION DATE.................................................................................3
1.24. CONFIRMATION HEARING..............................................................................4
1.25. CONFIRMATION ORDER................................................................................4
1.26. CONVENIENCE CLAIM.................................................................................4
1.27. CREDITORS' COMMITTEE..............................................................................4
1.28. CURE STATEMENT....................................................................................4
1.29. DEBTOR............................................................................................4
1.30. DEBTOR IN POSSESSION..............................................................................4
1.31. DEBTOR'S PROFESSIONALS............................................................................4
1.32. DELAWARE ACTION...................................................................................4
1.33. DIP BANK AGENT....................................................................................4
1.34. DIP CLAIM.........................................................................................4
1.35. DIP CREDIT AGREEMENT..............................................................................4
1.36. DISALLOWED........................................................................................5
1.37. DISBURSEMENT ACCOUNT(S)...........................................................................5
1.38. DISCLOSURE STATEMENT..............................................................................5
1.39. DISCLOSURE STATEMENT HEARING......................................................................5
</TABLE>
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<TABLE>
<S> <C>
1.40. DISPUTED..........................................................................................5
1.41. DISPUTED CLAIMS RESERVE...........................................................................5
1.42. DISTRIBUTION......................................................................................5
1.43. DISTRIBUTION DATE.................................................................................5
1.44. DISTRIBUTION RECORD DATE..........................................................................5
1.45. EFFECTIVE DATE....................................................................................5
1.46. EQUITY COMMITTEE..................................................................................5
1.47. ESTATE............................................................................................5
1.48. ESTIMATED.........................................................................................6
1.49. ESTIMATED CLAIMS SCHEDULE.........................................................................6
1.50. ESTIMATION ORDER..................................................................................6
1.51. EXCHANGE ACT......................................................................................6
1.52. FEE CLAIM.........................................................................................6
1.53. FEE CLAIMS BAR DATE...............................................................................6
1.54. FILED, FILE OR FILING.............................................................................6
1.55. FINAL DISTRIBUTION................................................................................6
1.56. FINAL DISTRIBUTION DATE...........................................................................6
1.57. FINAL ORDER.......................................................................................6
1.58. IMPAIRED..........................................................................................7
1.59. INITIAL DISTRIBUTION DATE.........................................................................7
1.60. INTEREST..........................................................................................7
1.61. INTEREST HOLDERS' NEW COMMON STOCK AMOUNT.........................................................7
1.62. K-C...............................................................................................7
1.63. K-C SETTLEMENT....................................................................................7
1.64. K-C SETTLEMENT AGREEMENT..........................................................................7
1.65. K-C SETTLEMENT ORDER..............................................................................7
1.66. LITIGATION CLAIMS.................................................................................7
1.67. LITIGATION TRUSTEE................................................................................7
1.68. LITIGATION PROCEEDS...............................................................................7
1.69. NEW BOARD.........................................................................................8
1.70. NEW COMMON STOCK..................................................................................8
1.71. NEW COMMON STOCK AMOUNT...........................................................................8
1.72. NEW NOTES.........................................................................................8
1.73. NEW NOTES AMOUNT..................................................................................8
1.74. NEW CREDIT AGREEMENT..............................................................................8
1.75. NEW ORGANIZATIONAL DOCUMENTS......................................................................8
1.76. New Securities....................................................................................8
1.77. NON-TEEP RETENTION PLAN...........................................................................9
1.78. OLD COMMON STOCK..................................................................................9
1.79. OLD COMMON STOCK INTERESTS........................................................................9
1.80. OLD STOCK OPTIONS.................................................................................9
1.81. OLD STOCK OPTION INTERESTS........................................................................9
1.82. P&G...............................................................................................9
1.83. P&G SETTLEMENT....................................................................................9
1.84. P&G SETTLEMENT AGREEMENT..........................................................................9
</TABLE>
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<TABLE>
<S> <C>
1.85. P&G SETTLEMENT ORDER..............................................................................9
1.86. PERIODIC DISTRIBUTION DATE........................................................................9
1.87. PERSON............................................................................................9
1.88. PETITION DATE.....................................................................................9
1.89. PLAN..............................................................................................9
1.90. PLAN VOTING DEADLINE.............................................................................10
1.91. POPE & TALBOT....................................................................................10
1.92. PREPETITION......................................................................................10
1.93. PREPETITION BANK CLAIM...........................................................................10
1.94. PREPETITION CLAIMS BAR DATE......................................................................10
1.95. PREPETITION LINE OF CREDIT.......................................................................10
1.96. PREPETITION PARAGON CANADA GUARANTY..............................................................10
1.97. PREPETITION REVOLVING CREDIT AGREEMENT...........................................................10
1.98. PRIORITY NON-TAX CLAIM...........................................................................10
1.99. PRIORITY TAX CLAIM...............................................................................10
1.100. PROFESSIONAL....................................................................................10
1.101. PROFESSIONAL FEE RESERVE........................................................................10
1.102. PROPONENTS......................................................................................10
1.103. PRO RATA SHARE..................................................................................11
1.104. RECORD DATE.....................................................................................11
1.105. REGISTRATION RIGHTS AGREEMENT...................................................................11
1.106. REORGANIZED PARAGON.............................................................................11
1.107. RESTATED BYLAWS.................................................................................11
1.108. RESTATED CERTIFICATE OF INCORPORATION...........................................................11
1.109. RIGHTS..........................................................................................11
1.110. SCHEDULES.......................................................................................11
1.111. SECURED CLAIM...................................................................................11
1.112. SECURITIES ACT..................................................................................12
1.113. TEEP RETENTION PLAN.............................................................................12
1.114. TEXAS ACTION....................................................................................12
1.115. UNCLAIMED PROPERTY..............................................................................12
1.116. UNSECURED CLAIM.................................................................................12
1.117. UNSECURED CLAIMS DISTRIBUTION POOL..............................................................12
1.118. UNSECURED CREDITOR NEW COMMON STOCK AMOUNT......................................................12
1.119. VOTING PROCEDURES...............................................................................12
1.120. VOTING RECORD DATE..............................................................................13
1.121. WARRANTS........................................................................................13
1.122. WELLSPRING......................................................................................13
1.123. WELLSPRING COMMITMENT...........................................................................13
1.124. WELLSPRING CONSIDERATION........................................................................13
1.125. WELLSPRING INVESTMENT AMOUNT....................................................................13
1.126. WELLSPRING NEW NOTES INDENTURE..................................................................13
1.127. WELLSPRING NEW NOTES INDENTURE TRUSTEE..........................................................13
1.128. WELLSPRING NEW NOTES INTEREST RATE..............................................................13
1.129. WELLSPRING RIGHTS OFFERING......................................................................13
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1.130. WELLSPRING RIGHTS OFFERING PROCEDURES...........................................................14
1.131. WELLSPRING STOCK PURCHASE AGREEMENT.............................................................14
1.132. WEYERHAEUSER....................................................................................14
II. METHOD OF CLASSIFICATION OF CLAIMS AND INTERESTS AND GENERAL PROVISIONS...................................14
2.1. General Rules of Classification...................................................................14
2.2. Administrative Claims, Fee Claims and Priority Tax Claims.........................................14
2.3. Satisfaction of Claims and Interests..............................................................14
2.4. Bar Date for Fee Claims...........................................................................14
III. 14
IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND NOT IMPAIRED BY THE PLAN..........................15
3.1. Unimpaired Classes Conclusively Presumed to Accept the Plan.......................................15
3.2. Classes of Claims and Interests Impaired by the Plan and Entitled to Vote.........................15
3.3. Classes Receiving No Distribution and Deemed to Reject the Plan...................................15
3.4. Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code...................................15
IV. CLASSIFICATION OF CLAIMS AND INTERESTS.....................................................................15
4.1. Classification....................................................................................15
V. 15
PROVISIONS FOR ALLOWANCE, TREATMENT AND PAYMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS.................16
5.1. Treatment of Allowed Priority Tax Claims..........................................................16
5.2. Treatment of Allowed Administrative Claims........................................................16
5.3. Treatment of Allowed DIP Claims...................................................................16
5.4. Treatment of FeeClaims............................................................................17
VI. TREATMENT OF CLASSES OF ALLOWED CLAIMS AND ALLOWED INTERESTS...............................................17
6.1. Treatment of Allowed Secured Claims (Class 1).....................................................17
6.2. Treatment of Allowed Priority Non-Tax Claims (Class 2)............................................18
6.3. Treatment of Allowed Unsecured Claims (Class 3A)..................................................18
6.4. Treatment of Allowed Convenience Claims (Class 3B)................................................19
6.5. Treatment of Allowed Old Common Stock Interests (Class 4A)........................................19
6.6. Treatment of Old Stock Option Interests (Class 4B)................................................19
6.7. No Distribution in Excess of Allowed Amount of Claim..............................................20
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VII. COMPROMISE AND SETTLEMENT OF CERTAIN CLAIMS; THE WELLSPRING STOCK PURCHASE AGREEMENT.....................20
7.1. Compromise and Settlement of Claims Held by P&G...................................................20
7.2. Compromise and Settlement of Claims Held by K-C...................................................20
7.3. Allowance of the Prepetition Bank Claims..........................................................20
7.4. Allowance and Payment of Postpetition Interest....................................................20
7.5. The Wellspring Stock Purchase Agreement...........................................................20
7.6. The PMI Claim.....................................................................................21
7.7. Withdrawal of Pending Litigation..................................................................21
VIII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES....................................................21
8.1. Assumption or Rejection...........................................................................21
8.2. Cure of Defaults upon Assumption..................................................................22
8.3. Rejection Damage Claims...........................................................................22
8.4. Objections........................................................................................22
8.5. Bar Date for Rejection Damage Claims..............................................................23
8.6. Deemed Consents...................................................................................23
IX. MEANS OF IMPLEMENTATION OF THE PLAN........................................................................23
9.1. Funding and Distribution of Cash..................................................................23
9.2. Working Capital Facility..........................................................................23
9.3. Intentionally omitted.............................................................................23
9.4. Cancellation of Instruments.......................................................................23
9.5. Restated Certificate of Incorporation; Restated Bylaws............................................23
9.6. Issuance of New Common Stock, New Notes and Warrants..............................................24
9.7. Certain Provisions Regarding New Common Stock.....................................................24
9.8. Estimation of Disputed Claims.....................................................................24
9.9. Continuation of Business..........................................................................24
9.10. Provisions for Management........................................................................24
9.11. Consummation of P&G Settlement...................................................................25
9.12. Consummation of K-C Settlement...................................................................25
9.13. Revesting of Property in Reorganized Paragon.....................................................26
9.14. Surrender of Instruments/Cancellation of Stock...................................................26
9.15. Release of Liens and Perfection of Liens.........................................................27
9.16. Registration of Securities.......................................................................28
9.17. Avoidance Actions................................................................................28
9.18. Exemption from Certain Transfer Taxes............................................................28
9.19. Compromise of Controversies......................................................................29
9.20. Continuation of Paragon's 401(k) and Profit Sharing Plan.........................................29
9.21. Investigation, Prosecution and/or Settlement of the Litigation Claims............................29
9.22. Wellspring Rights Offering.......................................................................34
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X. ADMINISTRATION OF THE PLAN..................................................................................35
10.1. Implementation of Plan...........................................................................35
10.2. Responsibilities of Reorganized Paragon..........................................................35
10.3. Other............................................................................................35
10.4. Powers of Reorganized Paragon as Administrator of the Plan.......................................35
10.5. Exculpation and Limitation of Liability..........................................................36
10.6. Distribution by Reorganized Paragon..............................................................36
10.7. Establishment and Maintenance of Disbursement Accounts...........................................36
XI. DISTRIBUTIONS..............................................................................................36
11.1. Timing of Distributions..........................................................................36
11.2. Manner of Payment................................................................................36
11.3. Persons Deemed Holders of Registered Securities..................................................37
11.4. Compliance with Tax Requirements.................................................................37
11.6. De Minimis Distributions.........................................................................37
11.7. Periodic Distributions to Holders of Allowed Unsecured Claims and Allowed Old
Common Stock Interests.........................................................................37
11.8. Initial Distributions to the Holders of Subsequently Allowed Unsecured Claims
and Allowed Interests..........................................................................37
11.9. Subsequent Periodic Distributions to Holders of Previously Allowed Claims and Previously
Allowed Interests..............................................................................38
11.10. Final Distribution..............................................................................38
11.11. Distributions on Disputed Claims................................................................38
11.12. Disbursement of Funds and Delivery of New Securities............................................38
11.13. Fractional Cents................................................................................39
11.14. Fractional Securities...........................................................................39
11.15. Disputed Payments...............................................................................39
11.16. Unclaimed Property..............................................................................39
XII. DISPUTED CLAIMS, DISPUTED INTERESTS, ESTIMATION, RESERVES AND MISCELLANEOUS DISTRIBUTION PROVISIONS.......39
12.1. Objections to Claims; Prosecution of Disputed Claims.............................................39
12.2. Estimated Claims Schedule........................................................................40
12.3. Estimation Order.................................................................................40
12.4. No Recourse to Reorganized Paragon...............................................................40
12.5. Disputed Claims Reserves.........................................................................40
12.6. Fluctuation in Value of New Securities...........................................................41
12.7. Voting of Certain New Common Stock...............................................................41
12.8. Returned Distributions...........................................................................41
12.9. Estimation of Claims.............................................................................41
12.10. Amendments of Claims............................................................................41
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XIII. WAIVERS, DISCHARGE, RELEASE, INDEMNIFICATION, ABANDONMENT, AND SETTLEMENT OF CLAIMS......................42
13.1. Discharge of Debtor..............................................................................42
13.2. Complete Satisfaction............................................................................42
13.3. Release of Debtor................................................................................42
13.4. Exoneration......................................................................................42
13.5. Indemnification..................................................................................43
13.6. Release of Committee Members.....................................................................44
13.7. Enforceability of Releases.......................................................................44
13.8. Additional Releases..............................................................................44
13.9. Injunction.......................................................................................44
13.10. Terms of Injunctions or Stays...................................................................44
XIV. CONDITIONS TO CONFIRMATION/EFFECTIVE DATE.................................................................44
14.1. Conditions Precedent to Confirmation.............................................................44
14.2. Conditions Precedent to Effective Date...........................................................45
14.3. Additional Conditions Precedent to Effective Date................................................45
14.4. Waiver of Conditions Precedent to Confirmation and Consummation..................................46
14.5. Mootness.........................................................................................46
XV. MISCELLANEOUS PROVISIONS...................................................................................46
15.1. Administration Pending Effective Date............................................................46
15.2. Carrying Out of Terms............................................................................46
15.3. Withdrawal of the Plan...........................................................................46
15.4. Amendments and Modifications to Plan.............................................................46
15.5. Severability.....................................................................................47
15.6. Confirmation Order...............................................................................47
15.7. Compliance with Securities Laws and Tax Requirements.............................................47
15.8. Interpretation, Rules of Construction, Computation of Time, and Choice of Law....................47
15.9. Binding Effect of the Plan.......................................................................48
15.10. Payment of Statutory Fees.......................................................................48
15.11. Dissolution of Committees.......................................................................48
15.12. Governing Law...................................................................................49
15.13. Method of Notice................................................................................49
15.14. Authorization of Corporate Action...............................................................50
15.15. Continued Confidentiality Obligations...........................................................51
XVI. RETENTION OF JURISDICTION.................................................................................51
16.1. Retention of Jurisdiction........................................................................51
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First Amended Plan of Reorganization
INTRODUCTION
This Second Amended Plan of Reorganization, dated as of
November 15, 1999, is jointly proposed by Paragon Trade Brands, Inc. ("Paragon"
or the "Debtor"), the above-captioned debtor and debtor in possession, and
Paragon's Official Committee of Unsecured Creditors (the "Creditors'
Committee"). Reference is made to the Disclosure Statement (as defined below),
including exhibits thereto, for a discussion of the Debtor's history, business,
results of operations, historical financial information, and for a summary and
analysis of this Plan. No solicitation materials, other than the Disclosure
Statement and related materials transmitted herewith and approved by the
Bankruptcy Court, have been authorized by the Bankruptcy Court for use in
soliciting acceptances or rejections of this Plan.
Under the Plan, Paragon will be reorganized either (a) through
the consummation of a stock purchase agreement (the "Wellspring Stock Purchase
Agreement") with PTB Acquisition Company LLC, a wholly-owned subsidiary of
Wellspring Capital Management LLC ("Wellspring"), and the distribution of the
proceeds thereof to fund certain distributions under the Plan, or (b)
alternatively, on a stand-alone plan of reorganization basis. In the event that
the Wellspring Stock Purchase Agreement is consummated, holders of Allowed
Unsecured Claims will receive distributions in amounts equal to their Pro Rata
Share of Cash, New Notes, and the right to participate in the Wellspring Rights
Offering, and holders of Allowed Old Common Stock Interests will receive their
Pro Rata Share of the Interest Holders' New Common Stock Amount, the right to
participate in the Wellspring Rights Offering (to the extent all such rights are
not exercised by holders of Allowed Unsecured Claims in the Wellspring Rights
Offering), and the Warrants. If the Wellspring Stock Purchase Agreement is not
consummated and Paragon is reorganized on a stand-alone basis hereunder, holders
of Allowed Unsecured Claims will receive distributions in amounts equal to their
Pro Rata Share of the Unsecured Creditor New Common Stock Amount and holders of
Allowed Old Common Stock Interests will receive their Pro Rata Share of the
Interest Holders' New Common Stock Amount and the Warrants. Whether or not the
Wellspring Stock Purchase Agreement is consummated, holders of Allowed Unsecured
Claims and Allowed Old Common Stock Interests also will receive such portion of
the Litigation Proceeds, if any, as is allocable to such Claims and Interests in
accordance with the provisions of this Plan. Section 7.5 of the Plan sets forth
the circumstances in which the different plan alternatives set forth in this
paragraph will be pursued.
I.
DEFINITIONS
In addition to such other terms as are defined in other
Sections of the Plan, the following terms (which appear in the Plan as
capitalized terms) have the following meanings as used in the Plan:
1.1. "ADMINISTRATIVE CLAIM" means any Claim, other than a Fee Claim,
for a cost or expense of administration of the Chapter 11 Case asserted or
arising under sections 503(b) and 507(a)(1) of the Bankruptcy Code, or a Claim
given such status by Final Order of the Bankruptcy Court, and any fees or
charges assessed against the Estate under section 1930, title 28, United States
Code.
1.2. "AFFILIATE" means an affiliate as such term is defined in
section 101(2) of the Bankruptcy Code.
1.3. "ALLOWED CLAIM" or "Allowed [Class ____] Claim" means a Claim
against the Debtor (in the relevant Class, if a Class is specified) to the
extent such Claim is either:
(a) listed by the Debtor in the Schedules in an amount greater
than zero and as not being contingent, unliquidated, disputed or undetermined,
<PAGE> 10
to the extent that it is not objected to on or before the Claims Objection
Deadline and is not otherwise Disallowed;
(b) a Claim or any portion of such Claim, proof of which has
been timely Filed by any Applicable Bar Date, or deemed timely Filed under
applicable law or by Final Order of the Bankruptcy Court, pursuant to the
Bankruptcy Code, Bankruptcy Rules or applicable law, or Filed late, with
Bankruptcy Court leave pursuant to a Final Order, after notice and a hearing,
and either (i) is not objected to on or before the Claims Objection Deadline and
is not otherwise Disallowed, or (ii) is otherwise allowed by a Final Order;
(c) a Claim or any portion of such Claim that: (i) is allowed:
(A) in any contract, instrument, indenture or other agreement entered into in
connection with the Plan; (B) in a Final Order or, in the case of Claims held by
P&G and K-C, the P&G Settlement Order and the K-C Settlement Order,
respectively; or (C) pursuant to the terms of the Plan; or (ii) is settled prior
to the Effective Date pursuant to any stipulation among the Debtor and the Claim
holder that has been approved by the Bankruptcy Court pursuant to a Final Order;
or
(d) with respect to an Administrative Claim only, (i) was
incurred by the Debtor in the ordinary course of business during the Chapter 11
Case (including under any license agreement with P&G or K-C) to the extent due
and owing without defense, offset, recoupment or counterclaim of any kind, and
(ii) is not otherwise Disputed.
Unless otherwise specified herein or by Final Order of the
Bankruptcy Court, "Allowed Claim" shall not, for purposes of computation of
Distributions under the Plan, include interest or similar charges accrued after
the Petition Date. For purposes of determining the amount of an "Allowed Claim,"
there shall be deducted therefrom an amount equal to the amount of any claim
which the Debtor may hold against the holder thereof, to the extent the Debtor
is entitled to exercise a right of set off pursuant to applicable law.
1.4. "ALLOWED INTEREST" means an Interest (exclusive of any shares of
stock representing such Interest held in treasury) in the Debtor that is
registered as of the Record Date in such stock register as may be maintained by
or on behalf of the Debtor, and to which no objection has been made before any
applicable deadline or which has been allowed by Final Order.
1.5. "APPLICABLE BAR DATE" means, as the case may be, the Prepetition
Claims Bar Date, the Fee Claims Bar Date or such other bar date as may be fixed
by the Plan or any order of the Bankruptcy Court.
1.6. "BALLOT" means the form of ballot distributed, together with the
Disclosure Statement, to holders of Claims and Interests entitled to vote for
the purpose of acceptance or rejection of the Plan.
1.7. "BANKRUPTCY CODE" means title 11 of the United States Code, as
amended from time to time, as applicable to the Chapter 11 Case.
1.8. "BANKRUPTCY COURT" means the United States Bankruptcy Court for
the District of Georgia, Atlanta Division, or, to the extent that such court
ceases to exercise jurisdiction over the Chapter 11 Case, such other court or
adjunct thereof that exercises jurisdiction over the Chapter 11 Case.
1.9. "BANKRUPTCY RULES" means the Federal Rules of Bankruptcy
Procedure, as amended, promulgated under section 2075 of title 28 of the United
States Code, as applicable to the Chapter 11 Case.
1.10. "BOARD OF DIRECTORS" means the board of directors of the Debtor
as it exists immediately prior to the Effective Date.
1.11. "BUSINESS DAY" means any day other than a Saturday, Sunday or
"legal holiday" as defined in Bankruptcy Rule 9006(a).
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1.12. "BYLAWS" means the Bylaws of the Debtor, as in effect on the
Petition Date, as amended, through the Effective Date.
1.13. "CASH" means legal tender of the United States of America.
1.14. "CASH EQUIVALENTS" means (a) readily marketable direct
obligations of, or obligations guaranteed by, the United States of America, (b)
commercial paper of domestic corporations carrying a Moody's Rating of "A" or
better, or equivalent rating of any other nationally recognized rating service,
and (c) interest-bearing certificates of deposit or other similar obligations,
having maturities of not more than one (1) year, of domestic banks or other
financial institutions having a shareholders' equity or equivalent capital of
not less than Five Hundred Million Dollars ($500,000,000).
1.15. "CERTIFICATE OF INCORPORATION" means the Certificate of
Incorporation of the Debtor, as in effect on the Petition Date, as amended,
through the Effective Date.
1.16. "CHAPTER 11 CASE" means the case under chapter 11 of the
Bankruptcy Code concerning Paragon which was commenced on the Petition Date and
is being administered in the Bankruptcy Court under case number 98-60390 (Judge
Murphy).
1.17. "CLAIM" means a claim, as such term is defined in section 101(5)
of the Bankruptcy Code, against the Debtor.
1.18. "CLAIMS OBJECTION DEADLINE" means (a) for all Claims other than
Fee Claims, the date that is the later of (i) the Effective Date, (ii) sixty
(60) calendar days after the Filing of a proof of claim for such Claim, and
(iii) such other deadline for objecting to a Claim as may be specifically fixed
by the Plan, the Confirmation Order, the Bankruptcy Rules or an order of the
Bankruptcy Court, which order may be entered on notice only to the Debtor and
counsel to the Committees (and, if the Wellspring Stock Purchase Agreement has
been executed and has not been terminated, Wellspring) and at any time
regardless of whether before or after the date specified in clauses (i) and (ii)
hereof; and (b) for Fee Claims, the date established as such in the Confirmation
Order.
1.19. "CLASS" means any class of Claims or Interests established under
Article IV of the Plan pursuant to section 1122 of the Bankruptcy Code.
1.20. "COMMISSION" means the Securities and Exchange Commission.
1.21. "COMMITTEES" means the official committees appointed in the
Chapter 11 Case pursuant to section 1102(a) of the Bankruptcy Code, consisting
of the Creditors' Committee and the Equity Committee.
1.22. "CONFIRMATION" means the signing of the Confirmation Order by
the Bankruptcy Court confirming the Plan pursuant to section 1129 of the
Bankruptcy Code.
1.23. "CONFIRMATION DATE" means the date on which the Confirmation
Order is entered on the docket maintained by the Clerk of the Bankruptcy Court.
1.24. "CONFIRMATION HEARING" means the hearing held by the Bankruptcy
Court on Confirmation of the Plan, as such hearing may be adjourned or continued
from time to time.
1.25. "CONFIRMATION ORDER" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code. In the
event that the Wellspring Stock Purchase Agreement has been executed and has not
been terminated, the form of the Confirmation Order must be reasonably
satisfactory to Wellspring. The form of
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the Confirmation Order also must be reasonably satisfactory to each of P&G and
K-C, provided each of P&G and K-C, as the case may be, has voted to accept the
Plan.
1.26. "CONVENIENCE CLAIM" means any Allowed Unsecured Claim against
the Debtor in the amount of five thousand dollars ($5,000.00) or less; PROVIDED,
HOWEVER, that if the holder of an Allowed Unsecured Claim in an amount greater
than five thousand dollars ($5,000.00) but not greater than ten thousand dollars
($10,000.00) elects on such holder's Ballot (a) Convenience Claim treatment and
(b) to reduce such Claim to five thousand dollars ($5,000.00) in accordance with
Section 6.4(b) hereof, such Claim shall be treated as a Convenience Claim for
all purposes. No holder of an Allowed Unsecured Claim against the Debtor in
excess of ten thousand dollars ($10,000.00) shall be entitled to elect
Convenience Class treatment with respect to such Allowed Unsecured Claim.
1.27. "CREDITORS' COMMITTEE" means the Official Committee of Unsecured
Creditors appointed in the Chapter 11 Case by the United States Trustee pursuant
to section 1102 of the Bankruptcy Code, on or about January 16, 1998, as
reconstituted from time to time.
1.28. "CURE STATEMENT" shall have the meaning ascribed to such term in
Section 8.1 hereof.
1.29. "DEBTOR" means Paragon Trade Brands, Inc., a Delaware
corporation.
1.30. "DEBTOR IN POSSESSION" means the Debtor as debtor in possession
pursuant to sections 1107 and 1108 of the Bankruptcy Code.
1.31. "DEBTOR'S PROFESSIONALS" means any Persons retained by the
Debtor pursuant to section 327 of the Bankruptcy Code.
1.32. "DELAWARE ACTION" means the action commenced on or about January
20, 1994 in the United States District Court for the District of Delaware,
entitled THE PROCTER & GAMBLE COMPANY V. PARAGON TRADE BRANDS, INC., Case No.
94-CV-16 (LON) (D. Del.).
1.33. "DIP BANK AGENT" means The Chase Manhattan Bank as agent for the
syndicate of lending institutions under the DIP Credit Agreement, or any
successor thereto or replacement thereof appointed in accordance with the terms
of the DIP Credit Agreement.
1.34. "DIP CLAIM" means any Claim arising under the DIP Credit
Agreement.
1.35. "DIP CREDIT AGREEMENT" means that certain Debtor in Possession
credit facility approved by the Bankruptcy Court by interim order dated January
21, 1998 and Final Order dated January 30, 1998, as provided under the Revolving
Credit and Guaranty Agreement dated as of January 7, 1998, among the Debtor, as
borrower, certain subsidiaries of the Debtor, as guarantors, and the DIP Bank
Agent, as agent for the lenders thereunder, as amended by the First Amendment,
dated January 30, 1998, the Second Amendment, dated March 23, 1998, the Third
Amendment, dated April 15, 1998, the Fourth Amendment, dated September 28, 1998,
and the Fifth Amendment, dated as of June 14, 1999, and as thereafter amended in
accordance with its terms up to and including the Effective Date, or the
agreements or other documents evidencing any successor or replacement
postpetition financing facility, and all documents related thereto.
1.36. "DISALLOWED" means with reference to any Claim or Interest, such
Claim or Interest or any portion thereof which has been disallowed or deemed
disallowed by Final Order or by operation of the Plan.
1.37. "DISBURSEMENT ACCOUNT(S)" means the account(s) to be established
by the Debtor on the Effective Date in accordance with Section 10.7 of the Plan,
together with any interest earned thereon.
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1.38. "DISCLOSURE STATEMENT" means the disclosure statement, including
all exhibits, appendices and attachments thereto, approved by order of the
Bankruptcy Court in accordance with section 1125 of the Bankruptcy Code, as such
statement may be amended or supplemented from time to time.
1.39. "DISCLOSURE STATEMENT HEARING" means the hearing held by the
Bankruptcy Court to consider approval of the Disclosure Statement, as such
hearing may be adjourned or continued from time to time.
1.40. "DISPUTED" means with respect to a Claim or Interest, any Claim
or Interest that is not yet an Allowed Claim or Interest or a Disallowed Claim
or Interest.
1.41. "DISPUTED CLAIMS RESERVE" means, in respect of any Class of
Claims or Interests, the amount of Cash, New Securities and/or Warrants reserved
in accordance with Section 12.5 hereof for such Class of Claims or Interests.
1.42. "DISTRIBUTION" means the distribution in accordance with the
Plan of: (a) Cash; (b) New Notes; (c) New Common Stock; and/or (d) Warrants, as
the case may be.
1.43. "DISTRIBUTION DATE" means, as the case may be, the Initial
Distribution Date, each Periodic Distribution Date and the Final Distribution
Date.
1.44. "DISTRIBUTION RECORD DATE" means 5:00 p.m. (Atlanta, Georgia
time) on the Confirmation Date or such other date and time as designated in the
Confirmation Order.
1.45. "EFFECTIVE DATE" means the first (1st) Business Day following
satisfaction of the conditions precedent to the Effective Date specified in
Section 14.2 of the Plan, unless otherwise waived as provided in Sections 14.3
and 14.4 of the Plan, or such other date fixed by the Proponents, with the
consent of P&G, K-C and, in the event that the Wellspring Stock Purchase
Agreement has been executed and has not been terminated in accordance with its
terms, Wellspring (such consent in each case not to be unreasonably withheld).
1.46. "EQUITY COMMITTEE" means the Official Committee of Interest
Holders appointed in the Chapter 11 Case by the United States Trustee pursuant
to section 1102 of the Bankruptcy Code, on or about November 2, 1998, as
constituted from time to time.
1.47. "ESTATE" means the Debtor's estate, created pursuant to section
541 of the Bankruptcy Code, in and upon commencement of the Chapter 11 Case.
Pursuant to Sections 9.13 and 9.21 hereof, the Litigation Claims shall remain
vested in and property of the Estate following the Effective Date, and the
Estate shall remain in existence for the purpose of allowing the investigation,
prosecution and/or settlement of the Litigation Claims pursuant to Section 9.21
hereof.
1.48. "ESTIMATED" means with reference to any Claim or Interest, any
Claim or Interest estimated by an Estimation Order.
1.49. "ESTIMATED CLAIMS SCHEDULE" shall have the meaning ascribed to
such term in Section 12.2 hereof.
1.50. "ESTIMATION ORDER" means an order or orders of the Bankruptcy
Court estimating or otherwise determining Disputed Claims and/or Disputed
Interests for Distribution and/or reserve purposes. The "Estimation Order" may
be part of the Confirmation Order if the Confirmation Order grants the same
relief with respect to any Disputed Claim or Disputed Interest that would have
been granted in a separate Estimation Order.
1.51. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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1.52. "FEE CLAIM" means a Claim for compensation or reimbursement of
expenses pursuant to sections 327, 328, 330, 331, 503(b)(2), 503(b)(3) or
503(b)(4) of the Bankruptcy Code in connection with an application made to the
Bankruptcy Court in the Chapter 11 Case. "Fee Claims" shall not include any
claims for professional fees or expenses of the DIP Bank Agent under the DIP
Credit Agreement.
1.53. "FEE CLAIMS BAR DATE" means the date fixed by the Bankruptcy
Court in the Confirmation Order by which all holders of Fee Claims must have
filed requests for payment of such Fee Claims or be forever barred from
asserting such Claims against the Debtor, the Estate, Reorganized Paragon or its
property.
1.54. "FILED," "FILE" OR "FILING" means, filed, file or filing with
the Clerk of the Bankruptcy Court in the Chapter 11 Case.
1.55. "FINAL DISTRIBUTION" means the last Distribution of the
remaining Cash, New Securities and/or Warrants to holders of Allowed Unsecured
Claims and/or Allowed Interests, as the case may be, in the relevant Class, as
contemplated under the Plan.
1.56. "FINAL DISTRIBUTION DATE" means the date on which a Final
Distribution is made to holders of Allowed Unsecured Claims and/or Allowed
Interests pursuant to the Plan, which date shall, unless otherwise ordered by
the Bankruptcy Court, occur after all Disputed Unsecured Claims and Disputed
Interests in the relevant Class, and all Litigation Claims, have been resolved
by Final Order or otherwise.
1.57. "FINAL ORDER" means an order or judgment of the Bankruptcy Court
that has not been reversed, stayed, modified or amended and as to which the time
to appeal or seek review, rehearing, reargument or certiorari has expired and as
to which no appeal or petition for review, rehearing, reargument, stay or
certiorari is pending, or as to which any right to appeal or to seek certiorari,
review, or rehearing has been waived, or, if an appeal, reargument, petition for
review, certiorari or rehearing has been sought, the order or judgment of the
Bankruptcy Court has been affirmed by the highest court to which the order was
appealed or from which the reargument, review or rehearing was sought, or
certiorari has been denied, and as to which the time to take any further appeal
or seek further reargument, review or rehearing has expired.
1.58. "IMPAIRED" means any Claim or Interest that is impaired within
the meaning of section 1124 of the Bankruptcy Code.
1.59. "INITIAL DISTRIBUTION DATE" means the date for making initial
Distributions under the Plan to holders of Allowed Unsecured Claims or Allowed
Interests in the relevant Class, which date shall be on or as soon as reasonably
practicable after the Effective Date.
1.60. "INTEREST" means any "equity security," as such term is defined
in section 101(16) of the Bankruptcy Code, of the Debtor. Specifically,
"Interests" include Old Common Stock Interests and Old Stock Option Interests.
1.61. "INTEREST HOLDERS' NEW COMMON STOCK AMOUNT" means (i) if the
Wellspring Stock Purchase Agreement is consummated, 178,359 shares of New Common
Stock (I.E., one and one-half percent (1 1/2%) of the New Common Stock Amount),
subject to dilution resulting from those items set forth in Section 1.118(i)(1)
through (4), and (ii) if the Wellspring Stock Purchase Agreement is not
consummated, the Interest Holders' New Common Stock Amount shall mean 118,149
shares of New Common Stock (I.E., .87% of the New Common Stock Amount), subject
to dilution for those items set forth in Section 1.118(i)(1) through (3).
1.62. "K-C" means Kimberly-Clark Corporation, a Delaware corporation.
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1.63. "K-C SETTLEMENT" means the compromise and settlement by and
between the Debtor and K-C pursuant and subject to the terms and conditions of
the K-C Settlement Agreement.
1.64. "K-C SETTLEMENT AGREEMENT" means the settlement agreement dated
March 19, 1999, as amended through the date hereof, by and between the Debtor
and K-C (including all exhibits thereto and any related agreements, including
any licenses provided for therein).
1.65. "K-C SETTLEMENT ORDER" means the order of the Bankruptcy Court,
dated August 6, 1999, authorizing and approving the K-C Settlement Agreement.
1.66. "LITIGATION CLAIMS" means, collectively, any pre-Effective Date
claims of the Debtor against (a) Weyerhaeuser arising from or relating to (i)
that certain Asset Transfer Agreement, dated January 26, 1993, (ii) that certain
related Intellectual Property Agreement, dated February 3, 1993 and/or (iii) any
other agreements with Weyerhaeuser relating to Weyerhaeuser's spin-off of
Paragon in 1993, (b) Pope & Talbot arising from or relating to the Asset
Purchase Agreement, dated February 8, 1996, between Paragon and Pope & Talbot,
and/or any other agreements with Pope & Talbot relating to such Asset Purchase
Agreement, and (c) Oracle Corporation and/or Anderson Consulting LLP arising
from or relating to any agreements between and/or among Paragon and Oracle
Corporation, Paragon and Anderson Consulting LLP, and/or Paragon, Oracle
Corporation and Andersen Consulting LLP in connection with Paragon's purchase
and/or implementation of Oracle's CPG ERP software.
1.67. "LITIGATION CLAIMS REPRESENTATIVE" means any Person designated
as the representative of the Estate to prosecute the Litigation Claims pursuant
to Section 9.21 hereof.
1.68. "LITIGATION PROCEEDS" means the proceeds, if any, recovered by
the Litigation Claims Representative on account of the Litigation Claims, net of
any costs, fees and expenses incurred by the Litigation Claims Representative in
connection with the Litigation Claims; PROVIDED, HOWEVER, that the defined term
"Litigation Proceeds" shall not be deemed to include the first $500,000.00 in
proceeds received on account of the Litigation Claims, which amount or portion
thereof shall be delivered by the Litigation Claims Representative to
Reorganized Paragon as and when received for allocation and Distribution to
holders of Allowed Unsecured Claims in accordance with the Distribution
provisions of the Plan. With regard to any Litigation Claim against Weyerhaeuser
or any other Litigation Claims defendant, the Litigation Proceeds from such
Litigation Claim shall also be net of any asserted indemnification rights or
other similar claims, if any, Weyerhaeuser or any such other defendant recovers
against Paragon arising from or relating to the assertion and/or prosecution of
such Litigation Claim (which shall be reimbursed by the Litigation Claims
Representative to Reorganized Paragon out of any Litigation Proceeds received
unless already netted out of such proceeds).
1.69. "NEW BOARD" means the Board of Directors of Reorganized Paragon
immediately following the Effective Date, as set forth in Section 9.10(a)
hereof.
1.70. "NEW COMMON STOCK" means the shares of common stock of
Reorganized Paragon authorized and/or to be issued pursuant to the terms of the
Plan and having the rights as set forth in the Restated Certificate of
Incorporation.
1.71. "NEW COMMON STOCK AMOUNT" means 11,891,000 shares of New Common
Stock; provided, that, if the Wellspring Stock Purchase Agreement is not
consummated, the New Common Stock Amount shall mean 13,566,574 shares of New
Common Stock.
1.72. "NEW NOTES" means, in the event that the Wellspring Stock
Purchase Agreement is consummated, the notes to be issued on the Effective Date
by Reorganized Paragon pursuant to the Wellspring New Notes Indenture in an
aggregate principal amount equal to the New Notes Amount.
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1.73. "NEW NOTES AMOUNT" means a principal amount equal to $160
million (bearing interest at the non-default rate of eleven and one-quarter
percent (11.25%) per annum), provided that such amount shall be adjusted (upward
or downward, as applicable) as follows: (a) the New Notes Amount shall be
reduced by the amount that the Cash Deficit (as defined in the Wellspring Stock
Purchase Agreement) exceeds $10 million; (b) if the Cash Deficit is less than $4
million, then the New Notes Amount shall be increased by an amount equal to $4
million minus the Cash Deficit; (c) if the Cash Deficit is greater than or equal
to $4 million but less than or equal to $10 million, then the New Notes Amount
shall not be adjusted; and (d) the New Notes Amount shall be increased by the
amount of the Cash Excess (as defined in the Wellspring Commitment), plus $4
million. The Cash Deficit and Cash Excess shall be adjusted upward or downward,
as the case may be, by (1) the amount by which the liabilities listed on
Schedule 5.10 to the Wellspring Stock Purchase Agreement are greater or less on
the Effective Date than the amounts set forth on such schedule, and (2) any
change in Paragon's Net Working Capital (as defined in the Wellspring Stock
Purchase Agreement) from June 27, 1999.
1.74. "NEW CREDIT AGREEMENT" shall have the meaning ascribed to such
term in Section 9.2 hereof.
1.75. "NEW ORGANIZATIONAL DOCUMENTS" means the Restated Certificate of
Incorporation and Restated By-Laws of Reorganized Paragon, the forms of which
shall be (a) Filed by the Proponents at least ten (10) calendar days prior to
the date of the Confirmation Hearing, and (b) reasonably satisfactory to P&G,
K-C and the Equity Committee. In the event that the Wellspring Stock Purchase
Agreement has been executed and has not been terminated, the forms of the New
Organizational Documents must be satisfactory to Wellspring.
1.76. "NEW SECURITIES" means the New Common Stock and, if the
Wellspring Stock Purchase Agreement is consummated, the New Notes. In the event
that the Wellspring Stock Purchase Agreement has been executed and has not been
terminated, the forms of the New Securities must (a) be satisfactory to the
Proponents and Wellspring, (b) be reasonably satisfactory to P&G and K-C, and
(c) contain substantially the same terms as set forth in Appendix 1 to the
Wellspring Stock Purchase Agreement.
1.77. "NON-TEEP RETENTION PLAN" means those certain employee retention
and incentive programs, approved by the Bankruptcy Court by order dated July 2,
1998, or such other similar employee retention and incentive programs in effect
as of the Effective Date of the Plan.
1.78. "OLD COMMON STOCK" means all authorized $.01 par value common
shares of the Debtor issued and outstanding prior to the Effective Date and
non-transferable as of the Distribution Record Date.
1.79. "OLD COMMON STOCK INTERESTS" means Interests based on Old Common
Stock.
1.80. "OLD STOCK OPTIONS" means all unexercised rights of any kind to
acquire any Old Common Stock of, or other Interest in, the Debtor that is not
evidenced by an issued and outstanding share of Old Common Stock or other
instrument evidencing a present ownership interest in the Debtor. "Old Stock
Options" shall include all options, warrants, calls, subscriptions or other
similar rights or other agreements, commitments, or obligations of the Debtor to
issue, transfer, or sell any shares of capital stock, including Old Common Stock
and preferred stock, of the Debtor.
1.81. "OLD STOCK OPTION INTERESTS" means Interests based on Old Stock
Options.
1.82. "P&G" means The Procter & Gamble Company, an Ohio corporation.
1.83. "P&G SETTLEMENT" means the compromise and settlement by and
between the Debtor and P&G pursuant and subject to the terms and conditions of
the P&G Settlement Agreement.
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1.84. "P&G SETTLEMENT AGREEMENT" means the settlement agreement dated
February 2, 1999, as amended through the date hereof, by and between the Debtor
and P&G (including all exhibits thereto and any related agreements, including
any licenses provided for therein).
1.85. "P&G SETTLEMENT ORDER" means the order of the Bankruptcy Court,
dated August 6, 1999, authorizing and approving the P&G Settlement Agreement.
1.86. "PERIODIC DISTRIBUTION DATE" means, with respect to the relevant
Classes: (a) initially, the first Business Day that is four (4) calendar months
after the Initial Distribution Date; (b) subsequently, the first Business Day
that is four (4) calendar months after the immediately preceding scheduled
Periodic Distribution Date; and (c) such other dates as Reorganized Paragon may
determine from time to time in its reasonable discretion.
1.87. "PERSON" means, without limitation, (a) any individual,
corporation, partnership, joint venture, association, joint stock company,
estate, trust, trustee, United States trustee, unincorporated association or
organization, government, governmental unit, agency or any subdivision thereof,
and (b) any other "entity" or "person" as such terms are defined in sections
101(15) and 101(41) of the Bankruptcy Code.
1.88. "PETITION DATE" means January 6, 1998.
1.89. "PLAN" means this Second Amended Plan of Reorganization for the
Debtor, and all exhibits and supplements hereto, as amended or modified by the
Proponents in accordance with the Bankruptcy Code, the Bankruptcy Rules and this
Plan.
1.90. "PLAN VOTING DEADLINE" means the date set by the Bankruptcy
Court by which all Ballots for acceptance or rejection of the Plan must have
been received.
1.91. "POPE & TALBOT"" means, collectively, (a) Pope & Talbot Company,
a Delaware corporation, and (b) Pope & Talbot Wis., Inc., a Delaware
Corporation.
1.92. "PREPETITION" means arising or accruing prior to the Petition
Date.
1.93. "PREPETITION BANK CLAIM" means any Claim against the Debtor
arising under or governed by: (a) the Prepetition Revolving Credit Agreement;
(b) the Prepetition Line of Credit; or (c) the Prepetition Paragon Canada
Guaranty.
1.94. "PREPETITION CLAIMS BAR DATE" means June 5, 1998, the date fixed
by the Bankruptcy Court by Final Order, dated March 24, 1998, as the deadline
for filing proofs of Claim arising or accruing prior to the Petition Date
against the Debtor or the Estate.
1.95. "PREPETITION LINE OF CREDIT" means that certain Prepetition
unsecured short-term line of credit, dated February 6, 1996, as amended, between
Paragon and Wachovia Bank of Georgia, N.A., on an uncommitted basis.
1.96. "PREPETITION PARAGON CANADA GUARANTY" means that certain
Prepetition guaranty by Paragon of a $5 million unsecured line of credit, dated
November 5, 1993, as amended, from The Bank of Nova Scotia which is available to
Paragon Canada, a subsidiary of the Debtor.
1.97. "PREPETITION REVOLVING CREDIT AGREEMENT" means that certain $150
million revolving credit facility dated as of February 16, 1996 and December 28,
1997, as amended, between Paragon and a group of financial institutions,
pursuant to which The Chase Manhattan Bank serves as agent.
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1.98. "PRIORITY NON-TAX CLAIM" means that portion of any Claim that is
entitled to priority in payment under section 507(a) of the Bankruptcy Code,
exclusive of Priority Tax Claims, Administrative Claims and Fee Claims.
1.99. "PRIORITY TAX CLAIM" means that portion of any Claim that is
entitled to priority in payment under section 507(a)(8) of the Bankruptcy Code.
1.100. "PROFESSIONAL" means any Person: (a) employed pursuant to an
order of the Bankruptcy Court in accordance with sections 327, 1102 or 1103 of
the Bankruptcy Code and to be compensated for services rendered and reimbursed
for related expenses incurred prior to the Effective Date, pursuant to sections
327, 328, 329, 330, and/or 331; or (b) for which compensation and reimbursement
has been allowed by the Bankruptcy Court pursuant to sections 503(b)(2) or (4)
of the Bankruptcy Code.
1.101. "PROFESSIONAL FEE RESERVE" means the reserve of Cash or other
security (in form and substance reasonably acceptable to counsel to the
Proponents) to be established by the Debtor or Reorganized Paragon on the
Effective Date in an amount fixed by the Bankruptcy Court on or before the
Confirmation Date (based on estimates Filed by Professionals at least ten (10)
calendar Days prior to the first date scheduled for the commencement of the
Confirmation Hearing) to provide for the payment of Fee Claims allowed by the
Bankruptcy Court.
1.102. "PROPONENTS" means the Debtor and the Creditors' Committee.
1.103. "PRO RATA SHARE" means, as of the date of calculation and with
respect to an Allowed Claim or Allowed Interest in any Class, a proportion equal
to the ratio of:
(a) the Allowed Claim (or Allowed Interest); divided by:
(b) the sum of:
(i) the aggregate of all Allowed Claims (or Allowed
Interests) of that particular Class that are Allowed Claims (or Allowed
Interests) as of such date; plus
(ii) the aggregate of all Estimated Claims (or
Estimated Interests) of that particular Class as set forth in the
relevant Estimation Order (except to the extent that Estimated Claims
or Estimated Interests have been expunged or otherwise Disallowed) that
are not described in clause (i) above, on such date; plus:
(iii) the aggregate of all Disputed Claims (or
Disputed Interests) of that particular Class that are not set forth in
the Estimation Order (except to the extent such Disputed Claims or
Disputed Interests have been expunged or otherwise Disallowed), on that
date.
1.104. "RECORD DATE" means the applicable Voting Record Date or the
Distribution Record Date, as the context requires.
1.105. "REGISTRATION RIGHTS AGREEMENT" shall have the meaning ascribed
to such term in Section 9.16 of the Plan. The Registration Rights Agreement
shall (i) be filed by the Proponents and Wellspring at least ten (10) calendar
Days prior to the date of the Confirmation Hearing, and (ii) be satisfactory to
Wellspring in form and substance; PROVIDED, HOWEVER, that no Registration Rights
Agreement will be filed unless, as a result of the Wellspring Rights Offering,
such Registration Rights Agreement is required for a holder of New Common Stock
(other than Wellspring) to transfer its New Common Stock to a third party
without restriction.
1.106. "REORGANIZED PARAGON" means the Debtor from and after the
Effective Date, as reorganized pursuant to the Plan.
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1.107. "RESTATED BYLAWS" means the bylaws of Reorganized Paragon, as
amended and restated in connection with the Plan.
1.108. "RESTATED CERTIFICATE OF INCORPORATION" means the certificate
of incorporation of Reorganized Paragon, as amended and restated in connection
with the Plan.
1.109. "RIGHTS" means the rights to acquire shares of New Common Stock
for a purchase price of $10.00 per share in accordance with Section 9.22 of the
Plan.
1.110. "SCHEDULES" means the schedules of assets and liabilities and
the statements of financial affairs for the Debtor as required by section 521 of
the Bankruptcy Code, Filed on or about March 3, 1998, as the same have been or
may hereafter be amended from time to time.
1.111. "SECURED CLAIM" means that portion of a Claim against the
Debtor that is (a) secured by a valid, perfected and enforceable security
interest, lien, mortgage or other encumbrance, that is not subject to avoidance
under applicable bankruptcy or non-bankruptcy law, in or upon any right, title
or interest of the Debtor in and to property of the Estate, to the extent of the
value of the holder's interest in such property as of the Confirmation Date, or
(b) subject to setoff under section 553 of the Bankruptcy Code, to the extent of
the amount subject to setoff, each as determined by sections 506(a) and 1111(b)
of the Bankruptcy Code and Bankruptcy Rule 3012.
1.112. "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated therewith.
1.113. "TEEP RETENTION PLAN" means that certain top eight executives
incentive plan authorized and approved by Final Order of the Bankruptcy Court
dated August 7, 1998.
1.114. "TEXAS ACTION" means the action commenced on or about October
25, 1995 in the United States District Court for the Northern District of Texas
entitled KIMBERLY-CLARK CORPORATION V. PARAGON TRADE BRANDS, INC., Case No.
3:95-CV-2574 (N.D. Tex.).
1.115. "UNCLAIMED PROPERTY" means any Distribution of Cash, New
Securities and/or Warrants unclaimed on or after the twelfth (12th) month
following the applicable date of Distribution. Unclaimed Property shall include:
(a) Cash, New Notes (if any), shares of New Common Stock, Litigation Proceeds,
Warrants and checks (and the funds represented thereby) mailed to the holder of
any Allowed Claim and/or Allowed Interest and returned as undeliverable without
a proper forwarding address; (b) uncashed checks (and the funds represented
thereby); or (c) Cash, New Notes (if any), shares of New Common Stock,
Litigation Proceeds, Warrants and checks (and the funds represented thereby) not
mailed or delivered to the holder of any Allowed Claim and/or Allowed Interest
because no address was available to which to mail or deliver such property, in
each case after reasonable inquiry by Reorganized Paragon or other party
attempting to make such Distribution.
1.116. "UNSECURED CLAIM" means any Claim other than a Secured Claim, a
Convenience Claim, an Administrative Claim, a Fee Claim, a Priority Non-Tax
Claim, or a Priority Tax Claim.
1.117. "UNSECURED CLAIMS DISTRIBUTION POOL" means the aggregate amount
of (a) that portion of the Litigation Proceeds allocable to holders of Allowed
Unsecured Claims pursuant to the Plan, and (b) the Unsecured Creditor New Common
Stock Amount, to be distributed to holders of Allowed Unsecured Claims pursuant
to the Plan.
1.118. "UNSECURED CREDITOR NEW COMMON STOCK AMOUNT" means (i) if the
Wellspring Stock Purchase Agreement is consummated, such percentage of the New
Common Stock Amount that is acquired by holders of Allowed
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Unsecured Claims participating in the Wellspring Rights Offering pursuant to
Section 9.22 of the Plan, subject to dilution resulting from (1) the
distribution of New Common Stock, options or warrants pursuant to any employee
retention plan adopted by Reorganized Paragon on or after the Effective Date,
(2) the issuance of Warrants to holders of Allowed Interests in accordance with
the terms of this Plan, (3) the issuance of New Common Stock by Reorganized
Paragon, as determined by the New Board, after the Effective Date and subject to
the exercise of preemptive rights in accordance with the Restated Certificate of
Incorporation and Restated Bylaws, and (4) Wellspring's exercise of the Mabesa
Option (as defined and set forth in the Wellspring Commitment), subject to the
exercise of preemptive rights, and (ii) if the Wellspring Stock Purchase
Agreement is not consummated, the Unsecured Creditor New Common Stock Amount
shall 11,712,241 shares of New Common Stock (I.E., 99.13% of the New Common
Stock Amount) minus the amount of New Common Stock to be issued under the TEEP
Retention Plan, subject to dilution for those items set forth in subsections
i(1) through (3) above in this definition.
1.119. "VOTING PROCEDURES" means the voting and balloting rules and
procedures approved by order of the Bankruptcy Court in connection with the
acceptance or rejection of the Plan.
1.120. "VOTING RECORD DATE" means 5:00 p.m. (Atlanta, Georgia time) on
November 1, 1999 or such other date and time as designated in the order
approving the Disclosure Statement.
1.121. "WARRANTS" means warrants to purchase New Common Stock of
Reorganized Paragon. If the Wellspring Stock Purchase Agreement is consummated,
the Warrants shall contain terms substantially similar to the summary of terms
contained on Exhibit "A" annexed hereto or otherwise reasonably satisfactory to
the Proponents, Wellspring and the Equity Committee. If the Wellspring Stock
Purchase Agreement is not consummated, the Warrants shall contain terms
substantially similar to the summary of terms contained on Exhibit "B" annexed
hereto or otherwise reasonably satisfactory to the Proponents, the Equity
Committee, P&G and K-C.
1.122. "WELLSPRING" means Wellspring Capital Management LLC.
1.123. "WELLSPRING COMMITMENT" means that certain commitment letter
dated October 14, 1999, between Paragon and Wellspring, a copy of which is
annexed hereto as Exhibit "C," as superseded by the parties' agreements under
the Wellspring Stock Purchase Agreement.
1.124. "WELLSPRING CONSIDERATION" means the Wellspring Investment
Amount, less the amount of Cash necessary to provide Distributions to holders of
Allowed Convenience Claims pursuant to Section 6.4 of the Plan.
1.125. "WELLSPRING INVESTMENT AMOUNT" means $117,116,500.00 in Cash
consideration less the value of the New Common Stock issued pursuant to the TEEP
Retention Plan at $10.00 per share, subject to reduction as a result of the
Wellspring Rights Offering, to be paid by Wellspring or its designee(s) under
the Wellspring Stock Purchase Agreement.
1.126. "WELLSPRING NEW NOTES INDENTURE" means the indenture, dated as
of the Effective Date, executed by Reorganized Paragon and the Wellspring New
Notes Indenture Trustee, pursuant to which, if the Wellspring Stock Purchase
Agreement is consummated, the New Notes will be issued, the form of which shall
(a) be filed by the Proponents at least ten (10) calendar days prior to the date
of the Confirmation Hearing and be in form and substance reasonably satisfactory
to P&G and K-C, and (b) contain terms substantially similar to the summary of
terms attached as Appendix 1 to the Wellspring Stock Purchase Agreement. The
Wellspring New Notes Indenture must be in a form and substance satisfactory to
the Proponents, Wellspring, P&G and K-C.
1.127. "WELLSPRING NEW NOTES INDENTURE TRUSTEE" means any Person
denominated as the trustee in the Wellspring New Notes Indenture.
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1.128. "WELLSPRING NEW NOTES INTEREST RATE" means eleven and
one-quarter percent (11.25%) per annum.
1.129. "WELLSPRING RIGHTS OFFERING" means the equity rights offering
under Section 9.22 of the Plan pursuant to which (a) the holder of an Allowed
Unsecured Claim may, on or prior to the Plan Voting Deadline, exercise its
rights to receive shares of New Common Stock pursuant to the Wellspring Rights
Offering Procedures (i) in lieu of a portion of the Cash Distribution such
holder otherwise would have been entitled to receive under the Plan, or (ii) by
making a Cash payment, and (b) the holder of an Allowed Old Common Stock
Interest may exercise rights to purchase shares of New Common Stock pursuant to
the Wellspring Rights Offering Procedures.
1.130. "WELLSPRING RIGHTS OFFERING PROCEDURES" means the terms and
procedures of the Wellspring Rights Offering that, if the Wellspring Stock
Purchase Agreement has been executed and has not been terminated, will govern
the terms of the Wellspring Rights Offering and shall be in substantially the
same form as the Wellspring Rights Offering Procedures annexed hereto as Exhibit
"D." The Wellspring Rights Offering Procedures must be reasonably satisfactory
to P&G and K-C.
1.131. "WELLSPRING STOCK PURCHASE AGREEMENT" means that certain stock
purchase agreement between Paragon and Wellspring or its designee(s), pursuant
to which Wellspring or its designee(s), if the Wellspring Stock Purchase
Agreement is consummated, will acquire 98.5% of the New Common Stock Amount less
shares of New Common Stock issued pursuant to the TEEP Retention Plan at $10.00
per share, subject to reduction as a result of the Wellspring Rights Offering.
The Wellspring Stock Purchase Agreement shall be substantially in the form of
the stock purchase agreement annexed hereto as Exhibit E.
1.132. "WEYERHAEUSER" means the Weyerhaeuser Company, a Washington
corporation.
II.
METHOD OF CLASSIFICATION OF CLAIMS AND
INTERESTS AND GENERAL PROVISIONS
2.1. GENERAL RULES OF CLASSIFICATION. Generally, for voting and
Distribution purposes, a Claim or Interest is classified in a particular Class
only to the extent that the Claim or Interest qualifies within the description
of that Class, and is classified in a different Class or Classes to the extent
the Claim or Interest qualifies within the description of such different Class
or Classes. Unless otherwise provided, to the extent a Claim qualifies for
inclusion in a more specifically defined Class and a more generally defined
Class, it shall be included in the more specifically defined Class. A Claim or
Interest is classified in a particular Class only to the extent the Claim or
Interest is an Allowed Claim or Allowed Interest in that Class and has not been
paid, released or otherwise satisfied before the Effective Date.
2.2. ADMINISTRATIVE CLAIMS, FEE CLAIMS AND PRIORITY TAX CLAIMS.
Administrative Claims, Fee Claims and Priority Tax Claims have not been
classified and are excluded from the Classes set forth in Article IV hereof, in
accordance with section 1123(a)(1) of the Bankruptcy Code.
2.3. SATISFACTION OF CLAIMS AND INTERESTS. The treatment to be
provided for Allowed Claims and Allowed Interests pursuant to the Plan shall be
in full satisfaction, settlement, release and discharge of such Allowed Claims
and Allowed Interests.
2.4. BAR DATE FOR FEE CLAIMS. The Confirmation Order shall establish
the Fee Claims Bar Date and the date for filing any objections to any Fee Claim.
Notice of entry of the Confirmation Order shall be served on all Professionals.
Any Person that fails to File an application for payment of a Fee Claim on or
before the time and date established in the Confirmation Order shall be forever
barred from asserting such Fee Claim against any of the Debtor, the Estate,
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Reorganized Paragon or its property and the holder thereof shall be enjoined
from commencing or continuing any action, employment of process or acts to
collect, offset or recover such Fee Claim.
III.
IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS
IMPAIRED AND NOT IMPAIRED BY THE PLAN
3.1. UNIMPAIRED CLASSES CONCLUSIVELY PRESUMED TO ACCEPT THE PLAN.
Classes 1 (Secured Claims) and 2 (Priority Non-Tax Claims) are not Impaired
under the Plan. Under section 1126(f) of the Bankruptcy Code, the holders of
Claims in such Classes are conclusively presumed to accept the Plan and the
votes of such holders do not need to be and will not be solicited.
3.2. CLASSES OF CLAIMS AND INTERESTS IMPAIRED BY THE PLAN AND ENTITLED
TO VOTE. Classes 3A (Unsecured Claims), 3B (Convenience Claims) and 4A (Old
Common Stock Interests) are Impaired under the Plan and the holders of Claims
and Interests in such Classes are entitled to vote to accept or reject the Plan
in accordance with the Voting Procedures. The Proponents reserve the right to
seek an order of the Bankruptcy Court determining that a particular Class is not
Impaired and therefore is deemed to have accepted the Plan.
3.3. CLASSES RECEIVING NO DISTRIBUTION AND DEEMED TO REJECT THE PLAN.
Old Stock Option Interests in Class 4B (Old Stock Option Interests) will not
receive or retain any property under the Plan. Under section 1126(g) of the
Bankruptcy Code, the holders of such Interests are deemed to reject the Plan and
the votes of such holders will not be solicited.
3.4. CONFIRMATION PURSUANT TO SECTION 1129(B) OF THE BANKRUPTCY CODE.
The Proponents intend to request that the Bankruptcy Court confirm the Plan in
accordance with section 1129(b) of the Bankruptcy Code with respect to Class 4B
because Class 4B is deemed to have rejected the Plan. The Proponents also may
seek confirmation of the Plan under section 1129(b) of the Bankruptcy Code to
the extent any other Class rejects or is deemed to have rejected the Plan.
IV.
CLASSIFICATION OF CLAIMS AND INTERESTS
4.1. CLASSIFICATION. Pursuant to section 1122 of the Bankruptcy Code,
the following is a designation of Classes of Claims and Interests under the
Plan:
"Class 1" shall consist of all Secured Claims. Unless
otherwise ordered by the Bankruptcy Court, each Allowed
Secured Claim in Class 1 shall be considered to be a separate
subclass within Class 1, and each such subclass shall be
deemed to be a separate Class for purposes of the Plan.
"Class 2" shall consist of all Priority Non-Tax Claims.
"Class 3A" shall consist of all Unsecured Claims.
"Class 3B" shall consist of all Convenience Claims.
"Class 4A" shall consist of all Old Common Stock Interests.
"Class 4B" shall consist of all Old Stock Option Interests.
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V.
PROVISIONS FOR ALLOWANCE, TREATMENT AND PAYMENT
OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS
5.1. TREATMENT OF ALLOWED PRIORITY TAX CLAIMS.
(a) PAYMENT. Each holder of an Allowed Priority Tax Claim
shall receive, at the option of the Debtor or Reorganized Paragon, as
applicable, either (i) Cash equal to 100% of the unpaid amount of such Allowed
Claim on or as soon as reasonably practicable after the later of (A) the
Effective Date, or (B) the first Business Day after the date that is thirty (30)
calendar days after the date such Priority Tax Claim becomes an Allowed Claim,
or (ii) annual Cash payments commencing on or as soon as reasonably practicable
after the later to occur of the Effective Date and the date on which such
Priority Tax Claim becomes an Allowed Claim, over a period not exceeding six (6)
years after the date of assessment of such Allowed Priority Tax Claim, together
with interest (payable quarterly in arrears) on the unpaid balance of such
Allowed Priority Tax Claim at a per annum rate equal to the federal judgment
statutory rate as of the Effective Date. Allowed Priority Tax Claims may be
prepaid, at any time, without penalty. Any Claim or demand for a penalty
relating to an Allowed Priority Tax Claim shall be Disallowed pursuant to the
Plan, and the holder of an Allowed Priority Tax Claim shall not assess or
attempt to collect such penalty from the Debtor, the Estate, Reorganized Paragon
or its property. Holders of Allowed Priority Tax Claims shall be limited to the
consideration provided under the Plan and shall have no recourse to Reorganized
Paragon for any pre-Confirmation Date Priority Tax Claims against the Debtor.
Notwithstanding the foregoing, the holder of an Allowed Priority Tax Claim may
receive such other, less favorable treatment as may be agreed upon by the
claimant and the Debtor or Reorganized Paragon, as applicable.
(b) RELEASE OF SECURITY INTERESTS. All liens, security
interests and like encumbrances of a holder of an Allowed Priority Tax Claim on
property of the Debtor or the Estate respecting such Claim shall be deemed
released pursuant to Sections 9.13 and 9.15 hereof as of the Effective Date, and
shall not attach to Reorganized Paragon's property.
5.2. TREATMENT OF ALLOWED ADMINISTRATIVE CLAIMS. Unless otherwise
provided for herein, each holder of an Allowed Administrative Claim shall
receive Cash equal to 100% of the unpaid amount of such Allowed Administrative
Claim on or as soon as reasonably practicable after the later of: (a) the
Effective Date; (b) the first Business Day after the date that is thirty (30)
calendar days after the date such Administrative Claim becomes an Allowed Claim;
or (c) such other date established pursuant to the terms of any Final Order of
the Bankruptcy Court, which may include the Confirmation Order. Holders of
Allowed Administrative Claims shall be limited to the consideration provided
under the Plan and shall have no recourse to Reorganized Paragon for any
pre-Confirmation Date Administrative Claims against the Debtor. Notwithstanding
the two immediately preceding sentences, Allowed Administrative Claims for goods
sold or services rendered representing liabilities incurred by the Debtor in the
ordinary course of business during the Chapter 11 Case shall be paid by
Reorganized Paragon in the ordinary course of business in accordance with the
terms and conditions of any agreements, understandings, or trade terms relating
thereto, or pursuant to the terms of a Final Order of the Bankruptcy Court,
which may include the Confirmation Order. Notwithstanding the foregoing, the
holder of an Allowed Administrative Claim may receive such other, less favorable
treatment as may be agreed upon by such holder and the Debtor or Reorganized
Paragon, as applicable.
5.3. TREATMENT OF ALLOWED DIP CLAIMS. On the Effective Date, the DIP
Bank Agent shall be paid 100% of the unpaid non-contingent amounts of the
Allowed DIP Claims and such Claims otherwise shall be treated pursuant to the
terms of the DIP Credit Agreement. Upon payment or satisfaction in full of the
Allowed DIP Claims, the DIP Credit Agreement shall be deemed terminated and the
obligations or rights issued or granted pursuant thereto shall be canceled,
subject in all respects to any carve-out provided in the Bankruptcy Court order
approving the DIP Credit Agreement on a final basis. On or as soon as reasonably
practicable after the Effective Date, all interest, fees, expenses and other
charges that have accrued and are required to be paid pursuant to the terms of
the DIP Credit Agreement but have not been paid as
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of the Effective Date shall be paid (subject to proration) to the DIP Bank Agent
for distribution to those parties entitled to receive such interest, fees,
expenses and other charges pursuant to the DIP Credit Agreement.
5.4. TREATMENT OF FEE CLAIMS. Each holder of a Fee Claim shall receive
Cash from the Professional Fee Reserve equal to 100% of the unpaid amount of
such Fee Claim in such amounts as are allowed by the Bankruptcy Court (a) on the
later of (i) the Effective Date, and (ii) a date which is no later than five (5)
Business Days after the entry of an order of the Bankruptcy Court allowing such
Fee Claim, or (b) upon such other less favorable terms as may be mutually agreed
upon between such holder of a Fee Claim and the Debtor or Reorganized Paragon,
as applicable. In the event that the aggregate amount of all Fee Claims allowed
by the Bankruptcy Court is less than the Professional Fee Reserve, the excess
shall be allocated and made available for Distribution to holders of Allowed
Unsecured Claims in accordance with the Distribution provisions of the Plan. In
the event that the aggregate amount of all Fee Claims allowed by the Bankruptcy
Court is more than the Professional Fee Reserve, the deficiency shall be
withdrawn from the Class 3A Disputed Claims Reserve for payment to the holders
of Allowed Fee Claims.
VI.
TREATMENT OF CLASSES OF ALLOWED CLAIMS
AND ALLOWED INTERESTS
6.1. TREATMENT OF ALLOWED SECURED CLAIMS (CLASS 1).
(a) PAYMENT. Claims in Class 1 are not Impaired under the
Plan. On or as soon as reasonably practicable after the later of (i) the
Effective Date, or (ii) the first Business Day after the date that is thirty
(30) calendar days after the date such Secured Claim becomes an Allowed Claim,
each holder of an Allowed Secured Claim shall receive, at the election of the
Debtor or Reorganized Paragon, as applicable, one of the following
distributions: (1) Cash equal to 100% of the unpaid amount of such Allowed
Secured Claim; (2) the proceeds of the sale or disposition of the property
securing such Allowed Secured Claim to the extent of the value of such holder's
interest in such property; (3) the surrender to the holder of such Allowed
Secured Claim of the property securing such Claim; (4) such treatment that
leaves unaltered the legal, equitable or contractual rights of the holder of
such Allowed Secured Claim; or (5) such other distribution as shall be necessary
to leave the holder of such Secured Claim Unimpaired and to satisfy the
requirements of chapter 11 of the Bankruptcy Code. The manner and treatment of
each Allowed Secured Claim shall be determined by the Debtor, in its discretion,
on or before the Effective Date, or by Reorganized Paragon, after the Effective
Date, and upon notice to the holder of such Secured Claim. To the extent a Claim
is partially an Allowed Secured Claim based on an offset right and partially an
Allowed Claim of another type, (x) the portion of such Claim that is a Secured
Claim shall be equal to the amount of the allowed, liquidated, nondisputed,
noncontingent claim owing to the Debtor as to which a valid setoff right exists,
and (y) the remainder of such Claim shall be classified in another relevant
Class to the extent of the excess. If a Claim is a fully Secured Claim based on
an offset right, the allowance of such Claim shall not affect any obligations or
liabilities due and payable (at such time) to the Debtor that is in an amount in
excess of the amount offset and the payment, in full and in Cash, of all amounts
due and owing as of the Effective Date to the Debtor and the turnover of any
property of the Debtor held by such claimant on account of any unliquidated,
disputed or contingent right of setoff shall be a precondition to the allowance
of such Secured Claim. Notwithstanding the foregoing, the holder of an Allowed
Secured Claim may receive such other less favorable treatment as may be agreed
to by such holder and the Debtor or Reorganized Paragon, as applicable.
(b) RELEASE OF SECURITY INTERESTS. Unless an Allowed Secured
Claim is treated pursuant to Section 6.1(a)(4) above, all liens, security
interests and like encumbrances of a holder of an Allowed Secured Claim on
property of the Debtor or the Estate respecting such Claim shall be deemed
released pursuant to Sections 9.13 and 9.15 hereof as of the Effective Date, and
shall not attach to Reorganized Paragon's property.
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6.2. TREATMENT OF ALLOWED PRIORITY NON-TAX CLAIMS (CLASS 2). Claims in
Class 2 are not Impaired under the Plan. On or as soon as reasonably practicable
after the later of (a) the Effective Date, and (b) the first Business Day after
the date that is thirty (30) calendar days after the date such Priority Non-Tax
Claim becomes an Allowed Claim, each holder of an Allowed Priority Non-Tax Claim
shall be entitled to receive payment, in Cash, in an amount equal to 100% of the
unpaid amount of its Allowed Priority Non-Tax Claim. Notwithstanding the
foregoing, the holder of an Allowed Priority Non-Tax Claim may receive such
other less favorable treatment as may be agreed to by such holder and the Debtor
or Reorganized Paragon, as applicable.
6.3. TREATMENT OF ALLOWED UNSECURED CLAIMS (CLASS 3A). Claims in Class
3A are Impaired under the Plan.
(a) TREATMENT IF THE WELLSPRING STOCK PURCHASE AGREEMENT IS
CONSUMMATED. If the Wellspring Stock Purchase Agreement has been consummated,
then, on or as soon as reasonably practicable after the Initial Distribution
Date, each Periodic Distribution Date thereafter and the Final Distribution
Date, each holder of an Allowed Unsecured Claim in Class 3A shall receive on
account of such Allowed Unsecured Claim, in accordance with Article XI hereof,
(i) such holder's Pro Rata Share of (1) the Wellspring Investment Amount (minus
the sum of $1,094,500.00 in Cash plus the amount of Cash used to make
Distributions to Class 3B (Convenience Claims), and subject to dollar for dollar
reduction in accordance with the Wellspring Rights Offering Procedures in the
case of certain holders as a result of such holder's exercise of rights pursuant
to the Wellspring Rights Offering), (2) the New Notes, and (3) that portion of
Litigation Proceeds allocable to holders of Allowed Unsecured Claims under the
Plan, and (ii) any New Common Stock properly subscribed for by such holder under
the Wellspring Rights Offering pursuant to Section 9.22 of the Plan. For
purposes of determining the Litigation Proceeds which are allocable to holders
of Allowed Unsecured Claims: (a) with respect to Litigation Claims against
Weyerhaeuser and Pope & Talbot, 25% of the Litigation Proceeds shall be
allocable to holders of Allowed Unsecured Claims as and when such Litigation
Proceeds are received, with the remainder of the Litigation Proceeds being
available for Distributions to holders of Allowed Old Common Stock Interests;
and (b) with respect to Litigation Claims against Oracle Corporation and/or
Andersen Consulting LLP, 50% of the Litigation Proceeds shall be allocable to
holders of Allowed Unsecured Claims as and when such Litigation Proceeds are
received and 50% of such Litigation Proceeds shall be allocable to holders of
Allowed Old Common Stock Interests. Notwithstanding anything to the contrary
herein, once the holders of Allowed Unsecured Claims receive payment in full
(including postpetition interest to the extent provided under Section 7.4
hereof), any Litigation Proceeds which would otherwise be distributed to the
holders of such Claims shall be distributed pro rata to the holders of Allowed
Old Common Stock Interests pursuant to Section 6.5 hereof.
(b) TREATMENT IF THE WELLSPRING STOCK PURCHASE AGREEMENT IS
NOT CONSUMMATED. If the Wellspring Stock Purchase Agreement is not executed, or
is executed and is terminated or not consummated, then, on or as soon as
reasonably practicable after the Initial Distribution Date, each Periodic
Distribution Date thereafter and the Final Distribution Date, each holder of an
Allowed Unsecured Claim in Class 3A shall receive on account of such Allowed
Unsecured Claim, in accordance with Article XI hereof, such holder's Pro Rata
Share of the Unsecured Claims Distribution Pool then available for Distribution.
For purposes of determining the Litigation Proceeds which are part of the
Unsecured Claims Distribution Pool: (a) with respect to Litigation Claims
against Weyerhaeuser and Pope & Talbot, 25% of the Litigation Proceeds shall be
deposited in the Unsecured Claims Distribution Pool as and when such Litigation
Proceeds are received, with the remainder of the Litigation Proceeds being
available for Distributions to holders of Allowed Old Common Stock Interests;
and (b) with respect to Litigation Claims against Oracle Corporation and/or
Andersen Consulting LLP, 50% of the Litigation Proceeds shall be allocable to
holders of Allowed Unsecured Claims as and when such Litigation Proceeds are
received and 50% of such Litigation Proceeds shall be allocable to holders of
Allowed Old Common Stock Interests. Notwithstanding anything to the contrary
herein, once the holders of Allowed Unsecured Claims receive payment in full
(including postpetition interest to the extent provided under Section 7.4
hereof), any Litigation Proceeds which would otherwise be distributed to the
holders of such Claims or deposited in the Unsecured Claims Distribution Pool
shall be distributed pro rata to the holders of Allowed Old Common Stock
Interests pursuant to Section 6.5 hereof.
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6.4. TREATMENT OF ALLOWED CONVENIENCE CLAIMS (CLASS 3B).
(a) TREATMENT. Claims in Class 3B are Impaired under the Plan.
On or as soon as reasonably practicable after the later of (i) the Effective
Date, and (ii) the first Business Day after the date that is thirty (30)
calendar days after such Convenience Claim becomes an Allowed Claim, each holder
of an Allowed Convenience Claim shall receive Cash equal to fifty percent (50%)
of the unpaid amount of such Allowed Claim.
(b) ELECTION OF TREATMENT. Any holder of an Allowed Unsecured
Claim whose Allowed Unsecured Claim is equal to or less than five thousand
dollars ($5,000.00) shall receive treatment of its Allowed Claim under Section
6.4(a) hereof in full settlement, satisfaction, release and discharge of such
Allowed Claim. Any holder of an Allowed Unsecured Claim whose Allowed Unsecured
Claim is more than five thousand dollars ($5,000.00) but not more than ten
thousand dollars ($10,000.00), and who timely elects to reduce the amount of
such Allowed Claim to five thousand dollars ($5,000.00) in accordance with the
terms of this Section 6.4 (b) also shall receive treatment of its Allowed Claim,
as so reduced, under Section 6.4(a) hereof in full settlement, satisfaction,
release and discharge of such Allowed Claim. No holder of an Allowed Unsecured
Claim in excess of ten thousand dollars ($10,000.00) shall be entitled to elect
treatment under Section 6.4 (a) hereof with respect to such Allowed Unsecured
Claim. Election of treatment in Class 3B must be made on such holder's Ballot
and be received by the Debtor on or prior to the Plan Voting Deadline. Any
election of Convenience Claim treatment made after the Plan Voting Deadline
shall not be binding upon the Debtor or Reorganized Paragon unless the Plan
Voting Deadline is expressly waived, in writing, by the Proponents. The exercise
of such an election shall in no way preclude the Debtor, Reorganized Paragon or
other parties in interest from objecting to the Claim.
6.5. TREATMENT OF ALLOWED OLD COMMON STOCK INTERESTS (CLASS 4A).
Interests in Class 4A are Impaired under the Plan. On or as soon as reasonably
practicable after the Initial Distribution Date, each Periodic Distribution Date
thereafter and the Final Distribution Date, each holder of an Allowed Old Common
Stock Interest shall be entitled to receive, in accordance with Article XI
hereof, (a) such holder's Pro Rata Share of (i) the Interest Holders' New Common
Stock Amount, (ii) the Warrants and (iii) that portion of the Litigation
Proceeds allocable to holders of Allowed Old Common Stock Interests under the
Plan, and (b) any New Common Stock properly subscribed for by any such holder
under the Wellspring Rights Offering pursuant to Section 9.22 of the Plan. For
purposes of determining the Litigation Proceeds which are allocable to holders
of Allowed Old Common Stock Interests: (a) with respect to Litigation Claims
against Weyerhaeuser and Pope & Talbot, 25% of the Litigation Proceeds shall be
deposited in the Unsecured Claims Distribution Pool as and when such Litigation
Proceeds are received, with the remainder of the Litigation Proceeds being
available for Distributions to holders of Allowed Old Common Stock Interests;
and (b) with respect to Litigation Claims against Oracle Corporation and/or
Andersen Consulting LLP, 50% of the Litigation Proceeds shall be allocable to
holders of Allowed Unsecured Claims as and when such Litigation Proceeds are
received and 50% of such Litigation Proceeds shall be allocable to holders of
Allowed Old Common Stock Interests. On the Effective Date, all Old Common Stock
Interests shall be deemed treated as set forth in Section 9.14(b) hereof.
6.6. TREATMENT OF OLD STOCK OPTION INTERESTS (CLASS 4B). Interests in
Class 4B are Impaired under the Plan. All Old Stock Option Interests shall be
deemed canceled and the holders of such Interests shall receive no Distribution
of any kind under the Plan. On the Effective Date, all such Interests shall be
deemed extinguished and the certificates representing such Interests shall be
canceled and of no force and effect.
6.7. NO DISTRIBUTION IN EXCESS OF ALLOWED AMOUNT OF CLAIM.
Notwithstanding anything to the contrary herein, no holder of an Allowed Claim
shall receive in respect of such Claim any Distribution having a value, as of
the Effective Date, in excess of the allowed amount of such Claim.
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VII.
COMPROMISE AND SETTLEMENT OF CERTAIN CLAIMS;
THE WELLSPRING STOCK PURCHASE AGREEMENT
7.1. COMPROMISE AND SETTLEMENT OF CLAIMS HELD BY P&G. The Plan
incorporates the compromise and settlement of certain claims and issues between
the Debtor and P&G that were resolved by the P&G Settlement Agreement. The
negotiations resulting in the P&G Settlement Agreement were conducted in good
faith and at arms' length, and the P&G Settlement Agreement is of benefit to the
Estate and represents a fair, necessary and reasonable compromise of the Claims
held by P&G and related issues. As of the Effective Date, to the extent it has
not already been approved by a Final Order, the P&G Settlement Agreement shall
be deemed approved in all respects as if by a Final Order and the P&G Allowed
Claims (as defined in the P&G Settlement Agreement) shall be treated and allowed
in the amounts and classifications set forth therein. If not already effective
by its terms, the P&G Settlement Agreement shall become effective on the
Effective Date.
7.2. COMPROMISE AND SETTLEMENT OF CLAIMS HELD BY K-C. The Plan
incorporates the compromise and settlement of certain claims and issues between
the Debtor and K-C that were resolved by the K-C Settlement Agreement. The
negotiations resulting in the K-C Settlement Agreement were conducted in good
faith and at arms' length, and the K-C Settlement Agreement is of benefit to the
Estate and represents a fair, necessary and reasonable compromise of the Claims
held by K-C and related issues. As of the Effective Date, to the extent it has
not already been approved by a Final Order, the K-C Settlement Agreement shall
be deemed approved in all respects as if by a Final Order and the K-C Allowed
Claims (as defined in the K-C Settlement Agreement) shall be treated and allowed
in the amounts and classifications set forth therein. If not already effective
by its terms, the K-C Settlement Agreement shall become effective on the
Effective Date.
7.3. ALLOWANCE OF THE PREPETITION BANK CLAIMS. The Prepetition Bank
Claims shall be deemed Allowed Unsecured Claims as of the Petition Date in the
respective principal amounts of (a) $70,563,189 (on account of the Prepetition
Revolving Credit Agreement), and (b) $11,420,417 (on account of the Prepetition
Line of Credit), plus postpetition interest thereon to the extent provided for
pursuant to Section 7.4 hereof, and otherwise shall be disallowed.
7.4. ALLOWANCE AND PAYMENT OF POSTPETITION INTEREST. Holders of
Allowed Unsecured Claims shall be entitled to receive Distributions in
accordance with the Plan until the holders of such Claims receive payment in
full (including simple interest, calculated (a) in the case of the Allowed
Unsecured Claims held by P&G and the Allowed Unsecured Claims held by K-C, at
the per annum rate provided in the P&G Settlement Agreement and the K-C
Settlement Agreement, respectively, on the unpaid principal amount thereof from
April 15, 1999 through the Effective Date, and (b) in the case of all other
Allowed Unsecured Claims, at a per annum rate equal to the federal judgment
statutory rate as of the Effective Date, on the unpaid principal amount thereof
from the Petition Date through the Effective Date).
7.5. THE WELLSPRING STOCK PURCHASE AGREEMENT. Paragon and Wellspring
have agreed to implement the parties' agreements and understandings embodied in
the Wellspring Commitment through the terms of this Plan and the Wellspring
Stock Purchase Agreement. If, however, (a) Paragon and Wellspring are not able
to agree upon the terms of the Wellspring Stock Purchase Agreement and therefore
do not execute such agreement, (b) the Wellspring Stock Purchase Agreement is
executed but terminated by either Paragon or Wellspring pursuant to the terms
thereof, or (c) the Wellspring Stock Purchase Agreement is not consummated for
any reason by February 15, 2000, or such later date agreed to by the Proponents
and Wellspring (with the consent of P&G, K-C, and the Equity Committee, such
consent not to be unreasonably withheld), then Paragon will implement the
provisions of this Plan that do not contemplate or require consummation of the
Wellspring Stock Purchase Agreement, subject to the terms of the Wellspring
Commitment and the Wellspring Stock Purchase Agreement.
7.6. THE PMI CLAIM. Notwithstanding anything contained in this Plan to
the contrary, if the Wellspring Stock Purchase Agreement is consummated, the
Allowed Prepetition Claims of Paragon Mabesa International, S.A. de
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<PAGE> 28
C.V. ("PMI") shall be treated as Allowed Unsecured Claims under this Plan;
PROVIDED, HOWEVER, that the New Notes that are to be distributed on account of
such Allowed Unsecured Claims shall be deemed to have been issued and canceled
as an offset against the Prepetition principal and/or accrued interest owed by
PMI to Paragon under certain advances to PMI and certain promissory notes issued
pursuant to (i) the Joint Venture Agreement dated January 26, 1996 between
Paragon, Mr. Gilberto Marin Quintero ("Marin") and PTB International, Inc.
("PTBI"); (ii) the Facility Financing Side Letter dated January 26, 1996 between
Paragon, Marin and PTBI; and (iii) additional financings as approved by
Paragon's Board of Directors at a meeting held on December 16, 1997. Any New
Notes that would have been distributed to PMI on account of such Allowed
Unsecured Claims in the absence of the foregoing provision shall be deemed to
have been issued as part of the New Notes Amount. Notwithstanding the foregoing,
if PMI does not vote to accept the Plan, then any Allowed Claims held by PMI
shall be classified and treated in accordance with the priority and
classification of any such Allowed Claims, subject to any rights of setoff that
the Debtor or Reorganized Paragon may have under applicable law.
7.7. COMPROMISE OF EQUITY COMMITTEE'S OBJECTIONS; WITHDRAWAL OF
PENDING LITIGATION. The Plan incorporates and embodies the compromise and
settlement of the Equity Committee's objections to, and appeals of the
Bankruptcy Court's approval of, (a) the K-C Settlement Agreement, (b) the P&G
Settlement Agreement, and (c) the bidding procedures and protections concerning
the Wellspring Stock Purchase Agreement and related transactions. Within five
(5) Business Days after the Effective Date, the Equity Committee shall (x)
dismiss with prejudice (i) the Equity Committee's appeal of the K-C Settlement
Order (No. 99-13877-B), (ii) the Equity Committee's appeal of the P&G Settlement
Order, and (iii) the Equity Committee's appeals of the Bankruptcy Court's orders
dated July 13, 1999 and August 20, 1999 (Case No. 1-99-CV-2590-JEC), concerning
the establishment of certain bidding procedures and protections in the Chapter
11 Case (collectively, the "Appeals"), and (y) if not already withdrawn,
withdraw with prejudice the Equity Committee's objections to the Debtor's
settlement agreement dated August 9, 1999, with Rhonda Tracy.
VIII.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
8.1. ASSUMPTION OR REJECTION. Any unexpired lease or executory
contract that has not been expressly assumed or rejected by the Debtor with the
Bankruptcy Court's approval on or prior to the Confirmation Date shall, as of
the Confirmation Date but subject to the occurrence of the Effective Date, be
deemed to have been assumed by the Debtor (notwithstanding any provision thereof
limiting or conditioning such assumption) unless (a) there is pending before the
Bankruptcy Court on the Confirmation Date a motion to reject such unexpired
lease or executory contract, (b) such executory contract or unexpired lease is
otherwise designated for rejection on a "Schedule of Executory Contracts and
Unexpired Leases to be Rejected" Filed and served by the Debtor on the
Committees, P&G, K-C, Wellspring and all non-Debtor parties to each of the
executory contracts and unexpired leases listed thereon at least twenty (20)
calendar days before the first date scheduled for the commencement of the
Confirmation Hearing, provided that such executory contract or unexpired lease
is ultimately rejected by operation of the Plan or order of the Bankruptcy
Court, (c) such executory contract or unexpired lease is designated for
rejection by the Debtor or Reorganized Paragon based on the existence of a cure
amount dispute, as described in Section 8.2 hereof, or (d) such executory
contract or unexpired lease is an agreement, obligation, security interest,
transaction or similar undertaking that the Debtor believes is not an executory
contract or unexpired lease and is later determined by the Bankruptcy Court to
be an executory contract or unexpired lease that is subject to assumption or
rejection under section 365 of the Bankruptcy Code. Any party to an executory
contract or unexpired lease to be assumed by the Debtor by operation of the Plan
must assert all amounts that such party believes must be paid or cured by the
Debtor pursuant to section 365 of the Bankruptcy Code in a writing (a "Cure
Statement") Filed and served on the Debtor's counsel on or before the day that
is ten (10) calendar days prior to the first date scheduled for the commencement
of the Confirmation Hearing. Failure to File and serve a Cure Statement strictly
in accordance with the foregoing shall, unless the Debtor or Reorganized Paragon
otherwise agrees in writing, result in the waiver and release of any and all
Claims and amounts that otherwise may have been due to such party upon the
Debtor's
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assumption of the respective executory contract or unexpired lease in excess of
the respective cure amount reflected in the Debtor's books and records. Any
order entered after the Confirmation Date by the Bankruptcy Court, after notice
and hearing, authorizing the rejection of an executory contract or unexpired
lease, even if such rejection takes place after the Effective Date as provided
above, shall cause such rejection to be a prepetition breach under sections
365(g) and 502(g) of the Bankruptcy Code, as if such relief were granted and
such order were entered prior to the Confirmation Date. Listing an executory
contract or unexpired lease on the Schedule of Executory Contracts and Unexpired
Leases to be Rejected shall not constitute an admission by the Debtor or
Reorganized Paragon that such contract or lease, including related agreements,
is an executory contract or unexpired lease or that the Debtor or Reorganized
Paragon has any liability thereunder. The Debtor may amend the Schedule of
Executory Contracts and Unexpired Leases to be Rejected to add or delete any
contract or lease at any time prior to the Confirmation Hearing.
8.2. CURE OF DEFAULTS UPON ASSUMPTION. All payments to cure defaults
("Cure Amounts") that may be required by section 365(b)(1) of the Bankruptcy
Code and Section 8.1 hereof shall be made by the Debtor and treated as Allowed
Administrative Claims pursuant to Section 5.2 hereof. Any disputes with respect
to Cure Amounts shall be resolved by the Bankruptcy Court. In the event of any
such dispute as to a Cure Amount, the Debtor or Reorganized Paragon shall place
in a segregated account the full Cure Amount timely asserted in a Cure Statement
in accordance with Section 8.1 hereof, or such lesser amount approved by the
Bankruptcy Court or agreed to by the Debtor and the asserting party, in order to
provide adequate assurance of prompt cure upon the resolution of any such
dispute. Any executory contract or unexpired lease that is subject to a cure
amount dispute may be added by the Debtor or Reorganized Paragon to the
"Schedule of Executory Contracts and Unexpired Leases to be Rejected" at any
time, including, without limitation, after the resolution by the Court of such
cure amount dispute, regardless of the occurrence of the Confirmation Date or
the Effective Date, based on the existence of such dispute.
8.3. REJECTION DAMAGE CLAIMS. If the rejection of any executory
contract or unexpired lease under the Plan gives rise to a Claim by the other
party or parties to such contract or lease, such Claim, to the extent that it is
timely Filed and is an Allowed Claim, shall be an Allowed Unsecured Claim and
classified in Class 3A; PROVIDED, HOWEVER, that the Unsecured Claim arising from
such rejection shall be forever barred and shall not be enforceable against the
Debtor, the Estate, Reorganized Paragon, its successors or properties, unless a
proof of Claim is timely Filed and served in accordance with Section 8.5 hereof.
8.4. OBJECTIONS. Any party to an executory contract or unexpired lease
objecting to assumption or rejection under this Article VIII must File and serve
upon the Debtor's counsel an objection in writing on or before the date that is
ten (10) calendar days prior to the first date scheduled for the commencement of
the Confirmation Hearing or such other date as set by the Bankruptcy Court. If
any party to an executory contract or unexpired lease that is deemed assumed
pursuant to this Article VIII objects to such assumption, the Bankruptcy Court
may conduct a hearing on such objection at the Confirmation Hearing or such
other hearing date as selected by the Debtor on notice (which notice may be
given orally on the record of the Confirmation Hearing) to the objecting party.
In the event of a dispute regarding the amount of any cure payment or the
ability of the Debtor to assume or assign, including providing adequate
assurance of future performance, the Debtor may determine to reject such
contract or lease pursuant to Section 8.2 above, and otherwise will make any
payments required by section 365(b)(1) of the Bankruptcy Code only after the
entry of a Final Order resolving such dispute.
8.5. BAR DATE FOR REJECTION DAMAGE CLAIMS. All proofs of Claim with
respect to Claims arising from the rejection of executory contracts or unexpired
leases, to the extent not subject to an earlier date set by order of the
Bankruptcy Court, must be filed with the Bankruptcy Court within thirty (30)
calendar days after the date of service of notice of entry of an order (which
order may be the Confirmation Order) of the Bankruptcy Court approving such
rejection or such Claims shall be forever barred.
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8.6. DEEMED CONSENTS. Unless a non-Debtor party to an executory
contract, unexpired lease, license or permit objects to the Debtor's assumption
or retention thereof in writing at least ten (10) calendar days prior to the
Confirmation Hearing, then, unless such executory contract, unexpired lease,
license or permit has been rejected by the Debtor or will be rejected by
operation of the Plan, Reorganized Paragon shall enjoy all of the rights and
benefits under each such executory contract, unexpired lease, license and permit
without the necessity of obtaining such non-Debtor's party's written consent to
Reorganized Paragon's assumption or retention of such rights and benefits.
IX.
MEANS OF IMPLEMENTATION OF THE PLAN
In addition to the provisions set forth elsewhere in the Plan,
the following shall constitute the means of implementation of the Plan.
9.1. FUNDING AND DISTRIBUTION OF CASH. On or before the Effective
Date, the Debtor shall obtain all Cash necessary to make the Cash payments
required to be made under the Plan. Such Cash may be obtained in any lawful
manner, including, without limitation, from results of operations, sales of
assets, through loans or dividends from Affiliates, from debt or equity
financing to be arranged by the Debtor, or from consummation of the Wellspring
Stock Purchase Agreement.
9.2. WORKING CAPITAL FACILITY. On or before the Effective Date, the
Debtor shall obtain a working capital line of credit for post-Effective Date
operations (the "New Credit Agreement").
9.3. INTENTIONALLY OMITTED.
9.4. CANCELLATION OF INSTRUMENTS. Unless otherwise provided for
herein, on the Effective Date, all notes, shares, instruments or other evidences
of Claims or Interests automatically shall be canceled and deemed null and void
as of the Effective Date and must be surrendered to the Debtor pursuant to
Section 9.14 below.
9.5. RESTATED CERTIFICATE OF INCORPORATION; RESTATED BYLAWS.
(a) IF THE WELLSPRING STOCK PURCHASE AGREEMENT IS CONSUMMATED:
On or prior to the date that is ten (10) calendar days prior to the date of the
Confirmation Hearing, the Debtor shall file its Restated Certificate of
Incorporation and Restated Bylaws, which (i) shall be in form and substance
acceptable to Wellspring, (ii) shall be in form and substance reasonably
satisfactory to the Creditors' Committee, P&G, K-C and the Equity Committee,
(iii) shall preserve customary preemptive rights of all holders of New Common
Stock with respect to future issuances of New Common Stock, and (iv) shall be
deemed adopted such that they become the certificate of incorporation and bylaws
of Reorganized Paragon as of the Effective Date. The Restated Certificate of
Incorporation shall authorize the issuance of not more than 20 million shares of
New Common Stock. Except as provided herein, no additional shares of New Common
Stock may be issued other than as directed by the New Board after the Effective
Date. The Restated Certificate of Incorporation and Restated Bylaws shall, INTER
ALIA, prohibit the issuance of non-voting stock to the extent required under
section 1123(a)(6) of the Bankruptcy Code.
(b) IF THE WELLSPRING STOCK PURCHASE AGREEMENT IS NOT
CONSUMMATED: On or prior to the date that is ten (10) calendar days prior to the
date of the Confirmation Hearing, the Proponents shall file the Restated
Certificate of Incorporation and Restated Bylaws, which shall be in form and
substance reasonably satisfactory to P&G and K-C and shall be deemed adopted
such that they become the certificate of incorporation and bylaws of Reorganized
Paragon as of the Effective Date. The Restated Certificate of Incorporation
shall authorize the issuance of not more than 20 million shares of New Common
Stock. Except as provided herein, no additional shares of New Common Stock may
be issued
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other than as directed by the New Board after the Effective Date. The Restated
Certificate of Incorporation and Restated Bylaws shall, INTER ALIA, prohibit the
issuance of non-voting stock to the extent required under section 1123(a)(6) of
the Bankruptcy Code.
9.6. ISSUANCE OF NEW COMMON STOCK, NEW NOTES AND WARRANTS. On the
Effective Date, Reorganized Paragon shall issue: (a) 13,566,574 shares of New
Common Stock (provided, that 11,891,000 shares of New Common Stock shall be
issued if the Wellspring Stock Purchase Agreement is consummated); (b) if the
Wellspring Stock Purchase Agreement is consummated, a principal amount of New
Notes equal to the New Notes Amount; and (c) the Warrants. Holders of New Common
Stock shall have such rights with respect to dividends, liquidation, voting and
other matters as are set forth in the Restated Certificate of Incorporation.
After the Effective Date, Reorganized Paragon may amend or modify its
certificate of incorporation and bylaws in any manner not inconsistent with
applicable law, the Plan and/or such certificate of incorporation and bylaws.
9.7. CERTAIN PROVISIONS REGARDING NEW COMMON STOCK. All authorized and
issued shares of New Common Stock not distributed in accordance with the Plan
shall be retained by Reorganized Paragon in its treasury and may be issued as
authorized by the New Board, including, without limitation, to employees of
Reorganized Paragon pursuant to an employee stock option plan.
9.8. ESTIMATION OF DISPUTED CLAIMS. On or before the Effective Date,
the Court shall enter one or more Estimation Orders estimating the dollar amount
of Disputed Claims that may become Allowed Claims, inclusive of contingent
and/or unliquidated Claims and Claims resulting from the rejection, if any, of
executory contracts and unexpired leases in accordance with Article VIII hereof.
This estimate shall be used for purposes of establishing the reserves for, and
calculating, the Initial and Periodic Distributions to holders of Allowed Claims
in Class 3A.
9.9. CONTINUATION OF BUSINESS. After the Effective Date, Paragon shall
continue to exist and engage in business as Reorganized Paragon, with all the
powers of a corporation under applicable law.
9.10. PROVISIONS FOR MANAGEMENT.
(a) DIRECTORS.
(i) DIRECTORS IF THE WELLSPRING STOCK PURCHASE
AGREEMENT IS CONSUMMATED: If the Wellspring Stock Purchase Agreement is
consummated, as of the Effective Date, the members of the New Board of
Reorganized Paragon shall consist of not less than seven (7) and no more than
ten (10) directors designated by Wellspring, (x) at least two (2) but no more
than four (4) of whom shall be independent directors (the selection of whom
shall be made with the consent of the Creditors' Committee, after consultation
with P&G, K-C and the Equity Committee), (y) at least one (1) of whom shall be a
member of Paragon's senior management, and (z) at least three (3) of whom shall
be affiliated with Wellspring.
(ii) DIRECTORS IF THE WELLSPRING STOCK PURCHASE
AGREEMENT IS NOT CONSUMMATED: If the Wellspring Stock Purchase Agreement is not
consummated, as of the Effective Date, the members of the New Board of
Reorganized Paragon shall consist of seven (7) directors, five (5) of whom shall
be independent directors and shall be designated by the Creditors' Committee and
two (2) of whom shall be designated by the Debtor. The members of the New Board
designated pursuant to this Section 9.10(a)(ii) must be reasonably satisfactory
to P&G, K-C and the Equity Committee.
(b) OFFICERS. The officers of the Debtor on the Effective Date
shall continue to serve as officers of Reorganized Paragon, as the case may be,
after the Effective Date and until such time as they may resign, be removed or
be replaced or their employment contracts, if any, may expire. If the Wellspring
Stock Purchase Agreement is
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consummated, Reorganized Paragon shall adopt a management equity incentive plan
in substantially the form set forth on Appendix 2 to the Wellspring Stock
Purchase Agreement.
(c) EMPLOYMENT CONTRACTS. Subject to the following sentence,
all employment contracts entered into by the Debtor following the Petition Date
and not terminated or expired prior to the Effective Date shall remain in effect
and be binding on Reorganized Paragon after the Effective Date. After the
Effective Date, Reorganized Paragon may enter into (i) amendments to any
existing employment contracts, or (ii) new employment contracts, with such of
its officers, agents or employees as may be mutually acceptable to the New Board
and such officers, agents or employees.
(d) TEEP RETENTION PLAN ESCROW. On the Effective Date,
Reorganized Paragon shall pay to the employees eligible to receive such payment
the $2 million Cash component of the Earned Confirmation Bonus (as defined in
the TEEP Retention Plan) under the TEEP Retention Plan. In accordance with the
TEEP Retention Plan, shares of New Common Stock having a value as of the
Effective Date equal to $164,925 shall be issued and held in escrow to fund the
payment of the Earned Confirmation Bonus exceeding $2 million, which New Common
Stock shall be distributed within three (3) Business Days of the Effective Date,
unless the New Board determines, in its sole discretion and in accordance with
the TEEP Retention Plan, that it is fair and prudent to pay such excess in Cash
and elects to pay such excess in Cash, in which event Cash in the amount of
$164,925 shall be paid by Reorganized Paragon to the employees eligible to
receive such payment to fund any such excess. Upon and after the occurrence of
the Effective Date, Reorganized Paragon shall be authorized and directed to
otherwise carry out and implement the terms of the TEEP Retention Plan in
accordance with its terms.
(e) NON-TEEP RETENTION PLAN. From and after the Effective
Date, the Non-TEEP Retention Plan shall continue in accordance with its terms.
9.11. CONSUMMATION OF P&G SETTLEMENT. To the extent not already
implemented as of the Effective Date, Paragon and P&G shall take all steps
necessary to effectuate the P&G Settlement Agreement pursuant to the terms
thereof. As of the Effective Date, to the extent not already binding, valid and
enforceable in accordance with its terms, the P&G Settlement Agreement,
including the licenses and releases contemplated therein, shall be deemed
binding, valid and enforceable.
9.12. CONSUMMATION OF K-C SETTLEMENT. To the extent not already
implemented as of the Effective Date, Paragon and K-C shall take all steps
necessary to effectuate the K-C Settlement Agreement pursuant to the terms
thereof. As of the Effective Date, to the extent not already binding, valid and
enforceable in accordance with its terms, the K-C Settlement Agreement,
including the licenses and releases contemplated therein, shall be deemed
binding, valid and enforceable.
9.13. REVESTING OF PROPERTY IN REORGANIZED PARAGON. Except for the
Litigation Claims which will remain vested in the Estate in accordance with
Section 9.21 hereof or as otherwise expressly provided herein, on the Effective
Date, title to all property and assets of the Estate shall revest in Reorganized
Paragon free and clear of all Claims, liens, encumbrances and/or other interests
of any Person, and Reorganized Paragon may thereafter operate its business and
use, acquire and dispose of property and compromise or settle any Claims arising
on or after the Effective Date without supervision or approval of the Bankruptcy
Court, free of any restrictions of the Bankruptcy Code, the Bankruptcy Rules, or
the Local Bankruptcy Rules of the Bankruptcy Court, other than those
restrictions expressly imposed by the Plan, the Confirmation Order or any
document executed and delivered by Reorganized Paragon pursuant to the Plan.
Without limiting the foregoing, Reorganized Paragon may pay the fees and charges
that it incurs on or after the Effective Date for fees of professionals,
disbursements and expenses or related support services relating to the Chapter
11 Case or otherwise without application to the Bankruptcy Court.
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9.14. SURRENDER OF INSTRUMENTS/ STOCK.
(a) SURRENDER OF INSTRUMENTS REGARDING CLAIMS: Except as otherwise
provided in the Plan, each holder (except for P&G, K-C and the holders of
Allowed Prepetition Bank Claims of an instrument evidencing or securing a Claim
shall surrender such instrument to the Debtor. No Distribution under the Plan
shall be made to or on behalf of any holder of a Claim unless and until such
instrument is received or the non-availability of such instrument is established
to the reasonable satisfaction of Reorganized Paragon. In accordance with
section 1143 of the Bankruptcy Code, other than with respect to an Allowed
Secured Claim treated pursuant to Section 6.1(a)(4) above, any such holder of
such a Claim that fails to (a) surrender or cause to be surrendered such
instrument, including, without limitation, any promissory note, instrument or
certificate, or, in the case of lost instruments, to execute and deliver an
affidavit of loss and indemnity reasonably satisfactory to Reorganized Paragon
and (b) in the event Reorganized Paragon requests, in the case of lost
instruments, furnish a bond or indemnity agreement in form and substance
reasonably satisfactory to Reorganized Paragon, on or prior to the later to
occur of (i) 180 calendar days from and after the Effective Date and (ii) the
first Distribution Date on which a Distribution is to be made to the holder of
such Allowed Claim, shall be deemed to have forfeited all rights and Claims and
shall not participate in any Distribution hereunder.
(b) SURRENDER OF OLD COMMON STOCK, ISSUANCE OF NEW COMMON STOCK AND
DISTRIBUTION OF LITIGATION PROCEEDS TO HOLDERS OF ALLOWED OLD COMMON STOCK
INTERESTS. At the Distribution Record Date, all Allowed Old Common Stock
Interests shall be deemed non-transferable and shall exist only for purposes of
entitling holders thereof to receive Rights under the Plan as well as such
holder's Pro Rata Share of: (i) the Interest Holders' New Common Stock Amount;
(ii) the Warrants; and (iii) that portion of the Litigation Proceeds allocable
to Allowed Old Common Stock Interest under the Plan. At the Distribution Record
Date (x) Chase Mellon as transfer agent with respect to the Old Common Stock and
transfer agent, registrar and exchange agent with respect to the New Common
Stock and the Warrants (the "Transfer Agent") shall cease all transfers of Old
Common Stock Interests, (y) the Depository Trust Company ("DTC") shall close the
stock register maintained by it on the Debtor's behalf and (z) the National
Association of Securities Dealers, Inc. ("NASD") shall discontinue all trading
in the Old Common Stock Interests, whether on the OTC Bulletin Board System or
otherwise. On the first Business Day immediately following the Distribution
Record Date, the Transfer Agent shall issue a transmittal letter (the "New Stock
Transmittal Letter") to all record holders of Allowed Old Common Stock Interests
as of the Distribution Record Date (the "Final Record Holders") notifying them
that they may receive their Pro Rata Share of the Interest Holders' New Common
Stock Amount, the Warrants and that portion of Litigation Proceeds allocable to
holders of Allowed Old Common Stock Interests under the Plan by surrendering
their Old Common Stock to the Transfer Agent. On or as soon as reasonably
practicable after the Effective Date, Reorganized Paragon shall transfer the
Interest Holders' New Common Stock Amount and the Warrants to the Transfer
Agent. The Transfer Agent shall then transfer certificates representing the
number of shares of New Common Stock and Warrants to which Final Record Holders
surrendering their Old Common Stock are entitled (the "Exchange Securities") to
the DTC. The DTC will then electronically transfer the appropriate number of
Exchange Securities to the appropriate Final Record Holders in book-entry form.
Such Final Record Holders shall hold such Exchange Securities for the account of
the beneficial owners of the Old Common Stock Interests from which such Exchange
Securities were converted. Upon each recovery of Litigation Proceeds by the
Litigation Claims Representative, the Litigation Claims Representative shall
remit that portion of the Litigation Proceeds allocable to Allowed Old Common
Stock Interests under the Plan to Reorganized Paragon for distribution to the
Transfer Agent. The Transfer Agent shall then distribute to each Final Record
Holder who timely surrendered Allowed Old Common Stock Interests in response to
the New Stock Transmittal Letter such Final Record Holder's Pro Rata Share of
such Litigation Proceeds Distribution and issue a transmittal letter (each, a
"Litigation Proceeds Transmittal Letter") notifying all Final Record Holders who
failed to surrender their Allowed Old Common Stock Interests in response to the
New Stock Transmittal Letter that they may receive their Pro Rata Share of (a)
the New Common Stock and Warrants (as such "Exchange Securities"), and (b) such
Litigation Proceeds Distribution by surrendering their Allowed Old Common Stock
Interests to the Transfer Agent. Final Record Holders who receive Litigation
Proceeds Distributions shall promptly allocate such Distributions in Cash or
Cash Equivalents among the beneficial owners of the underlying Allowed Old
Common Stock Interests. The Transfer Agent shall maintain lists setting forth
the names, addresses and taxpayer identification numbers of (c) the Final Record
Holders, (d) the Final Record Holders who surrender their Allowed Old Common
Stock Interest in response to the Stock Transmittal Letter, and
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(e) the Final Record Holders who surrendered their Allowed Old Common Stock
Interests in response to each Litigation Proceeds Transmittal Letter. Copies of
these lists shall be transmitted by the Transfer Agent to the Equity Committee,
Reorganized Paragon and the Litigation Claims Representative. The Transfer Agent
shall have no obligation to send a Litigation Proceeds Transmittal Letter after
one year after the Effective Date to Final Record Holders who have failed to
surrender their Allowed Common Stock Interests, and any such non-surrendering
holders shall forfeit their rights to receive Distributions pursuant to section
11.16 of the Plan.
9.15. RELEASE OF LIENS AND PERFECTION OF LIENS.
(a) PROCEDURES FOR RELEASING OF LIENS. Except as otherwise
specifically provided in the Plan, the Confirmation Order, or in any contract,
instrument or other agreement or document created in connection with the Plan:
(i) each holder of: (1) a Secured Claim (other than an Allowed Secured Claim
treated pursuant to Section 6.1(a)(4) above); (2) a Claim that purportedly is
secured; and/or (3) a judgment, personal property or ad valorem tax, mechanics'
or similar lien Claim, in each case regardless of whether such Claim is an
Allowed Claim, shall, on the Effective Date and regardless of whether such Claim
has been listed in the Schedules or proof of such Claim has been Filed: (y) turn
over and release to the Debtor or Reorganized Paragon, as applicable, any and
all property that secures or purportedly secures such Claim, or such lien and/or
the Claim shall automatically, and without further action by the Debtor, the
Estate or Reorganized Paragon, be deemed released; and (z) execute such
documents and instruments as Reorganized Paragon requires to evidence such Claim
holder's release of such property or lien, and if such holder refuses to execute
appropriate documents or instruments, the Debtor or Reorganized Paragon (as
applicable) may, in its discretion, file a copy of the Confirmation Order, or
any other document required, in appropriate recording offices, which shall serve
to release any Claim holder's rights in such property; and (ii) on the Effective
Date, all right, title and interest in such property shall revert or be
transferred to Reorganized Paragon free and clear of all Claims and Interests,
including, without limitation, liens, escrows, charges, pledges, encumbrances
and/or security interests of any kind.
(b) ENTITLEMENT TO DISTRIBUTIONS PENDING RELEASE. Without
limiting the automatic release provisions of Section 9.15(a) hereof: (i) no
Distribution hereunder shall be made in respect of any Claim of the type
described in Section 9.15(a) hereof unless and until the holder thereof executes
and delivers to the Debtor or Reorganized Paragon (as applicable) such release
of liens or otherwise turns over and releases such Cash, pledge or other
possessory liens; and (ii) any such holder that fails to execute and deliver
such release of liens within 180 calendar days of the Effective Date shall be
deemed to have no Claim against the Debtor, the Estate, or Reorganized Paragon
or its assets or property in respect of such Claim and shall not participate in
any Distribution hereunder.
9.16. REGISTRATION OF SECURITIES. Reorganized Paragon shall make
commercially reasonable efforts to have the New Common Stock listed on a
nationally recognized market or exchange. All New Common Stock, Warrants and
Rights distributed pursuant to the Plan shall be entitled to the benefits and
exceptions provided by Section 1145 of the Bankruptcy Code to the maximum extent
provided by law.
(a) REGISTRATION RIGHTS IN THE EVENT THAT THE WELLSPRING STOCK
PURCHASE AGREEMENT IS CONSUMMATED: In the event that the Wellspring Stock
Purchase Agreement is consummated, the holders of New Common Stock whose resale
of such New Common Stock would be limited or restricted by federal securities
law shall have the right, pursuant to a registration rights agreement, the form
of which will be filed with the Bankruptcy Court (the "Registration Rights
Agreement") at least three (3) calendar days before the date of the Confirmation
Hearing, to cause Reorganized Paragon to (i) include the New Common Stock
issuable to them under the Plan (including any New Common Stock issued or
issuable in respect of the Warrants), on customary terms, in "piggyback"
underwritings and registrations and (ii) effect on customary terms, one demand
registration under the Securities Act for the public offering and sale of the
New Common Stock to them distributed under the Plan. If P&G and K-C participate
in the Wellspring Rights Offering, the Registration Rights Agreement must be
reasonably satisfactory to P&G and K-C.
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(b) REGISTRATION RIGHTS IN THE EVENT THAT THE WELLSPRING STOCK
PURCHASE AGREEMENT IS NOT CONSUMMATED: If the Wellspring Stock Purchase
Agreement is not consummated, as soon as reasonably practicable after the
Effective Date, Reorganized Paragon shall file a "shelf" registration statement
pursuant to Rule 415 under the Securities Act (the "Shelf Registration") with
respect to all of the New Common Stock Distributed to the holders of Allowed
Unsecured Claims hereunder (the "Registrable Securities"). Reorganized Paragon
shall, subject to customary provisions for postponement of registration rights
by the issuer, use its reasonable efforts to cause the Shelf Registration to
become effective as soon as possible after the filing thereof and shall use its
reasonable efforts to keep the Shelf Registration continuously effective from
the date such Shelf Registration is effective until the second anniversary of
the Effective Date, in order to permit the prospectus forming a part thereof to
be usable by the holders of the Registrable Securities during such period. The
Shelf Registration shall provide for the offering and sale of the Registrable
Securities to or through brokers or dealers, acting as principal or agent, in
transactions (which may involve block transactions) on the nationally recognized
market or exchange on which the New Common Stock is listed, in ordinary
brokerage transactions, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or otherwise, or directly or indirectly
through brokers or agents in private sales at negotiated prices or through a
combination of any such methods of sale, including but not limited to a bulk
sale to a brokerage firm, but not pursuant to an underwritten public offering
(whether on a firm commitment or best efforts basis or otherwise).
9.17. AVOIDANCE ACTIONS. Subject to the occurrence of the Effective
Date, neither the Debtor, the Creditors' Committee, the Equity Committee nor any
other party in interest shall assert any right, claim or cause of action (other
than a Litigation Claim) not asserted by the Debtor prior to the Effective Date
and belonging to the Debtor or its Estate against any Person to avoid a transfer
under section 544, 547, 548, or 553(b) of the Bankruptcy Code, PROVIDED,
HOWEVER; that nothing herein shall prohibit the Debtor, the Creditors' Committee
or the Equity Committee from challenging the validity, priority, perfection or
extent of any lien, mortgage or security agreement or, subject to Section 12.1
hereof, objecting to any Claim. All such rights, claims and causes of action
shall be released and waived by the Debtor and its Estate under the Plan on the
Effective Date. Notwithstanding anything to the contrary contained herein,
nothing contained in this Plan shall prejudice any rights or defenses the Debtor
may have under section 502(d) of the Bankruptcy Code.
9.18. EXEMPTION FROM CERTAIN TRANSFER TAXES. Pursuant to section
1146(c) of the Bankruptcy Code (a) the issuance, transfer or exchange of any
securities, instruments or documents and (b) the creation of any other lien,
mortgage, deed of trust or other security interest under the Plan shall not be
subject to any stamp tax, transfer tax, intangible tax, recording fee, or
similar tax, charge or expense to the fullest extent provided for under section
1146(c) of the Bankruptcy Code.
9.19. COMPROMISE OF CONTROVERSIES. Pursuant to Bankruptcy Rule 9019,
and in consideration for the classification, distribution and other benefits
provided under the Plan, the provisions of the Plan shall constitute a good
faith compromise and settlement of all Claims, Interests and controversies
resolved pursuant to the Plan, including the claims and controversies settled
and resolved pursuant to the K-C Settlement Agreement and the P&G Settlement
Agreement and the compromise of the claims of PMI under Section 7.6 of the Plan.
To the extent not previously accomplished by the K-C Settlement Order or the P&G
Settlement Order, the entry of the Confirmation Order shall constitute the
Bankruptcy Court's approval of each of the foregoing compromises and
settlements, and all other compromises and settlements provided for in the Plan,
and such order shall constitute the Bankruptcy Court's determination that such
compromises and settlements are in the best interests of the Debtor, Reorganized
Paragon, the Estate, and any Person holding Claims and/or Interests against the
Debtor, and are fair, equitable and within the range of reasonableness required
by the Bankruptcy Code and/or Bankruptcy Rules.
9.20. CONTINUATION OF PARAGON'S 401(K) AND PROFIT SHARING PLAN. The
Debtor's existing 401(k) and profit sharing plan entitled the "Paragon
Retirement Investment Savings Management (PRISM) Plan" shall continue after the
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Effective Date as the 401(k) and profit sharing plan of Reorganized Paragon,
unaffected by the Plan or the provisions hereof (except to the extent that Old
Common Stock Interests are being extinguished and canceled pursuant to Section
6.5 hereof).
9.21. INVESTIGATION, PROSECUTION AND/OR SETTLEMENT OF THE LITIGATION
CLAIMS. As of the Effective Date, the Litigation Claims shall remain vested in
the Estate and the Estate shall retain the right to investigate, prosecute
and/or settle such claims in accordance with the provisions of this Plan.
Pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, the Litigation Claims
Representative shall be the sole representative of the Estate for the limited
purpose of investigating, prosecuting and/or settling the Litigations Claims,
and delivering any Litigation Proceeds to Reorganized Paragon pursuant to the
terms of this Plan. All Litigation Proceeds, if any, shall be delivered by the
Litigation Claims Representative to Reorganized Paragon for distribution in
accordance with Sections 6.3 and 6.5 hereof, and subject to the other applicable
distribution provisions of the Plan, including Sections 9.21(q) and 9.21(s), to
the holders of Allowed Unsecured Claims and Allowed Old Common Stock Interests.
The Litigation Claims Representative shall be appointed by the Equity Committee.
Such appointment shall be announced on or before the date of the Confirmation
Hearing and included in the Confirmation Order. In order to permit the
Litigation Claims Representative to perform all its duties and responsibilities
under the Plan, Reorganized Paragon shall transfer Cash in the amount of
$1,094,500.00 (the "Litigation Fund") into an interest-bearing segregated
account for use by the Litigation Claims Representative in carrying out its
rights and obligations hereunder; PROVIDED, HOWEVER, that, if the Wellspring
Stock Purchase Agreement is not consummated, Reorganized Paragon shall only be
required to transfer Cash in the amount of $500,000.00 into the Litigation Fund;
provided, however, that the Equity Committee shall have the right to designate a
portion of the Interest Holders' New Common Stock Amount to be deposited into
the Litigation Fund. Neither Reorganized Paragon nor Wellspring shall have any
further obligation to fund any amounts into the Litigation Fund and shall bear
no further financial responsibility for the resolution of Litigation Claims;
provided, however, that, pursuant to Section 9.21(r) below, Reorganized Paragon
shall provide reasonable assistance to the Litigation Claims Representative with
respect to the assertion and prosecution of Litigation Claims (to the extent
such assistance does not require the expenditure of funds).
(a) USE OF THE LITIGATION FUND. The Litigation Claims
Representative may use the Litigation Fund to (i) satisfy the costs and expenses
(including, but not limited to, counsel and expert witness fees) of
investigating, prosecuting and/or settling the Litigation Claims, (ii) preserve,
protect and prosecute the Litigation Claims, and (iii) satisfy liabilities
incurred or related to the Litigation Claims; PROVIDED, HOWEVER, that if the
funds constituting the Litigation Fund have been used for such purposes and
exhausted, the Litigation Claims Representative may, consistent with its
fiduciary duties as a representative of the Estate, and provided the first
$500,000.00 in proceeds, if any, received on account of the Litigation Claims
are delivered by the Litigation Claims Representative to Reorganized Paragon in
accordance with the proviso contained in Section 1.68 of the Plan, use any
Litigation Proceeds for such purposes; PROVIDED, FURTHER, HOWEVER, that the use
of Litigation Proceeds for such purposes shall not exceed 50% of the recoveries
received on account of any single Litigation Claim, and provided that the total
amount of Litigation Proceeds used for such purposes shall not exceed $1
million.
(b) APPOINTMENT OF THE LITIGATION CLAIMS REPRESENTATIVE. The
Equity Committee shall appoint the Litigation Claims Representative as of the
Effective Date to investigate, prosecute and/or settle the Litigation Claims. On
and after the Effective Date, the Debtor and Reorganized Paragon, as the case
may be, shall execute and deliver or cause to be executed and delivered to the
Litigation Claims Representative all such documents, in recordable form where
necessary or appropriate, to confirm to the Litigation Claims Representative the
right to hold, investigate, prosecute and/or settle each of the Litigation
Claims.
(c) ACCEPTANCE OF DUTIES. The Litigation Claims Representative
shall be required to confirm in writing its appointment and its acceptance of
its rights and obligations hereunder. The Litigation Claims Representative shall
agree to receive, hold, investigate, prosecute and/or settle the Litigation
Claims and to administer and transfer the Litigation Proceeds and the income
derived therefrom pursuant to the terms of the Plan and the Confirmation Order;
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provided, however, that if the Litigation Claims do not or will not, in the
judgment of the Litigation Claims Representative, result in sufficient
Litigation Proceeds to warrant the further investigation, prosecution and/or
settlement of the Litigation Claims, the Litigation Claims Representative shall
be empowered to determine not to so investigate, prosecute and/or settle such
claims, but instead to return any remaining amount of the Litigation Fund to
Reorganized Paragon for distribution in accordance with this Plan. The
Litigation Claims Representative shall not be required to post any bond or other
security for performance.
(d) ONE LITIGATION CLAIMS REPRESENTATIVE. There shall be no
more than one Litigation Claims Representative at any time.
(e) TERM. The Litigation Claims Representative shall serve
until (a) the final resolution or abandonment of the Litigation Claims, or (b)
the Litigation Claims Representative's death, resignation, or removal.
(f) ACTIVITIES. The Litigation Claims Representative shall be
entitled to engage in such activities as it deems appropriate which are not in
conflict with the Plan. The Litigation Claims Representative shall devote such
time as is necessary to fulfill all of its duties as Litigation Claims
Representative.
(g) RESIGNATION OF THE LITIGATION CLAIMS REPRESENTATIVE. The
Litigation Claims Representative may resign at any time upon 30 days' written
notice, in accordance with the notice provisions of the Plan, to the Bankruptcy
Court, and counsel for the Equity Committee. Such resignation may become
effective prior to the expiration of such 30 day notice period upon the
appointment of a permanent or interim successor Litigation Claims
Representative.
(h) REMOVAL OF THE LITIGATION CLAIMS REPRESENTATIVE. The
Litigation Claims Representative may be removed by an order of the Bankruptcy
Court only for bad faith, gross negligence, willful misconduct, material
violation of the provisions of this Plan or a gross disregard of its duties
hereunder ("For Cause") and upon notice and a hearing. Any holder or Allowed
Unsecured Claim or Allowed Old Common Stock Interest or other party in interest
has standing to request the Bankruptcy Court to remove the Litigation Claims
Representative For Cause.
(i) SUCCESSOR LITIGATION CLAIMS REPRESENTATIVE. In the event
of the resignation, removal, death or incapacity of the Litigation Claims
Representative (or if for any other reason there is a vacancy in the position of
Litigation Claims Representative), the Bankruptcy Court may appoint a new
Litigation Claims Representative, upon motion of any party in interest, from a
list of candidates submitted in connection with any such motion, subject to the
consent of the Equity Committee or a majority vote of former members of the
Equity Committee. Every successor Litigation Claims Representative appointed
pursuant hereto shall execute, acknowledge and deliver to the Bankruptcy Court
an instrument in writing accepting such appointment hereunder, and thereupon
such successor Litigation Claims Representative, without any further act, shall
become fully vested with all of the rights, powers, duties and obligations of
its predecessor without any further act. Any predecessor Litigation Claims
Representative shall execute and deliver to the successor Litigation Claims
Representative any instruments reasonably requested by the successor Litigation
Claims Representative to effectuate the termination of the predecessor
Litigation Claims Representative and to aid in the investigation, prosecution
and/or settlement of the Litigation Claims. All fees and expenses of a
Litigation Claims Representative prior to the death, resignation or removal of
such Litigation Trustee shall be paid out of the Litigation Fund unless disputed
by the successor Litigation Claims Representative, in which case such dispute
shall be subject to resolution by the Bankruptcy Court.
(j) REIMBURSEMENT. The Litigation Claims Representative shall
be entitled to receive compensation, from the Litigation Fund, in an amount to
be negotiated by the Equity Committee, disclosed to the Bankruptcy Court at the
Confirmation Hearing and contained in the Confirmation Order, plus reimbursement
of reasonable out-of-pocket expenses (all such reasonable and necessary costs
and expenses incurred by the Litigation Claims Representative in connection with
the performance of its duties hereunder to be reimbursed to the Litigation
Claims Representative from the
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Litigation Fund); provided, however, that compensation and/or expenses payable
pursuant to an incentive contingent compensation arrangement between the
Litigation Claims Representative and himself or herself, or between him/her and
an attorney or other professionals retained to prosecute a Litigation Claim must
be approved by the Bankruptcy Court and shall be paid only from the Litigation
Proceeds, if any, of such Litigation Claim.
(k) RETENTION OF PROFESSIONALS. The Litigation Claims
Representative may, but shall not be required to, consult with attorneys,
accountants, appraisers or other parties deemed by the Litigation Claims
Representative to have qualifications necessary to assist it in the proper
performance of its duties, including the employment of attorneys on a full or
partial contingent fee basis to prosecute Litigation Claims. The Litigation
Claims Representative may pay the salaries, fees and expenses of such persons
out of the Litigation Fund; provided, however, that compensation and/or expenses
payable pursuant to a contingent compensation arrangement between the Litigation
Claims Representative and an attorney or other professionals retained to
prosecute a Litigation Claim must be approved by the Bankruptcy Court and shall
be paid only from the Litigation Proceeds, if any, of such Litigation Claim. The
Litigation Claims Representative shall not be liable for any loss to the Estate
caused by any action of any person employed by the Litigation Claims
Representative by reason of any mistake or default of such person if the
selection, engagement and/or supervision of such person was made or taken in
good faith and without willful misconduct or gross negligence.
(l) POWERS OF LITIGATION CLAIMS REPRESENTATIVE. The Litigation
Claims Representative shall have all of the rights, powers and privileges
specified in the Plan unless specifically limited by other provisions of this
Plan or the Confirmation Order. The Litigation Claims Representative shall have
the power to take all such actions as in its judgment are necessary and
appropriate to effectuate the purposes of this Section of the Plan, including
but not limited to each power expressly granted in the subsections below and any
power reasonably incidental thereto. The Litigation Claims Representative shall
have the power to:
(i) Investigate, prosecute, settle and/or abandon
Litigation Claims and exercise, participate in or initiate any
proceeding before the Bankruptcy Court or any other court of
appropriate jurisdiction in connection with any proceeding relating to
the Litigation Claims, including any administrative, arbitrative or
other nonjudicial proceeding; provided, however, that the Litigation
Claims Representative shall seek Bankruptcy Court approval before
entering on a final basis into any settlement of a Litigation Claim.
(ii) Invest the Litigation Fund in accordance with
section 345 of the Bankruptcy Code or as otherwise permitted by a Final
Order of the Bankruptcy Court and as deemed appropriate by the
Litigation Claims Representative; PROVIDED, that the Litigation Claims
Representative may invest such funds in Cash Equivalents;
(iii) Enter into any agreement or execute any
document required by or consistent with the Plan, perform all of the
Litigation Claims Representative's obligations hereunder and thereunder
and take all other actions necessary to effectuate the foregoing to the
extent such actions are not inconsistent with the Plan;
(iv) Select and employ such professionals (which may
include the Equity Committee's current professionals), agents or
employees as it deems necessary to assist in the administration of the
Litigation Claims and compensate such persons from the Litigation Fund
without application to the Bankruptcy Court;
(v) Voluntarily engage in arbitration or mediation
with regard to any Litigation Claim;
(vi) Consult with former members of and counsel to
the Equity Creditor and the Creditors' Committee, as well as with any
creditor or counsel to such creditor in connection with the prosecution
of Litigation Claims; and
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(vii) Exercise such other powers and duties as are
necessary or appropriate in its discretion to accomplish the purposes
of this Section 9.21 of the Plan.
(m) LIMITATION OF RIGHTS. Notwithstanding anything in this
Agreement to the contrary contained herein, the Litigation Claims Representative
shall not do or undertake any of the following:
(i) Take any action in contravention of the Plan;
(ii) Grant liens on any of the Litigation Claims or
the Litigation Proceeds, if any; PROVIDED, HOWEVER, that contingent fee
arrangements shall not be considered a lien for purposes of this
section;
(iii) Attempt to modify or amend the Plan;
(iv) Guarantee any debt;
(v) Loan any portion of the Litigation Fund or
Litigation Proceeds, if any, to the Litigation Claims Representative or
any other Person; or
(vi) Transfer any Litigation Claim.
(n) LIMITATION ON LIABILITY. Except in the case of willful
misconduct or gross negligence, the Litigation Claims Representative and any
professionals it employs shall not be liable for any loss or damage by reason of
any action taken or omitted by the Litigation Claims Representative and any
professionals it employs pursuant to the discretion, power and authority
conferred on the Litigation Claims Representative by this Plan. No successor
Litigation Claims Representative shall be in any way liable for the acts or
omissions of any predecessor Litigation Claims Representative unless a successor
Litigation Claims Representative expressly assumes such responsibility. The
Litigation Claims Representative may rely, and shall be protected from liability
for acting, upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order or other paper or document reasonably
believed by the Litigation Claims Representative to be genuine and to have been
presented by an authorized party. Also, the Litigation Claims Representative
shall not be liable if it acts in good faith based on a mistake of fact before
having actual knowledge of an event. The Litigation Claims Representative shall
not be liable for any action taken or suffered by the Litigation Claims
Representative in reasonably relying upon the advice of counsel or other
professionals engaged by the Litigation Claims Representative in accordance with
this Plan. Persons dealing with the Litigation Claims Representative in matters
relating to the Litigation Claims shall have recourse only against the
Litigation Claims and the Litigation Proceeds, if any, subject to the rights of
holders of Allowed Unsecured Claims and Allowed Old Common Stock Interests to
receive such assets in accordance with the terms of the Plan, to satisfy any
liability incurred by the Litigation Claims Representative to such person in
carrying out the terms of this Section, and the Litigation Claims Representative
shall have no personal or individual obligation to satisfy such liability. The
Litigation Claims Representative and its employees and agents shall not be
liable because of any action taken by the Litigation Claims Representative
pursuant to discretionary powers and authority conferred upon the Litigation
Claims Representative or its employees except for its or their own gross
negligence or willful misconduct.
(o) FINAL ACCOUNTING. The Litigation Claims Representative
shall, within ninety (90) days after the completion of its duties or its
resignation, removal or death (in which case, the Litigation Claims
Representative's estate shall), render a final accounting containing at least
the following information:
(i) A description of the Litigation Claims;
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(ii) A summarized accounting in sufficient detail of
all gains, losses, receipts, disbursements and other transactions in
connection with the Litigation Fund and the Litigation Claims during
the Litigation Claims Representative's term of service, including their
source and nature;
(iii) All receipts of principal and income must be
shown separately;
(iv) The ending balance of the Litigation Fund and
all Litigation Proceeds as of the date of the Litigation Claims
Representative's accounting, including the cash balance on hand and the
name and location of the depository where it is kept; and
(v) All known liabilities owed by the Litigation
Claims Representative.
(p) DISTRIBUTION OF PROCEEDS. Subject to the provisions of
Section 9.21(a) above, all Litigation Proceeds, if any, received by the
Litigation Claims Representative on behalf of the Estate shall be delivered by
the Litigation Claims Representative to Reorganized Paragon for Distribution in
accordance with the applicable provisions of the Plan.
(q) WITHHOLDING TAXES. Any federal, state or local withholding
taxes or other amounts required to be withheld under applicable law shall be
deducted, as required, by Reorganized Paragon or the Litigation Claims
Representative, as applicable, from the Litigation Proceeds, if any, delivered
to Reorganized Paragon for distribution under the Plan. All Persons entitled to
receive distributions under the Plan of any Litigation Proceeds received shall
be required to provide any information necessary to effect the withholding of
such taxes.
(r) FURTHER ASSURANCES: Reorganized Paragon shall not take any
action to release, impair or settle the Litigation Claims, and shall not, except
as may be required by law, take any position contrary to the Litigation Claims
Representative in any documents, agreements or public filings. Reorganized
Paragon shall reasonably cooperate with the Litigation Claims Representative,
and shall provide the Litigation Claims Representative with reasonable access to
Reorganized Paragon's books and records (including, after execution of an
acceptable common-interest agreement, privileged documents related to the
Litigation Claims) and personnel with knowledge of the Litigation Claims to the
extent necessary to allow the Litigation Claims Representative to properly
perform its duties hereunder. Upon the request of the Creditors' Committee, P&G
or K-C, the Litigation Claims Representative shall provide reasonable reports
regarding the status of the Litigation Claims and the Litigation Proceeds, if
any.
(s) FEDERAL TAX TREATMENT. For federal income tax purposes, it
is intended that the Estate will be treated as a liquidating trust, as defined
in Treasury Regulation ss. 301.7701-4(d), that comes into existence as of the
Effective Date. The primary purpose of the liquidating trust will be to
prosecute the Litigation Claims, and it will not continue or engage in the
conduct of a trade or business except to the extent reasonably necessary to, and
consistent with, the liquidating purpose of the trust. The trust may not receive
or retain Cash or Cash Equivalents in excess of a reasonable amount to prosecute
the Litigation Claims. The investment powers of the Litigation Claims
Representative are limited to powers to invest in Cash and Cash Equivalents. The
trust is required to distribute at least annually to the Beneficiaries the net
income of the trust in excess of amounts reasonably necessary to prosecute the
Litigation Claims. In the event Estate receives Litigation Proceeds, the
Litigation Claims Representative shall, in lieu of immediately distributing all
such amounts, retain as a reserve an amount sufficient to pay the tax liability
that would result from the receipt of such amounts if they were deemed received
by Reorganized Paragon or the Estate did not qualify as a liquidating trust. The
Litigation Claims Representative thereafter shall promptly apply for a ruling
from the Internal Revenue Service that the Estate will qualify as a liquidating
trust and that the receipt of Litigation Proceeds by the Estate will not result
in the recognition of taxable income by Reorganized Paragon or the Estate. If
such ruling is secured, the reserved amounts shall be promptly distributed. If
such ruling is not secured, the Litigation Claims Representative shall use its
reasonable best efforts to secure from counsel experienced in such matters an
opinion reasonably satisfactory to
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Reorganized Paragon and the Litigation Claims Representative that (i) the Estate
will qualify as a liquidating trust or (ii) the receipt of Litigation Proceeds
by the Estate will not generate taxable income for Reorganized Paragon or the
Estate. If neither the ruling nor the opinion can be secured, Reorganized
Paragon shall be entitled to receive or, if applicable, the Estate shall retain,
such amounts as are necessary to pay the tax liability associated with the
Litigation Claims; and any excess amounts shall be distributed to the
Beneficiaries as promptly as is reasonable under the circumstances. It is
intended that Reorganized Paragon will be treated for tax purposes as
transferring the Litigation Claims to holders of Allowed Unsecured Claims and
Old Common Stock Interests ("Beneficiaries"), followed by a deemed transfer by
the Beneficiaries to the liquidating trust. The Beneficiaries will be treated as
the grantors and deemed owners of the Estate after the Effective Date and will
be taxed on their allocable shares of the Estate's income and gain in each
taxable year, whether or not they receive any distributions in such year. After
the Effective Date, the Litigation Claims Representative must file tax returns
for the Estate as a grantor trust pursuant to Treasury Regulation ss.
1.671-4(a). The Litigation Claims must be valued consistently for all federal
income tax purposes by the Debtor, the Litigation Claims Representative, and the
Beneficiaries. The Estate will terminate no later than 5 years after the
Effective Date, PROVIDED, HOWEVER, that subject to the approval of the
Bankruptcy Court, the term of the Estate may be extended for a finite term if
such extension is necessary to the liquidating purpose of the Estate. Each such
extension must be approved by the Bankruptcy Court within 6 months of the
beginning of the term being extended.
9.22. WELLSPRING RIGHTS OFFERING
(a) HOLDERS OF UNSECURED CLAIMS. In accordance with the terms contained
in the Wellspring Rights Offering Procedures, the Wellspring Rights Offering
will permit each holder of a Class 3A Claim entitled to vote in respect of the
Plan to elect to subscribe for Rights. Collectively, the Rights, which will not
be evidenced by certificates, shall consist of the right to purchase up to 35%
of the issued and outstanding shares of New Common Stock (prior to dilution) as
of the Effective Date. Each Right shall represent the right to purchase one
share of New Common Stock for a purchase price of $10.00 per share. Subject to
any requirement of the securities laws, the Rights will be transferable in
accordance with the provisions set forth in the Wellspring Rights Offering
Procedures; PROVIDED, however, that no Person may acquire Rights by way of
transfer such that as of the Effective Date (after giving effect to the exercise
of all Rights properly subscribed to and acquired by transfer) such Person would
hold an amount of New Common Stock greater than ten percent (10%) of the New
Common Stock Amount.
(b) HOLDERS OF OLD COMMON STOCK INTERESTS. In accordance with the
terms contained in the Wellspring Rights Offering Procedures, the Wellspring
Rights Offering also will permit each holder of an Allowed Old Common Stock
Interest as of the Voting Record Date to subscribe for Rights not purchased by
holders of Class 3A Claims pursuant to Section 9.22(a) hereof.
X.
ADMINISTRATION OF THE PLAN
10.1. IMPLEMENTATION OF PLAN. On the Effective Date, compliance with
the provisions of the Plan shall become the general responsibility of
Reorganized Paragon (subject to the supervision of the New Board pursuant to and
in accordance with the provisions of the Plan). Reorganized Paragon may, in its
discretion, hire a disbursing agent to perform Reorganized Paragon's
distribution and other functions with respect to the Plan. In such case,
references to Reorganized Paragon herein shall include such disbursing agent.
Notwithstanding the foregoing, Reorganized Paragon shall remain responsible for
all distribution functions with respect to the Plan, and for the actions and
conduct of any disbursing agent retained by Reorganized Paragon and acting in an
authorized capacity as disbursing agent hereunder.
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10.2. RESPONSIBILITIES OF REORGANIZED PARAGON. The responsibilities
of Reorganized Paragon under the Plan shall include:
(a) calculating and implementing all Distributions in
accordance with the Plan;
(b) taking all steps and executing all instruments and
documents necessary to effectuate the Plan;
(c) complying with the Plan and the obligations hereunder;
(d) employing professionals, if necessary, to represent it
with respect to its responsibilities;
(e) exercising such other powers as may be vested in
Reorganized Paragon pursuant to the Plan, the Confirmation Order, other orders
of the Bankruptcy Court, or as deemed by Reorganized Paragon to be necessary and
proper to implement the provisions of the Plan;
(f) periodic reporting to counsel to the Creditors' Committee
and to the Bankruptcy Court of the status of the Claims resolution process and
Distributions on Allowed Claims and Allowed Interests;
(g) such other responsibilities as may be vested in
Reorganized Paragon pursuant to the Plan, the Confirmation Order, or other
Bankruptcy Court order or as may be necessary and proper to carry out the
provisions of the Plan; and
(h) obtaining the entry of a final decree closing the Chapter
11 Case.
10.3. OTHER. Unless otherwise ordered by the Bankruptcy Court,
Reorganized Paragon shall not be required to post any bond or surety of
performance of its duties.
10.4. POWERS OF REORGANIZED PARAGON AS ADMINISTRATOR OF THE PLAN. The
powers of Reorganized Paragon as the administrator of the Plan shall, without
any further Bankruptcy Court approval, include: (a) the power to invest funds in
Cash Equivalents or otherwise in accordance with section 345 of the Bankruptcy
Code, and withdraw, make Distributions and pay taxes and other obligations from
funds held in accordance with the Plan; (b) the power to dispose of, and deliver
title to others of, Estate assets on behalf of the Debtor; (c) the power to
compromise and settle Claims and causes of action (other than Litigation Claims)
on behalf of or against the Debtor; and (d) such other powers as may be vested
in or assumed by Reorganized Paragon pursuant to this Plan or as may be
necessary and proper to carry out the provisions of this Plan.
10.5. EXCULPATION AND LIMITATION OF LIABILITY. Reorganized Paragon
shall be exculpated from and shall have no liability for any and all Claims,
causes of action and other assertions of liability arising out of the discharge
of the powers and duties conferred upon Reorganized Paragon by this Plan, the
Confirmation Order or any other order of the Bankruptcy Court entered pursuant
to or in furtherance of this Plan, or applicable law, or for any error of
judgment made or action undertaken in good faith, other than as a result of
fraud, gross negligence or willful misconduct. Reorganized Paragon shall not be
liable for any action taken or omitted in good faith and reasonably believed by
it to be authorized within the discretion or rights or powers conferred upon it
by the Plan, the Confirmation Order or any other order of the Bankruptcy Court.
In performing its duties hereunder, Reorganized Paragon shall have no liability
for any action taken by it in good faith in accordance with the advice of
counsel, accountants, appraisers and other professionals retained by it. Without
limiting the generality of the foregoing, Reorganized Paragon may rely on copies
of orders of the Bankruptcy Court reasonably believed by it to be genuine, and
shall have no liability for actions taken in good faith in reliance thereon.
Reorganized Paragon may rely without inquiry upon writings delivered to it
hereunder which it reasonably believes in good faith to be genuine and to have
been given by a proper Person. No holder of a Claim or Interest or other party
in interest shall have or pursue any Claim or cause of action against
Reorganized Paragon for making payments in
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accordance with or as otherwise permitted by this Plan or for implementing the
provisions of this Plan in accordance with its terms.
10.6. DISTRIBUTION BY REORGANIZED PARAGON. All Distributions under the
Plan shall be made by Reorganized Paragon.
10.7. ESTABLISHMENT AND MAINTENANCE OF DISBURSEMENT ACCOUNTS. On or
before the Effective Date, the Debtor or Reorganized Paragon shall establish one
or more segregated interest-bearing bank accounts in the name of Reorganized
Paragon, which accounts shall be trust accounts for the benefit of each Class of
Claims pursuant to the Plan and utilized solely for the investment and
distribution of Cash consistent with the terms and conditions of the Plan. The
Disbursement Account(s) shall be maintained at one or more domestic banks or
financial institutions, having a shareholders' equity or equivalent capital of
not less than Five Hundred Million Dollars ($500,000,000), of Reorganized
Paragon's choice, but in no event at any institution which is a party to the New
Credit Agreement. Reorganized Paragon may invest Cash in Disbursement Account(s)
in Cash Equivalents; PROVIDED, HOWEVER, that sufficient liquidity shall be
maintained in such account or accounts to (a) make promptly when due all
payments upon Disputed Claims if and when they become Allowed Claims, and (b)
make promptly when due the other payments provided for in the Plan.
XI.
DISTRIBUTIONS
11.1. TIMING OF DISTRIBUTIONS. Notwithstanding any provision of the
Plan obligating Reorganized Paragon to make Distributions on a particular date,
any Distributions and deliveries to be made hereunder to holders of Claims or
Interests that are Allowed Claims or Allowed Interests as of such date shall be
made on that date or as soon as reasonably practicable thereafter. Any
Distributions and deliveries to be made to any holder of a Claim or Interest
whose Claim or Interest is not an Allowed Claim or Allowed Interest at least ten
(10) Business Days prior to a particular Distribution Date shall be made on the
first Distribution Date thereafter or upon such other terms as agreed to by
Reorganized Paragon and the holder of such Claim or Interest.
11.2. MANNER OF PAYMENT. Except with respect to Allowed DIP Claims,
the Allowed Claims of P&G and K-C, and Allowed Prepetition Bank Claims, payment
of which shall be made by wire transfer of same day funds to the extent required
to be made in Cash, Cash Distributions to be made hereunder may, subject to
Sections 11.12 and 11.13 below, be made, at the option of Reorganized Paragon,
in Cash, by wire transfer or by check drawn on any domestic bank.
11.3. PERSONS DEEMED HOLDERS OF REGISTERED SECURITIES. Except as
otherwise provided herein, Reorganized Paragon (or its designee) shall be
entitled, but not required, to treat the record holder of a registered security
as the holder of the Claim or Interest respectively for purposes of all notices,
payments or other Distributions under this Plan unless Reorganized Paragon shall
have received from such record holder written notice by certified mail, return
receipt requested, specifying the name and address of any new holder thereof
(and the nature and amount of the Claim or Interest of such new holder) at least
ten (10) Business Days prior to the date of such notice, payment or other
Distribution. In the event of any dispute regarding the identity of any party
entitled to any payment or Distribution in respect of any Claim or Interest
under the Plan, no payments or Distributions shall be made in respect of such
Claim or Interest until the Bankruptcy Court resolves such dispute pursuant to a
Final Order.
11.4. COMPLIANCE WITH TAX REQUIREMENTS. To the extent applicable,
Reorganized Paragon shall comply with all tax withholding and reporting
requirements imposed on it by any governmental unit, and all Distributions
pursuant to the Plan shall be subject to such withholding and reporting
requirements. Reorganized Paragon shall be entitled to deduct
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any federal, state or local withholding taxes from any payments made with
respect to Allowed Claims or Allowed Interests, as appropriate.
11.5. INTENTIONALLY OMITTED.
11.6. DE MINIMIS DISTRIBUTIONS. Notwithstanding anything herein to the
contrary, the following provisions shall apply to Class 3A Claims and Class 4A
Interests: Reorganized Paragon shall not have any obligation to make a
Distribution of Cash to a holder of an Allowed Claim or Allowed Interest if such
Distribution would be less than $10 (or such other amount ordered by the
Bankruptcy Court) (the "Threshold Amount") except as provided herein. If, on any
Distribution Date, the Pro Rata Share of Cash that otherwise would have been
distributed to a holder of an Allowed Claim or Allowed Interest is less than the
Threshold Amount, Reorganized Paragon shall reserve such holder's Pro Rata Share
of Cash until the first Distribution Date on which the amount to be distributed
to such holder is equal to or greater than the Threshold Amount. If, at the time
of the Final Distribution, the Pro Rata Share of Cash then allocable to an
Allowed Claim or Allowed Interest but not distributed as a result of the
foregoing sentence, is less than the Threshold Amount (taking into account prior
amounts reserved under this section for such Claim or Interest but not paid),
Reorganized Paragon shall not be required to make a Final Distribution of Cash
on account of such Allowed Claim or Allowed Interest. If, at the time of Final
Distribution, the Pro Rata Share of Cash then allocable to the holder of any
Allowed Claim or Allowed Interest would be less than the Threshold Amount,
Reorganized Paragon shall not be required to make a Final Distribution on
account of such Allowed Claim or Allowed Interest but, in the case of Cash, may
donate the Cash in the name of Reorganized Paragon to a not for profit
charitable organization to be chosen by Reorganized Paragon.
11.7. PERIODIC DISTRIBUTIONS TO HOLDERS OF ALLOWED UNSECURED CLAIMS
AND ALLOWED OLD COMMON STOCK INTERESTS. On the Initial Distribution Date and
each Periodic Distribution Date thereafter, Reorganized Paragon shall make a
Distribution of Cash, New Securities and/or Warrants to each holder of an
Allowed Unsecured Claim or Allowed Old Common Stock Interest, as the case may
be, in an amount equal to its Pro Rata Share (calculated as of the applicable
Distribution Date) of the Cash, New Securities and/or Warrants, as the case may
be, allocated to the relevant Class.
11.8. INITIAL DISTRIBUTIONS TO THE HOLDERS OF SUBSEQUENTLY ALLOWED
UNSECURED CLAIMS AND ALLOWED INTERESTS. Reorganized Paragon shall distribute to
the holders of Disputed Claims and Disputed Interests, as the case may be, as of
the Initial Distribution Date, that become Allowed Claims or Allowed Interests
after the Initial Distribution Date, Cash, New Securities and/or Warrants, as
the case may be, in an amount equal to the aggregate amount of Cash, New
Securities and/or Warrants, as the case may be, that would have been distributed
as of the Initial Distribution Date and each prior Periodic Distribution Date
(if any) to such holder in respect of such Allowed Claim or Allowed Interest had
it been an Allowed Claim or Allowed Interest on the Initial Distribution Date
and any subsequent Periodic Distribution Date. Any holder of a Claim or Interest
whose Claim or Interest is so allowed after the tenth (10th) Business Day prior
to the next Periodic Distribution Date shall receive its initial Distribution on
the next succeeding Periodic Distribution Date. For purposes of determining the
accrual of interest or rights in respect of any other payment from and after the
Effective Date, the New Securities and Warrants to be issued shall be deemed
issued as of the Effective Date regardless of the date on which they are
actually dated, authenticated or received by the holders of Allowed Claims or
Allowed Interests; PROVIDED, HOWEVER, that Reorganized Paragon shall withhold
any payment until such Distribution actually is made.
11.9. SUBSEQUENT PERIODIC DISTRIBUTIONS TO HOLDERS OF PREVIOUSLY
ALLOWED CLAIMS AND PREVIOUSLY ALLOWED INTERESTS. Subject to the second sentence
of Section 11.8 hereof, on each Periodic Distribution Date, Reorganized Paragon
shall distribute to each holder of an Allowed Claim or Allowed Interest, as the
case may be, on account of such Claim or Interest, an amount of Cash, New
Securities and/or Warrants, as the case may be, equal to: (a) the Distribution
from the relevant Disputed Claims Reserve that such holder of an Allowed Claim
or Allowed Interest, as applicable, would have received had it not received any
prior Distributions in respect of its Allowed Claims or Allowed Interests, less
(b) the total amount of any Distributions previously received in respect of its
Allowed Claim or Allowed Interest. Subject
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to Section 11.16 hereof, such Distributions shall continue until the relevant
Disputed Claims Reserve is depleted of Cash, New Securities and/or Warrants held
in such Disputed Claims Reserve, other than as set forth below.
11.10. FINAL DISTRIBUTION. On the first (1st) Business Day that is ten
(10) Business Days after the date on which all Claims or Interests in the
relevant Class have been allowed by Reorganized Paragon or by Final Orders,
Disallowed or estimated for Allowance purposes by Final Orders or withdrawn with
prejudice (and in the case of Classes 3A and 4A, all Litigation Claims have been
resolved) and the Chapter 11 Case can be closed under applicable law and rules,
property remaining in the relevant Disputed Claims Reserve shall be distributed
to holders of Allowed Claims and Allowed Interests or released to Reorganized
Paragon, as the case may be, in accordance with the procedure set forth above
for Periodic Distributions and subject to the provisions of Section 12.5 below,
PROVIDED, HOWEVER, that such Distribution will be a final Distribution on
account of all Claims and Interests.
11.11. DISTRIBUTIONS ON DISPUTED CLAIMS. Notwithstanding anything to
the contrary contained herein, no Distribution shall be made on account of any
Claim or Interest that is partially an Allowed Claim or Allowed Interest and
partially a Disputed Claim or Disputed Interest until such Claim or Interest is
no longer Disputed in any respect.
11.12. DISBURSEMENT OF FUNDS AND DELIVERY OF NEW SECURITIES.
Reorganized Paragon shall make Cash payments to the holders of Allowed Claims to
the extent provided for in the Plan by check sent by first-class mail (or by
other equivalent or superior means as determined by Reorganized Paragon in its
sole and absolute discretion); PROVIDED, HOWEVER, that if any holder of an
Allowed Claim is entitled to receive a Cash Distribution under the Plan, as of
the Effective Date, in an amount in excess of $500,000, such holder shall have
the option, exercisable by written notice executed by such holder and providing
appropriate instructions delivered to the Debtor or Reorganized Paragon or such
person designated by one of the foregoing, within thirty (30) calendar days
prior to the applicable Distribution Date, to receive payment of Cash
Distributions by wire transfer. On the Effective Date, the Debtor shall deposit
Cash in the Professional Fee Reserve or provide other security (in form and
substance reasonably acceptable to counsel to the Proponents) sufficient to pay
Fee Claim holdbacks and estimated final allowances of compensation and
reimbursement of expenses to Professionals. Distributions of Cash, New
Securities and/or Warrants, as the case may be, pursuant to the Plan (including
shares of New Common Stock subscribed to as part of the Wellspring Rights
Offering) shall be effectuated on the Effective Date, the applicable
Distribution Date, such other date consistent with the provisions of the Plan,
or, with respect to each holder of an Allowed Claim or Allowed Interest, as soon
thereafter as Reorganized Paragon has received all documentation required
pursuant to the Plan.
11.13. FRACTIONAL CENTS. Whenever any payment of a fraction of a cent
would otherwise be called for, the actual payment shall reflect a rounding down
of such fraction to the nearest whole cent. To the extent Cash remains
undistributed as a result of the rounding of such fraction to the nearest whole
cent, such Cash shall revert to Reorganized Paragon.
11.14. FRACTIONAL SECURITIES. No fractional shares of New Common Stock
shall be issued in connection with the Plan.
(a) NEW COMMON STOCK. Whenever the issuance of a fractional
interest of New Common Stock shall otherwise be called for, fractional shares of
New Common Stock will be rounded to the next greater or lower number, as
follows: (i) fractions of 1/2 or greater will be rounded to the next higher
whole number, and (ii) fractions of less than 1/2 will be rounded to the next
lower whole number, including zero.
(b) NEW NOTES. New Notes will be issued only if the Wellspring
Stock Purchase Agreement is consummated and only in denominations of $1,000.
Whenever the issuance of a fractional New Note shall otherwise be called for,
the actual issuance on account of New Notes will be rounded up or down to the
nearest multiple of $1,000 or $0, as the case may be, and the difference in
value will be accounted for by Paragon by a distribution of Cash.
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(c) NEW WARRANTS. No fractional Warrants shall be issued under
the Plan.
11.15. DISPUTED PAYMENTS. In the event of any dispute between or among
claimants as to the right of any Person to receive or retain any payment or
Distribution to be made to such Person under the Plan, Reorganized Paragon may,
in lieu of making such payment or Distribution to such Person, instead hold such
payment or Distribution until the disposition thereof is determined by Final
Order of the Bankruptcy Court.
11.16. UNCLAIMED PROPERTY. If any Distribution remains unclaimed for a
period of twelve (12) months after it has been delivered (or attempted to be
delivered) in accordance with the Plan to the holder entitled thereto, such
Unclaimed Property shall be forfeited by such holder whereupon all right, title
and interest in and to the Unclaimed Property shall immediately and irrevocably
(a) in the case of all Classes other than Classes 3A and 4A, become the property
of Reorganized Paragon, and (b) in the case of Classes 3A and 4A, be available
for future Distributions to remaining holders of Allowed Unsecured Claims in
Class 3A or Allowed Interests in Class 4A, as applicable, and the holder of the
Allowed Claim or Allowed Interest previously entitled to such Unclaimed Property
shall cease to be entitled thereto.
XII.
DISPUTED CLAIMS, DISPUTED INTERESTS, ESTIMATION,
RESERVES AND MISCELLANEOUS DISTRIBUTION PROVISIONS
12.1. OBJECTIONS TO CLAIMS; PROSECUTION OF DISPUTED CLAIMS. Unless
otherwise ordered by the Bankruptcy Court, only the Debtor or Reorganized
Paragon shall be empowered to object to the allowance of Claims or Interests
filed or deemed filed with the Bankruptcy Court with respect to which it
disputes liability in whole or in part; provided, however, that the Litigation
Claims Representative may object to the allowance of any claim arising from or
relating to the assertion or prosecution of any Litigation Claim. All objections
shall be litigated to Final Order; PROVIDED, HOWEVER, that Reorganized Paragon
shall have the authority to file, settle, compromise or withdraw any objections
to Claims without approval of the Bankruptcy Court as permitted by the
Bankruptcy Code and/or Bankruptcy Rules; and PROVIDED, FURTHER, HOWEVER, that
the consent of the Creditors' Committee (unless otherwise ordered by the
Bankruptcy Court) shall be required for allowance by settlement of any Claim in
excess of $250,000.00. Unless otherwise ordered by the Bankruptcy Court,
Reorganized Paragon shall file and serve all objections to Claims as soon as
practicable, but in no event later than, the Claims Objection Deadline, or such
later date as may be approved by the Bankruptcy Court.
12.2. ESTIMATED CLAIMS SCHEDULE. At or prior to the commencement of
the Confirmation Hearing, the Debtor shall submit a schedule, as of such date
(the "Estimated Claims Schedule"), reflecting:
(a) the estimated aggregate amount, as of such date, of
Allowed Claims or Allowed Interests in each Class under the Plan;
(b) the estimated aggregate amount, as of such date, of
Disputed Claims or Disputed Interests in each Class under the Plan; and
(c) the estimated aggregate amount, as of such date, of
Disputed Claims and Disputed Interests in each Class under the Plan that the
Debtor believes ultimately may become Allowed Claims and Allowed Interests.
12.3. ESTIMATION ORDER. On or before the Effective Date, the Debtor
shall seek an Estimation Order establishing the aggregate amount of all Claims
and Interests that would be allowable in each Class based upon the Estimated
Claims Schedule. Such Estimation Order shall set the maximum allowable aggregate
amount of Claims and Interests in each Class for purposes of Distributions
hereunder. Notwithstanding anything to the contrary contained
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herein, such Estimation Order shall NOT: (a) fix the amount of ultimately
Allowed Claims or Interests for purposes of Final Distributions hereunder; (b)
result in the allowance of any individual Claim or Interest; (c) impose any
obligation upon Reorganized Paragon for Distributions in excess of those
expressly set forth herein; or (d) prejudice any creditor's rights under section
502(j) of the Bankruptcy Code.
12.4. NO RECOURSE TO REORGANIZED PARAGON. If the allowed amount of any
particular Disputed Claim or Disputed Interest is or may be reconsidered under
section 502(j) of the Bankruptcy Code and Bankruptcy Rule 3008, or any other
applicable law, and/or is or may be ultimately allowed in an amount that is
greater than the estimated amount of such Claim or Interest, or the ultimately
allowed amount of all Disputed Claims or Disputed Interests in a particular
Class is or may be greater than the estimated aggregate amount of such Claims or
Interests, no Claim holder or Interest holder shall have recourse to Reorganized
Paragon (or any property thereof) or any Cash, New Securities or Warrants
previously distributed on account of any Allowed Claim or Allowed Interest,
except that such Claim or Interest holder shall have recourse only to
undistributed Cash, New Securities and Warrants, as applicable to its Class,
and, if the Wellspring Stock Purchase Agreement is not consummated, Reorganized
Paragon may issue such additional New Common Stock, up to the total number of
shares authorized to be issued as of the Effective Date.
12.5. DISPUTED CLAIMS RESERVES. In accordance with this Section 12.5
and any Estimation Order entered by the Bankruptcy Court before such date, on
the Effective Date, Reorganized Paragon shall establish a separate Disputed
Claims Reserve for each Class of Claims and Interests. Property reserved under
this Section shall be set aside, segregated and, in the case of Cash, held in an
interest bearing account to be established and maintained by Reorganized Paragon
pending resolution of such Disputed Claims and Disputed Interests. As and to the
extent that the amount of any Disputed Claim (other than a Disputed Unsecured
Claim) or Disputed Interest (other than a Disputed Old Common Stock Interest)
exceeds the amount of such Claim or such Interest which ultimately is allowed,
any excess Cash, New Securities and/or Warrants in the applicable Disputed
Claims Reserve previously reserved for on account of such Disputed Claim or
Disputed Interest shall be released to Reorganized Paragon. With respect to
Disputed Unsecured Claims in Class 3A and Disputed Interests in Class 4A, as and
to the extent that the amount of any Disputed Unsecured Claim or Disputed
Interest exceeds the amount of such Claim or Interest that is ultimately
allowed, any excess Cash, New Securities and/or Warrants in the Disputed Claims
Reserve for Class 3A or Class 4A, as applicable, shall be made available for
distribution to holders of Allowed Claims in Class 3A or Allowed Interests in
Class 4A, as applicable. Each Disputed Claims Reserve shall be terminated once
all Distributions and other dispositions of all Cash, New Securities and/or
Warrants required hereunder relevant to such Disputed Claims Reserve have been
made in accordance with the terms of the Plan. If a Disputed Interest Reserve is
established hereunder, all references to Disputed Claims Reserve shall apply to
the Disputed Interest Reserve and all references to Claims, Allowed Claims and
Disputed Claims shall apply to Interests, Allowed Interests, and Disputed
Interests as the context requires.
12.6. FLUCTUATION IN VALUE OF NEW SECURITIES. The value of New
Securities and Warrants held in reserve under Section 12.5 of the Plan is likely
to fluctuate. Reorganized Paragon does not, and shall be deemed not to,
represent or warrant that the value of the New Securities and Warrants will not
decline after the Effective Date. Reorganized Paragon also shall not otherwise
assume any liability or risk of loss which the holder of a Disputed Claim or
Disputed Interest which becomes an Allowed Claim or Allowed Interest, as
applicable, after the Effective Date may suffer by reason of any decline in
value of a reserved security pending determination of the amount of such
Disputed Claim or Disputed Interest. The risk or benefit of any appreciation or
depreciation in the value of any reserved securities shall be borne by the party
to whom such security is ultimately distributed.
12.7. VOTING OF CERTAIN NEW COMMON STOCK. New Common Stock that is
Unclaimed Property or held in Disputed Claims Reserves shall be voted at any
meeting of the stockholders of Reorganized Paragon in proportion to the actual
vote of the shares of New Common Stock that is not held as Unclaimed Property or
in Disputed Claims Reserves.
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12.8. RETURNED DISTRIBUTIONS. In the event that any Distribution of
property is returned to Reorganized Paragon due to an incorrect or incomplete
address for the holder entitled thereto, Reorganized Paragon shall use
reasonable efforts to obtain an accurate address for such holder. If reasonable
efforts have not yielded an accurate address for such holder within 180 calendar
days after the date the Distribution of the returned property was made, then the
property to be distributed to such holder shall be deemed to be Unclaimed
Property in respect of such Claim or Interest and shall be treated as provided
in Section 11.16 of the Plan.
12.9. ESTIMATION OF CLAIMS. The Debtor or Reorganized Paragon, as
applicable, may at any time request that the Bankruptcy Court estimate any
contingent, unliquidated or Disputed Claim pursuant to section 502(c) of the
Bankruptcy Code regardless of whether the Debtor or Reorganized Paragon
previously has objected to such Claim or whether the Bankruptcy Court has ruled
on any such objection, and the Bankruptcy Court will retain jurisdiction to
estimate any Claim at any time during litigation concerning any objection to any
Claim, including, without limitation, during the pendency of any appeal relating
to any such objection. In the event that the Bankruptcy Court estimates any
contingent, unliquidated or Disputed Claim, the amount so estimated shall
constitute either an estimated allowed amount for purposes of Distributions
under the Plan or an estimation for purposes of allowance, but shall not fix a
maximum limitation on such Claim as an ultimately Allowed Claim, as determined
by the Bankruptcy Court. All of the aforementioned objection, estimation and
resolution procedures are intended to be cumulative and not necessarily
exclusive of one another. Claims may be estimated and subsequently compromised,
settled, withdrawn or resolved by any mechanism approved by the Bankruptcy
Court.
12.10. AMENDMENTS OF CLAIMS. Except as otherwise provided in the Plan,
a Claim may be amended: (a) no later than ten (10) days prior to the
Confirmation Hearing, only as agreed upon by the Debtor and the holder of such
Claim or as otherwise permitted by the Bankruptcy Court, the Bankruptcy Code,
the Bankruptcy Rules, or applicable law; or (b) after such time, to decrease,
but not increase, the face amount of such Claim. Any Claim (other than Claims
timely filed based upon the rejection of any executory contract or unexpired
lease) filed after the Confirmation Date shall be deemed Disallowed and expunged
without further action by the Debtor or the Bankruptcy Court unless the claimant
obtained prior Bankruptcy Court approval to file such claim.
XIII.
WAIVERS, DISCHARGE, RELEASE, INDEMNIFICATION,
ABANDONMENT, AND SETTLEMENT OF CLAIMS
13.1. DISCHARGE OF DEBTOR. Except as otherwise specifically provided
by the Plan or the Confirmation Order, the Confirmation of the Plan (subject to
the occurrence of the Effective Date) shall operate as a discharge, pursuant to
section 1141(d)(1) of the Bankruptcy Code, of the Debtor and Reorganized Paragon
from any debt, Claim or Interest that arose before the Confirmation Date,
including, but not limited to, all principal and interest, whether accrued
before, on, or after the Petition Date, and any debt, Claim or Interest of the
kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not a proof of Claim or Interest is Filed or is deemed Filed, whether
or not such Claim or Interest is Allowed, and whether or not the holder of such
Claim or Interest has voted on the Plan. On the Effective Date, as to every
discharged debt, Claim and Interest, the holder of such debt, Claim or Interest
shall be precluded from asserting against the Debtor, the Debtor's assets or
properties, and against Reorganized Paragon, any other or further Claim or
Interest based upon any document, instrument or act, omission, transaction or
other activity of any kind or nature that occurred prior to the Confirmation
Date.
13.2. COMPLETE SATISFACTION. Except as otherwise specifically provided
by the Plan, the treatment of Claims and Interests and rights that are provided
in the Plan shall be in complete satisfaction, discharge and release, effective
as of the Confirmation Date (but subject to the occurrence of the Effective
Date) of (a) all Claims against, liabilities of, liens on, obligations of and
Interests in the Debtor or Reorganized Paragon or the direct or indirect assets
and properties of the
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Debtor or Reorganized Paragon, whether known or unknown, and (b) all causes of
action (whether known or unknown, either directly or derivatively through the
Debtor or Reorganized Paragon) against, Claims against, liabilities (as
guarantor of a Claim or otherwise) of, liens on the direct or indirect assets
and properties of, and obligations of the Debtor, Reorganized Paragon and their
successors and assigns, and present and former directors, officers, attorneys,
advisors, financial advisors, investment bankers and employees of the Debtor
based on the same subject matter as any Claim or Interest, in each case
regardless of whether a proof of Claim or Interest was filed, whether or not
allowed and whether or not the holder of the Claim or Interest has voted on the
Plan, or based on any act or omission, transaction or other activity or
security, instrument or other agreement of any kind or nature occurring, arising
or existing prior to the Effective Date that was or could have been the subject
of any Claim or Interest, in each case regardless of whether a proof of Claim or
Interest was filed, whether or not allowed and whether or not the holder of the
Claim or Interest has voted on the Plan.
13.3. RELEASE OF DEBTOR. Except as otherwise specifically provided by
the Plan or the Confirmation Order (and subject to the occurrence of the
Effective Date), any holder of a Claim or Interest accepting any Distribution or
other treatment pursuant to the Plan shall be presumed conclusively to have
released the Debtor and Reorganized Paragon, their successors and assigns, and
their respective present and former directors, officers, agents, attorneys,
advisors, financial advisors, investment bankers and employees of the Debtor,
and any Person claimed to be liable derivatively through and of the foregoing,
from any Claim or cause of action based on the same subject matter as the
respective Claim or Interest. The release described in the preceding sentence
shall be enforceable as a matter of contract against any holder of a Claim or
Interest timely notified of the provisions of the Plan.
13.4. EXONERATION. Neither the Debtor, Reorganized Paragon nor any of
its respective officers, directors, partners, employees, Affiliates, members or
agents nor any Professionals, attorneys, financial advisors, investment bankers,
accountants, or other professionals employed by any of them, nor the Creditors'
Committee nor the Equity Committee and the respective members thereof (in their
capacity as such), nor P&G, K-C nor Wellspring, nor any Professionals,
attorneys, financial advisors, investment bankers, accountants nor other
professionals employed by the Creditors' Committee, the Equity Committee, P&G,
K-C or Wellspring, shall have or incur any liability to any Person for any act
taken or omission occurring in good faith in connection with or related to: (a)
formulating, implementing, confirming, or consummating the Plan (including
soliciting acceptances or rejections hereto); (b) the Disclosure Statement or
any contract, instrument, release or other agreement or document entered into in
connection with the Plan; or (c) the administration of the Plan, any
Distributions made pursuant to the Plan or the Wellspring Rights Offering,
except for acts constituting fraud, willful misconduct, willful breach of
fiduciary duty or gross negligence, and in all respects such parties shall be
entitled to rely upon the advice of counsel with respect to their duties and
responsibilities under the Plan. The entry of the Confirmation Order shall
constitute the determination by the Bankruptcy Court that the Debtor,
Reorganized Paragon and its officers, directors, partners, employees, members or
agents, and each Professional, attorney, financial advisors, accountant, or
other professional employed by any of them and the members of the Creditors'
Committee and the Equity Committee (in their capacity as such), P&G, K-C and
Wellspring, and any Professionals, attorneys, financial advisors, accountants or
other professionals employed by the Creditors' Committee, the Equity Committee,
P&G, K-C or Wellspring, shall have acted in good faith and in compliance with
the applicable provisions of the Bankruptcy Code, pursuant to section 1125(e)
and 1129(a)(3) of the Bankruptcy Code, with respect to the foregoing.
Notwithstanding the provisions of this Section 13.4, Wellspring shall not be
exonerated or relieved of its obligations under the Wellspring Commitment or the
Wellspring Stock Purchase Agreement or any breach of its obligations thereunder.
13.5. INDEMNIFICATION. In order to facilitate Paragon's expeditious
and effective reorganization, the Debtor and Reorganized Paragon shall
indemnify, hold harmless and reimburse each of the Debtor's respective present
and former officers, directors and employees from and against any and all
losses, Claims, damages, liabilities and actions asserted or filed against such
present and former officers, directors and employees for, by reason of, arising
from, in connection with, involving or relating to services rendered or acts or
omissions to act in those capacities relating to or
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arising out of the Plan, the P&G Settlement or the K-C Settlement, or any
efforts to defend or protect against, resolve or settle the Texas Action, the
Delaware Action or the facts or Claims alleged or asserted, or which could have
been alleged or asserted, in the Delaware Action, the Texas Action or the Plan.
All rights of the Debtor's present and former officers, directors and employees
with respect to indemnification and limitation of liability under any provision
of law, the Certificate of Incorporation or Bylaws of the Debtor, or otherwise,
from and against any and all losses, claims, damages, liabilities and actions
shall survive confirmation of the Plan and shall not be discharged pursuant to
section 1141 of the Bankruptcy Code. The Debtor and Reorganized Paragon shall
pay any legal or other expenses reasonably incurred by such present or former
officers, directors, or employees in connection with this indemnification or the
enforcement thereof, or in connection with any claim against which such present
or former officer, director, or employee is indemnified or for which liability
is limited. Notwithstanding the foregoing, the Debtor's and Reorganized
Paragon's obligations under this Section 13.5 for any Prepetition Claims for
indemnity shall be limited to the extent of available insurance coverage.
Reorganized Paragon shall be responsible for paying any deductibles associated
with any such insurance, and the Debtor or Reorganized Paragon shall obtain tail
insurance coverage for a period of six years after the Effective Date under the
Debtor's existing or a comparable directors and officers insurance policy. On
the Effective Date, the Debtor will be conclusively deemed to release all
directors and officers of the Debtor holding such offices at any time during the
period from and including the Petition Date through and including the
Confirmation Date from all liability based upon any act or omission related to
past service with, for or behalf of the Debtor except for:
(i) any indebtedness of any such Person to the Debtor
for money borrowed by such Person;
(ii) any setoff or counterclaim the Debtor has
against such Person for money borrowed by such Person;
(iii) the uncollected amount of any claim made by the
Debtor (whether in a filed pleading, by letter or otherwise asserted in
writing) prior to the Effective Date against such Person which claim
has not been adjudicated to Final Order, settled or compromised; or
(iv) claims arising from the fraud, willful
misconduct, gross negligence or willful breach of fiduciary duty of
such Person.
13.6. RELEASE OF COMMITTEE MEMBERS. On the Confirmation Date, subject
to the occurrence of the Effective Date, the Debtor shall be deemed to have
released all causes of action against the members of the Committees, in their
respective capacities as such (but not in their capacities as holders of Claims
against or Interests in the Debtor and not with respect to Litigation Claims).
13.7. ENFORCEABILITY OF RELEASES. Notwithstanding anything contained
herein to the contrary, the foregoing release provisions of this Article XIII
above with respect to the release of non-Debtor third parties shall be enforced
only to the extent permitted by applicable bankruptcy and non-bankruptcy law.
13.8. ADDITIONAL RELEASES. The releases embodied in the Plan are in
addition to, and not in lieu of, any other release separately given,
conditionally or unconditionally, to the Debtor by any other Person or by the
Debtor to any other Person, including, for example, the releases contemplated
and provided for in the P&G Settlement Agreement and the K-C Settlement
Agreement.
13.9. INJUNCTION. The satisfaction, release and discharge pursuant to
this Article XIII also shall act as an injunction against any Person commencing
or continuing to prosecute or commence any act, action, employment of process,
or act to collect, offset or recover any Claim, Interest or cause of action
satisfied, released or discharged under the Plan to the fullest extent
authorized or provided by the Bankruptcy Code, including, without limitation, to
the extent provided for or authorized by sections 524 and 1141 thereof.
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13.10. TERMS OF INJUNCTIONS OR STAYS. Unless otherwise provided, all
injunctions or stays provided for in the Chapter 11 Case under sections 105 or
362 of the Bankruptcy Code or otherwise, and in existence on the Confirmation
Date, shall remain in full force and effect until the Effective Date.
13.11. PRESERVATION OF LITIGATION CLAIMS: Notwithstanding anything
contained herein to the contrary, including but not limited to any release
provided under Section 13.6 hereof, nothing contained in this Plan shall be
interpreted as or result in the release of Weyerhaeuser, Pope & Talbot, Oracle
Corporation or Andersen Consulting LLP from any Litigation Claim.
XIV.
CONDITIONS TO CONFIRMATION/EFFECTIVE DATE
14.1. CONDITIONS PRECEDENT TO CONFIRMATION. At or prior to
Confirmation, the following conditions must occur and be satisfied:
(a) DISCLOSURE STATEMENT ORDER. An order finding that the
Disclosure Statement contains adequate information pursuant to section 1125 of
the Bankruptcy Code shall have been entered;
(b) THE P&G SETTLEMENT AGREEMENT. The P&G Settlement Order
shall not have been reversed, stayed, modified or amended in any manner not
acceptable to the Proponents and P&G, and the P&G Settlement Agreement (and
licenses annexed thereto) shall not have been terminated by P&G or deemed
terminated in accordance with their respective terms;
(c) THE K-C SETTLEMENT AGREEMENT. The K-C Settlement Order
shall not have been reversed, stayed, modified or amended in any manner not
acceptable to the Proponents and K-C, and the K-C Settlement Agreement (and
licenses annexed thereto) shall not have been terminated by K-C or deemed
terminated in accordance with their respective terms;
(d) ESTIMATION ORDER. All Disputed Claims or Interests that
are contingent or unliquidated shall have been estimated or otherwise fixed
(either individually or in the aggregate) by one or more Estimation Orders; and
(e) EXIT FACILITY COMMITMENT. The Debtor shall have received a
commitment for the New Credit Agreement from a creditworthy financial
institution.
14.2. CONDITIONS PRECEDENT TO EFFECTIVE DATE. Before the Effective
Date occurs, the following conditions must occur and be satisfied:
(a) ENTRY OF CONFIRMATION ORDER; NO STAY. The Confirmation
Order shall have been entered, and no order of any court shall have been entered
and shall remain in effect (i) reversing, staying, remanding or otherwise
hindering the effectiveness of the Confirmation Order, the P&G Settlement Order
or the K-C Settlement Order or (ii) enjoining or restraining the Debtor from
consummating the Plan, the P&G Settlement Agreement, or the K-C Settlement
Agreement;
(b) EXIT FINANCING. All conditions precedent to closing the
New Credit Agreement (other than the occurrence of the Effective Date) shall
have been satisfied or waived and the New Credit Agreement shall have been
consummated;
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(c) DOCUMENTS EXECUTED. All other documents required to be
delivered under the Plan shall have been executed and delivered by the parties
thereto, unless such execution or delivery has been waived by the parties
benefited by such documents; and
(d) CASH FOR CLOSING. Reorganized Paragon shall have
sufficient Cash on hand or availability under the New Credit Agreement to make
timely Distributions of Cash required hereunder.
14.3. ADDITIONAL CONDITIONAL PRECEDENTS TO EFFECTIVE DATE. In the
event that the Wellspring Stock Purchase Agreement has been executed and has not
been terminated, before the Effective Date occurs, the following additional
conditions must occur and be satisfied:
(a) CONFIRMATION DATE. The Confirmation Date shall have
occurred no later than January 15, 2000 or such later date as may be determined
by the Proponents and Wellspring, with the consent of P&G and K-C, such consent
not to be unreasonably withheld;
(b) CONSUMMATION OF THE WELLSPRING STOCK PURCHASE AGREEMENT.
All conditions precedent to consummation of the Wellspring Stock Purchase
Agreement other than the occurrence of the Effective Date shall have been
satisfied or waived as set forth therein;
(c) TRUST INDENTURE ACT. The New Notes shall qualify under the
Trust Indenture Act of 1939, as amended; and
(d) EFFECTIVE DATE. The Effective Date shall have occurred on
or before February 15, 2000.
14.4. WAIVER OF CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION.
Notwithstanding anything to the contrary contained in the Plan, the Proponents
may waive, with the consent of P&G and K-C (which consent shall not be
unreasonably withheld) any of the conditions precedent to (a) Confirmation set
forth in Sections 14.1(b) through 14.1(e) above, and (b) the Effective Date set
forth in Sections 14.2(d) and, with the consent of Wellspring, Section 14.3
above.
14.5. MOOTNESS. The Proponents shall enjoy the benefit of the mootness
doctrine with respect to any conditions waived by the Proponents.
XV.
MISCELLANEOUS PROVISIONS
15.1. ADMINISTRATION PENDING EFFECTIVE DATE. Prior to the Effective
Date, the Debtor shall continue to operate its business as a Debtor in
Possession, subject to all applicable requirements of the Bankruptcy Code and
the Bankruptcy Rules. After the Effective Date, Reorganized Paragon may operate
its businesses, and may use, acquire, and dispose of property free of any
restrictions of the Bankruptcy Code or the Bankruptcy Rules.
15.2. CARRYING OUT OF TERMS. All terms of the Plan may be put into
effect and carried out, without further action by the directors or shareholders
of Paragon or Reorganized Paragon, who shall be deemed to have unanimously
approved the Plan and all agreements and transactions provided for or
contemplated herein. All costs associated with the carrying out of the terms of
the Plan, including, but not limited to, costs for mailing, printing and
balloting shall be paid for and borne by the Debtor and its Estate.
15.3. WITHDRAWAL OF THE PLAN. The Proponents, acting jointly and
unanimously, reserve the right, at any time prior to the Confirmation Date, to
revoke or withdraw the Plan. Withdrawal of one Proponent as a proponent of this
Plan shall not constitute a withdrawal of the Plan, and the remaining Proponent
may seek confirmation of this Plan and, upon
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such occurrence, the term "Proponents" as used in this Plan shall refer solely
to the remaining Proponent for all purposes. If the Proponents revoke or
withdraw the Plan or if the Confirmation Date does not occur, then the Plan
shall be deemed null and void and of no force and effect.
15.4. AMENDMENTS AND MODIFICATIONS TO PLAN. The Plan may be altered,
amended or modified by the Proponents, acting jointly and unanimously, before or
after the Confirmation Date, as provided in section 1127 of the Bankruptcy Code.
The Proponents reserve the right, in accordance with the Bankruptcy Code and the
Bankruptcy Rules, to amend or modify the Plan at any time prior to the entry of
the Confirmation Order. After the entry of the Confirmation Order, the
Proponents may, upon order of the Bankruptcy Court, amend or modify the Plan in
accordance with section 1127(b) of the Bankruptcy Code, or remedy any defect or
omission or reconcile any inconsistency in the Plan in such manner as may be
necessary to carry out the purpose and intent of the Plan. A holder of a Claim
or Interest that has accepted the Plan shall be deemed to have accepted the Plan
as it may be modified if the proposed modification does not materially and
adversely change the treatment of the Claim or Interest of such holder.
Notwithstanding anything to the contrary contained in this Section 15.4 or any
other provision of the Plan: (a) provided the Wellspring Stock Purchase
Agreement has been executed and has not been terminated, Sections 7.5, 7.6,
9.11, 9.12, 9.19(a), 9.21, 13.3, 13.4, 13.5, 13.9 hereof and any provisions
(including any definition) which (1) provide that Wellspring's consent or
approval is required or that a document must be satisfactory to Wellspring or
(2) relate to the New Notes, New Notes Amount, the New Common Stock or the
Warrants to be issued if the Wellspring Stock Purchase Agreement is executed and
has not been terminated, may not be altered, amended or modified without the
express written consent of Wellspring (which consent shall not be unreasonably
withheld); and (b) each of the Proponents hereby irrevocably agrees that the
provisions of Section 13.5 hereof shall not be altered, amended, or modified in
any material respect.
15.5. SEVERABILITY. If any provision of the Plan is determined to be
unenforceable, such determination shall not limit or affect the enforceability
and operative effect of any other provisions of the Plan. Subject to the last
sentence of Section 15.4 hereof, to the extent any provision of the Plan would,
by its inclusion in the Plan, prevent or preclude the Bankruptcy Court from
entering the Confirmation Order, the Bankruptcy Court, on the request of the
Proponents, may modify or amend such provision, in whole or in part, as
necessary to cure any defect or remove any impediment to the confirmation of the
Plan existing by reason of such provision. A holder of a Claim or Interest that
has accepted the Plan shall be deemed to have accepted the Plan as it may be
modified in accordance with this Section if the proposed modification does not
materially and adversely change the treatment of the Claim or Interest of such
holder.
15.6. CONFIRMATION ORDER. The Confirmation Order shall ratify all
transactions effected by the Debtor during the period commencing on the Petition
Date and ending on the Confirmation Date.
15.7. COMPLIANCE WITH SECURITIES LAWS AND TAX REQUIREMENTS.
(a) SECTION 1145 EXEMPTION. Pursuant to, in accordance with
and solely to the extent provided under section 1145 of the Bankruptcy Code, the
original issuance of the New Common Stock, the issuance of the New Notes, the
Rights, the New Common Stock to be issued upon exercise of any stock options
approved as part of the Plan and the issuance of the Warrants, are exempt from
the registration requirements of section 5 of the Securities Act and any state
or local law requiring or licensing of an issuer, underwriter, broker or dealer
in, such New Notes or New Common Stock.
(b) SECTION 1146 EXEMPTION. To the extent permitted by section
1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of any
security under the Plan, or the execution, delivery or recording of an
instrument of transfer pursuant to, in implementation of or as contemplated by
the Plan, or the revesting, transfer or sale of any real property of the Debtor
pursuant to, in implementation of or as contemplated by the Plan shall not be
taxed under any state or local law imposing a stamp tax, transfer tax or similar
tax or fee. Consistent with the foregoing, each recorder of deeds or similar
official for any county, city or governmental unit in which any instrument
hereunder is to be recorded shall,
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<PAGE> 54
pursuant to the Confirmation Order, be ordered and directed to accept such
instrument, without requiring the payment of any documentary stamp tax, deed
stamps, stamp tax, transfer tax, intangible tax or similar tax.
15.8. INTERPRETATION, RULES OF CONSTRUCTION, COMPUTATION OF TIME, AND
CHOICE OF LAW.
(a) The provisions of the Plan shall control over any
descriptions thereof contained in the Disclosure Statement.
(b) Any term used in the Plan that is not defined in the Plan,
either in Article I (Definitions) or elsewhere, but that is used in the
Bankruptcy Code or the Bankruptcy Rules shall have the meaning assigned to that
term in (and shall be construed in accordance with the rules of construction
under) the Bankruptcy Code or the Bankruptcy Rules. Without limiting the
foregoing, the rules of construction set forth in section 102 of the Bankruptcy
Code shall apply to the Plan, unless superseded herein. The definitions and
rules of construction contained herein do not apply to the Disclosure Statement
or to the Exhibits to the Plan except to the extent expressly so stated in the
Disclosure Statement or in each Exhibit to the Plan.
(c) The words "herein," "hereof," "hereto," "hereunder" and
others of similar import refer to the Plan as a whole and not to any particular
Article, Section, subsection or clause contained in the Plan, unless the context
requires otherwise.
(d) Unless specified otherwise in a particular reference, all
references in the Plan to Articles, Sections and Exhibits are references to
Articles, Sections and Exhibits of or to the Plan.
(e) Any reference in the Plan to a contract, document,
instrument, release, bylaw, certificate, indenture or other agreement being in a
particular form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms and
conditions.
(f) Any reference in the Plan to an existing document or
exhibit means such document or exhibit as it may have been amended, restated,
modified or supplemented as of the Effective Date.
(g) Captions and headings to Articles and Sections in the Plan
are inserted for convenience of reference only and shall neither constitute a
part of the Plan nor in any way affect the interpretation of any provisions
hereof.
(h) Whenever from the context it is appropriate, each term
stated in either the singular or the plural shall include both the singular and
the plural, and each pronoun stated in the masculine, feminine or neuter
includes the masculine, feminine and neuter.
(i) In computing any period of time prescribed or allowed by
the Plan, the provisions of Bankruptcy Rule 9006(a) shall apply.
(j) All Exhibits to the Plan are incorporated into the Plan,
and shall be deemed to be included in the Plan, regardless of when Filed.
(k) Subject to the provisions of any contract, certificate,
bylaws, instrument, release, indenture or other agreement or document entered
into in connection with the Plan, the rights and obligations arising under the
Plan shall be governed by, and construed and enforced in accordance with,
federal law, including the Bankruptcy Code and Bankruptcy Rules.
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<PAGE> 55
15.9. BINDING EFFECT OF THE PLAN. The provisions of the Plan shall be
binding upon and inure to the benefit of the Debtor, Reorganized Paragon, any
holder of a Claim or Interest, their respective predecessors, successors,
assigns, agents, officers and directors and any other Person affected by the
Plan.
15.10. PAYMENT OF STATUTORY FEES. All fees payable pursuant to section
1930 of title 28 of the United States Code shall be paid on or as soon as
reasonably practicable after the Effective Date or the date such fees become
due, as applicable.
15.11. DISSOLUTION OF COMMITTEES. On the Effective Date, the
Creditors' Committee and Equity Committee shall cease to exist and their members
and employees or agents (including, without limitation, attorneys, investment
bankers, financial advisors, accountants and other professionals) shall be
released and discharged from all further authority, duties, responsibilities and
obligations relating to, arising from or in connection with the Chapter 11 Case;
provided, however, that (a) members and/or professionals of such Committees may
pursue applicable Fee Claims; and (b) counsel to the Creditors' Committee shall
be entitled to (i) monitor the Claims review, objection and reconciliation
process, bring the status of such process to the attention of the Bankruptcy
Court, and be heard with respect to any proposed resolution of a Claim for which
Bankruptcy Court approval is sought, and (ii) receive from Reorganized Paragon
compensation for services rendered and reimbursement for expenses incurred in
connection with such monitoring, in an amount not to exceed, without Reorganized
Paragon's prior written consent or further Bankruptcy Court order obtained on
reasonable notice to Reorganized Paragon, $7,500 per month and $75,000 in the
aggregate.
15.12. GOVERNING LAW. Except to the extent the Bankruptcy Code or
other federal law is applicable, or to the extent that an Exhibit hereto
provides otherwise, the rights, duties and obligations arising under the Plan
shall be governed by, and construed and enforced in accordance with, the
Bankruptcy Code and, to the extent not inconsistent therewith, the laws of the
State of Georgia, without giving effect to principles of conflicts of laws.
15.13. METHOD OF NOTICE. All notices required to be given under the
Plan, if any, shall be in writing and shall be sent by first class mail, postage
prepaid, or by overnight courier:
If to the Debtor or Reorganized Paragon, to:
Paragon Trade Brands, Inc.
180 Technology Parkway
Atlanta, GA 30092
Attn: General Counsel
(678) 969-5000
with copies to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Attn: Myron Trepper, Esq.
Marc Abrams, Esq.
(212) 728-8000
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<PAGE> 56
and
Alston & Bird LLP
1201 West Peachtree
Atlanta, Georgia 30309-3424
Attn: Dennis Connolly, Esq.
(404) 881-7000
If to the Creditors' Committee, to:
O'Melveny & Myers, LLP
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Adam Harris, Esq.
Joel Zweibel, Esq.
(212) 326-2000
If to the Equity Committee, to:
Andrews & Kurth LLP
600 Travis, Suite 4200
Houston, Texas 77002
Attn: John Lee, Esq.
(713) 220-4260
If to P&G, to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114-1190
Attn: David Heiman, Esq.
(216) 586-7715
If to K-C, to:
Sidley & Austin
Bank One Plaza
Ten South Dearborn
Chicago, IL 60603
Attn: Shalom Kohn, Esq.
(312) 853-7756
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<PAGE> 57
If to Wellspring, provided the Wellspring Stock Purchase Agreement has
been consummated, to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attn: Robert Drain, Esq.
(212) 373-3236
Any of the above may, from time to time, change its address for future notices
and other communications hereunder by filing a notice of the change of address
with the Bankruptcy Court. Any and all notices given to such parties under the
Plan shall be effective when received.
15.14. AUTHORIZATION OF CORPORATE ACTION. The entry of the
Confirmation Order shall constitute authorization for the Debtor and Reorganized
Paragon to take or cause to be taken any corporate action necessary or
appropriate to consummate the provisions of the Plan prior to and through the
Effective Date (including, without limitation, the filing of or amending or
restating of the Restated Certificate of Incorporation), and all such actions
taken or caused to be taken shall be deemed to have been authorized and approved
by the Bankruptcy Court. All matters provided for under the Plan involving the
corporate structure of the Debtor and/or Reorganized Paragon in connection with
the Plan, and any corporate action required by the Debtor and/or Reorganized
Paragon in connection with the Plan, shall be deemed to have occurred and shall
be in effect pursuant to any applicable state law and the Bankruptcy Code,
without any requirement of further action by the stockholders or directors of
the Debtor and/or Reorganized Paragon. On the Effective Date, the appropriate
officers of Reorganized Paragon and members of the New Board are authorized and
directed to execute and deliver the relevant agreements, documents and
instruments contemplated by the Plan and the Disclosure Statement in the name of
and on behalf of Reorganized Paragon.
15.15. CONTINUED CONFIDENTIALITY OBLIGATIONS. Notwithstanding anything
to the contrary contained herein, pursuant to the terms thereof, members of and
advisors to any Committee, any other holder of a Claim or Interest and their
respective predecessors and successors shall continue to be obligated and bound
by terms of any confidentiality agreement executed by them in connection with
the Chapter 11 Case or the Debtor, to the extent that such agreement, by its
terms, may continue in effect after the Confirmation Date.
XVI.
RETENTION OF JURISDICTION
16.1. RETENTION OF JURISDICTION. The Bankruptcy Court shall retain and
have exclusive jurisdiction over the Chapter 11 Case for, INTER ALIA, the
following purposes:
(a) CLAIMS. To determine the amount, allowability,
classification, or priority of Claims against or Interests in the Debtor and to
allow, disallow, estimate, liquidate or determine any Claim or Interest and to
enter or enforce any order requiring the filing of any Claim or Interest before
a particular date;
(b) INJUNCTION ETC. To issue injunctions or take such other
actions or make such other orders as may be necessary or appropriate to restrain
interference with the Plan or its execution or implementation by any Person, to
construe and to take any other action to enforce and execute the Plan, the
Confirmation Order, or any other order of the Bankruptcy Court, to issue such
orders as may be necessary for the implementation, execution, performance and
consummation of the Plan and all matters referred to herein, and to determine
all matters that may be pending before the Bankruptcy Court in the Chapter 11
Case on or before the Effective Date with respect to any Person;
(c) VESTING. To protect the property of the Estate revesting
in Reorganized Paragon from claims against, or interference, with such property,
including actions to quiet or otherwise clear title to such property, to
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<PAGE> 58
determine ownership of claims and causes of action retained under the Plan or to
resolve any dispute concerning liens, security interest or encumbrances on any
property of Reorganized Paragon;
(d) PRIORITY CLAIMS. To determine any Priority Tax Claims,
Priority Non-Tax Claims, Administrative Claims, Fee Claims, DIP Claims, or any
other request for payment of Claims or fees or expenses;
(e) DISPUTE RESOLUTION. To resolve any and all disputes
concerning, arising under or related to the Plan, the P&G Settlement Agreement
and P&G Settlement Order, the K-C Settlement Agreement and K-C Settlement Order,
and the making of distributions hereunder and thereunder (PROVIDED, HOWEVER,
that the Bankruptcy Court shall not retain jurisdiction with respect to disputes
arising under or related to the licenses granted in connection with the P&G
Settlement Agreement and the K-C Settlement Agreement);
(f) LEASES AND EXECUTORY CONTRACTS. To determine any and all
matters relating to the rejection, assumption, or assignment of executory
contracts or unexpired leases of the Debtor, or to determine any motion to
reject an executory contract or unexpired lease of the Debtor, where (a) the
parties cannot resolve the cure amount therefor, or (b) the Debtor mistakenly
had determined that any such agreement was not an executory contract or
unexpired lease, and to determine the allowance of any Claims resulting from the
rejection of executory contracts and unexpired leases;
(g) WELLSPRING STOCK PURCHASE AGREEMENT. To hear and determine
any and all matters, claims or disputes arising from or relating to the
Wellspring Stock Purchase Agreement or any other document between the Debtor and
Wellspring that was executed in connection with this Plan;
(h) ACTIONS. To determine all applications, motions, adversary
proceedings, contested matters, actions, and any other litigated matters
instituted prior to the closing of the Chapter 11 Case, including any remands;
(i) GENERAL MATTERS. To determine such other matters, and for
such other purposes, as may be provided in the Confirmation Order or as may be
authorized under provisions of the Bankruptcy Code;
(j) PLAN MODIFICATION. To modify the Plan under section 1127
of the Bankruptcy Code, and/or remedy any defect, cure any omission, or
reconcile any inconsistency in the Plan or the Confirmation Order so as to carry
out its intent and purposes;
(k) AID CONSUMMATION. To issue such orders in aid of
consummation of the Plan and the Confirmation Order notwithstanding any
otherwise applicable non-bankruptcy law, with respect to any Person, to the full
extent authorized by the Bankruptcy Code;
(l) LITIGATION. To enable the Litigation Claims Representative
to prosecute any Litigation Claims to Final Order and to enable the Debtor to
prosecute any and all proceedings which have been brought to set aside liens or
encumbrances and, if commenced prior to the Effective Date, to recover any
transfers, assets, properties or damages to which the Debtor may be entitled
under applicable provisions of the Bankruptcy Code or any other federal, state
or local laws except as may be waived pursuant to the Plan;
(m) IMPLEMENTATION OF CONFIRMATION ORDER. To enter and
implement such orders as may be appropriate in the event the Confirmation Order
is for any reason stayed, revoked, modified or vacated;
(n) RESOLVE DISPUTES. To resolve any disputes concerning
whether a Person had sufficient notice of the Chapter 11 Case, an Applicable Bar
Date, the hearing to consider approval of the Disclosure Statement, the
Confirmation Hearing, and for the purpose of determining whether a Claim or
Interest is discharged hereunder or for any other purpose;
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<PAGE> 59
(o) ORDERS. To enter such orders as may be necessary or
appropriate to implement or consummate the provisions of the Plan and all
contracts, instruments, releases, or other agreements or documents created in
connection with the Chapter 11 Case or the Plan and to resolve any dispute or
matter arising under or in connection with any order of the Bankruptcy Court
entered in the Chapter 11 Case;
(p) CONTROVERSIES. To resolve controversies and disputes
regarding interpretation, implementation, enforcement and consummation of the
Plan, the K-C Settlement Agreement, the P&G Settlement Agreement, or any other
exhibit to the Plan or related document (PROVIDED, HOWEVER, that the Bankruptcy
Court shall not retain jurisdiction with respect to disputes arising under or
related to the licenses granted in connection with the P&G Settlement Agreement
and the K-C Settlement Agreement);
(q) DETERMINE TAX LIABILITY. To determine any tax liability
pursuant to sections 346, 505 and/or 1146 of the Bankruptcy Code;
(r) RESERVES. To resolve disputes concerning any reserves with
respect to Disputed Claims or the administration thereof;
(s) VALIDITY. To hear and resolve claims or actions
challenging the validity or enforceability of any provision of the Plan; and
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<PAGE> 60
(t) FINAL DECREE. To enter a final decree closing the Chapter
11 Case.
Respectfully submitted,
Dated: Norcross, Georgia
November 15, 1999
PARAGON TRADE BRANDS, INC.
By: /s/ Alan J. Cyron
---------------------------------------
Alan J. Cyron
Chief Financial Officer
Dated: Atlanta, Georgia
November 15, 1999
THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS
OF PARAGON TRADE BRANDS, INC.
By: /s/ John T. Seeds
---------------------------------------
John T. Seeds
Wachovia Bank of Georgia, N.A.
As Chairman of the Creditors' Committee
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<PAGE> 61
LIST OF EXHIBITS
Exhibit A Summary of Wellspring Plan Warrants
Exhibit B Summary of Standalone Plan Warrants
Exhibit C Wellspring Commitment
Exhibit D Wellspring Rights Offering Procedures
Exhibit E Wellspring Stock Purchase Agreement
<PAGE> 62
FOR SETTLEMENT PURPOSES ONLY
EXHIBIT A
TERMS OF WARRANTS TO BE ISSUED
IF WELLSPRING STOCK PURCHASE AGREEMENT IS CONSUMMATED
<TABLE>
<S> <C>
Percentage of fully-diluted common stock outstanding 5.0%
(total number of shares) 625,821 shares
Tenor 10 years
Strike Price ($375mm enterprise value) $18.91
Anti-dilution provisions Customary
Total Warrant Value $2,275,079
</TABLE>
Change of Control "Call" - Provided that Wellspring shall have at the time
received a return on its initial investment (based on a purchase price per
share of New Common Stock of $10) in the Debtor of at least 8% on an annualized
basis, then upon a change of control, the purchaser shall have the option to
leave the existing warrants in place or call the warrants in exchange for
consideration (either cash, equity or new warrants at the option of purchaser)
equal to the value of their warrants, as of that date, based on the "call"
formula, further provided that in a "go-private" transaction the consideration
will be cash. Change of control "call" will be triggered upon (i) a sale of a
controlling percentage of the outstanding equity in a single transaction or
(ii) a sale of a controlling percentage of the outstanding equity in a series
of related transactions to a single purchaser (or to affiliated purchasers).
Warrants to be valued upon "change of control" based upon equity value at that
time, the then-unexpired term of the warrants, and the stipulated volatility
factor (32.5%). The new warrants, if any, will be governed by the same terms as
the old warrants, including a change of control "call." The Change of Control
will not be triggered upon the sale by Wellspring of its shares in a public
offering.
<PAGE> 63
FOR SETTLEMENT PURPOSES ONLY
EXHIBIT B
TERMS OF WARRANTS TO BE ISSUED
IF WELLSPRING STOCK PURCHASE AGREEMENT IS NOT CONSUMMATED
AND
CLASS 4A VOTES TO ACCEPT THE PLAN
<TABLE>
<S> <C>
Percentage of fully-diluted common stock outstanding 1.8%
(total number of shares) 243,248 shares
Tenor 10 years
Strike Price ($375mm enterprise value) $27.86
Anti-dilution provisions Customary
Total Warrant Value $2,275,079
</TABLE>
Change of Control "Call" - Upon a change of control, the purchaser shall have
the option to leave the existing warrants in place or call the warrants in
exchange for consideration (either cash, equity or warrants at the option of
purchaser) equal to the value of their warrants, as of that date, based on the
"call" formula, further provided that in a "go-private" transaction the
consideration will be cash. Change of control "call" will be triggered upon (i)
a sale of a controlling percentage of the outstanding equity in a single
transaction or (ii) a sale of a controlling percentage of the outstanding
equity in a series of related transactions to a single purchaser (or to
affiliated purchasers). Warrants to be valued upon "change of control" based
upon equity value at that time, the then-unexpired term of the warrants, and
the stipulated volatility factor (32.5%). The new warrants, if any, will be
governed by the same terms as the old warrants, including a change of control
"call."
<PAGE> 64
EXHIBIT C
October 14, 1999
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, GA 30092
Attn: Mr. Alan J. Cyron,
Chief Financial Officer
Dear Mr. Cyron:
Wellspring Capital Management LLC or affiliates thereof and
certain other investors (1) (collectively, "Wellspring" or "we") commit to
acquire, through a newly formed acquisition company, pursuant to a chapter 11
plan of reorganization (the "Plan") to be proposed by Paragon Trade Brands, Inc.
("Paragon") and the Creditors' Committee (as defined below), up to 84.10% of the
common stock ("New Common Stock") of Paragon, as reorganized pursuant to the
Plan ("Reorganized Paragon"), subject to dilution and diminution pursuant to a
rights offering, for $100 million (or such greater amount as agreed upon between
Wellspring and Paragon), as adjusted on the terms and conditions described below
(as so adjusted the "Wellspring Investment"). The Plan is premised upon, among
other things, (i) the Wellspring Investment, (ii) Reorganized Paragon's issuance
of New Notes (as defined below) in the amount described below and (iii) the
raising of New Financing (as defined below) for Reorganized Paragon.
This letter amends and supersedes that certain commitment
letter from Wellspring to Paragon dated September 3, 1999. Nothing herein shall
modify, or waive Wellspring's rights under, the order of the Bankruptcy Court
presiding over Paragon's chapter 11 case (the "Bankruptcy Court") dated July 13,
1999 (the "Overbid Order"), as modified by that certain Stipulation (the
"Stipulation") executed by, among others, Paragon and Wellspring and approved by
the Bankruptcy Court on September 13, 1999.
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(1) It is contemplated that (a) certain senior officers of Paragon and (b)
Mr. Gilberto Marin, or an affiliate thereof, the principal of Paragon's
joint venture partner in certain Latin American joint ventures, will
participate in the Wellspring Investment. Neither Wellspring nor its
affiliates will provide funds to the foregoing parties to make such
investments. The participation of such parties in the Wellspring
Investment is not a condition to Wellspring Capital Management LLC's
commitment hereunder.
<PAGE> 65
2
In determining the price and structure of this transaction
(the "Proposed Transaction"), we have reviewed the business plans for Paragon
previously provided to us through the date of this letter, met with members of
the management team of Paragon, reviewed certain documents contained in
Paragon's data room, reviewed selected financial and operating data provided by
Paragon and analyzed other business information regarding Paragon and its
industry. Wellspring's commitment is premised upon Paragon's revised 1999 budget
dated September 7, 1999 (the "Revised 1999 Budget").
THIS LETTER IS NOT AN OFFER WITH RESPECT TO ANY SECURITIES OR
A SOLICITATION OF ACCEPTANCES OF A CHAPTER 11 PLAN. SUCH OFFER OR SOLICITATION
WOULD BE MADE IN COMPLIANCE WITH THE APPLICABLE PROVISIONS OF THE BANKRUPTCY
CODE AND SECURITIES LAWS.
Wellspring's commitment includes the following:
I. WELLSPRING INVESTMENT PRICE.
A. Commitment. We commit to acquire up to 84.10% of the
New Common Stock of Reorganized Paragon pursuant to the Plan based upon (x) a
$285 million Plan confirmation date enterprise valuation for Reorganized
Paragon (2) (excluding certain liabilities of Paragon, the assumption of which
by Reorganized Paragon will reduce the amount of distributable value available
under the Plan through a corresponding reduction in the face amount of the New
Notes, and subject to adjustment for assumed accrued liabilities and the Working
Capital Adjustment, as defined below), and (y) a $118.9 million purchase price
valuation for 100% of the New Common Stock (the "Wellspring Investment Price").
On the Plan's effective date (the "Effective Date"), we will make the Wellspring
Investment and receive 84.10% of the New Common Stock, subject to (a) reduction
of the dollar amount of the Wellspring Investment and dilution of the New Common
Stock to be received by Wellspring as provided under the Rights Offering (as
defined below) and (b) pro rata dilution of such New Common Stock, with all
other New Common Stock, under Sections I.B. and III.I.(c) below.
B. Mabe S.A. Amount. Subject to the Preemptive Rights
(as defined below), Wellspring shall have the right to invest up to an
additional $25 million (the portion thereof actually invested, the "Mabe S.A.
Amount") (for a total Wellspring Investment of up to $125 million) in
Reorganized Paragon. The Mabe S.A. Amount, if invested, shall be used to
exercise the option (the "Mabesa Option") to acquire up to 49% of the shares of
Groupo P.I. Mabe, S.A. de C.V. on or before the expiration of the Mabesa Option.
Provided that Wellspring invests the Mabe S.A. Amount in
- --------
(2) Subject to the alternative set forth in footnote 5 hereto and
accompanying text.
<PAGE> 66
3
Reorganized Paragon on or before 365 days after the Effective Date of the
Plan, Wellspring and those persons who exercise Preemptive Rights shall receive
additional shares of New Common Stock attributable to such amount at the
Wellspring Investment Price (a) diluting, pro rata, the percentage of New Common
Stock issuable (x) to Wellspring and (y) as Sale Consideration (defined below)
had Wellspring not invested the Mabe S.A. Amount, and (b) subject to pro rata
dilution of such New Common Stock, with all other New Common Stock, under
Section III.I.(c) below. Wellspring may make such investment (if during such 365
day period, at the Wellspring Investment Price) in any other manner permitted
under applicable law.
II. DEFINITIVE AGREEMENT. The purchase and sale of the New Common
Stock will be effected pursuant to a definitive stock purchase agreement (the
"Definitive Agreement") mutually acceptable to Paragon and Wellspring. The
parties shall use their reasonable efforts to negotiate the terms of the
Definitive Agreement, which agreement shall include the terms set forth herein
and other usual and customary terms, as promptly as practicable and in any event
no later than 10 days prior to the hearing to consider approval of the
disclosure statement for the Plan (the "Disclosure Statement Hearing"). Paragon
shall continue to provide Wellspring with information reasonably requested by
Wellspring concerning Paragon or any subsidiary or affiliate of Paragon and
shall grant representatives of Wellspring access on a reasonable basis to key
employees of Paragon or any subsidiary or affiliate of Paragon as reasonably
promptly as practicable.
A. Conditions to Wellspring's Obligation to Close the
Proposed Transaction. The Definitive Agreement will contain the following
conditions to Wellspring's obligation to consummate the Proposed Transaction:
(a) Paragon shall have filed the Plan and
disclosure statement therefor in the
Bankruptcy Court on or before October 15,
1999, and the Bankruptcy Court shall have
entered an order approving the disclosure
statement for the Plan on or before November
26, 1999 (the "Disclosure Statement").
(b) The Plan shall have been confirmed by
January 15, 2000 and shall have become
effective in accordance with its terms; the
material terms of the Plan shall include,
among other terms, substantially the same
terms as the material terms contained in
Section III hereof; and the Plan shall
otherwise be reasonably satisfactory to
Paragon and Wellspring.
<PAGE> 67
4
(c) Paragon shall have maintained its exclusive
period to file and solicit acceptances of a
plan through January 15, 2000, and Paragon
shall not have either (i) filed with the
Bankruptcy Court a chapter 11 plan
providing for the acquisition of Paragon (or
a substantial portion of its ownership or
assets) by a person or entity other than
Wellspring, (ii) sought Bankruptcy Court
approval of an acquisition of Paragon (or a
substantial portion of its ownership or
assets) other than by Wellspring, or (iii)
subject to Section V hereof, filed any
amendment or other modification to the
chapter 11 plan for Paragon dated August 24,
1999 (the "Standalone Plan") or any other
chapter 11 plan providing for an internal
reorganization of Paragon, or obtained
Bankruptcy Court approval of a disclosure
statement for the Standalone Plan.
(d) Senior management of Reorganized Paragon
shall be reasonably acceptable to Wellspring
(i.e., Reorganized Paragon shall retain at
least the senior management team identified
to Paragon by Wellspring before the date of
this letter, with the exception of Kevin
Higgins, which team presently includes
Paragon's present senior management,
including those individuals currently
covered by the TEEP Plan). (3)
(e) No material adverse change (or event or
condition that could result in a material
adverse change) shall have occurred in
Paragon's business, condition (financial or
otherwise), prospects, operations, assets or
liabilities or in financial markets
generally ("Material Adverse Change")
between September 26, 1999 and the Effective
Date.
- --------
(3) Wellspring shall use its good faith efforts to agree to mutually
acceptable employment terms with such persons on or before 10 days
before the Disclosure Statement Hearing; provided that if Wellspring
does not either (a) waive this condition II.A.(d) or (b) agree
to such employment terms on or before the date of the Disclosure
Statement hearing other than as a result of Paragon's actions,
Wellspring shall waive its right to the Termination Fee. Nothing in
this letter or any agreement between Wellspring and such members or
Paragon's senior management shall prohibit such persons from serving,
or not serving, as senior management if the Plan is not confirmed.
<PAGE> 68
5
(f) The Overbid Order and the Stipulation shall
remain in full force and effect, and shall
not have been stayed, vacated, modified or
supplemented without Wellspring's prior
consent, and Paragon shall have complied
with the terms of the Overbid Order as
modified by the Stipulation and herein. It
is a condition of this commitment that
Paragon, after consultation with the
Creditors' Committee, the Official Committee
of Equity Security Holders, P&G and K-C
(defined below), hereby reconfirms that
Wellspring has complied with conditions
under the Overbid Order as to the receipt of
the Expense Reimbursement and shall be
entitled to receive the Expense
Reimbursement subject to and in accordance
with the terms of the Overbid Order.
Wellspring's rights with respect to the
Termination Fee subject to and in accordance
with the terms of the Overbid Order and the
Stipulation shall be subject to and are
modified by Section V hereof.
(g) Paragon shall have operated its business in
the ordinary course consistent with past
practices and substantially consistent with
the Revised 1999 Budget through the
Effective Date.
(h) All conditions precedent to closing the New
Financing (other than the occurrence of the
Effective Date) shall have been satisfied or
waived and the New Financing shall have been
consummated in accordance with the material
terms contained in the Financing Commitment
Letter (as defined below). The final
documentation with respect to the New
Financing shall otherwise be satisfactory to
Paragon and Wellspring in all material
respects.
(i) The final documentation with respect to the
New Notes and Monetization (defined below),
if any, shall otherwise be satisfactory to
Paragon and Wellspring in all material
respects.
(j) The orders of the Bankruptcy Court dated
August 6, 1999 approving the settlements
(the "P&G Settlement" and the "K-C
Settlement", respectively) of The Procter &
Gamble Company ("P&G") and Kimberly-Clark
Corporation ("K-C") claims (including the
licenses provided for therein)
<PAGE> 69
6
shall not be stayed or vacated, or modified
or supplemented (unless agreed to by Paragon
and Wellspring), and shall be final. The
August 6, 1999 orders of the Bankruptcy
Court approving the P&G Settlement and the
K-C Settlement (if not already final)
shall be deemed final for purposes of this
letter upon the occurrence of the Effective
Date.
(k) The P&G Settlement and the K-C Settlement
(including the licenses provided for
therein) shall have been extended through
the Effective Date and shall be in full
force and effect.
(l) Paragon Trade Brands (Canada), Inc. ("PTB
Canada") shall have retained sufficient cash
to satisfy its potential liabilities in the
reasonable determination of Wellspring and
Paragon. It is understood and agreed that
PTB Canada shall remit any excess cash to
Paragon for distribution pursuant to the
Plan.
(m) Paragon shall not have breached individually
or in the aggregate in any material respect
any of the material representations,
warranties or covenants to be given by
Paragon in the Definitive Agreement.
(n) Receipt of all required third party
approvals (including Hart-Scott Rodino,
non-debtor consents to assumption of
non-exclusive patent licenses and of
agreements with "change in control"
provisions, to the extent required under
section 365 of the Bankruptcy Code, and
no-action letter on Rights
Offering/securities issuance).
(o) Such other conditions as may be agreed to by
the parties as set forth in the Definitive
Agreement.
B. Representations and Warranties. The Definitive
Agreement will provide that Paragon will make customary representations and
warranties for transactions of this type, including, without limitation,
accuracy of financial statements provided; no material actions taken or payments
received out of the ordinary course between June 27, 1999 and the date of this
letter with the exception of the Macon equipment line sale to Groupo P.I. Mabe,
S.A. de C.V.; no Material Adverse Change; ownership of property; accuracy of
disclosure; corporate existence; corporate power and authority; subsidiaries;
compliance with laws; to Paragon's knowledge, no pending or
<PAGE> 70
7
threatened claims which, if successful, would result in a Material Adverse
Change, including, without limitation, no pending or threatened claims against
Paragon or, to Paragon's knowledge, Walmart, which if successful would
materially interfere with Paragon's use of any trademark necessary to the
performance of its White Cloud agreement with Walmart; to the knowledge of
Paragon, no pending or threatened claim against any third party which, if
successful, would in the reasonable business judgment of Paragon evidence a
material risk with respect to Paragon's use of any trademark necessary to the
performance of its White Cloud agreement with Walmart; no conflict with laws or
contractual obligations.
C. Executory Contracts and Unexpired Leases. The
Definitive Agreement will provide that Wellspring will have until 30 days before
the hearing on confirmation of the Plan (the "Confirmation Hearing") to
designate the previously nonassumed executory contracts and unexpired leases
that it wishes Paragon to assume, in addition to the executory contracts and
unexpired leases that Paragon shall have identified to Wellspring on or before
35 days before the Confirmation Hearing that it intends to assume.(4) Wellspring
understands that Paragon intends to reject all non-designated, nonassumed
executory contracts and unexpired leases.
III. PLAN. Unless Paragon and Wellspring agree otherwise, the Plan
will include the following terms:
A. Classification and Treatment of Claims and Interests
(a) Unclassified Claims (not entitled to vote)
<TABLE>
<S> <C>
Administrative Claims: On the Effective Date, or as soon thereafter
as practicable, each holder of an Allowed
Administrative Claim will receive payment in
full in cash of the unpaid portion of such
Allowed Administrative Claim.
DIP Financing Claims: On the Effective Date, or as soon
thereafter as practicable, the holders
thereof will receive payment in full in cash
of the Allowed DIP Financing Claim.
</TABLE>
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(4) Cure payments in respect of these contracts shall not be considered
"Wellspring Designated Expenses" for purposes of determining the "Cash
Excess" or "Cash Deficit" (each as defined below).
<PAGE> 71
8
Priority Tax Claims: At the option of Paragon, each holder
of an Allowed Priority Tax Claim
will receive either (i) payment in full
(in cash) on the Effective Date or as
soon as thereafter as practicable, or
(ii) payment over a six year period
from the date of assessment as
provided in section 1129(a)(9)(C) of
the Bankruptcy Code with interest
payable at the federal judgment
statutory rate or at such other rate
agreed to by Paragon and the holder
of such claim or determined by the
Bankruptcy Court.
(b) Unimpaired Claims (deemed to accept)
Class 1 - Other On the Effective Date, or as soon
Priority Claims: thereafter as practicable, each holder
of an Allowed Other Priority Claim
will receive payment in full in
cash of such Allowed Other Priority
Claim.
Class 2 - Secured At the option of Paragon, Paragon
Claims: will either (i) reinstate each Allowed
Secured Claim by curing all
outstanding defaults with all legal,
equitable, and contractual rights
remaining unaltered, (ii) pay in
full (in cash) such Allowed Secured
Claim on the Effective Date, or as
soon thereafter as practicable, or
(iii) satisfy such Allowed Secured
Claim by delivering to the claimant
the collateral securing such claim.
<PAGE> 72
9
(c) Impaired Claims (entitled to vote)
Class 3 - Convenience On the Effective Date, or as soon
Claims: thereafter as practicable, Paragon and
each holder of an Allowed
Convenience Claim (consisting of an
Allowed Claim not in excess of
$5,000, or voluntarily reduced to
such amount by the holder of the
claim), will receive payment of a
specified percentage (as determined
by Paragon and approved by the
Bankruptcy Court) of the face
amount of such Claim in cash. No
claimant may have more than one
Allowed Convenience Claim.
Class 4 - General On the Effective Date, or as soon
Unsecured Claims: thereafter as practicable, the holders
Banks, Trade, of Allowed General Unsecured
Kimberly-Clark and Claims (banks, trade, K-C and P&G
Procter & Gamble and and other) will receive a pro rata
Other: share of the Sale Consideration
(defined below).
Notwithstanding the foregoing, it is
currently contemplated that the
approximately $4 million
prepetition trade claim of PMI
shall be satisfied by an offset of
such claim against the prepetition
principal and/or accrued interest
owed under the PMI notes to Paragon
equal to the principal amount of
New Notes that would be issued to
PMI in respect of such claim as a
general unsecured claim.
<PAGE> 73
10
Class 5 - Common On the Effective Date, or as soon
Stock Interests (inclu thereafter as practicable, the holders
ding any Allowed of Allowed Common Stock Interests
Claims subordinated to will receive, pro rata, the portion of
the level of common the Sale Consideration, if any, not
stock under sec- distributed to holders of claims in
tion 510(b) of the Class 4.
Bankruptcy Code)
Class 6 - Common On the Effective Date all Common
Stock Options Stock Options and any other equity
interests not included in Class 5 will
be canceled.
B. Plan Definitions. As used herein and in the Plan, the
following terms shall have the following meaning:
"SALE CONSIDERATION" consists of (a) $100 million cash, less the sum of
(i) amounts distributed to Class 3 and (ii) cash paid and/or cash distributions
foregone by Classes 4 and 5 in connection with their subscribing to the Rights
Offering, (b) $160 million of New Notes in substantially the form set forth in
Exhibit A hereto, (5) subject to the Monetization and the Note Adjustment, (c)
15.9% of the New Common Stock, (d) Rights to participate in the Rights Offering,
(e) the Warrants, and (f) assignment, in trust, of Paragon's rights to proceeds,
net of any setoffs, of any of Paragon's prepetition claims against Weyerhaeuser.
"WARRANTS" shall mean warrants to purchase up to 5% of New Common Stock
with a strike price based upon an enterprise valuation for Reorganized Paragon
of $400 million, subject to dilution under sections I.B. and III.I(c) hereof.
The warrants
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(5) Alternatively, Reorganized Paragon would issue $150 million of New
Notes (subject to the Monetization and the Note Adjustment) in
substantially the form set forth in Exhibit A hereto, with the
exception that the interest rate for such New Notes shall not be the
rate provided in Exhibit A but, instead, shall be the prevailing market
rate for high-yield notes rated "B" on the business day prior to the
Effective Date, as reported by Salomon Smith Barney, rounded down to
the nearest 1/8th. In this alternative, the Plan would be premised upon
a $275 million Plan confirmation date enterprise valuation for
Reorganized Paragon (subject to the adjustments described in Section
I.A.). Paragon, after consultation with the Creditors Committee, P&G,
K-C and the Equity Committee, shall elect whether to accept this
alternate form of the New Notes on or prior to the tenth day prior to
the Disclosure Statement Hearing.
<PAGE> 74
11
shall expire on the seventh anniversary of the Effective Date and
shall have customary dilution and anti-dilution provisions.
"NOTE ADJUSTMENT" shall mean that the principal amount of the New Notes
shall be adjusted (upward or downward, as applicable) as follows:
1. The principal amount of the New Notes shall be reduced by the
amount that the Cash Deficit, defined below, exceeds $10
million.
2. If the Cash Deficit is less than $4 million, then the
principal amount of the New Notes shall be increased by an
amount equal to $4 million minus the Cash Deficit.
3. If the Cash Deficit is greater than or equal to $4 million but
less than or equal to $10 million there will be no Note
Adjustment.
4. The principal amount of the New Notes shall be increased by
the amount of the Cash Excess, defined below, plus $4 million.
"CASH DEFICIT" shall mean the amount, if any, by which the amount of (a)
New Financing costs and other closing expenses (not to exceed $2 million),
Monetization costs, the amount of any proceeds of sales or other dispositions of
assets out of the ordinary course consummated after the date of this letter
(with the exception of the Macon equipment line sale to Groupo P.I. Mabe, S.A.
de C.V.), reductions in capital expenditures from the amount included in the
Revised 1999 Budget, the amount of any income tax refunds not included in the
Revised 1999 Budget, any payments after the date of this letter in respect of
indebtedness of PMI to Paragon, and Allowed Administrative Claims (exclusive,
however, of the Reorganized Paragon Assumed Liabilities listed on Schedule 1
hereto), including without limitation all bankruptcy-related professional
fees, (6) "confirmation bonuses," and paid and estimated pro rated 1999 tax
liabilities, (b) Priority Tax Claims and Other Priority Claims, and (c) Priority
Claims and Class 2 Claims (secured) paid in cash or reinstated by Reorganized
Paragon, and, in the case of the approximately $4 million PMI claim, set off as
provided in Section III.A.(c) hereof ((a), (b) and (c), above, collectively, the
"Cash Deductions") exceeds cash available for distribution on the Effective
Date.
"CASH EXCESS" shall mean the amount, if any, by which the amount of cash
available for distribution on the Effective Date exceeds the Cash Deductions.
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(6) Non-ordinary course professionals shall submit an estimate of their total
unpaid fees and expenses at least 10 days prior to the date of the
Confirmation Hearing.
<PAGE> 75
12
The Cash Deficit and Cash Excess shall be adjusted upward or downward, as
the case may be, by (1) the amount by which the liabilities listed on Schedule 2
hereto are greater or less on the Effective Date than the amounts set forth on
Schedule 2 and (2) any change in Paragon's Net Working Capital from June 27,
1999. For purposes of this adjustment, "Net Working Capital" shall be defined as
Accounts Receivable plus Inventories less Accounts Payable (including checks
issued but not cleared) as determined in accordance with GAAP as consistently
applied.
C. Monetization. Wellspring shall use its best efforts
(which shall not require Wellspring to commit or expend its own funds) to obtain
third party financing for Reorganized Paragon if such third party financing is
available on commercially reasonable terms that (i) will not, among other
things, materially diminish the value of the New Common Stock and (ii) will not
be materially different than the terms of the New Notes, in lieu of all or a
portion of the New Notes (the "Monetization"), in each case in the determination
of Paragon and Wellspring. Any Monetization shall be described in the form of a
binding commitment not later than 10 days prior to the Confirmation Hearing.
Reorganized Paragon shall distribute the net cash proceeds of such Monetization,
if any, as Sale Consideration on the Effective Date or as soon thereafter as
practicable in place of New Notes with a principal amount equal to such net cash
proceeds. The Monetization shall not delay the occurrence of the Effective Date
if all other conditions to the Effective Date are satisfied.
D. Rights Offering. Each holder of an Allowed Claim in
Class 4, and, depending on the final terms of the Plan, of an Allowed Interest
in Class 5, shall have the opportunity to indicate on its ballot its desire to
exercise rights ("Rights") to subscribe to a rights offering at the Wellspring
Investment Price (the "Rights Offering"), which offering shall be on standard
terms and shall be for up to 35% (comprising up to 15.9% of the New Common Stock
to be otherwise distributed to Class 4 and/or Class 5, and up to 19.10% of the
New Common Stock to be otherwise received by Wellspring) of the New Common
Stock, in each case prior to (a) the issuance of any additional shares to
Wellspring in respect of any Mabe S.A. Amount and (b) dilution under Section
III.I.(c) below. Wellspring shall in all events retain the right to purchase, at
the Wellspring Investment Price, at least 60% of the New Common Stock after
giving effect to the Rights Offering and the issuance of any Warrants but prior
to dilution by any additional shares issued to Wellspring in respect of the Mabe
S.A. Amount and dilution under Section III.I.(c). Each holder of an Allowed
Claim in Class 4 and, depending on the final terms of the Plan, of an Allowed
Interest in Class 5, shall have the right to irrevocably elect to offer for
subscription its allocable portion of the 15.9% of the New Common Stock in the
Rights Offering (such shares as actually subscribed for in the Rights Offering,
"Electing Shares"). Any Electing Shares shall be subscribed for first in the
Rights Offering before any New Common Stock allocable to Wellspring shall be
subscribed for in the Rights Offering. The amount of the Wellspring Investment
shall be reduced dollar for dollar by the aggregate amount of cash paid and/or
cash distributions
<PAGE> 76
13
under the Plan foregone by members of Classes 4 and 5 participating in the
Rights Offering in subscribing for Wellspring's New Common Stock. The Rights
will be transferable. Each holder of an Allowed Claim or Allowed Interest who
exercises Rights, and any transferee of Rights, may not hold more on the
Effective Date than the greater of (i) 10% of the New Common Stock and (ii) such
percentage of the New Common Stock attributable to their Claim or Interest
(without the acquisition of additional Rights, Claims or Interests from third
parties) upon the exercise of such Rights attributable to their Claims and
Interests and receipt of the New Common Stock distributable to such holder under
the Plan.
E. Conditions to the Confirmation and/or Effective Date
of Plan:
(a) Confirmation of the Plan on or before
January 15, 2000.
(b) All conditions precedent under the
Definitive Agreement other than the
occurrence of the Effective Date shall have
been satisfied or waived as set forth
therein.
(c) The Confirmation Order shall be in a form
satisfactory to Paragon and Wellspring, in
full effect, and unstayed.
(d) The Effective Date shall have occurred
within 30 days following the Confirmation
Date.
(e) Completion of the Rights Offering.
(f) All conditions precedent to closing the New
Financing (other than the occurrence of the
Effective Date) shall have been satisfied or
waived and the New Financing shall have been
consummated.
(g) Paragon and Wellspring shall each have
approved the form and substance of each of
the amended certificate of incorporation,
the amended by-laws, the New Common Stock,
the Rights, the New Notes, the Warrants, any
registration rights agreements, the
Management Employment Agreements (as defined
below) and the Management Incentive Plan (as
defined below).
<PAGE> 77
14
F. Registration and Other Rights and Listing of New
Common Stock. Reorganized Paragon will use reasonable efforts to have the New
Common Stock listed on a nationally recognized market or exchange. The New
Common Stock to be received by holders of Allowed Claims and Interests will also
be subject to one demand and piggyback registration rights on customary terms
for the benefit of holders whose resale of such common stock would be limited or
restricted by federal securities law. There shall be no "shelf" registration.
G. Releases, Indemnification and D&O Insurance. The Plan
shall provide for general releases from Paragon and Reorganized Paragon for the
benefit of all current directors and officers. In addition, all indemnification
provisions currently in place for directors and officers (whether in Paragon's
bylaws, contractual or otherwise) shall survive confirmation of the Plan and
shall not be impaired thereby. Paragon shall also obtain tail coverage for a
period of six years under its existing or a comparable directors and officers
policy (the cost of such coverage, the "D&O Insurance Cost").
H. Other Plan Provisions. In addition to the foregoing
provisions relating to classification and treatment of claims and interests, the
Plan shall contain provisions appropriate under the circumstances concerning,
among other things: (i) disputed claims and reserves therefor, (ii) the
assumption or rejection, as the case may be, of executory contracts and
unexpired leases (consistent with this letter), (iii) inability to amend or
modify the Plan's provisions relating to Wellspring or the Proposed Transaction
without Wellspring's consent and (iv) retention of jurisdiction by the
Bankruptcy Court for certain purposes. The Plan shall also contain the
conditions to the Effective Date described in III.E., above.
I. Management of Reorganized Paragon.
(a) Board of Directors. The Board of Directors
of Reorganized Paragon shall consist of at least three persons affiliated with
Wellspring, at least one member of senior management and between two and four
persons (the "Independent Directors") who are unaffiliated with either
Wellspring or Paragon or an affiliate of Paragon. The Independent Directors will
be appointed subject to the consent of the Creditors' Committee (which consent
shall not be unreasonably withheld).
(b) Senior Management. Wellspring contemplates
that Reorganized Paragon will offer employment to substantially all of Paragon's
present senior management pursuant to existing or superseding employment
contracts (the "Management Employment Agreements"). See Section II.A.(b) hereof.
<PAGE> 78
15
(c) Management Incentive Plan. The Plan shall
provide for the establishment of an equity incentive plan for members of
Reorganized Paragon's management on terms which are otherwise mutually
acceptable to Paragon and Wellspring in substantially the form set forth in
Exhibit B hereto.
J. Preemptive Rights. Reorganized Paragon's
certificate of incorporation will provide that holders of New Common Stock will
have the right to participate on a pro rata basis in any offering of New Common
Stock by Reorganized Paragon on the same terms and conditions as Wellspring,
including, without limitation, with respect to the Mabe S.A. Amount (the
"Preemptive Rights"), provided that Wellspring shall have no obligation to
invest the Mabe S.A. Amount or any portion thereof.
IV. NEW FINANCING. Wellspring and Paragon shall obtain on
or prior to October 22, 1999 mutually acceptable commitments and/or agreements
(the "Financing Commitment Letter") from a financial institution with respect to
a revolver/working capital facility (not for purposes of the Monetization and
which would be undrawn on the Effective Date except for purposes of funding the
Cash Deficit) of at least $75 million (the "New Financing") that would be
available to Reorganized Paragon under either the Plan or the Standalone Plan
(and Wellspring will waive its Expense Reimbursement and Termination Fee if the
Financing Commitment Letter is not so obtained except as a result of Paragon's
actions; provided the Financing Commitment Letter must be acceptable to Paragon
after consultation with the Creditors Committee, P&G, K-C and the Equity
Committee). Paragon will be responsible for paying the financial institution's
reasonable transaction costs/closing expenses in connection with the New
Financing. Any commitment in substantial conformity with the financing
commitment dated October 13, 1999 provided to Paragon by Citicorp USA, Inc.
shall meet this requirement.
V. PLAN ALTERNATIVE. The parties acknowledge that the
Plan shall be an amended version of the Standalone Plan, which shall provide for
two alternative forms of distribution thereunder to holders of Allowed General
Unsecured Claims and, potentially, holders of Allowed Common Stock Interests.
The Plan shall provide that holders of Allowed General Unsecured Claims and,
potentially, Allowed Common Stock Interests, shall receive the Sale
Consideration upon consummation of, and in accordance with the terms of, the
Plan and the Definitive Agreement. The Plan shall further provide that such
holders shall receive the alternative form of distribution set forth therein if
and only if (a) the Definitive Agreement is not executed, or (b) either this
letter or the Definitive Agreement is terminated or not consummated for any
reason. Paragon and Wellspring agree that each party shall negotiate in good
faith concerning the terms of the Definitive Agreement and the Plan embodying
the terms of this letter. Paragon and Wellspring further agree that if either
this letter or the Definitive Agreement are terminated for any reason other than
(a) Wellspring's failure to perform its material obligations under either this
letter or the Definitive Agreement (including Wellspring's inability to
consummate
<PAGE> 79
16
the Definitive Agreement), (b) the occurrence of a Material Adverse Change or
(c) notwithstanding the reasonable efforts of Paragon, the Plan is not confirmed
by the Bankruptcy Court or not consummated due to, as applicable, (i) failure to
obtain the requisite votes accepting the Plan or (ii) the Plan's failure to
comply with the provisions of the Bankruptcy Code, Wellspring shall be entitled
to (x) the remedy of specific performance or (y) payment of a $2 million
Termination Fee as an administrative claim, which shall be in lieu of any
Termination Fee provided under the Overbid Order and the Stipulation. Wellspring
shall not otherwise have the right to a Termination Fee arising from the
confirmation of a chapter 11 plan providing for an internal reorganization of
Paragon.
VI. TERMINATION. This letter may be terminated by Wellspring at
any time upon written notice to Paragon if, through no material fault of
Wellspring, Paragon shall not have filed the Plan by October 15, 1999 or any of
the other conditions set forth in Section II.A. have not occurred. This letter
may be terminated by Paragon subject only to Paragon's obligations under the
Overbid Order, as modified hereunder (including Section V) and by the
Stipulation, and Overbid Procedures. Upon any such termination, any obligations
under this letter will terminate and no party shall have any liability
whatsoever to any other party; provided, however, that notwithstanding any such
termination (i) this Section VI shall remain in full force and effect, and no
party shall be relieved of liability for any breach and (ii) in addition,
Paragon shall remain liable for payment of the Expense Reimbursement and
Termination Fee to the extent required under the terms of the Overbid Order as
modified hereunder and by the Stipulation.
VII. MISCELLANEOUS. The terms set forth in this letter are a part
of a comprehensive agreement, each element of which is an integral aspect of the
Proposed Transaction and, as such, are non-severable.
VIII. GOVERNING LAW. This letter shall be governed by and construed
in accordance with the internal laws of the State of New York and any applicable
provision of the Bankruptcy Code, without regard to the principles of conflict
of laws that would provide for application of another law.
IX. CONCERNING REMEDIES. Each of the parties acknowledges and
agrees that no failure or delay in exercising any right, power or privilege
hereunder will operate as a waiver thereof, nor will any single or partial
exercise thereof preclude any other right, power or privilege hereunder.
<PAGE> 80
17
X. PRESS RELEASES. DISCLOSURE. The parties will cooperate in the
issuance of any press releases or otherwise in making any public statements with
respect to the Proposed Transaction. Neither Wellspring nor Paragon will issue
any press release or other public statement regarding the Proposed Transaction
without the other party's prior written consent, which consent shall not be
unreasonably withheld. Wellspring acknowledges and agrees that Paragon may
provide copies of this letter and attachments to the Creditors' Committee, P&G,
K-C and the Equity Committee, other parties in interest in Paragon's chapter 11
case, and those parties Paragon determines it is necessary to provide copies to
in connection with the Auction described in the Overbid Order or as otherwise
necessary in connection with its bankruptcy case. Paragon also shall be entitled
to file copies with the Bankruptcy Court or as otherwise required by law.
XI. ENTIRE AGREEMENT. AMENDMENTS. COUNTERPARTS. This letter,
including all Exhibits and Schedules hereto, which are incorporated herein and
made a part hereof by reference, sets forth the entire agreement among the
parties with respect to the subject matter hereof, with the exception of the
Overbid Procedures as approved by the Overbid Order as modified by the
Stipulation, and may be amended only by a writing executed by Wellspring and
Paragon. This letter may be executed in counterparts, each of which when take
together shall constitute an original of this letter.
It is understood that this letter does not contain all matters
upon which agreement must be reached in order for the Proposed Transaction to be
consummated. Notwithstanding the foregoing, the provisions of Sections VI and
XII of this letter and the terms of the Overbid Procedures, and Overbid Order,
as modified by the Stipulation and hereunder, are acknowledged and agreed to be
fully binding on the parties hereto.
XII. AUCTION. Each of Paragon and the Creditors' Committee agree
that (i) Wellspring's bid is the best bid and that the Bid Deadline (as defined
in the Overbid Order) has now passed and the Auction (as defined in the Overbid
Order) is concluded and (ii) that they shall not seek any higher or better offer
unless this letter or the Definitive Agreement are terminated according to their
terms.
Wellspring Capital Management LLC
By:
---------------------------------
Title:
<PAGE> 81
18
Agreed:
Paragon Trade Brands, Inc.
By:
-------------------------------------------
Title:
Agreed to as to Paragraph XII
Official Committee of Unsecured Creditors
By:
-------------------------------------------
Title:
<PAGE> 82
19
SCHEDULE 1
REORGANIZED PARAGON ASSUMED LIABILITIES
1. Pre-Effective Date accrued ordinary course operating and working
capital expenses and accounts payable (as provided in Revised 1999
Budget), with the exception of:
a. One-half of Defined Contribution Plan Payable
b. One-half of Incentive PIP (1999 Bonus)
c. Any modification of (a)-(b)
2. Administrative Claims or expenses incurred out of the ordinary course
of the Revised 1999 Budget at Wellspring's option or insistence
("Wellspring Designated Expenses")
3. The D&O Insurance Cost
- ------------------------------------------------------------------------
The aggregate amount of (a)-(b) shall not exceed $2.7 million.
<PAGE> 83
20
SCHEDULE 2
The Cash Deficit and Cash Excess shall be adjusted upward or downward, as the
case may be, by the amount by which the following accrued liabilities are
greater or less on the Effective Date than the amounts set forth opposite such
liabilities:
1. Accrued payroll, payroll taxes and related liabilities (including PTB
Canada): $1.6 million
2. Accrued P&G Royalty: $5.3 million
3. Accrued K-C Royalty: $3 million
<PAGE> 84
EXHIBIT D
PRINCIPAL TERMS OF RIGHTS
Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to such terms in the Plan.
In accordance with these Procedures, the Wellspring Rights
Offering (also referred to as the "Rights Offering") will permit each holder of
(a) a Class 3A Claim (each an "Electing Holder") whose Claim is Allowed for
purposes of voting on the Plan (an "Allowed Class 3A Rights Claim") as of the
Voting Record Date to elect to subscribe up to an amount equal to its Pro Rata
Share (as defined below) of all Rights (subject to the Exercise Limitation, as
defined below) and (b) if the Rights are not fully subscribed by the Electing
Holders, a Class 4 Interest (each a "Shareholder Electing Holder") as of the
Voting Record Date to elect to subscribe up to an amount equal to its
Shareholder Pro Rata Share (as defined below) of all Rights not subscribed to by
the Electing Holders (subject to the Shareholder Exercise Limitation, as defined
below). The Rights, which will not be evidenced by certificates, shall consist
of the right to purchase up to 35% of the issued and outstanding shares of New
Common Stock (as of the Effective Date). Each Right shall represent the right to
purchase one share of New Common Stock for a purchase price equal to $10.00 per
share of New Common Stock (the "Rights Exercise Price"). As used herein "Pro
Rata Share" means a fraction, the numerator of which is an Electing Holder's
Allowed Class 3A Rights Claim, and the denominator of which is all Allowed Class
3A Rights Claims.
Any Rights not subscribed to in connection with the Wellspring
Rights Offering shall be canceled and of no further force and effect, and the
shares of New Common Stock subject to purchase pursuant to such Rights shall be
delivered to Wellspring in accordance with the provisions of the Wellspring
Stock Purchase Agreement.
(i) Procedures for Exercise of Rights by Holders of
Allowed Class 3A Rights Claims
Concurrently with the solicitation of acceptances to the Plan,
the Debtor will distribute to each holder of an Allowed Class 3A Rights Claim as
of the Voting Record Date a form of Exercise Notice (the "Exercise Notice"),
together with certain accompanying instructions (the "Exercise Instructions"),
which Exercise Notice shall contain a section enabling each such holder to
indicate how many Rights it is willing to purchase (the "Requested Rights") and
stating the amount of the Rights Exercise Price;
<PAGE> 85
Appendix 4-2
provided, however, that no Person may (x) purchase or exercise Rights in excess
of its Pro Rata Share or (y) acquire Rights by way of transfer such that after
giving effect to the exercise of all Rights properly subscribed to such Person,
whether acquired by transfer or pursuant to distribution under the Plan, such
Person would hold greater than 10% of the New Common Stock (the "Exercise
Limitation"). (1)
In order for an exercise of Rights to be valid and effective,
the Electing Holder or its transferee must deliver to the Debtor (i) at the
address set forth in the Exercise Instructions a properly completed and duly
executed Exercise Notice (including the Electing Holder's or its transferee's
tax identification number) and (ii) except in the case of an Electing Holder (an
"Allowed Claims Electing Holder") that holds an Allowed 3A Claim for
distribution and voting purposes as of November 15, 1999 or such later date
agreed to prior to the Plan Voting Deadline, either (x) a certified check
delivered to the Debtor's address specified in the Exercise Instructions or (y)
a wire transfer of immediately available funds to the Debtor's account specified
in the Exercise Instructions, in each case, in an amount equal to (x) 10% times
(y) the Rights Exercise Price times the number of the Requested Rights (the
"Deposit"). The Deposit shall be held in an interest bearing escrow account
pending completion of the Wellspring Rights Offering. Allowed Claims Electing
Holders shall not be required to provide a Deposit.
The Exercise Notice and certified check or wire transfer
(where applicable) must be received at the specified address or account by no
later than 5:00 p.m. (New York City time) on the Plan Voting Deadline for an
exercise of Rights to be valid and effective. After the receipt of the Exercise
Notices at the designated address, the Proponents in their reasonable discretion
shall determine pursuant to these Procedures which Persons are entitled to
participate in the Wellspring Rights Offering and how many Rights each Person is
entitled to receive in accordance with these Procedures.
Promptly following the Plan Voting Deadline, the Debtor shall
provide to each Electing Holder or its transferee whose Exercise Notice was
properly completed, duly executed and timely received, and who has otherwise
complied with these Procedures, a written notice of the acceptance of its
Exercise Notice and notice of the date on which the balance of the Purchase
Price (as defined below) is required to be received by the Debtor from such
Electing Holder or its transferee (such notice, a "Notice of Acceptance"). The
Notice of Acceptance shall specify the number of Rights that were validly and
effectively exercised by such Electing Holder or its transferee, the
- --------
(1) The foregoing Exercise Limitation shall also apply such that no Person
may acquire Rights by way of transfer such that after giving effect to
the exercise of all Rights properly subscribed to such Person, whether
acquired by transfer or pursuant to distribution under the Plan, such
Person would hold greater than 10% of the New Common Stock.
<PAGE> 86
Appendix 4-3
number of shares of New Common Stock that will be purchased upon such exercise
of such Rights, and, except in the case of Allowed Claim Electing Holders, the
remaining amount of the Purchase Price to be paid by the Electing Holder or its
transferee. The number of Rights validly and effectively exercised by all
Electing Holders or its transferees is referred to herein as the "Class 3A
Subscribed Rights."
The payment to be made by each Electing Holder or its
transferee who is required to pay a Cash Purchase Price for its share of the
Subscribed Rights shall be in an amount equal to the product of the Rights
Exercise Price and the number of Class 3A Subscribed Rights indicated in the
Notice of Acceptance for such Electing Holder or its transferee (the "Purchase
Price") less the sum of (x) the amount of such Electing Holder's or their
transferee's Deposit plus (y) any interest actually earned on such Deposit, and
shall be due on the date specified in the Notice of Acceptance (such date, the
"Payment Date"). Payment of the Purchase Price shall be made by either certified
check delivered to the Debtor's address specified in the Notice of Acceptance or
by a wire transfer of immediately available funds to the Debtor's account
identified in the Notice of Acceptance, in each case so as to be received by the
Debtor no later than 5:00 p.m. (New York City time) on the Payment Date. The
Purchase Price shall be held in an interest bearing escrow account by the Debtor
until the Effective Date. On the Effective Date, all monies shall be released to
Reorganized Paragon from such escrow and, on or as soon thereafter as is
practical in accordance with the distribution provisions contained in the Plan,
each Electing Holder or its transferee shall receive that number of shares of
New Common Stock purchased by it pursuant to these Procedures in connection with
the Wellspring Rights Offering.
Each Allowed Claim Electing Holder shall make payment for its
share of the Class 3A Subscribed Rights in an amount equal to the product of the
Rights Exercise Price and the number of Subscribed Rights indicated in the
Notice of Acceptance of such Allowed Claim Electing Holder, and such payment
shall be in the form of an offset against the Cash distribution to be received
by such Allowed Claim Electing Holder under the Plan.
All transferees of Allowed Claim Electing Holders shall be
required to pay a Cash Purchase Price and provide the Deposit.
In the event that any Electing Holder or its transferee who is
required to deliver the balance of the Purchase Price to the Debtor shall fail
to deliver the balance of its Purchase Price to the Debtor on or before the
Payment Date, such Electing Holder or its transferee shall be deemed to have
waived its right to participate in the Wellspring Rights Offering and the
Debtor's acceptance of its Exercise Notice shall be automatically rescinded and
of no further force and effect without the need for any further notice, and such
Electing Holder's or its transferee's Deposit shall be irrevocably retained by
Reorganized Paragon. In the event the Court does not confirm the Plan or the
Effective
<PAGE> 87
Appendix 4-4
Date does not occur, the Wellspring Rights Offering described herein
shall be automatically rescinded without notice and of no further force and
effect, and any monies received by the Debtor in connection with the Wellspring
Rights Offering, and any interest actually earned thereon, shall promptly be
returned to the applicable Electing Holders or its transferees. There will be no
further adjustments to the amounts provided in the Acceptance Notices.
All determinations as to the proper completion, due execution,
timeliness, eligibility, compliance with these Procedures and other matters
affecting the validity or effectiveness of any attempted exercise of any Rights
shall be made by the Proponents, whose determination shall be final and binding.
If any Exercise Notice is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
executing the Exercise Notice and, unless waived by the Proponents, proper
evidence satisfactory to the Proponents of such person's authority to so act
must be submitted. The Proponents in their reasonable discretion may waive or
reject the attempted exercise of any Rights subject to any such defect or
irregularity. Deliveries required to be received by the Proponents in connection
with an attempted exercise of Rights will not be deemed to have been so received
or accepted until actual receipt thereof has occurred at the address set forth
in the Exercise Notice and any defects or irregularities shall have been waived
or cured within such time as the Proponents may determine in their reasonable
discretion. Neither the Proponents, Reorganized Paragon nor any other Person
will have any obligation to give notice to any Electing Holder of any defect or
irregularity in connection with any attempted exercise thereof or incur any
liability as a result of any failure to give any such notice.
(ii) Procedures for Exercise of Rights by Holders of Class 4A
Interests
Concurrently with the solicitation of acceptances to the Plan,
the Debtor will also distribute to each holder of an Allowed Class 4A Interest
as of the Voting Record Date a form of Exercise Notice (the "Shareholder
Exercise Notice"), together with certain accompanying instructions (the
"Shareholder Exercise Instructions"), which Shareholder Exercise Notice shall
contain a section enabling each such holder to indicate how many Rights it is
willing to purchase (the "Shareholder Requested Rights") and stating the amount
of the Rights Exercise Price; provided, however, that no Person may purchase or
exercise Rights in excess of the Shareholder Exercise Limitation (as defined
herein). For purposes of these Procedures, "Shareholder Exercise Limitation"
means that no Person may exercise Rights such that after giving effect to the
exercise of all Rights properly subscribed to such Person, whether acquired by
transfer or pursuant to distribution under the Plan, such Person would hold
greater than 10% of the New Common Stock.
<PAGE> 88
Appendix 4-5
In order for an exercise of Rights to be valid and effective,
the Shareholder Electing Holder or its transferee must deliver to the Debtor (i)
at the address set forth in the Shareholder Exercise Instructions a properly
completed and duly executed Shareholder Exercise Notice (including the
Shareholder Electing Holder's or its transferee's tax identification number) and
(ii) either (x) a certified check delivered to the Debtor's address specified in
the Shareholder Exercise Instructions or (y) a wire transfer of immediately
available funds to the Debtor's account specified in the Shareholder Exercise
Instructions, in each case, in an amount equal to (x) 10% times (y) the Rights
Exercise Price times the number of the Shareholder Requested Rights (the
"Shareholder Deposit"). The Shareholder Deposit shall be held in an interest
bearing escrow account pending completion of the Wellspring Rights Offering.
The Shareholder Exercise Notice and certified check or wire
transfer must be received at the specified address or account by no later than
5:00 p.m. (New York City time) on the Plan Voting Deadline for an exercise of
Rights to be valid and effective. After the receipt of the Shareholder Exercise
Notices at the designated address, the Proponents in their reasonable discretion
shall determine pursuant to these Procedures which Persons are entitled to
participate in the Wellspring Rights Offering and how many Rights each Person is
entitled to receive in accordance with these Procedures.
Promptly following the Plan Voting Deadline, the Debtor shall
provide to each Shareholder Electing Holder or its transferee whose Shareholder
Exercise Notice was properly completed, duly executed and timely received, and
who has otherwise complied with these Procedures, a written notice of the
acceptance of its Shareholder Exercise Notice and notice of the date on which
the balance of the Shareholder Purchase Price (as defined below) is required to
be received by the Debtor from such Shareholder Electing Holder or its
transferee (such notice, a "Shareholder Notice of Acceptance"). The Shareholder
Notice of Acceptance shall specify the number of Rights that were validly and
effectively exercised by such Shareholder Electing Holder or their transferee,
the number of shares of New Common Stock that will be purchased upon such
exercise of such Rights, and, the remaining amount of the Shareholder Purchase
Price to be paid by the Shareholder Electing Holder or its transferee. The
number of Rights validly and effectively exercised by all Shareholder Electing
Holders or their transferees is referred to herein as the "Shareholder
Subscribed Rights."
The Debtor will only accept Shareholder Exercise Notices in an
aggregate amount equal to any Rights not subscribed to by holders of Allowed
Class 3A Rights Claims.
The payment to be made by each Shareholder Electing Holder or
their transferee shall be in an amount equal to the product of the Rights
Exercise Price and the number of Shareholder Subscribed Rights indicated in the
Notice of Acceptance for such
<PAGE> 89
Appendix 4-6
Shareholder Electing Holder or it transferee (the "Shareholder Purchase Price")
less the sum of (x) the amount of such Shareholder Electing Holder's Shareholder
Deposit plus (y) any interest actually earned on such Shareholder Deposit, and
shall be due on the date specified in the Shareholder Notice of Acceptance (such
date, the "Shareholder Payment Date"). Payment of the Shareholder Purchase Price
shall be made by either certified check delivered to the Debtor's address
specified in the Shareholder Notice of Acceptance or by a wire transfer of
immediately available funds to the Debtor's account identified in the
Shareholder Notice of Acceptance, in each case so as to be received by the
Debtor no later than 5:00 p.m. (New York City time) on the Shareholder Payment
Date. The Shareholder Purchase Price shall be held in an interest bearing escrow
account by the Debtor until the Effective Date. On the Effective Date, all
monies shall be released to Reorganized Paragon from such escrow and, on or as
soon thereafter as is practical in accordance with the distribution provisions
contained in the Plan, each Shareholder Electing Holder or its transferee shall
receive that number of shares of New Common Stock purchased by it pursuant to
these Procedures in connection with the Wellspring Rights Offering.
If the Shareholder Subscribed Rights exceed the number of
Rights available for subscription by Shareholder Electing Holders, then each
Shareholder Electing Holder shall only be entitled to exercise Shareholder
Subscribed Rights in an amount equal to (x) the amount of Rights available for
subscription by all Shareholder Electing Holders times (y) a fraction, the
numerator of which is the number of Shareholder Subscribed Rights subscribed to
by such Person and the denominator of which is all Shareholder Subscribed Rights
properly subscribed to by all Shareholder Electing Holders (the "Shareholder Pro
Rata Share").
In the event that any Shareholder Electing Holder or its
transferee who is required to deliver the balance of the Shareholder Purchase
Price to the Debtor shall fail to deliver the balance of its Shareholder
Purchase Price to the Debtor on or before the Shareholder Payment Date, such
Shareholder Electing Holder shall be deemed to have waived its right to
participate in the Wellspring Rights Offering and the Debtor's acceptance of its
Shareholder Exercise Notice shall be automatically rescinded and of no further
force and effect without the need for any further notice, and such Shareholder
Electing Holder's or its transferee's Shareholder Deposit shall be irrevocably
retained by Reorganized Paragon. In the event the Court does not confirm the
Plan or the Effective Date does not occur, the Wellspring Rights Offering
described herein shall be automatically rescinded without notice and of no
further force and effect, and any monies received by the Debtor in connection
with the Wellspring Rights Offering, and any interest actually earned thereon,
shall promptly be returned to the applicable Shareholder Electing Holders or its
transferees. There will be no further adjustments to the amounts provided in the
Shareholder Acceptance Notices.
<PAGE> 90
Appendix 4-7
All determinations as to the proper completion, due execution,
timeliness, eligibility, compliance with these Procedures and other matters
affecting the validity or effectiveness of any attempted exercise of any Rights
shall be made by the Proponents, whose determination shall be final and binding.
If any Shareholder Exercise Notice is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when executing the Shareholder Exercise Notice and, unless waived by
the Proponents, proper evidence satisfactory to the Proponents of such person's
authority to so act must be submitted. The Proponents in their reasonable
discretion may waive or reject the attempted exercise of any Rights subject to
any such defect or irregularity. Deliveries required to be received by the
Proponents in connection with an attempted exercise of Rights will not be deemed
to have been so received or accepted until actual receipt thereof has occurred
at the address set forth in the Shareholder Exercise Notice and any defects or
irregularities shall have been waived or cured within such time as the
Proponents may determine in their reasonable discretion. Neither the Proponents,
Reorganized Paragon nor any other Person will have any obligation to give notice
to any Shareholder Electing Holder of any defect or irregularity in connection
with any attempted exercise thereof or incur any liability as a result of any
failure to give any such notice.
(iii) Procedures for Transfer of Rights.
The Rights can be transferred only upon receipt by the Debtor
of a certificate duly executed by the transferee stating that the transferee is
a "qualified institutional buyer" as such term is defined in Rule 144A of the
Securities Act. The assignment procedures set forth in the Exercise Instructions
shall confirm that transfer of Rights to any other type of transferee shall be
void.
The Class 3A Subscribed Rights and Shareholder Subscribed
Rights will be registered on the books of the Debtor maintained at its principal
office (the "Rights Register") where the Ballots, the Exercise Notices and the
Shareholder Exercise Notices are to be received. The Debtor will be entitled to
treat the registered holder of any Class 3A Subscribed Right or Shareholder
Subscribed Right as the owner in fact thereof for all purposes and will not be
bound to recognize any equitable or other claim to or interest in such Class 3A
Subscribed Right or Shareholder Subscribed Right on the part of any other
Person, in each case, unless and until evidence satisfactory to the Proponents
in their sole discretion is received by the Debtor indicating that such Class 3A
Subscribed Rights or Shareholder Subscribed Rights have been transferred in
accordance with the assignment procedures set forth in the Exercise Instructions
or Shareholder Exercise Instructions.
<PAGE> 91
================================================================================
STOCK PURCHASE AGREEMENT
by and between
PTB ACQUISITION COMPANY, LLC
and
PARAGON TRADE BRANDS, INC.
-------------------------
NOVEMBER 16, 1999
-------------------------
================================================================================
<PAGE> 92
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1. Sale and Purchase of Purchased Shares...........................................................1
1.1. Sale and Purchase of Purchased Shares..............................................1
1.2. Payment of Purchase Price..........................................................2
1.3. Delivery of Shares.................................................................2
2. Closing; Closing Date...........................................................................2
3. Representations and Warranties of the Seller....................................................2
3.1. Due Incorporation and Authority....................................................2
3.2. Subsidiaries and Other Affiliates..................................................2
3.3. Qualification......................................................................3
3.4. Outstanding Capital Stock..........................................................3
3.5. Options or Other Rights............................................................3
3.6. Authority Relative to This Agreement...............................................4
3.7. SEC Documents......................................................................4
3.8. Financial Statements...............................................................4
3.9. No Material Adverse Change.........................................................5
3.10. Taxes..............................................................................5
3.11. Compliance with Laws...............................................................7
3.12. Permits............................................................................8
3.13. No Breach..........................................................................8
3.14. Environmental Matters..............................................................9
3.15. Claims and Proceedings............................................................10
3.16. Contracts.........................................................................11
3.17. Tangible Property.................................................................11
3.18. Intellectual Property.............................................................12
3.19. Title to Properties...............................................................13
3.20. Employee Benefit Plans............................................................14
3.21. Employee Relations................................................................15
3.22. Insurance.........................................................................16
3.23. Company Products..................................................................16
3.24. Operations of the Company.........................................................16
3.25. Projections.......................................................................17
3.26. Inventories.......................................................................17
3.27. Receivables.......................................................................17
</TABLE>
i
<PAGE> 93
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
4. Representations and Warranties of the Buyer....................................................18
4.1. Due Organization and Authority....................................................18
4.2. Authority to Execute and Perform Agreement........................................18
4.3. Purchase for Investment...........................................................18
4.4. Plan Acknowledgment...............................................................18
4.5. Financing.........................................................................19
5. Covenants and Agreements.......................................................................19
5.1. Conduct of Business...............................................................19
5.2. Corporate Examinations and Investigations.........................................19
5.3. Publicity.........................................................................20
5.4. Expenses..........................................................................20
5.5. Brokerage.........................................................................20
5.6. Required Consents.................................................................21
5.7. Permit Transfers..................................................................21
5.8. Further Assurances................................................................21
5.9. Bankruptcy Covenants..............................................................21
5.10. Calculation of Cash Deficit and Cash Excess;
Net Working Capital...............................................................22
6. Conditions Precedent to the Obligation of the Buyer to Close...................................23
6.1. Representations and Covenants.....................................................23
6.2. Consents and Approvals............................................................23
6.3. Opinion of Counsel to the Seller..................................................23
6.4. HSR Act Filing; Canada Acts.......................................................23
6.5. No Claims.........................................................................23
6.6. Confirmation Order................................................................24
6.7. Plan Confirmation.................................................................24
6.8. Management........................................................................24
6.9. No Material Adverse Change........................................................24
6.10. Overbid Order.....................................................................24
6.11. Ordinary Course...................................................................24
6.12. Exit Financing....................................................................25
6.13. Settlement Orders.................................................................25
6.14. Settlements.......................................................................25
6.15. Exclusive Period..................................................................25
6.16. PTB Canada........................................................................25
6.17. Other Documents...................................................................25
</TABLE>
ii
<PAGE> 94
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
7. Conditions Precedent to the Obligation of the Seller to Close..................................26
7.1. Representations and Covenants.....................................................26
7.2. Certain Consents and Approvals....................................................26
7.3. HSR Act Filing; Canadian Acts.....................................................26
7.4. Confirmation Order................................................................26
7.5. New Securities Issued.............................................................26
8. Designation of Executory Contracts; Employment Agreements;
Confirmation of Overbid Order and Auction......................................................26
9. Monetization...................................................................................27
10. Survival of Representations and Warranties of the Seller.......................................27
11. Termination of Agreement.......................................................................28
11.1. Termination.......................................................................28
11.2. Survival After Termination; Expense Reimbursement
and Termination Fee...............................................................29
12. Mabesa; Dilution...............................................................................30
13. Miscellaneous..................................................................................31
13.1. Certain Definitions...............................................................31
13.2. Consent to Jurisdiction and Service of Process....................................41
13.3. Notices...........................................................................41
13.4. Entire Agreement..................................................................42
13.5. Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies..........................................................42
13.6. Governing Law.....................................................................43
13.7. Binding Effect; Assignment........................................................43
13.8. Usage.............................................................................43
13.9. Counterparts......................................................................43
13.10. Exhibits and Schedules; Cross References..........................................43
13.11. Headings..........................................................................44
13.12. Interpretation....................................................................44
13.13. Severability of Provisions........................................................44
13.14. Assignment by Buyer...............................................................44
13.15. Seller's Knowledge................................................................45
</TABLE>
iii
<PAGE> 95
EXHIBITS
A: Form of Opinion of Counsel to the Seller
B: Financing Commitment Letter
C: Plan
D. Form of Closing Balance Sheet
E. Form of Cash Deficit/Cash Excess Calculation
Appendix 1: Summary of Principal Terms of Notes
Appendix 2: Summary of Management Incentive Plan
Appendix 3: Summary of Principal Terms of Warrants
Appendix 4: Summary of Principal Terms of Rights
iv
<PAGE> 96
1
STOCK PURCHASE AGREEMENT
AGREEMENT, dated November 16, 1999, by and among PTB
ACQUISITION COMPANY, LLC, a Delaware limited liability company (the "Buyer"),
and as of the date of the execution of this Agreement, Paragon Trade Brands,
Inc. (the "Seller"), a Delaware corporation, as debtor and debtor in possession
under Chapter 11 of the Bankruptcy Code.
WHEREAS, the Seller is the debtor and debtor in possession in
Chapter 11 case number 98-60390 (the "Case") pending before the United States
Bankruptcy Court for the Northern District of Georgia, Atlanta Division (the
"Bankruptcy Court"); and
WHEREAS, subject to the terms and conditions set forth herein,
and pursuant to the Plan, Buyer desires to purchase from the Seller, and the
Seller desires to sell to Buyer, 11,712,635 shares of capital stock (the "New
Common Stock") of the Seller, as reorganized under the Plan on the Effective
Date thereof (the Seller as so reorganized, "Reorganized Paragon"), representing
98.5% of the shares of the 11,891,000 shares of New Common Stock to be issued
and outstanding immediately following the Closing, subject to reduction of the
number of shares of New Common Stock to be purchased by and sold to Buyer as a
result of the Rights Offering and the TEEP Plan.
Certain terms used in this Agreement are defined in Section
13.1.
Accordingly, the parties agree as follows:
1. Sale and Purchase of Purchased Shares.
1.1. Sale and Purchase of Purchased Shares. At
the closing provided for in Article 2 (the "Closing"), upon the terms and
subject to the conditions of this Agreement and in reliance upon the
representations, warranties and agreements of the Seller contained herein,
Reorganized Paragon shall issue and sell to Buyer and/or its designees and
assignees, and Buyer and/or its designees and assignees shall purchase or
acquire from Reorganized Paragon, an aggregate of 11,712,635 shares of New
Common Stock, at a purchase price equal to $10.00 per share; provided, however,
that the number of shares to be issued and sold to, and purchased by Buyer
and/or its designees and assignees shall be reduced by the number of shares (x)
issued and sold by Reorganized Paragon pursuant to the Rights Offering and (y)
issued and distributed under the TEEP Plan pursuant to the Plan. As used herein,
the "Purchased Shares" means that number of shares of New Common Stock actually
issued and sold to Buyer and/or its designees and assignees pursuant hereto.
<PAGE> 97
2
1.2. Payment of Purchase Price. At the Closing,
Buyer shall pay or cause to be paid by wire transfer of immediately available
funds to an account designated in writing by the Seller at least two Business
Days prior to the Closing Date an amount (the "Purchase Price") equal to the
product of $10.00 and the number of Purchased Shares.
1.3. Delivery of Shares. At the Closing, Seller
shall deliver to Buyer or its designee stock certificates representing the
number of shares to be purchased by Buyer and/or its designees, calculated in
accordance with Section 1.1.
2. Closing; Closing Date. The Closing of the sale and
purchase of the Purchased Shares contemplated hereby shall take place at the
offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York (or
such other place as the Buyer and Seller may agree), on the Effective Date,
provided that all of the conditions to the Closing set forth in Articles 6 and 7
have been satisfied or waived by the party entitled to waive the same. The time
and date upon which the Closing occurs is herein called the "Closing Date."
3. Representations and Warranties of the Seller. The
Seller hereby represents and warrants to Buyer as follows:
3.1. Due Incorporation and Authority. The Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and lawful
authority and government approvals to own, lease and operate its properties and
to carry on its business as now being conducted, except where the failure to
have such authority or approvals could not, (i) individually or in the
aggregate, have a material adverse effect on the properties, businesses,
prospects, results of operations or financial condition of Reorganized Paragon
and the Subsidiaries (as defined below), considered as a whole, or (ii) prevent
or materially interfere with the Seller's or Reorganized Paragon's ability to
consummate the transactions contemplated hereby (the "Contemplated
Transactions") (any event, effect or result described in clause (i) or (ii)
above being a "Material Adverse Effect on the Seller").
3.2. Subsidiaries and Other Affiliates. Section
3.2(i) of Seller's Disclosure Memorandum sets forth the name and jurisdiction of
organization of each corporation or other entity (collectively, "Subsidiaries")
in which the Seller directly or indirectly owns or has the power to vote shares
of any capital stock or other ownership interests having voting power to elect a
majority of the directors of such corporation, or other persons performing
similar functions for such entity, as the case may be. Section 3.2(ii) of
Seller's Disclosure Memorandum identifies each entity (each, an "Investment
Entity") in which the Seller or one of its Subsidiaries owns a direct or
indirect equity interest which is not a Subsidiary, and with respect to each
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such entity identifies the type of entity, the jurisdiction in which such entity
is organized, the nature of such entity's business, and the owners of the
remaining equity of such entity (to the extent known to the Seller). Each of the
Subsidiaries is, and to the knowledge of the Seller, each of the Investment
Entities is, an entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and has all requisite power
and lawful authority and government approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to have such authority or approvals could not have a Material Adverse
Effect on the Seller.
3.3. Qualification. The Seller and each of its
Subsidiaries is, and to the knowledge of the Seller, each of the Investment
Entities is, duly qualified or otherwise authorized as a foreign entity to
transact business and is in good standing in each jurisdiction in which such
qualification or authorization is required by Law, except where the failure so
to qualify or be authorized could not have a Material Adverse Effect on the
Seller.
3.4. Outstanding Capital Stock. The authorized
and issued shares of capital stock or other ownership interests of each
Subsidiary are set forth in Section 3.4 of Seller's Disclosure Memorandum.
Except as set forth in Section 3.4 of Seller's Disclosure Memorandum, as of the
Effective Date all issued and outstanding capital stock or other ownership
interests of each Subsidiary, and Reorganized Paragon's or any of its
Subsidiaries' equity interest in any Investment Entity, will be owned by
Reorganized Paragon or a Subsidiary free and clear of any Lien other than
Permitted Liens. At the Closing, all of the outstanding shares of capital stock
of Reorganized Paragon and the Subsidiaries will be (in the case of Reorganized
Paragon as of the Effective Date and after giving effect to the Plan), and
Reorganized Paragon's or any of its Subsidiaries' equity interest in any
Investment Entity will be, duly authorized and validly issued, fully paid and
nonassessable (subject, in the case of the Mabesa Investment Entity, to Seller's
obligation to make annual earn-out payments pursuant to the Irrevocable Call
Option Agreement, dated January 26, 1996, among International Disposable
Products Investments Ltd., PTB International, Inc. and the Seller). Except as
set forth in Section 3.4 of Seller's Disclosure Memorandum, at the Closing, no
other class of capital stock or other ownership interests of the Subsidiaries
will be authorized or outstanding. Upon delivery of and payment for the
Purchased Shares at the Closing as herein provided, Reorganized Paragon will
convey to the Buyer and/or its designees and assignees good and valid title
thereto, free and clear of any Lien.
3.5. Options or Other Rights. Except for the
Warrants to be issued under the Plan and as otherwise set forth in Section 3.5
of Seller's Disclosure Memorandum, as of the Effective Date, there will be no
outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other agreement of any
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kind to purchase or otherwise to receive from Reorganized Paragon or any
Subsidiary any of the outstanding, authorized but unissued, unauthorized or
treasury shares of the capital stock or any other security of Reorganized
Paragon or any Subsidiary or, to the knowledge of the Seller, any Investment
Entity, and there will be no outstanding security of any kind of Reorganized
Paragon or any Subsidiaries convertible into any such capital stock.
3.6. Authority Relative to This Agreement. Except
for any required approvals of the Bankruptcy Court, the Seller has all necessary
corporate power and authority to execute and deliver this Agreement and,
assuming the satisfaction of the conditions set forth in Section 7, to perform
its obligations hereunder. The execution and delivery of this Agreement by the
Seller, the performance by the Seller of its obligations hereunder and the
consummation by the Seller of the transactions contemplated hereby have been
duly authorized by all requisite corporate action on the part of the Seller.
This Agreement has been duly and validly executed and delivered by the Seller
and (assuming due authorization, execution and delivery hereof by the Buyer and
upon receipt of any required approval of the Bankruptcy Court) will constitute
the legal, valid and binding obligation of the Seller (including Reorganized
Paragon) enforceable against the Seller (including Reorganized Paragon) in
accordance with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally and subject, as to enforceability, to the
effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.7. SEC Documents. Since December 27, 1998,
Seller has filed with the Securities and Exchange Commission (the "SEC") all
reports, schedules, forms, statements and other documents (including exhibits
and all other information incorporated therein) required to be filed with the
SEC pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the SEC thereunder (the "SEC Documents;"
the SEC Documents filed since December 27, 1998 and prior to the date of this
Agreement are referred to as the "Identified SEC Documents"). As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the SEC
Documents when filed contained, and, when considered as an entirety currently
contain, any untrue statement of a material fact or omitted or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.8. Financial Statements. The consolidated
balance sheets of the Seller and the Subsidiaries as of December 27, 1998 and
the related consolidated
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statements of income, shareholders' equity and changes in financial position for
the year then ended, including the notes thereto, certified by Arthur Anderson
LLP, independent certified public accountants, which have been delivered to
Buyer, set forth the consolidated financial position of the Seller and the
Subsidiaries as at such date and the consolidated results of operations of the
Seller and the Subsidiaries for such period, in each case in accordance with
generally accepted accounting principles consistently applied. (The foregoing
consolidated financial statements of the Seller and the Subsidiaries as of
December 27, 1998 and for the year then ended are sometimes herein called the
"Audited Financials.") The unaudited consolidated balance sheet of the Seller
and the Subsidiaries as of September 26, 1999, and the related consolidated
statement of income, including the notes thereto, which have been delivered to
Buyer, set forth the consolidated financial position of the Seller and the
Subsidiaries as at such date and the results of operations of the Seller and the
Subsidiaries for the thirty-nine weeks then ended, in each case in conformity
with generally accepted accounting principles applied on a basis consistent with
that of the Audited Financials (subject to the normal year-end adjustments). The
foregoing unaudited consolidated financial statements of the Seller and the
Subsidiaries as of September 26, 1999 and for the thirty-nine weeks then ended
are sometimes herein called the "Interim Financials," the consolidated balance
sheet included in the Interim Financials is sometimes herein called the "Balance
Sheet" and September 26, 1999 is sometimes herein called the "Balance Sheet
Date". To the knowledge of the Seller, except as fully reflected in the Interim
Financial Statements, the Seller and the Subsidiaries do not have any direct or
indirect indebtedness, liability, Claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise,
of any kind ("Liabilities") except for (a) liabilities that will be fully
discharged in the Case at the Effective Date, (b) liabilities arising after the
Petition Date reflected on the Balance Sheet or described in Seller's Disclosure
Memorandum or in the notes to the Audited Financials or Interim Financials, and
(c) liabilities that have arisen since the Balance Sheet Date in the ordinary
course of business of the Seller and the Subsidiaries and that are similar in
nature and amount to the liabilities that arose during the comparable period of
time in the immediately preceding fiscal period.
3.9. No Material Adverse Change. Except as set
forth in Section 3.9 of Seller's Disclosure Memorandum, since September 26, 1999
there has been no change, event or occurrence which has had a Material Adverse
Effect on the Seller, and to the knowledge of the Seller no such change, event
or occurrence is threatened, nor has there been any damage, destruction or loss
which could have or has had a Material Adverse Effect on the Seller, whether or
not covered by insurance.
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3.10. Taxes.
(a) Except as set forth in Section
3.10(a) of Seller's Disclosure Memorandum, the Seller and each Subsidiary have
timely filed (after giving effect to any extensions of the time to file which
were obtained) prior to the date of this Agreement, and will file prior to the
Closing Date, all material returns required to be filed prior to the date of
this Agreement or the Closing Date, as the case may be, with respect to all
federal, state, local, foreign and other taxes, together with interest and
penalties thereon ("Taxes") for periods ending on or after February 3, 1993, and
such returns are true, correct and complete; and the Seller and each Subsidiary
has paid or will pay (or the Seller has paid or will pay on its behalf), or has
or will set up (or the Seller will set up on its behalf) an adequate reserve for
the payment of, all material Taxes required to be paid by the Seller or any of
the Subsidiaries on or before the Closing Date.
(b) Except as set forth in Section
3.10(b) of Seller's Disclosure Memorandum, none of the Seller or any Subsidiary
has filed or entered into any election, consent or extension agreement that
extends any applicable statute of limitations, which statute of limitations has
not expired.
(c) Except as set forth in Section
3.10(c) of Seller's Disclosure Memorandum, and except as could not reasonably be
expected to have a Material Adverse Effect on the Seller, (i) none of the
Seller, any Subsidiary or, to the Seller's knowledge, any group of which the
Seller or any Subsidiary is a member, is a party to any action or proceeding
pending or, to the Seller's knowledge, threatened by any Governmental Authority
for assessment or collection of Taxes, and (ii) no audit or investigation of the
Seller or any Subsidiary by any Governmental Authority is pending or, to the
Seller's knowledge threatened.
(d) None of the Seller nor any of the
Subsidiaries (i) is a party to, is bound by, or is under any obligation under
any Tax sharing or similar agreement that includes any other person, or (ii)
will be required to pay any Taxes attributable to any corporation (other than
the Seller or any of the Subsidiaries) that is a member of any group of
affiliated corporations that file consolidated returns for Federal income tax
purposes of which the Seller or any of the Subsidiaries was a member before the
Closing Date by reason of Treas. Reg. ss. 1.1502-6 or any comparable provision
of state, local or foreign Law that provides for joint or several liability, in
whole or in part, in each case except to the extent that the Seller is
indemnified for such Taxes by any person other than the Subsidiaries.
(e) Except as could not reasonably be
expected to have a Material Adverse Effect on the Seller, none of the Seller or
any of the
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Subsidiaries has entered into or is bound by any closing agreement that could
affect their Taxes for periods ending after the Closing Date.
(f) Except as previously disclosed in
Tax returns made available to Buyer or as set forth in Section 3.10(f) of
Seller's Disclosure Memorandum, none of the Seller or any of the Subsidiaries
has agreed to or, to the knowledge of Seller, is required to make any
adjustments under section 481(a) of the Code by reason of a change in accounting
method or otherwise.
(g) To the knowledge of Seller, except
as set forth in Section 3.10(g) of Seller's Disclosure Memorandum, and except as
could not reasonably be expected to have a Material Adverse Effect on the
Seller, no gain or loss from deferred intercompany transactions or excess loss
accounts of the Seller or any of the Subsidiaries will be triggered by the
transactions contemplated by this Agreement.
(h) The Seller and the Subsidiaries have
not at any time consented under Section 341(f)(1) of the Code to have the
provisions of Section 341(f)(2) of the Code apply to any sale of its capital
stock.
(i) Except as set forth in Section
3.10(i) of Seller's Disclosure Memorandum and except as could not reasonably be
expected to have a Material Adverse Effect on the Seller, none of the Seller or
any of the Subsidiaries has been or is in violation of any applicable law
relating to the payment or withholding of Taxes, and each of them has duly and
timely withheld and paid over to the appropriate taxing authorities all material
amounts required to be so withheld and paid over.
(j) The Seller has made available to
Buyer true and complete copies of all Tax returns of the Seller and the
Subsidiaries, together with all related examination reports and statements of
deficiency, and true and complete copies of the portion of all other Tax returns
relating to the activities of Seller and the Subsidiaries, together with all
related examination reports and statements of deficiency.
3.11. Compliance with Laws. Except as set forth
in Section 3.11 of Seller's Disclosure Memorandum, to the knowledge of Seller,
neither the Seller nor any of the Subsidiaries nor any of the Investment
Entities is in violation of any applicable order, judgment, injunction, award,
decree or writ (collectively, "Orders"), or any applicable law, statute, code,
ordinance, regulation or other requirement (collectively, "Laws") (including
Orders or Laws that affect the use, occupancy and operation of any real property
assets of the Seller or any of the Subsidiaries), of any government or political
subdivision thereof, whether Federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, or any
insurance company or fire rating and any other similar board or organization or
other non-governmental regulating body (to the extent that the
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rules, regulations or orders of such body have the force of law) or any court or
arbitrator (collectively, "Governmental Bodies") (but not including, however,
Safety and Environmental Laws, which are addressed in Section 3.14, Tax Laws,
which are addressed in Section 3.10, and Laws relating to Benefit Plans, which
are addressed in Section 3.20), and to the knowledge of Seller, none of the
Seller or any of the Subsidiaries or any of the Investment Entities has received
notice that any such violation is being or may be alleged.
3.12. Permits. The Seller and the Subsidiaries
have all licenses, permits, exemptions, consents, waivers, authorizations,
rights, certificates of occupancy, franchises, orders or approvals of, and have
made all required registrations with, any Governmental Body that are required
for the conduct of the business of, or the intended use of any properties of,
the Seller or any of the Subsid iaries (collectively, "Permits"), not including,
however, Permits relating to compliance with Safety and Environmental Laws,
which are addressed in Section 3.14, and no suspension or cancellation of any of
the Permits is pending or, to the knowledge of the Seller, threatened, except
where the failure to have, or the suspension or cancellation of, any of the
Permits, individually or in the aggregate, could not have a Material Adverse
Effect on the Seller (Permits other than those excluded by the foregoing
exception being the "Material Permits"). Except as set forth in Section 3.12 of
the Seller's Disclosure Memorandum, to the knowledge of Seller, no action by the
Seller, Reorganized Paragon, any Subsidiary, or the Buyer is required in order
that all Material Permits will remain in full force and effect following the
consummation of the Contemplated Transactions.
3.13. No Breach.
(a) The execution and delivery of this
Agreement by the Seller does not, and, assuming approval of this Agreement and
confirmation of the Plan by the Bankruptcy Court, the consummation of the Plan,
and the performance of this Agreement by Seller (including Reorganized Paragon)
will not:
(i) conflict with or violate any
provision of any Certificate of Incorporation or by-laws of the Seller
or Reorganized Paragon (to the extent that such document is then
governing such entity) or any equivalent organizational documents of
any Subsidiary;
(ii) conflict with or violate any Law
applicable to the Seller or Reorganized Paragon or any Subsidiary or by
which any property or asset of the Seller, Reorganized Paragon or any
Subsidiary is or may be bound or affected, except for any such
conflicts or violations that, individually or in the aggregate, could
not have a Material Adverse Effect on the Seller; or
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(iii) assuming that all Required Consents
(as defined in Section 3.13(b)) have been obtained or deemed by
operation of the Plan or the Confirmation Order to have been given,
result in any breach of or constitute a default (or an event which with
or without notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien,
other than a Permitted Lien, on any property or asset of the Seller,
Reorganized Paragon or any Subsidiary under any note, bond, mortgage,
indenture, contract, agreement, commitment, lease, license, permit,
franchise or other instrument or obligation (collectively, "Contracts")
to which the Seller or any Subsidiary is a party or by which any of
them or their assets or properties is or may be bound or affected,
except for such breaches, defaults or other occurrences which,
individually or in the aggregate, could not have a Material Adverse
Effect on the Seller.
(b) Section 3.13(b) of Seller's
Disclosure Memorandum identifies each Contract to which the Seller or any
Subsidiary is a party or by which any of them or their assets or properties is
or may be bound or affected in respect of which a Required Consent must be
obtained. For purposes hereof, a "Required Consent" means any consent under a
Contract required so that the execution, delivery and/or performance by the
Seller of this Agreement, the consummation of the Contemplated Transactions, and
the assumption and/or continued enforcement thereof by Reorganized Paragon will
not result in any breach of or constitute a default (or an event which with or
without notice or lapse of time or both would become a default) under, or give
to others any right of termination, amendment, acceleration or cancellation of,
such Contract, or result in the creation of a Lien, other than a Permitted Lien,
on any property or asset of the Seller, Reorganized Paragon or any Subsidiary
except where the failure to obtain any such consent or consents could not,
individually or in the aggregate, have a Material Adverse Effect on the Seller.
For purposes hereof, the Seller shall be deemed to have obtained a Required
Consent if, and to the extent that, pursuant to the Plan and the Confirmation
Order the Seller is authorized to assume the Contract pursuant to section 365 of
the Bankruptcy Code.
3.14. Environmental Matters.
(a) Except as disclosed in the
Identified SEC Documents, the Seller and the Subsidiaries are and have been in
compliance with all applicable Safety and Environmental Laws, which compliance
includes the possession of permits and governmental authorizations required
under applicable Safety and Environmental Laws ("Environmental Permits") and
compliance with the terms and conditions thereof, except where such
non-compliance would not result in a Material Adverse Effect on Seller
(Environmental Permits other than those excluded by the foregoing exception
being the "Material Environmental Permits").
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(b) Except as disclosed in the
Identified SEC Documents or as will be discharged on the Effective Date, there
are no Claims brought pursuant to any Safety or Environmental Law pending or, to
the knowledge of Seller, threatened against Seller or any Subsidiary that could
reasonably be expected to result in a Material Adverse Effect on Seller.
(c) Except as disclosed in the
Identified SEC Documents, the real properties presently or to the knowledge of
Seller formerly owned, leased or operated by the Seller or the Subsidiaries
(including groundwater under such real properties) (the "Real Properties") do
not contain any Hazardous Substance other than as permitted under applicable
Safety and Environmental Law; provided, however, that with respect to Real
Properties formerly owned, leased or operated by the Seller or the Subsidiaries,
such representation is limited to the period prior to the disposition of such
Real Properties by the Seller or the Subsidiaries.
(d) Except as disclosed in the
Identified SEC Documents, to the knowledge of Seller, no Hazardous Substance has
been disposed of or transported from any of the Real Properties during the time
any such Real Property was owned, leased or operated by the Seller or any of the
Subsidiaries, except as could not reasonably be expected to have a Material
Adverse Effect on the Seller.
(e) Except as disclosed in the
Identified SEC Documents, to the knowledge of Seller, the Seller and the
Subsidiaries have not become obligated, whether by operation of law or through
contractual agreement, to indemnify any other person or otherwise to assume
liability for any Claim brought pursuant to any Safety and Environmental Law
which could reasonably be expected to have a Material Adverse Effect on the
Seller.
3.15. Claims and Proceedings. There are no
outstanding Orders of any Governmental Body against or involving the Seller or
any of the Subsidiaries which could have a Material Adverse Effect on the Seller
or interfere with consummation of the Contemplated Transactions. To the
knowledge of the Seller, except as to claims arising prior to the Petition Date
that are within the jurisdiction of the Bankruptcy Court and are to be resolved
in the Case or by force of the discharge granted to the Seller in connection
with the Case, as of the date of this Agreement, there are no actions, causes of
action, suits, claims, complaints, demands, litigations or legal, administrative
or arbitral proceedings or investigations (collectively, "Claims") (whether or
not the defense thereof or liabilities in respect thereof are covered by
insurance) pending, threatened against or involving the Seller or any of the
Subsidiaries or any of their properties, owned or leased, which, individually or
in the aggregate, could have a Material Adverse Effect on the Seller. There are
no claims pending or, to Seller's knowledge, threatened against the Seller or
any Subsidiary or Wal*Mart which, if successful, would materially interfere with
the Seller's or any Subsidiary's
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use of the White Cloud trademark in connection with Seller's performance of the
White Cloud Arrangement with Wal*Mart. To the knowledge of Seller, there are no
Claims pending, or threatened, against any third party which, if successful,
would in the reasonable business judgment of Seller evidence a material risk
with respect to Seller's use of the White Cloud trademark in connection with
Seller's performance of the White Cloud Arrangement with Wal*Mart.
3.16. Contracts.
(a) Section 3.16 of Seller's Disclosure
Memorandum sets forth all of the Material Contracts to which the Seller or any
of the Subsidiaries is a party or by or to which any of them or any of their
properties may be bound or subject (other than those specifically set forth in
any other Section of Seller's Disclosure Memorandum or any Material Contracts
made available to Buyer as set forth in Section 3.22 hereof); provided; however,
in the case of Material Contracts to which the Seller is a party, only those
Material Contracts which have or will be assumed in the Case are set forth in
Section 3.16 of Seller's Disclosure Memorandum.
(b) There have been delivered or
otherwise made available to Buyer true and complete copies of all of the
Material Contracts set forth in Section 3.16 of Seller's Disclosure Memorandum.
All of the Material Contracts referred to in the preceding sentence (i) to which
the Seller is a party and which are susceptible of assumption, upon the
assumption thereof by the Seller pursuant to section 365 of the Bankruptcy Code,
are valid and binding upon the Seller and, to Seller's knowledge, the other
party or parties thereto in accordance with their terms and (ii) to which any
Subsidiary is a party are valid and binding upon such Subsidiary and, to
Seller's knowledge, the other party or parties thereto in accordance with their
terms. Except as set forth in Section 3.16(b) of Seller's Disclosure Memorandum
or as will be cured upon the assumption of such Material Contract pursuant to
section 365 of the Bankruptcy Code, neither the Seller nor any of the
Subsidiaries is in default in any material respect under any of such Material
Contracts, nor to the knowledge of Seller does any condition exist that with
notice or lapse of time or both would constitute such a material default
thereunder. To the knowledge of Seller, no parties to any Material Contracts
(other than the Seller or any Subsidiary) are in default thereunder in any
respect nor does any condition exist that with notice or lapse of time or both
would constitute such a default thereunder except where the existence of any
such defaults (including the existence of any conditions that with notice or
lapse of time would constitute defaults) could not, individually or in the
aggregate, have a Material Adverse Effect on the Seller.
3.17. Tangible Property. To the knowledge of
Seller, the facilities, machinery, equipment, furniture, buildings and other
improvements, fixtures, vehicles, structures, any related capitalized items and
other tangible property material
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to the business of the Seller or any of the Subsidiaries (the "Tangible
Property") are in good operating condition and repair, subject to continued
repair and replacement in accordance with past practice, and are suitable for
their intended use.
3.18. Intellectual Property.
(a) The Seller or a Subsidiary owns or
is licensed or otherwise has the right to (i) with respect to such items that
the Seller owns outright, sell, license and dispose of such items, without
restriction, and (ii) with respect to such items with respect to which the
Seller has a license, use and practice all Copyrights, Patents, Trade Secrets,
Trademarks, Internet Assets, Mask Works, Software and other proprietary rights
(collectively, the "Intellectual Property") that are material to the businesses
of the Seller and the Subsidiaries, the loss or cancellation of which would have
a Material Adverse Effect on the Seller.
(b) Section 3.18(b) of Seller's
Disclosure Memorandum lists (i) all Intellectual Property (other than
unregistered Copyrights and Trademarks and Trade Secrets) owned by the Seller or
any of the Subsidiaries, specifying as to each such item, as applicable: (A) the
category of Intellectual Property; (B) the jurisdictions in which the item is
issued or registered or in which any application for issuance has been filed,
including the respective issuance, registration or application number; (C) the
date of application, issuance or registration and the expiration date of the
item; and (D) with respect to any Trademarks, the class or classes of goods or
services on which each such Trademark is or is intended to be used; and (ii) all
material licenses, sublicenses and other agreements under which the Seller or
any of the Subsidiaries is either a licensor or licensee of any Intellectual
Property the cancellation or termination of which could have a Material Adverse
Effect on the Seller (the "IP Licences"), specifying as to each such item, as
applicable: (A) the category of Intellectual Property, (B) the licensor of such
item, (C) the licensee of such item and (D) the term of such license agreement.
The Seller heretofore has made available, or has caused the Subsidiaries
heretofore to make available, to the Buyer true, correct and complete copies of
all material documents evidencing Intellectual Property and IP Licenses
(including all modifications, amendments and supplements thereto).
(c) None of the Seller, the Subsidiaries
or, to the knowledge of Seller, any other party, is in breach of or default
under any IP License (i) which will not (in the case of Seller) be cured under
section 365 of the Bankruptcy Code pursuant to the Plan or (ii) which breach or
default (in the case of either the Seller or the Subsidiaries) could have a
Material Adverse Effect on the Seller. As of the Effective Date, each IP License
will be valid and in full force and effect.
(d) Except as will be satisfied, waived
or released in the Kimberly-Clark Settlement or the Procter & Gamble Settlement,
no Claim is
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pending or, to the knowledge of the Seller, threatened, that challenges the
validity, enforceability, ownership of or right (i) in the case of Intellectual
Property owned by the Seller, to sell, license or dispose of any item of
Intellectual Property, or (ii) in the case of the IP Licenses, the right to use
or practice any item of Intellectual Property, nor to the knowledge of the
Seller, are there any valid grounds for any such Claim.
(e) Except as will be released,
satisfied or waived in the Kimberly-Clark Settlement or the Procter & Gamble
Settlement, to the knowledge of the Seller, no item of Intellectual Property is
subject to any outstanding Order, Contract or Claim restricting in any manner
the use or the licensing thereof by the Seller or any of the Subsidiaries.
(f) Except for issues resolved by the
Kimberly-Clark Settlement and the Procter & Gamble Settlement, to the knowledge
of Seller, neither the Seller nor any of the Subsidiaries has infringed upon or
otherwise violated the intellectual property rights of third parties or, except
as set forth in Section 3.18(f) of Seller's Disclosure Memorandum, has received
or has been the subject of any Claim, charge or notice alleging any such
infringement or other violation which infringement, violation, alleged
infringement or alleged violation could have a Material Adverse Effect on the
Seller. To the knowledge of the Seller, the continued operation of the
businesses of the Seller and the Subsidiaries as presently conducted will not
infringe upon or otherwise violate any intellectual property rights of third
parties, in a manner that could result in a Material Adverse Effect on the
Seller.
(g) Neither Seller nor any of the
Subsidiaries is in default under any provisions of the Kimberly-Clark Settlement
or the Procter & Gamble Settlement.
(h) To the knowledge of Seller, the
Seller or one of the Subsidiaries has the exclusive right to file, procure and
maintain all applications and registrations with respect to the Intellectual
Property owned by the Seller or any of the Subsidiaries.
(i) To the knowledge of Seller, all
Patents and registered Trademarks and Copyrights held by the Seller or any of
the Subsidiaries are presumed valid and subsisting. The Seller and the
Subsidiaries have taken all necessary action to maintain and, in the case of
Trade Secrets, protect each item of Intellectual Property owned or used by the
Seller or any of the Subsidiaries.
3.19. Title to Properties. The Seller and the
Subsidiaries (a) have good and marketable title in fee simple to all real
property owned by them (as reflected in the Identified SEC Documents) and valid
leasehold interests in all leased real property leased by them (as reflected in
the Identified SEC Documents), and
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(b) own outright and have good title to all of their properties, including all
of the assets reflected on the Balance Sheet, free and clear of any Lien, except
in the case of each of clauses (a) and (b) hereof for (i) Liens which will be
released pursuant to the Plan; (ii) properties disposed of, or subject to
purchase or sales orders, in the ordinary course of business since the Balance
Sheet Date; (iii) Liens securing Taxes, assessments, governmental charges or
levies, or the claims of materialmen, carriers, landlords and like persons, all
of which are not yet due and payable or are being contested in good faith, so
long as such contest does not involve any substantial danger of the sale,
forfeiture or loss of any assets which individually or in the aggregate are
material to Seller; (iv) Liens securing Reorganized Paragon's obligations to its
lenders in respect of the Exit Financing and (v) Liens set forth in Section 3.19
of Seller's Disclosure Memorandum (the Liens described in clauses (i) through
(v) above being "Permitted Liens").
3.20. Employee Benefit Plans.
(a) Section 3.20 of Seller's Disclosure
Memorandum contains a true and complete list of each "material employee benefit
plan" (within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), including, without limitation,
multiemployer plans within the meaning of ERISA section 3(37)), stock purchase,
stock option, severance, employment, change-in-control, fringe benefit, welfare
benefit, collective bargaining, bonus, incentive, deferred compensation and all
other material employee benefit plans, agreements, programs, policies or other
material arrangements, whether or not subject to ERISA (including any funding
mechanism therefor now in effect or required in the future as a result of the
transaction contemplated by this Agreement or otherwise), whether formal or
informal, oral or written, legally binding or not, under which any employee or
former employee of the Seller or any of the Subsidiaries has any present or
future right to benefits or under which the Seller or any of the Subsidiaries
has any present or future liability. All such plans, agreements, programs,
policies and arrangements shall be collectively referred to as the "Benefit
Plans."
(b) With respect to each Benefit Plan,
the Buyer has made available to the Purchaser a current, accurate and complete
copy (or, to the extent no such copy exists, an accurate description) thereof
and, to the extent applicable: (i) any related trust agreement or other funding
instrument; (ii) the most recent determination letter, if applicable; (iii) any
summary plan description and other written communications (or a description of
any oral communications) by Seller to its employees concerning the extent of the
benefits provided under a Benefit Plan; and (iv) for the three most recent years
(A) the Form 5500 and attached schedules, (B) audited financial statements, (C)
actuarial valuation reports and (D) attorney's response to an auditor's request
for information.
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(c) (i) Each Benefit Plan has been
established and administered in all material respects in accordance with its
terms, and in material compliance with the applicable provisions of ERISA, the
Code and other applicable laws, rules and regulations; (ii) to the knowledge of
the Seller, no event has occurred and no condition exists that would subject the
Seller or any of the Subsidiaries, either directly or by reason of its
affiliation with any Commonly Controlled Entity (defined as any organization
which is a member of a controlled group of organizations within the meaning of
Code section 414(b), (c), (m) or (o)), to any tax, fine, lien, penalty or other
liability imposed by ERISA, the Code or other applicable laws, rules and
regulations; (iii) to the knowledge of the Seller, no "prohibited transaction"
(as such term is defined in ERISA section 406 and Code section 4975) has
occurred with respect to any Benefit Plan; (iv) each Benefit Plan with respect
to which a Form 5500 has been filed, no material change has occurred with
respect to the matters covered by the most recent Form since the date thereof;
(v) each Benefit Plan which is intended to be qualified within the meaning of
Code section 401(a) is so qualified and has received a favorable determination
letter as to its qualification, and nothing has occurred, whether by action or
failure to act, that could reasonably be expected to cause the loss of such
qualification; (vi) except as provided in the TEEP Plan, for each Benefit Plan
that is a "welfare plan" within the meaning of ERISA section 3(1), neither the
Seller nor any of the Subsidiaries has nor will have any liability or obligation
under any plan which provides medical or death benefits with respect to current
or former employees of the Seller beyond their termination of employment (other
than coverage mandated by law); and (vii) no Benefit Plan is subject to Title IV
of ERISA.
(d) With respect to any Benefit Plan, no
actions, suits or claims (other than routine claims for benefits in the ordinary
course) are pending or, to the Seller's knowledge, threatened, and no facts or
circumstances exist that could give rise to any such actions, suits or claims
which individually or in the aggregate could have a Material Adverse Effect on
the Seller.
(e) Except as set forth in Section
3.20(e) of the Seller's Disclosure Memorandum, no Benefit Plan exists that
provides for, or to the Seller's knowledge could result in, the payment to any
present or former employee of any Seller or any of the Subsidiaries of any money
or other property or accelerate or provide any other rights or benefits to any
present or former employee of any Seller as a result of the transaction
contemplated by this Agreement.
(f) With respect to each Benefit Plan,
there are no funded post-petition benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded post-petition
benefit obligations that have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the Audited Financials except for such
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unfunded post-petition benefit obligations as could not, individually or in the
aggregate, have a Material Adverse Effect on the Seller.
3.21. Employee Relations. None of the Employees
is represented by a union, and to the knowledge of the Seller no union
organizing efforts are now being conducted. Neither the Seller nor any of the
Subsidiaries has at any time during the last three years had, nor to the
knowledge of any of the Seller, is there now threatened, a strike, picket, work
stoppage, work slowdown or other labor dispute.
3.22. Insurance. Seller has heretofore made
available for inspection to Buyer true and correct copies of all policies or
binders of fire, liability, product liability, worker's compensation, directors
and officers liability, vehicular and other insurance held by or on behalf of
the Seller or any of the Subsidiaries and which are presently in effect. Such
policies and binders are valid and binding in accordance with their terms, are
in full force and effect, and, to the knowledge of Seller, insure against risks
and liabilities to an extent and in a manner customary in the industries in
which the Seller and the Subsidiaries operate. Neither the Seller nor any of the
Subsidiaries has received any notice of cancellation or non-renewal of any such
policy or binder.
3.23. Company Products. Except as set forth in
Section 3.23 of Seller's Disclosure Memorandum, to the knowledge of Seller,
there are no statements, citations or decisions by any Governmental Body
specifically stating that any Company Product is defective or unsafe or fails to
meet any standards promulgated by any such Governmental Body. Except as set
forth in Section 3.23 of Seller's Disclosure Memorandum, there have been no
recalls ordered by any such Governmental Body with respect to any Company
Product. Except as set forth in Section 3.23 of Seller's Disclosure Memorandum,
to the knowledge of any of the Seller, there is no (a) fact relating to any
Company Product that may impose upon the Seller or any of the Subsidiaries a
duty to recall any Company Product or a duty to warn customers of a defect or of
any Hazardous Substance in any Company Product, (b) latent or overt design,
manufacturing or other defect in any Company Product, (c) Company Product, the
reasonably foreseeable use of which may expose any person to any Hazardous
Substance or (d) material liability for warranty claims or returns with respect
to any Company Product not fully reflected on the Audited or Interim Financials.
3.24. Operations of the Company. Except as set
forth in Section 3.24 of Seller's Disclosure Memorandum or as contemplated by
this Agreement, since June 27, 1999 neither the Seller nor any of the
Subsidiaries has:
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17
(a) waived any material right under any
Material Contract or other agreement of the type required to be set forth in
Seller's Disclosure Memorandum;
(b) made any material change in its
accounting methods or practices or made any material change in depreciation or
amortization policies or rates adopted by it;
(c) materially changed any of its
business policies, including advertising, investment, marketing, pricing,
purchasing, production, personnel, sales, returns, budget or product acquisition
policies;
(d) except for inventory or equipment in
the ordinary course of business, sold, abandoned or made any other disposition
of any of its properties or assets or made any acquisition of all or any part of
the properties, capital stock or business of any other person;
(e) terminated or failed to renew, or
received any written threat (that was not subsequently withdrawn) to terminate
or fail to renew, any Material Contract or other agreement that is or was
material to the properties, business, prospects, results of operations or
financial condition of the Seller and its Subsidiaries;
(f) entered into any Material Contract;
or
(g) engaged in any other material
transaction other than in the ordinary course of business.
3.25. Projections. The projections relating to
operations of the Seller and the Subsidiaries dated September 7, 1999 (the
"Projections"), heretofore delivered by the Seller to the Buyer, have been
prepared in good faith on a reasonable basis. The assumptions on which the
Projections are based are consistent with past practices (including accounting
practices) of the Seller and the Subsidiaries and with historical conditions
applicable to the business of the Seller and the Subsidiaries. Except as set
forth in Section 3.25 of the Seller's Disclosure Memorandum, to Seller's
knowledge there is nothing to indicate that the Projections or the assumptions
upon which they are based are not reasonable.
3.26. Inventories. Since the Balance Sheet Date,
the Inventories related to the Seller's and its Subsidiaries' business have been
maintained in the ordinary course of business. After giving effect to any
applicable reserves, all of the Inventories recorded on the Balance Sheet
consist of, and all Inventories related to the business on the Closing Date will
consist of, items of a quality usable or saleable in the normal
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18
course of the business consistent with past practices and are and will be in
quantities reasonable for the normal operation of such business in accordance
with past practice.
3.27. Receivables. All Accounts Receivable (other
than receivables collected since the Balance Sheet Date) reflected on the
Balance Sheet are valid and fully collectible in the aggregate amount thereof,
subject to trade discounts, less any applicable reserves recorded on the Balance
Sheet. All Accounts Receivable arising out of or relating to the business at the
Balance Sheet Date have been included in the Balance Sheet, in accordance with
GAAP applied on a consistent basis.
4. Representations and Warranties of the Buyer. Buyer
represents and warrants to the Seller as follows:
4.1. Due Organization and Authority. Buyer is
duly organized, validly existing and in good standing under the Laws of the
jurisdiction under which it was organized and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being and as heretofore conducted.
4.2. Authority to Execute and Perform Agreement.
Buyer has the full legal right and power and all authority and approvals
required to enter into, execute and deliver this Agreement and each and every
agreement and instrument contemplated hereby to which Buyer is or will be a
party and to perform fully its obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by Buyer, and on the Closing Date
each and every agreement and instrument contemplated hereby to which Buyer is a
party will be duly executed and delivered by Buyer and (assuming due execution
and delivery hereof and thereof by the other parties hereto and thereto) this
Agreement and each such other agreement and instrument will be valid and binding
obligations of Buyer enforceable against Buyer in accordance with their
respective terms. The execution and delivery by Buyer of this Agreement and each
and every other agreement and instrument contemplated hereby to which Buyer is a
party, the consummation of the transactions contemplated hereby and thereby and
the performance by Buyer of this Agreement and each such other agreement and
instrument in accordance with their respective terms and conditions will not (a)
violate any provision of Buyer's governing or organizational documents; (b)
except for filings or approvals under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and the rules and regulations thereunder (the "HSR
Act"), and the Investment Canada Act and the Competition Act of Canada
(together, the "Canadian Acts"), if applicable, require Buyer to obtain any
consent, approval, authorization or action of, or make any filing with or give
any notice to, any Governmental Body or any other person; (c) violate, conflict
with or result in the breach of any of the terms and conditions of, result in a
material modification of the effect of, otherwise cause the termination of or
give any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both constitute) a default under, any Contract to
which Buyer is a party or by or
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19
to which Buyer or any of its properties is or may be bound or subject; or (d)
violate any Law or Order of any Governmental Body applicable to Buyer.
4.3. Purchase for Investment. Buyer is
purchasing the Purchased Shares for its own account for investment and not with
a view to public resale or distribution thereof.
4.4. Plan Acknowledgment. The Plan in the form
attached hereto as Exhibit C is satisfactory to Buyer in all material respects.
4.5. Financing. At the Closing, the Buyer,
together with its designees and assignees, considered together, will have the
financial ability to purchase the Purchased Shares. The Buyer has delivered true
and correct copies of commitments that it has heretofore received from potential
assignees, which commitments have not been withdrawn or modified as of the date
of this Agreement.
5. Covenants and Agreements.
5.1. Conduct of Business. From the date hereof
through the Closing Date, the Seller agrees that it (a) shall conduct its (and
shall cause its Subsidiaries to conduct their) business in the ordinary course
and, without the prior written consent of the Buyer, not to undertake any of the
actions specified in Section 3.24; (b) shall (and shall cause its Subsidiaries
to) use commercially reasonable efforts to preserve intact its business
relationships with third parties and (c) shall conduct its (and shall cause its
Subsidiaries to conduct their) business in a manner such that the
representations and warranties contained in Article 3 shall continue to be true
and correct on and as of the Closing Date as if made on and as of the Closing
Date. The Seller shall give the Buyer prompt notice of any event, condition or
circumstance occurring from the date hereof through the Closing Date that would
constitute a violation or breach of (i) any representation or warranty, whether
made as of the date hereof or as of the Closing Date, or (ii) any covenant of
Seller contained in this Agreement.
5.2. Corporate Examinations and Investigations.
Prior to the Closing Date, the Seller agrees that the Buyer shall be entitled,
through their employees and representatives, including, without limitation,
Paul, Weiss, Rifkind, Wharton & Garrison, Kenyon & Kenyon, and KPMG Peat Marwick
(collectively, the "Representatives"), to make such investigation of the
properties, businesses and operations of the Seller and the Subsidiaries, and
such examination of the books, records and financial condition of the Seller and
the Subsidiaries, as they wish. Any such investigation and examination shall be
conducted at reasonable times and under reasonable circumstances, and the Seller
shall, and shall cause the Subsidiaries to, cooperate fully therein. No
investigation by the Buyer shall diminish or obviate any of the representations,
warranties, covenants or agreements of the Seller contained in this
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20
Agreement. In order that the Buyer may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation as
they may wish of the affairs of the Seller and the Subsidiaries, the Seller
shall make available and shall cause the Subsidiaries to make available to the
Representatives during such period all such information and copies of documents
concerning the affairs of the Seller and the Subsidiaries as the Representatives
may reasonably request, shall permit the Representatives reasonable access to
the properties of the Seller and the Subsidiaries and all parts thereof
including access for the purpose of conducting sampling of the air, soil,
surface water and groundwater and shall cause their officers, Employees, consul
tants, agents, accountants and attorneys to cooperate fully with the
Representatives in connection with such review and examination. The Seller shall
make reasonably available and shall cause the Subsidiaries to make reasonably
available to the Representatives during such period all reports, assessments,
audits, reviews, plans, analyses and other documents or correspondence in the
possession or control of the Seller or any of the Subsidiaries relating to the
condition of the Environment, the effect of the operations of the Seller or any
of the Subsidiaries on the Environment or the compliance of the Seller or any of
the Subsidiaries with Safety and Environmental Laws. If this Agreement
terminates, (a) the Buyer shall keep confidential and shall not use in any
manner any information or documents obtained from the Seller or the Subsidiaries
concerning their properties, businesses and operations, unless (i) use or
disclosure of such information or documents shall, based on the advice of its
legal counsel, be required by applicable Law or Order of any Governmental Body,
(ii) use or disclosure of such information or documents is reasonably required,
based on the advice of its legal counsel, in connection with any Claim against
or involving the Buyer or (iii) such information or documents are readily
ascertainable from public or published information or trade sources (other than
information known generally to the public as a result of a violation of this
Section 5.2) or are already known or subsequently developed by the Buyer
independently of any investigation of the Seller or the Subsidiaries; and (b)
any documents obtained from the Seller or the Subsidiaries and all copies
thereof shall be returned.
5.3. Publicity. The parties will cooperate in
the issuance of any press releases or otherwise in making any public statements
with respect to the Contemplated Transactions. The parties further agree that no
publicity release or public statement or public communication concerning this
Agreement or the Contemplated Transactions shall be made without written advance
approval thereof by the Seller and Buyer, which approval shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may, upon the advice of counsel, be required by law or any listing
agreement with any national securities exchange.
5.4. Expenses. Subject to the occurrence of the
Closing hereunder, Reorganized Paragon shall bear the reasonable out-of-pocket
expenses incurred by each party (including any assignee of the Buyer), in
connection with the
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21
preparation, execution and performance of this Agreement and the Contemplated
Transactions, including the reasonable fees and expenses of agents,
representatives, counsel and accountants.
5.5. Brokerage. The Seller represents and
warrants to Buyer that, except for The Blackstone Group LP, no broker, finder,
agent or similar intermediary (a "Broker") has acted on behalf of the Seller or
any of the Subsidiaries in connection with this Agreement or the Contemplated
Transactions, and that, except for a fee to The Blackstone Group LP payable
pursuant to a Final Order of the Bankruptcy Court (the "Seller's Fee") there are
no brokerage commissions, finder's fees or similar fees or commissions payable
in connection therewith based on any agreement, arrangement or understanding
with the Seller or any of the Subsidiaries, or any action taken by the Seller or
any of the Subsidiaries. Buyer shall have no responsibility to pay the Seller's
Fee.
5.6. Required Consents. The Seller shall use
commercially reasonable best efforts, prior to the Closing, to obtain all
Required Consents and undertake all actions required pursuant to the Required
Consents. Buyer shall not incur or be liable for any expenses, costs or
obligations in connection therewith.
5.7. Permit Transfers. The Seller shall use
commercially reasonable best efforts, at and as of the Closing, to cause the
transfer, reissuance or modification of any Material Permits or Material
Environmental Permits to the extent that such is required to cause the Material
Permits and Material Environmental Permits to remain in full force and effect in
the possession of Reorganized Paragon or any of the Subsidiaries, as the case
may be, after the Closing. Buyer shall not incur or be liable for any expenses,
costs or obligations in connection therewith.
5.8. Further Assurances. Each of the parties
shall execute such Documents and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the Contemplated
Transactions. Each such party shall use commercially reasonable efforts to
fulfill or obtain the fulfillment of the conditions to the Closing set forth in
Articles 6 and 7.
5.9. Bankruptcy Covenants.
(a) The Seller shall promptly provide
the Buyer with (i) proposed final drafts of all documents, motions, orders,
filings or pleadings that the Seller proposes to file with the Bankruptcy Court
which relate to the consummation or approval of the Plan, this Agreement or any
provision therein or herein, and will provide the Buyer with reasonable
opportunity to review such filings and (ii) copies of any written objections to
the Plan or Disclosure Statement.
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(b) In the event an appeal is taken, or
a stay pending appeal is requested or reconsideration is sought, from either the
Confirmation Order or the Order of the Bankruptcy Court approving the Disclosure
Statement, the Seller shall promptly after becoming aware thereof notify the
Buyer of such notice of appeal, request for a stay pending appeal or motion for
reconsideration. The Seller shall also provide the Buyer with written notice
(and copies) of any other or further notice of appeal, motion or application
filed in connection with any appeal from or application for reconsideration of,
either of such orders and any related briefs.
5.10. Calculation of Cash Deficit and Cash Excess;
Net Working Capital.
(a) For purposes of determining the
principal amount of the New Notes to be issued under the Plan, the Cash Deficit
and Cash Excess shall be determined as of the Measuring Date and shall be
adjusted upward or downward, as the case may be, by (1) the amount by which the
liabilities listed on Schedule 5.10 hereto are greater or less on the Measuring
Date than the amounts set forth on Schedule 5.10 hereto and (2) any change in
Seller's Net Working Capital from June 27, 1999. As used herein, the "Measuring
Date" shall mean the last day of the fiscal month immediately preceding the
fiscal month in which the Closing occurs, unless the Buyer and Seller agree to
use a different date.
(b) Seller's Net Working Capital as of
the Measuring Date (the "Measuring Date Working Capital"), will be calculated
using the balance sheet (the "Measuring Date Balance Sheet"), substantially in
the form attached hereto as Exhibit D, prepared by Seller in accordance with
past practice and with the consultation and full participation of Buyer and as
of the close of business on the Measuring Date. The Measuring Date Balance Sheet
together with the calculation of the Measuring Date Net Working Capital shall be
certified by the Seller's chief financial officer as having been prepared in
accordance with the terms of this Agreement. The Measuring Date Balance Sheet
shall (a) fairly present in all material respects the consolidated financial
position of the Seller and the Subsidiaries as at the close of business on the
Measuring Date in accordance with GAAP applied on a basis consistent with those
used in the preparation of the Balance Sheet (but shall not include the
footnotes and other disclosures normally required by GAAP), (b) include line
items substantially consistent with those in the Balance Sheet, and (c) be
prepared in accordance with accounting policies and practices consistent with
those used in the preparation of the Balance Sheet (including calculating
reserves in accordance with the same methodology used to calculate such reserves
in preparation of the Balance Sheet).
(c) Simultaneously with the delivery of
the Measuring Date Balance Sheet, Seller will also prepare with the consultation
and full participation of the Buyer and cause to be delivered to Buyer a
calculation of the Cash Deficit or Cash
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23
Excess as of the Measuring Date (the "Measuring Date Statement"), in the form
attached hereto as Exhibit E, together with a certificate from its chief
financial officer certifying that the Measuring Date Statement has been prepared
in accordance with the terms of this Agreement, and a schedule based on such
Measuring Date Statement setting forth Seller's calculation of the projected
Cash Deficit or Cash Excess as of the Measuring Date (the "Measuring Date
Costs").
(d) Buyer and Seller agree that they
will, and agree to cause their respective employees to, cooperate in good faith
and assist in the preparation of the Measuring Date Statement and Measuring Date
Balance Sheet and the calculation of Measuring Date Working Capital and
Measuring Date Costs and in the conduct of the audits, reviews and negotiations
referred to in this Section, including without limitation, making available
their books, records, work papers and personnel.
6. Conditions Precedent to the Obligation of the Buyer
to Close. The obligation of Buyer to enter into and complete the Closing is
subject, at the option of Buyer acting in accordance with the provisions of
Article 11 with respect to termination of this Agreement, to the fulfillment on
or prior to the Closing Date of the following conditions, any one or more of
which may be waived by the Buyer:
6.1. Representations and Covenants. All
representations and warranties of the Seller contained in this Agreement
(disregarding all qualifications and exceptions contained therein related to
materiality) shall be true in all respects on and as of the Closing Date, with
the same force and effect as though made on and as of the Closing Date, except
for such breaches that, individually or in the aggregate, would not have a
Material Adverse Effect on the Seller. The Seller shall have performed and
complied in all respects with all covenants and agreements required by this
Agreement to be performed or complied with by the Seller on or prior to the
Closing Date, except for such breaches that, individually or in the aggregate,
would not have a Material Adverse Effect on the Seller. The Seller shall have
delivered to Buyer a certificate, dated the date of the Closing and signed by
the Seller, to the foregoing effect.
6.2. Consents and Approvals. All Required
Consents shall have been obtained or deemed by operation of the Plan and/or the
Confirmation Order to have been given and shall be in full force and effect, and
Buyer shall have been furnished with evidence reasonably satisfactory to it that
each such Required Consent has been either (i) expressly granted, or (ii)
deemed, by operation of the Plan and/or the Confirmation Order, to have been
given.
6.3. Opinion of Counsel to the Seller. The Buyer
shall have received the opinion of bankruptcy counsel to the Seller, dated the
date of the Closing, addressed to Buyer, in the form of Exhibit A.
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6.4. HSR Act Filing; Canada Acts. Any person
required in connection with the Contemplated Transactions to file a notification
and report form in compliance with, or obtain any consent or approval required
under, the HSR Act and/or the Canadian Acts shall have filed such form or
requested such consent or approval and the applicable waiting period with
respect to each such form (including any extension thereof by reason of a
request for additional information) shall have expired or been terminated or the
requisite consent or approval required thereby shall have been obtained without
any material condition or limitation.
6.5. No Claims. No Claims shall be pending or,
to the knowledge of the Buyer, the Seller or any of the Subsidiaries,
threatened, before any Governmental Body (including investigations instituted by
the United States Department of Justice or the Federal Trade Commission in
connection with antitrust regulations) to restrain or prohibit, or to obtain
damages or a discovery order in respect of, this Agreement or the consummation
of the Contemplated Transactions or which has had or may have, in the reasonable
judgment of the Buyer, a Material Adverse Effect on the Seller.
6.6. Confirmation Order. The Confirmation Order
in form and substance satisfactory to the Buyer, shall have been entered by the
Bankruptcy Court and shall not be stayed or reversed, ordered to be
reconsidered, or, in any manner not approved by Buyer, amended or modified.
6.7. Plan Confirmation. The Plan shall have been
confirmed by January 15, 2000 and shall have become effective in accordance with
its terms. Sections 7.5, 7.6, 9.5 (other than 9.5(b)), 9.6, 9.10, (other than
9.10(a)(ii)), 9.16(a), 9.22, 14.1, 14.2, 14.3, 14.4, 15.4, and any definition of
New Notes, New Securities, New Organizational Documents, Wellspring Investment
Price, Wellspring Rights Offering, New Notes Amount, Warrants or Rights, of the
Plan shall not have been modified or supplemented without the prior consent of
the Buyer and the Plan shall otherwise be satisfactory to Buyer in all material
respects.
6.8. Management. Senior management of Reorganized
Paragon shall be reasonably acceptable to Buyer (i.e., Reorganized Paragon shall
retain at least the previously identified senior management team, with exception
of Kevin Higgins and David W. Cole, which team presently includes Seller's
present senior management, including those individuals currently covered by the
TEEP Plan).
6.9. No Material Adverse Change. No material
adverse change (or event or condition that could result in a material adverse
change) shall have occurred in Seller's or any of the Subsidiaries' business,
condition (financial or otherwise), prospects, operations, assets or liabilities
or in financial markets generally ("Material Adverse Change") between September
26, 1999 and the Effective Date.
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6.10. Overbid Order. The Overbid Order shall
remain in full force and effect, and shall not have been stayed, vacated,
modified or supplemented without Buyer's prior consent, and the Seller shall
have complied with the terms of the Overbid Procedures and Overbid Order.
6.11. Ordinary Course. Seller shall (and shall
have caused its Subsidiaries to) have operated its business in the ordinary
course consistent with past practices and substantially consistent with the
Projections from September 26, 1999 through the Effective Date.
6.12. Exit Financing. All conditions precedent to
closing and initial borrowing under the Exit Financing (other than the
occurrence of the Effective Date) shall have been satisfied or waived and the
Exit Financing shall have been consummated in accordance with the material terms
contained in the Financing Commitment Letter and the Exit Financing shall
otherwise be reasonably satisfactory in form and substance to the Buyer in all
material respects.
6.13. Settlement Orders. The Kimberly-Clark
Settlement Order and Procter & Gamble Settlement Order shall be Final Orders;
provided, however, that if such Orders are not Final Orders on the Effective
Date they shall be deemed Final Orders upon the occurrence of the Effective
Date.
6.14. Settlements. The Kimberly-Clark Settlement
and the Procter & Gamble Settlement (including the licenses provided for
therein) shall have been extended through the Effective Date and shall be in
full force and effect.
6.15. Exclusive Period. Seller shall have
maintained its exclusive period to file and solicit acceptances of a plan
through January 15, 2000, and Seller shall not have either (i) filed with the
Bankruptcy Court a chapter 11 plan providing for the acquisition of Seller (or a
substantial portion of its ownership or assets) by a person or entity other than
Buyer, (ii) sought Bankruptcy Court approval of an acquisition of Seller (or a
substantial portion of its ownership or assets) other than by Buyer, or (iii)
except as described in the Plan, filed any amendment or modification to the
chapter 11 plan for Seller dated August 24, 1999 (the "Standalone Plan") or any
other chapter 11 plan providing for an internal reorganization of Seller, or
obtained Bankruptcy Court approval of a disclosure statement for the Standalone
Plan.
6.16. PTB Canada. PTB Canada shall have retained
$200,000, or such lesser amount as is required to satisfy its potential
liabilities. (It is understood that PTB Canada shall dividend any excess cash to
Seller for distribution pursuant to the Plan).
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6.17. Other Documents. The form and substance of
each of the New Notes (whose material terms shall include, among other things,
substantially the same terms as the material terms contained in Appendix 1), New
Note Indenture (whose material terms shall include, among other things,
substantially the same terms as the material terms contained in Appendix 1),
Restated Bylaws, Restated Certificate of Incorporation, Registration Rights
Agreement and Warrants, shall be satisfactory to Buyer in all material respects
and all conditions precedent to the issuance by Reorganized Paragon of the New
Notes and the Warrants other than the Closing hereunder shall have been
satisfied.
7. Conditions Precedent to the Obligation of the Seller
to Close. The obligation of the Seller to enter into and complete the Closing is
subject, at the option of the Seller acting in accordance with the provisions of
Article 11 with respect to termination of this Agreement, to the fulfillment on
or prior to the Closing Date of the following conditions, any one or more of
which may be waived by the Seller:
7.1. Representations and Covenants. The
representations and warranties of the Buyer contained in this Agreement shall be
true in all material respects on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. The Buyer shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by them
on or prior to the Closing Date. Buyer shall have delivered to the Seller a
certificate, dated the date of the Closing and signed by an officer of Buyer, to
the foregoing effect.
7.2. Certain Consents and Approvals. The Required
Consents shall have been obtained or deemed by operation of the Plan and/or the
Confirmation Order to have been given and shall be in full force and effect.
7.3. HSR Act Filing; Canadian Acts. Any person
required in connection with the Contemplated Transactions to file a notification
and report form in compliance with, or obtain any consent or approval required
under, the HSR Act and/or the Canadian Acts shall have filed such form or
requested such consent or approval and the applicable waiting period with
respect to each such form (including any extension thereof by reason of a
request for additional information) shall have expired or been terminated or the
requisite consent or approval required thereby shall have been obtained without
any material condition or limitation.
7.4. Confirmation Order. The Confirmation Order
shall have been entered by the Bankruptcy Court and shall not be stayed or
reversed, ordered to be reconsidered, or, in any manner not approved by Seller,
amended or modified.
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7.5. New Securities Issued. All conditions
precedent to the issuance of the New Notes and Warrants (other than the Closing
hereunder) shall have been satisfied.
8. Designation of Executory Contracts; Employment
Agreements; Confirmation of Overbid Order and Auction.
(a) The Buyer will have until thirty days before
the Confirmation Hearing to designate in writing the previously nonassumed
executory Contracts and unexpired Leases it wishes Seller to assume or reject,
in addition to the executory contracts and unexpired leases that Seller shall
have identified to the Buyer on or before thirty-five days before the
Confirmation Hearing that it intends to assume or reject. The Seller has
determined to reject all non-designated, nonassumed executory Contracts and
unexpired Leases and to assume all designated executory Contracts and unexpired
Leases.
(b) Buyer shall use its good faith efforts to
agree to mutually acceptable employment terms with the senior management team
referred to in Section 6.8 on or before one day before the Disclosure Statement
Hearing; provided that if Buyer does not either (a) waive the condition set
forth in Section 6.8 on or prior to the scheduled Closing Date, or (b) agree to
such employment terms on or before such date other than as a result of Seller's
actions, Buyer shall waive its rights to the Termination Fee.
(c) Seller agrees that (i) Buyer's bid is the
best bid and that the Bid Deadline has passed and the Auction is concluded and
(ii) other than sales to customers in the ordinary course of Seller's and its
Subsidiaries' businesses, it shall not seek any higher or better offer for all
or any portion of the Seller, its Subsidiaries or any of their respective assets
or businesses unless this Agreement is terminated according to its terms.
9. Monetization. Buyer shall use its best efforts (which shall
not require Buyer to commit or expend its own funds) prior to the Effective Date
to obtain third party financing for Reorganized Paragon if such third party
financing is available on commercially reasonable terms that (i) will not, among
other things, materially diminish the value of the New Common Stock and (ii)
will not be materially different than the terms of the New Notes, in lieu of all
or a portion of the New Notes (the "Monetization"), in each case in the
determination of Seller and Buyer. Any Monetization shall be described in the
form of a binding commitment delivered to the Seller not later than ten days
prior to the Confirmation Hearing. Reorganized Paragon shall distribute the net
cash proceeds of such Monetization, if any, pursuant to the Plan on the
Effective Date or as soon thereafter as practicable in place of New Notes with a
principal amount equal to such net cash proceeds. The Monetization shall not
delay the
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28
occurrence of the Effective Date if all other conditions to the Effective Date
are satisfied.
10. Survival of Representations and Warranties of the
Seller. Notwithstanding any right of the Buyer to investigate fully the affairs
of the Seller and the Subsidiaries and notwithstanding any knowledge of facts
determined or determinable by the Buyer pursuant to such investigation or right
of investigation, the Buyer has the right to rely fully upon the
representations, warranties, covenants and agreements of the Seller contained in
this Agreement or in any documents delivered pursuant to this Agreement. All
representations and warranties of the Seller contained in this Agreement shall
terminate on the Closing Date.
11. Termination of Agreement.
11.1. Termination. This Agreement may be
terminated prior to the Closing as follows:
(a) at the election of the Seller, if
any one or more of the conditions to the obligation of the Seller to close set
forth in Article 7 has not been fulfilled as of the scheduled Closing Date;
(b) at the election of the Buyer, if any
one or more of the conditions to the obligation of the Buyer to close set forth
in Article 6 has not been fulfilled as of the scheduled Closing Date;
(c) at the election of the Buyer, if
there is any injunction, stay, order, or decree of any nature of any
Governmental Body of competent jurisdiction that is in effect that prohibits or
materially restrains the consummation of the Contemplated Transactions;
(d) at the election of the Seller, if
the Buyer has materially breached any representation, warranty, covenant or
agreement contained in this Agreement, which breach cannot be or is not cured
prior to the scheduled Closing Date;
(e) at the election of the Buyer, if the
Seller has breached any representation, warranty, covenant or agreement
contained in this Agreement, which breach cannot be or is not cured prior to the
scheduled Closing Date and which breach(es), individually or in the aggregate,
would have a Material Adverse Effect on the Seller;
(f) at any time on or prior to the
Closing Date, by mutual written consent of the Seller and the Buyer;
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29
(g) at any time after February 15, 2000,
at the election of the Buyer, if by such date the Effective Date has not
occurred; or
(h) at any time after January 15, 2000,
at the election of Buyer, if by such date the Confirmation Order has not been
entered.
If this Agreement so terminates, it shall become null and void
and have no further force or effect, except as provided in Section 11.2.
11.2. Survival After Termination; Expense
Reimbursement and Termination Fee.
(a) If this Agreement terminates
pursuant to Section 11.1 and the Contemplated Transactions are not consummated,
this Agreement shall become null and void and have no further force or effect
except that any such termination shall be without prejudice to the rights of (i)
Buyer to receive the damages and payments described in Section 11.2(b) and
11.2(g) or (ii) Seller to seek damages on account of the nonsatisfaction of the
conditions set forth in Article 7 resulting from the material breach or
violation of the representations, warranties, covenants or agreements of Buyer
under this Agreement. Notwithstanding anything in this Agreement to the
contrary, the provisions of Section 5.2 relating to the obligation of the Buyer
to keep confidential and not to use certain information and data obtained by
them from the Seller or the Subsidiaries, as the case may be, and to return
documents to the Seller or the Subsidiaries, as the case may be, shall remain in
full force and effect.
(b) The parties agree that if this
Agreement is terminated under Section 11.1 for any reason other than (i) the
occurrence of a Material Adverse Change, (ii) notwithstanding the reasonable
efforts of Seller, the Plan is not confirmed or confirmable by the Bankruptcy
Court or not consummated due to, as applicable, (x) failure to obtain the
requisite votes accepting the Plan or (y) the Plan's failure to comply with the
provisions of the Bankruptcy Code, (iii) pursuant to Sections 11.1(b), but only
if the failure to satisfy such condition is as a result of the non-satisfaction
of Section 6.4, which was not the result of the failure by Seller to make any
timely filing or provide any required submission or information, 11.1(c) or
11.1(d), or (iv) pursuant to Sections 11.1(g) or 11.1(h), but only if the event
specified in such Section has not occurred on or prior to the date giving rise
to such termination right (and could not have occurred on or prior to the date
of Buyer's termination pursuant thereto) solely as a result of an act of God,
the Buyer shall be entitled at its option to either (1) the remedy of specific
performance or (2) payment of a $2 million Termination Fee, which shall be in
lieu of any Termination Fee provided under the Overbid Order and the
Stipulation. Buyer shall not otherwise have the right to a Termination Fee
arising from the confirmation of a chapter 11 plan providing for an internal
reorganization of Seller.
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30
(c) If Buyer elects to receive payment
of the Termination Fee (in lieu of specific performance) under Section 11.2(b),
such payment, together with the Expense Reimbursement, shall (i) be full
consideration for the Buyer's efforts and expenses in connection with this
Agreement and the Contemplated Transactions, including the substantial due
diligence efforts of the Buyer and its professionals and advisors and (ii)
constitute liquidated and agreed damages in respect of this Agreement and the
Contemplated Transactions, and Seller and Reorganized Paragon shall have no
further obligations under this Agreement or further liability to Buyer. The
Buyer and Seller believe that it is impossible to determine accurately the
amount of all damages that Buyer would incur by virtue of the failure to proceed
with the Contemplated Transactions, and Buyer's sole and exclusive remedy for
any such failure shall be to receive payment of the Expense Reimbursement and,
at Buyer's election, either specific performance or the Termination Fee. Except
as provided in this Section, Buyer shall have no right or remedy against Seller,
at law or in equity, by reason of a breach by Seller of its obligation to
proceed with the Contemplated Transactions.
(d) The Expense Reimbursement and
Termination Fee shall constitute first priority administrative expenses of the
Seller pursuant to sec tion 503(b) of the Bankruptcy Code.
(e) Notwithstanding anything herein to
the contrary, in no event shall the aggregate of all damages for which Seller
shall have an obligation to compensate Buyer in respect of any Claim or Claims
for breach of this Agreement exceed the Termination Fee and Expenses
Reimbursement.
(f) The Seller acknowledges that the
Buyer would not have invested efforts in negotiating and documenting the
Contemplated Transactions and incurring duties to pay its Representatives if the
Buyer were not entitled to the Termination Fee plus Expense Reimbursement in
accordance with the terms hereof.
(g) Seller, after consultation with the
Creditors' Committee, the Equity Committee, Procter & Gamble and Kimberly-Clark,
hereby acknowledges and reconfirms that the Buyer shall receive the Expense
Reimbursement if this Agreement is terminated for any reason, except that Buyer
shall only receive the Partial Expense Reimbursement if this Agreement is
terminated pursuant to Section 11.1(d).
(h) If this Agreement is terminated by
Seller pursuant to Section 11.1(d), Seller shall set-off the Partial Expense
Reimbursement against damages (if any) which it may be awarded by Final Order
against Buyer.
12. Mabesa; Dilution.
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31
(a) On the Effective Date, Reorganized Paragon
and Buyer shall enter into an option agreement (the "Mabesa Option Agreement")
which shall provide that if during the period commencing on the Effective Date
and ending on the date which is three hundred and sixty-five days thereafter,
Reorganized Paragon determines to cause its Subsidiary to exercise its option
(the "Mabesa Option") to acquire up to an additional 34% of the shares of Groupo
P.I. Mabe, S.A. de C.V., Buyer shall have the right to invest up to an
additional $25 million (the "Mabesa Amount") to be used by Reorganized Paragon
for such purpose. The Mabesa Option Agreement will also provide that the if
Buyer invests the Mabesa Amount in Reorganized Paragon, upon making such
investment, Buyer and those persons who exercise preemptive rights shall acquire
additional shares of New Common Stock attributable to the Mabesa Amount (the
"Mabesa Shares") at a purchase price per share based on the price per share paid
for the Purchased Shares hereunder. The Mabesa Shares will dilute, pro rata, the
percentage of New Common Stock that will be issued (x) to Buyer and (y) to
Classes 4 and 5 under the Plan. The Mabesa Option Agreement will provide that
the investment of the Mabesa Amount will be on terms mutually acceptable to
Buyer and Reorganized Paragon and that Buyer reserves the right to fund the
exercise of the Mabesa Option in any other economically equivalent manner
permitted under applicable law; provided, however, that such investment will be
in a form which allows for the exercise of preemptive rights.
(b) The New Common Stock to be purchased by
Buyer and any New Common Stock purchased pursuant to the Rights Offering shall
be subject to pro rata dilution pursuant to Section 12(a) and the Management
Incentive Plan.
13. Miscellaneous.
13.1. Certain Definitions.
(a) Capitalized terms used herein but
not otherwise defined herein have the meaning assigned thereto in the Bankruptcy
Code or in the Plan, as applicable. In addition to the terms defined above, as
used in this Agreement, the following terms have the following meanings:
"Accounts Payable" means all accounts payable of the Seller and the
Subsidiaries, taken as a whole, whether arising under a Contract or otherwise.
"Accounts Receivable" means any right to payment for goods sold or
leased or for services rendered, whether arising under a Contract or otherwise.
"affiliate" means, with respect to any person, any other person
controlling, controlled by or under common control with, or the parents, spouse,
lineal descendants or beneficiaries of, such person.
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32
"Auction" has the meaning set forth in the Overbid Order.
"Bankruptcy Code" means title 11 of the United States Code, as amended
from time to time, as applicable to the Case.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as
amended, promulgated under section 2075 of title 28 of the United States Code,
as applicable to the Case.
"Bid Deadline" has the meaning set forth in the Overbid Order.
"Business Day" means any day other than a Saturday, Sunday or "legal
holiday" as defined in Bankruptcy Rule 9006(a).
"Cash Deficit" means the amount, if any, by which the amount of (a)
Exit Financing Costs and other closing expenses (not to exceed $2 million),
Monetization costs, the amount of any proceeds of sales or other dispositions of
assets out of the ordinary course consummated after October 14, 1999 (with the
exception of the Macon equipment line sale to Groupo P.I. Mabe, S.A. de C.V.),
reductions in capital expenditures from the amount included in the Projections
(such amount to be determined in consultation with Buyer), the amount of any
income tax refunds not included in the Projections, any payments after October
14, 1999 in respect of indebtedness of PMI to Seller in excess of $2.9 million,
and Allowed Administrative Claims (exclusive, however, of the Assumed
Liabilities listed on Schedule 13.1 hereto), including without limitation all
bankruptcy-related professional fees, (1) "confirmation bonuses," and paid and
estimated pro rated 1999 tax liabilities, (b) Priority Tax Claims and Other
Priority Claims, and (c) Priority Claims and Class 2 Claims (secured) paid in
cash or reinstated by Reorganized Paragon ((a), (b) and (c), above,
collectively, the "Cash Deductions") exceeds cash available for distribution
under the Plan on the Effective Date.
"Cash Excess" means the amount, if any, by which the amount of cash
available for distribution on the Effective Date exceeds the Cash Deductions.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Products" means all goods manufactured by the Seller or any of
its Subsidiaries.
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(1) Non-ordinary course professionals shall submit an estimate of their
total unpaid fees and expenses at least 10 days prior to the date of
the Confirmation Hearing.
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33
"Confirmation Date" means the date that the Confirmation Order is
entered by the Bankruptcy Court.
"Confirmation Hearing" means the hearing held by the Bankruptcy Court
pursuant to section 1128 of the Bankruptcy Code on confirmation of the Plan, as
such hearing may be adjourned or continued from time to time.
"Confirmation Order" means the Order of the Bankruptcy Court confirming
the Plan pursuant to section 1129 of the Bankruptcy Code.
"Copyrights" means any foreign or United States copyright registrations
and applications for registration thereof, and any non-registered copyrights.
"Creditors Committee" means the Official Committee of Unsecured
Creditors appointed in the Case by the United States Trustee pursuant to section
1102 of the Bankruptcy Code, on or about January 16, 1998, as reconstituted from
time to time.
"DIP Credit Agreement" means that certain Debtor in Possession credit
facility approved by the Bankruptcy Court by interim order dated January 21,
1998 and Final Order dated January 30, 1998, as provided under the Revolving
Credit and Guaranty Agreement dated as of January 7, 1998, among the Debtor, as
borrower, certain subsidiaries of the Debtor, as guarantors, and the DIP Bank
Agent, as agent for the lenders thereunder, as amended by the First Amendment,
dated January 30, 1998, the Second Amendment, dated March 23, 1998, the Third
Amendment, dated April 15, 1998, the Fourth Amendment, dated September 28, 1998,
and the Fifth Amendment, dated as of June 14, 1999, and as thereafter amended in
accordance with its terms up to and including the Effective Date, or the
agreement or other documents evidencing any successor or replacement
postpetition financing facility, and all documents related thereto.
"Disclosure Statement" means the disclosure statement, including all
exhibits, appendices and attachments thereto, filed in connection with the Plan
and approved by Order of the Bankruptcy Court in accordance with section 1125 of
the Bankruptcy Code, as such statement may be amended or supplemented from time
to time.
"Disclosure Statement Hearing" means the hearing held by the Bankruptcy
Court to consider approval of the Disclosure Statement, as such hearing may be
adjourned or continued from time to time.
"D&O Insurance" means tail coverage for a period of six years under
Seller's existing or comparable directors and officers insurance policy covering
its current directors and officers.
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34
"D&O Insurance Cost" means the cost of the D&O Insurance.
"Effective Date" means the first Business Day following satisfaction of
the conditions precedent to the effectiveness of the Plan specified in the Plan
(subject to the terms of this Agreement), unless otherwise waived as provided in
the Plan (subject to the terms of this Agreement), or such other date fixed by
the Seller upon notice to the Bankruptcy Court.
"Employee" means any individual employed by the Seller or any of the
Subsidiaries.
"Environment" means navigable waters, waters of the contiguous zone,
ocean waters, natural resources, surface waters, ground water, drinking water
supply, land surface, subsurface strata, ambient air, both inside and outside of
buildings and structures, man-made buildings and structures, and plant and
animal life on earth.
"Equity Committee" means the Official Committee of Interest Holders
appointed in the Case by the United States Trustee pursuant to section 1102 of
the Bankruptcy Code, on or about November 2, 1998, as reconstituted from time to
time.
"Exit Financing" means a working capital line of credit for
post-Effective Date operations that provides for a committed facility of not
less than $75 million (subject to borrowing availability) as of the Effective
Date (including the DIP Credit Agreement, if reinstated pursuant to the Plan).
"Exit Financing Costs" means all fees and expenses payable on or prior
to the Effective Date in connection with the Exit Financing pursuant to the
Financing Commitment Letter.
"Expense Reimbursement" has the meaning set forth in the Overbid Order.
"Final Order" means an order or judgment of the Bankruptcy Court that
has not been reversed, stayed, modified or amended and as to which the time to
appeal or seek review, rehearing, reargument or certiorari has expired and as to
which no appeal or petition for review, rehearing, reargument, stay or
certiorari is pending, or as to which any right to appeal or to seek certiorari,
review, or rehearing has been waived, or, if an appeal, reargument, petition for
review, certiorari or rehearing has been sought, the order or judgment of the
Bankruptcy Court that has been affirmed by the highest court to which the order
was appealed or from which the reargument, review or rehearing was sought, or
certiorari has been denied, and as to which the time to take any further appeal
or seek further reargument, review or rehearing has expired.
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35
"Financing Commitment Letter" means the commitment and/or agreement
from financial institutions with respect to a revolver/working capital facility
(not for purposes of the Monetization and which would be undrawn on the
Effective Date except for purposes of funding the Cash Deficit) of at least $75
million (subject to borrowing availability) that would be available to
Reorganized Paragon on the Effective Date. A copy of the Financing Commitment
Letter is attached hereto as Exhibit B.
"Hazardous Substance" means any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste, industrial
substance or waste, petroleum or petroleum-derived substance or waste,
radioactive substance or waste, or any constituent of any such substance or
waste regulated under or defined by any Safety and Environmental Law.
"IRS" means the Internal Revenue Service.
"Internet Assets" means any internet domain names and other computer
user identifiers and any rights in and to sites on the world wide web including
rights in and to any text, graphics, audio and video files, and html or other
code incorporated in such sites.
"Inventories" means all of the inventory of the Seller and its
Subsidiaries including without limitation: (i) all raw materials, work in
process, parts, components, assemblies, supplies and materials used or consumed
in the business of the Seller and its Subsidiaries; (ii) all goods, wares and
merchandise, finished or unfinished, held for sale or lease or leased or
furnished or to be furnished under contracts of service; and (iii) all goods
returned or repossessed by the Seller and its Subsidiaries.
"Kimberly-Clark" means Kimberly-Clark Corporation, a Delaware
corporation.
"Kimberly-Clark Settlement" means the settlement agreement dated March
19, 1999, as amended through the date of this Agreement, by and between the
Seller and Kimberly-Clark (including all exhibits thereto and any related
agreements).
"Kimberly-Clark Settlement Order" means the Order of the Bankruptcy
Court authorizing and approving the Kimberly-Clark Settlement.
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, license, charge, option, right of first refusal,
easement, servitude, transfer restriction, encumbrance or any other restriction
or limitation whatsoever.
"Management Employment Agreement" means the existing or superseding
employment contracts agreed to between Seller's senior management and Buyer.
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36
"Management Incentive Plan" means the equity incentive plan for members
of Reorganized Paragon's management on terms which are otherwise mutually
acceptable for Seller and Buyer in substantially the form set forth in Appendix
2.
"Mask Works" has the meaning set forth in section 901(a)(2) of Title 17
of the United States Code.
"Material Contract" means (i) any (x) Lease for real property or (y)
Lease for personal property, in each case requiring aggregate payments after
Closing of $250,000 or more; (ii) any contract for the purchase of materials,
supplies, goods, services, equipment or other assets that has a term of at least
one year and that requires aggregate payments after Closing of $250,000 or more;
(iii) any contract that requires aggregate payments after Closing of $250,000 or
more; (iv) any sales, distribution or other similar contracts not entered into
in the ordinary course providing for the sale by the Seller or any of its
Subsidiaries of materials, supplies, goods, services, equipment or other assets
that requires aggregate payments after Closing of $250,000 or more; or (v) any
partnership, joint venture or other similar Contract.
"Net Working Capital" means Accounts Receivable plus Inventories less
Accounts Payable (including checks issued but not cleared) as determined in
accordance with GAAP as consistently applied.
"New Note Indenture" means the indenture, dated as of the Effective
Date, executed by Reorganized Paragon and the New Note Indenture Trustee,
pursuant to which the New Notes will be issued, which Indenture will contain
terms substantially similar to the summary of terms contained on Appendix 1
annexed hereto.
"New Note Indenture Trustee" means any person denominated as the
trustee in the New Note Indenture.
"New Notes" means, collectively, the notes to be issued on or after the
Effective Date by Reorganized Paragon pursuant to the New Note Indenture in the
principal amount of $160,000,000, as adjusted in accordance with the Note
Adjustment provisions of the Plan.(2) The principal terms of the New Notes are
attached hereto as Appendix 1.
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(2) Alternatively, Reorganized Paragon would issue $150 million of New
Notes (subject to the Monetization and the Note Adjustment) in
substantially the form set forth in Appendix 1 hereto, with the
exception that the interest rate for such New Notes shall not be the
rate provided in Appendix 1 but, instead, shall be the prevailing
market rate for high-yield notes rated "B" on the most recent weekly
rating date prior to the Effective Date, as reported by Salomon Smith
Barney, rounded down to the nearest 1/8th. Seller, after consultation
with the
(continued...)
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37
"Overbid Order" means that certain Order entered by the Bankruptcy
Court on July 13, 1999 approving the Expense Reimbursement and Termination Fee
and "Overbid Procedures" (as defined therein); as modified by that certain
Stipulation approved by the Bankruptcy Court on September 13, 1999 and the
commitment letter between Wellspring Capital Management LLC and Seller dated
October 14, 1999.
"Overbid Procedures" means the Overbid Procedures approved by the
Overbid Order as amended or modified from time to time with the consent of the
Buyer and Seller.
"PMI" means Paragon-Mabesa International, S.A. de C.V.
"PTB Canada" means Paragon Trade Brands (Canada) Inc., a Canadian
corporation.
"Partial Expense Reimbursement" means $565,000, representing fees,
costs and expenses included in the Expense Reimbursement which were incurred (i)
on or prior to October 14, 1999 and (ii) in connection with the Wellspring
Commitment (as defined in the Overbid Order) and the satisfaction of the
conditions thereof.
"Patents" means any foreign or United States patents and patent
applications including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on such
applications and whether or not such applications are modified, withdrawn or
resubmitted.
"person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
"Petition Date" means January 6, 1998.
"Plan" means the Second Amended Plan of Reorganization, dated November
15, 1999, for the Seller, and all exhibits and supplements hereto, as amended or
modified by the Proponents (as defined in the Plan) in accordance with the Plan,
the Bankruptcy Code and the Bankruptcy Rules and the terms of this Agreement,
pursuant to which the Contemplated Transactions will be consummated in
accordance with the terms of this Agreement. A copy of the Plan is attached
hereto as Exhibit C.
- -----------
(2) (...continued)
Creditors Committee, Procter & Gamble, Kimberly-Clark and the Equity
Committee, shall elect whether to accept this alternate form of the New
Notes on or prior to the second day prior to the Disclosure Statement
Hearing.
<PAGE> 133
38
"Procter & Gamble" means The Procter & Gamble Company, an Ohio
corporation.
"Procter and Gamble Settlement Agreement" means the settlement
agreement dated February 2, 1999, as amended through the date of this Agreement,
by and between the Seller and P&G (including all exhibits thereto and any
related agreements).
"Procter and Gamble Settlement Order" means the Order of the Bankruptcy
Court authorizing and approving the Procter and Gamble Settlement Agreement.
"property" or "properties" means real, personal or mixed property,
tangible or intangible.
"Restated Bylaws" means the bylaws of Reorganized Paragon, as amended
and restated in connection with the Plan.
"Restated Certificate of Incorporation" means the certificate of
incorporation of Reorganized Paragon, as amended and restated in connection with
the Plan, which shall provide that holders of New Common Stock will have the
right to participate on a pro rata basis in any offering of New Common Stock by
Reorganized Paragon on the same terms and conditions as Buyer, including,
without limitation, with respect to the Mabesa Amount (the "Preemptive Rights"),
provided that Buyer shall have no obligation to invest the Mabe S.A. Amount or
any portion thereof.
"Rights" means the rights to purchase shares of New Common Stock for a
purchase price based upon the Buyer's purchase price in accordance with the
principal terms set forth on Appendix 4.
"Rights Offering" has the meaning set forth in Appendix 4.
"Safety and Environmental Laws" means all Laws and Orders relating to
pollution, protection of the Environment, public or worker health and safety, or
the emission, discharge, release or threatened release of Hazardous Substances
into the Environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances including the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., the Toxic Substances
Control Act, 15 U.S.C. ss. 2601 et seq., the Federal Water Pollution Control
Act, 33 U.S.C. ss. 1251 et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq.,
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 121 et
seq., the Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq., the
Asbestos Hazard Emergency Response Act, 15 U.S.C. ss. 2601 et seq., the Safe
Drinking Water Act, 42
<PAGE> 134
39
U.S.C. ss. 300f et seq., the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et
seq., and analogous state acts.
"Seller's Disclosure Memorandum" means the disclosure memorandum of
even date herewith delivered by the Seller to the Buyer in connection with the
execution and delivery of this Agreement by the parties hereto.
"Software" means any computer software programs, source code, object
code, data and documentation.
"TEEP Plan" means that certain top eight executives incentive plan
authorized and approved by Final Order of the Bankruptcy Court dated August 10,
1998.
"Termination Fee" has the meaning set forth in the Overbid Order.
"Trade Secrets" means any trade secrets, research records, processes,
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks, service
marks, trade dress, trade names, brand names, designs and logos, corporate
names, product or service identifiers, whether registered or unregistered, and
all registrations and applications for registration thereof.
"Wal*Mart" means Wal*Mart Stores, Inc.
"Warrants" means warrants to purchase New Common Stock of Recognized
Paragon which shall contain terms substantially similar to the summary of
terms contained on Appendix 3.
"Weyerhaeuser" means Weyerhaeuser Company, a Washington corporation.
"White Cloud Arrangement" means the placement of orders by Wal*Mart,
and Seller's or Reorganized Paragon's fulfillment of such orders for diaper
products manufactured under the "White Cloud" trademark or any understanding
or agreement between Wal*Mart and Seller or Reorganized Paragon as to the
placement of such orders and the fulfillment thereof.
(b) The following capitalized terms are
defined in the folowing Sections of this Agreement:
<PAGE> 135
40
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Audited Financials 3.8
Balance Sheet 3.8
Balance Sheet Date 3.8
Bankruptcy Court Recitals
Benefit Plan 3.20
Broker 5.5
Buyer Preamble
Canadian Acts 4.2
Case Recitals
Claims 3.15
Closing 1.1
Closing Costs 5.10(e)
Closing Date 2
Closing Statement 5.10(e)
Code 3.10(f)
Commonly Controlled Entity 3.20(c)
Contemplated Transactions 3.1
Contracts 3.13
ERISA 3.20
Exchange Act 3.7
Governmental Bodies 3.11
HSR Act 4.2
Identified SEC Documents 3.7
Intellectual Property 3.18(a)
Interim Financials 3.8
IP Licenses 3.18(b)
Laws 3.11
Liabilities 3.8
Mabesa Amount 12
Mabesa Shares 12
Mabesa Option 12
Mabesa Option Agreement 12
Material Adverse Change 6.9
Material Adverse Effect on Seller 3.1
Material Environment Permits 3.14(a)
Material Permits 3.12
Measuring Date 5.10(a)
Measuring Date Balance Sheet 5.10(b)
Measuring Date Costs 5.10(c)
Measuring Date Statement 5:10(c)
Measuring Date Working Capital 5.10(b)
</TABLE>
<PAGE> 136
41
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Monetization 9
New Common Stock Recitals
Orders 3.11
Permits 3.12
Permitted Liens 3.19
Projections 3.25
Purchase Price 1.1
Purchased Shares 1.1
Real Properties 3.14(c)
Reorganized Paragon Recitals
Representatives 5.2
Required Consents 3.13
SEC 3.7
SEC Documents 3.7
Seller Preamble
Sellers' Fee 5.5
Seller's Termination Fee 11.2(d)
Standalone Plan 6.15
Subsidiaries 3.2
Tangible Property 3.17
Taxes 3.10(a)
</TABLE>
13.2. Consent to Jurisdiction and Service of
Process. All disputes arising out of or related to this Agreement, including,
without limitation, any dispute relating to the interpretation, meaning or
effect of any provision hereof, will be resolved in the Bankruptcy Court and the
parties hereto each submit to the exclusive jurisdiction of the Bankruptcy Court
for the purpose of adjudicating any such dispute.
13.3. Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, or sent by facsimile transmission or, if mailed, five days
after the date of deposit in the United States mails, as follows:
(i) if to the Buyer, to:
PTB Acquisition Company, LLC
c/o Wellspring Capital Management, LLC
620 Fifth Avenue
New York, New York 10020-1579
<PAGE> 137
42
Attention: David C. Mariano
Telephone: (212) 332-7555
Facsimile: (212) 332-7575
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert Drain, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
(ii) if to the Seller, to:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Attention: General Counsel
Telephone: (678) 969-5000
Facsimile: (678) 969-4000
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Alexander W. Patterson, Esq.
Telephone: (404) 881-7000
Facsimile: (404) 881-7777
and
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Myron Trepper, Esq.
Telephone: (212) 728-8000
Facsimile: (212) 728-8111
<PAGE> 138
43
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
13.4. Entire Agreement. This Agreement and any
other collateral agreements executed in connection with the consummation of the
Contemplated Transactions (including, without limitation, the Overbid Order)
contain the entire agreement among the parties with respect to the purchase of
the Purchased Shares and supersede all prior agreements, written or oral, with
respect thereto.
13.5. Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the Buyer and the Seller or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any such right, power
or privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity. The rights and remedies of any party based
upon, arising out of or otherwise in respect of any inaccuracy in or breach of
any representation, warranty, covenant or agreement contained in this Agreement
or any documents delivered pursuant to this Agreement shall in no way be limited
by the fact that the act, omission, occurrence or other state of facts upon
which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant or agreement
contained in this Agreement or any documents delivered pursuant to this
Agreement (or in any other agreement between the parties) as to which there is
no inaccuracy or breach.
13.6. Governing Law. This Agreement shall be
governed and construed in accordance with (a) the laws of the State of New York
applicable to agreements made and to be performed entirely within such State and
(b) any applicable provisions of the Bankruptcy Code.
13.7. Binding Effect; Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and legal representatives. This Agreement is not
assignable except by operation of law, except that Buyer may assign its rights
hereunder to any of its affiliates, to any successor to all or substantially all
of its business or assets or to any bank or other financial institution that may
provide financing for the Contemplated Transactions.
<PAGE> 139
44
13.8. Usage. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require. All terms defined in this Agreement in their singular or
plural forms have correlative meanings when used herein in their plural or
singular forms, respectively. Unless otherwise expressly provided, the words
"include," "includes" and "including" do not limit the preceding words or terms
and shall be deemed to be followed by the words "without limitation."
13.9. Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may consist of
a number of copies hereof each signed by less than all, but together signed by
all of the parties hereto.
13.10. Exhibits and Schedules; Cross References.
The Exhibits, Schedules and Seller's Disclosure Memorandum are a part of this
Agreement as if fully set forth herein and all references to this Agreement
shall be deemed to include the Exhibits, Schedules and Seller's Disclosure
Memorandum. All references herein to Sections, Exhibits, Schedules and Seller's
Disclosure Memorandum shall be deemed references to such parts of this
Agreement, unless the context shall otherwise require. Disclosure of any fact or
item in any Schedule hereto or in any Section of Seller's Disclosure Memorandum
referenced by a particular Section in this Agreement shall not be deemed
disclosed with respect to any other Section or Schedule or in any other section
of Seller's Disclosure Memorandum unless an explicit cross-reference appears
indicating the other Sections or Schedules to which such fact or item also
relates.
13.11. Headings. The headings in this Agreement are
for reference only, and shall not affect the interpretation of this Agreement.
13.12. Interpretation. The parties acknowledge and
agree that: (i) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (ii) the rule
of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto, regardless of which party was generally responsible
for the preparation of this Agreement.
<PAGE> 140
45
13.13. Severability of Provisions.
(a) If any provision or any portion of
any provision of this Agreement shall be held invalid or unenforceable, the
remaining portion of such provision and the remaining provisions of this
Agreement shall not be affected thereby.
(b) If the application of any provision
or any portion of any provision of this Agreement to any person or circumstance
shall be held invalid or unenforceable, the application of such provision or
portion of such provision to persons or circumstances other than those as to
which it is held invalid or unenforceable shall not be affected thereby.
13.14. Assignment by Buyer. Subject to, and without
limiting Buyer's obligation to timely consummate this Agreement in accordance
with its terms, the parties acknowledge and agree that the Buyer may assign its
right to purchase any or all of the Purchased Shares to one or more assignees
upon written notice to the Seller at any time prior to the Closing, subject only
to such assignee confirming in writing to the Seller as follows:
(a) Such assignee is duly organized,
validly existing and in good standing under the Laws of the jurisdiction under
which it was organized and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being and as
heretofore conducted.
(b) Such assignee agrees to assume the
obligations of the Buyer to purchase the Purchased Shares assigned to such
assignee.
(c) Such assignee has the full legal
right and power and all authority and approvals required to enter into, execute
and deliver its assumption confirmation and to perform fully its obligations
hereunder and thereunder. Such assumption confirmation has been duly executed
and delivered by such assignee, and is a valid and binding obligation of such
assignee enforceable against such assignee in accordance with its terms. The
execution and delivery by such assignee of such assignment confirmation, the
consummation of the transactions contemplated thereby and the performance by
such assignee of its obligations thereunder will not (a) violate any provision
of such assignee's governing or organizational documents; (b) except for filings
under the HSR Act, require such assignee to obtain any consent, approval,
authorization or action of, or make any filing with or give any notice to, any
Governmental Body or any other person; (c) violate, conflict with or result in
the breach of any of the terms and conditions of, result in a material
modification of the effect of, otherwise cause the termination of or give any
other contracting party the right to terminate, or constitute (or with notice or
lapse of time or both constitute) a default under, any Contract to which such
assignee is a party or by or to which such assignee or
<PAGE> 141
46
any of its properties is or may be bound or subject; or (d) violate any Law or
Order of any Governmental Body applicable to such assignee.
(d) Such assignee is purchasing the
Purchased Shares assigned to it for its own account for investment and not with
a view to public resale or distribution thereof.
13.15. Seller's Knowledge. For purposes of any
representation or warranty of Seller set forth in this Agreement, the words "to
Seller's knowledge" or "to the knowledge of Seller" shall mean the actual
knowledge as of the date of such representation or warranty of any of the
persons identified on Schedule 13.15 hereto.
<PAGE> 142
47
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
BUYER:
PTB ACQUISITION COMPANY, LLC
By /s/ David C. Mariano
--------------------------
Name: David C. Mariano
Title: President and Treasurer
SELLER:
PARAGON TRADE BRANDS, INC.
By /s/ Alan J. Lyron
---------------------------
Name: Alan J. Lyron
Title: Chief Financial Officer
The undersigned hereby agrees that it shall cause the Buyer to
pay, or that it shall pay, any damages to which the Seller may be entitled in
the event that the foregoing Stock Purchase Agreement is terminated by the
Seller pursuant to Section 11.1(d) thereof.
WELLSPRING CAPITAL MANAGEMENT LLC
By /s/ David C. Mariano
--------------------------
Name: David C. Mariano
Title: Partner
<PAGE> 1
EXHIBIT T3E.2
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
- ------------------------------------------------------x
)
IN RE ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Debtor. ) JUDGE MURPHY
)
Federal Tax I.D. No. 91-1554663 )
)
- ------------------------------------------------------x
DISCLOSURE STATEMENT FOR SECOND
AMENDED PLAN OF REORGANIZATION
ALSTON & BIRD LLP
Attorneys for Debtor and
Debtor in Possession
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
(404) 881-7000
and
WILLKIE FARR & GALLAGHER
Special Reorganization Counsel for
Debtor and Debtor in Possession
787 Seventh Avenue
New York, New York 10019-6099
Dated: November 15, 1999 (212) 728-8000
<PAGE> 2
THIS DISCLOSURE STATEMENT (THE "DISCLOSURE STATEMENT") AND ITS
RELATED DOCUMENTS ARE THE ONLY DOCUMENTS AUTHORIZED BY THE BANKRUPTCY COURT TO
BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES ACCEPTING THE SECOND
AMENDED PLAN OF REORGANIZATION, DATED AS OF NOVEMBER 15, 1999 (THE "PLAN"),
JOINTLY PROPOSED BY THE DEBTOR AND THE CREDITORS' COMMITTEE. NO REPRESENTATIONS
HAVE BEEN AUTHORIZED BY THE BANKRUPTCY COURT CONCERNING THE DEBTOR, ITS BUSINESS
OPERATIONS OR THE VALUE OF ITS ASSETS, EXCEPT AS EXPLICITLY SET FORTH IN THIS
DISCLOSURE STATEMENT. NO PARTY IS AUTHORIZED BY THE DEBTOR TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS WITH RESPECT TO THE PLAN, THE NEW
SECURITIES, THE RIGHTS OR THE WARRANTS OTHER THAN THAT WHICH IS CONTAINED IN
THIS DISCLOSURE STATEMENT. NO REPRESENTATIONS OR INFORMATION CONCERNING THE
DEBTOR, ITS FUTURE BUSINESS OPERATIONS OR THE VALUE OF ITS PROPERTIES HAVE BEEN
AUTHORIZED BY THE DEBTOR OTHER THAN AS SET FORTH HEREIN.
THIS DISCLOSURE STATEMENT CONTAINS ONLY A SUMMARY OF THE PLAN.
THIS DISCLOSURE STATEMENT IS NOT INTENDED TO REPLACE CAREFUL AND DETAILED REVIEW
AND ANALYSIS OF THE PLAN. IT IS INTENDED ONLY TO AID AND SUPPLEMENT SUCH REVIEW.
THIS DISCLOSURE STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED PROVISIONS SET FORTH IN THE PLAN (WHICH IS ATTACHED AS EXHIBIT "A" TO
THIS DISCLOSURE STATEMENT). IN THE EVENT OF A CONFLICT BETWEEN THE PLAN AND THE
DISCLOSURE STATEMENT, THE PROVISIONS OF THE PLAN WILL GOVERN. ALL HOLDERS OF
CLAIMS OR INTERESTS ARE ENCOURAGED TO REVIEW THE FULL TEXT OF THE PLAN AND TO
READ CAREFULLY THIS ENTIRE DISCLOSURE STATEMENT, INCLUDING ALL EXHIBITS ANNEXED
HERETO, BEFORE DECIDING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE
AS OF THE DATE HEREOF, AND THE DELIVERY OF THIS DISCLOSURE STATEMENT WILL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF.
HOLDERS OF CLAIMS AND INTERESTS SHOULD NOT CONSTRUE THE
CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS,
FINANCIAL OR TAX ADVICE. EACH SUCH HOLDER SHOULD, THEREFORE, CONSULT WITH ITS
OWN LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS AS TO ANY SUCH MATTERS
CONCERNING THE SOLICITATION, THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
IN MAKING A DECISION TO ACCEPT OR REJECT THE PLAN, EACH HOLDER OF A CLAIM OR
INTEREST MUST RELY ON ITS OWN EVALUATION OF THE DEBTOR AS DESCRIBED IN THIS
DISCLOSURE STATEMENT AND THE TERMS OF THE PLAN, INCLUDING THE MERITS AND RISKS
INVOLVED. IN ADDITION, CONFIRMATION AND CONSUMMATION OF THE PLAN ARE SUBJECT TO
CONDITIONS PRECEDENT THAT COULD LEAD TO DELAYS IN CONSUMMATION OF THE PLAN OR AN
INABILITY TO CONSUMMATE THE PLAN. THERE CAN BE NO ASSURANCE THAT EACH OF THESE
CONDITIONS WILL BE SATISFIED OR WAIVED (AS PROVIDED IN THE PLAN) OR THAT THE
PLAN WILL BE CONSUMMATED. EVEN AFTER THE EFFECTIVE DATE, DISTRIBUTIONS UNDER THE
PLAN MAY BE SUBJECT TO SUBSTANTIAL DELAYS FOR HOLDERS OF CLAIMS AND INTERESTS
THAT ARE DISPUTED.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER
ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT BE CONSTRUED
AS AN ADMISSION OR STIPULATION, BUT RATHER AS A STATEMENT MADE IN SETTLEMENT
NEGOTIATIONS.
<PAGE> 3
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016(c) OF THE FEDERAL RULES OF
BANKRUPTCY PROCEDURE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS
OR OTHER APPLICABLE NON-BANKRUPTCY LAW. THIS DISCLOSURE STATEMENT HAS NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY
STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL OR REGULATORY
AUTHORITY, AND NEITHER SUCH COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON
THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
BOTH THE DEBTOR AND THE CREDITORS' COMMITTEE SUPPORT
CONFIRMATION OF THE PLAN AND URGE ALL HOLDERS OF CLAIMS AND INTERESTS IN
IMPAIRED CLASSES TO ACCEPT THE PLAN. THE EQUITY COMMITTEE ALSO SUPPORTS
CONFIRMATION OF THE PLAN AND URGES HOLDERS OF OLD COMMON STOCK INTERESTS TO
ACCEPT THE PLAN.
-2-
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. INTRODUCTION AND SUMMARY...............................................................................................1
A. General.....................................................................................................1
B. The Solicitation............................................................................................2
C. Voting......................................................................................................2
D. Vote Required for Acceptance................................................................................4
E. Confirmation Hearing........................................................................................4
F. Effective Date of the Plan..................................................................................5
G. Summary of Classification and Treatment Under the Plan......................................................5
II. HISTORICAL INFORMATION...............................................................................................11
A. Business...................................................................................................11
1. General.............................................................................................11
2. Products............................................................................................12
3. Product Development.................................................................................12
4. Patent Rights.......................................................................................13
5. Major Customers.....................................................................................13
6. Foreign Operations..................................................................................13
7. Raw Materials.......................................................................................14
8. Competition.........................................................................................14
9. Properties..........................................................................................16
10. Prepetition Financing and Equity Structure.........................................................16
B. Events Leading to Chapter 11 Filing........................................................................16
1. The Delaware Action.................................................................................17
2. The Texas Action....................................................................................17
III. THE CHAPTER 11 CASE.................................................................................................18
A. Commencement of the Chapter 11 Case........................................................................18
B. Management.................................................................................................18
1. Mr. Abraham.........................................................................................18
2. Mr. Cole............................................................................................ 8
3. Mr. Cyron...........................................................................................19
4. Ms. Hasbrouck.......................................................................................19
5. Mr. McClain.........................................................................................19
6. Ms. Evenson.........................................................................................19
7. Mr. Littman.........................................................................................19
8. Mr. Schoen..........................................................................................19
9. Mr. Cook............................................................................................20
10. Ms. Oliver.........................................................................................20
C. Employee Benefits..........................................................................................20
1. Wage Orders.........................................................................................20
2. Retention Programs..................................................................................20
a. TEEP Bonus and Retention Plan..............................................................20
b. Non-TEEP Retention Plans...................................................................21
</TABLE>
(i)
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
D. Cash Management System.....................................................................................21
E. Utilities..................................................................................................22
F. Reclamation Claims.........................................................................................22
G. Postpetition Financing.....................................................................................22
H. Strategic Business Initiatives.............................................................................23
1. Settlements with P&G and K-C........................................................................23
2. Asset Sales.........................................................................................23
a. CPI Asset Sale.............................................................................23
b. Oneonta Facility Sale......................................................................23
c. Porterville Facility Sale..................................................................24
3. Product conversions.................................................................................24
I. Long-Range Business Plan...................................................................................24
J. Discussions With Potential Acquirors and/or Plan Funders...................................................25
K. Case Administration........................................................................................28
1. Representation of the Debtor........................................................................28
2. Representation of the Official Committees...........................................................28
3. Exclusivity.........................................................................................29
4. Schedules and Establishment of Prepetition Claims Bar Date..........................................29
5. Extensions of Time to Assume or Reject Leases.......................................................29
L. Claims.....................................................................................................29
1. Claims Information and Estimates....................................................................29
2. Preferences and Fraudulent Conveyances..............................................................30
3. Significant Claims, Litigation and Settlements......................................................31
a. The P&G Litigation and Claims -- Significant Postpetition Events...........................31
b. The K-C Litigation and Claims -- Significant Postpetition Events...........................35
c. Rhonda Tracy Settlement....................................................................38
4. Claims Against Weyerhaeuser/Rule 2004 Discovery.....................................................39
5. Other Claims........................................................................................39
6. Litigation..........................................................................................39
M. Annual Shareholders Meeting................................................................................39
IV. THE PLAN.............................................................................................................40
A. General....................................................................................................40
B. Funding of the Plan........................................................................................40
C. Method of Classification of Claims and Interests and General Provisions....................................41
1. General Rules of Classification.....................................................................41
2. Bar Date for Fee Claims.............................................................................41
D. Treatment of Claims and Interests..........................................................................42
E. Paragon's Restructuring and Discharge......................................................................42
1. New Securities......................................................................................42
2. Exemption from Certain Transfer Taxes...............................................................43
3. Release of Liens and Perfection of Liens............................................................44
a. Procedures for Releasing of Liens..........................................................44
b. Entitlement to Distributions Pending Release...............................................44
4. Discharge of the Debtor.............................................................................44
5. Preservation of Insurance...........................................................................44
F. Distributions and Implementation of the Plan...............................................................45
1. Timing of Distributions.............................................................................45
</TABLE>
(ii)
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C>
2. Manner of Payment...................................................................................45
3. Persons Deemed Holders of Registered Securities.....................................................45
4. Compliance with Tax Requirements....................................................................45
5. Set-Offs45
6. De Minimis Distributions............................................................................45
7. Periodic Distributions to Holders of Allowed Unsecured Claims and
Allowed Old Common Stock Interests.................................................................46
8. Initial Distributions to the Holders of Subsequently
Allowed Unsecured Claims and Allowed Interests.....................................................46
9. Subsequent Periodic Distributions to Holders of Previously Allowed
Claims and Previously Allowed Interests...........................................................46
10. Final Distribution.................................................................................47
11. Distributions on Disputed Claims...................................................................47
12. Disbursement of Funds and Delivery of New Securities...............................................47
13. Fractional Cents...................................................................................47
14. Fractional Securities..............................................................................47
15. Disputed Payments..................................................................................48
16. Unclaimed Property.................................................................................48
17. Withholding Taxes..................................................................................48
G. Executory Contracts and Unexpired Leases...................................................................48
1. Assumption or Rejection.............................................................................48
2. Cure of Defaults Upon Assumption....................................................................49
3. Rejection Damage Claims.............................................................................49
4. Objections..........................................................................................49
5. Bar Date For Rejection Damage Claims................................................................50
6. Deemed Consents.....................................................................................50
H. Waivers, Releases and Indemnification......................................................................50
1. Discharge of Debtor.................................................................................50
2. Complete Satisfaction...............................................................................50
3. Release of Debtor...................................................................................51
4. Exoneration.........................................................................................51
5. Indemnification.....................................................................................51
6. Release of Committee Members........................................................................52
7. Enforceability of Releases..........................................................................52
8. Additional Releases.................................................................................52
9. Injunction..........................................................................................53
10. Terms of Injunctions or Stays......................................................................53
I. Disputed Claims, Disputed Interests, Estimation, Reserves and Miscellaneous
Distribution Provisions...................................................................................53
1. Objections to Claims................................................................................53
2. Estimated Claims Schedule...........................................................................53
3. Estimation Order....................................................................................53
4. No Recourse to Reorganized Paragon..................................................................54
5. Disputed Claims Reserves............................................................................54
6. Fluctuation in Value of Securities..................................................................54
7. Voting of Certain New Common Stock..................................................................55
8. Returned Distributions..............................................................................55
9. Estimation of Claims................................................................................55
10. Amendments of Claims...............................................................................55
</TABLE>
(iii)
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C> <C>
11. Avoidance Actions/Claims...........................................................................55
12. Compromise of Controversies........................................................................56
J. Post-Effective Date Management and Operation of Reorganized Paragon........................................56
1. Provisions For Management...........................................................................56
2. Corporate Action....................................................................................58
K. Conditions to Confirmation and Consummation................................................................58
1. Conditions Precedent to Confirmation................................................................58
2. Conditions Precedent to Consummation................................................................59
3. Waiver of Conditions................................................................................59
4. Mootness............................................................................................59
5. Withdrawal of the Plan..............................................................................60
L. Retention of Jurisdiction..................................................................................60
M. Additional Provisions......................................................................................62
1. Severability........................................................................................62
2. Confirmation Order..................................................................................62
3. Interpretation, Rules of Construction, Computation of Time, and Choice of Law.......................62
4. No Admissions.......................................................................................62
N. Investigation, Prosecution and/or Settlement of Litigation Claims..........................................62
V. CONFIRMATION OF THE PLAN..............................................................................................68
A. Introduction...............................................................................................68
B. Voting Procedures and Standards............................................................................68
C. Acceptance.................................................................................................69
D. Confirmation and Consummation..............................................................................69
1. Best Interests of Holders of Claims and Interests...................................................71
2. Financial Feasibility...............................................................................71
3. Acceptance by Impaired Classes......................................................................72
4. Cram Down...........................................................................................72
5. Classification of Claims and Interests..............................................................73
VI. CONTINUED EXISTENCE OF THE DEBTOR....................................................................................73
A. Reorganized Paragon........................................................................................73
B. Value of Reorganized Paragon, and the New Common Stock, New Notes and Warrants
to be Issued under the Plan...............................................................................74
VII. CERTAIN RISK FACTORS TO BE CONSIDERED...............................................................................74
A. The Wellspring Stock Purchase Agreement....................................................................74
B. Industry Conditions and Financial Condition of Reorganized Paragon.........................................75
C. Competition................................................................................................76
D. Bankruptcy Risks...........................................................................................77
1. Objection to Classifications........................................................................77
2. Risk of Nonconfirmation of the Plan.................................................................77
3. Potential Effect of Bankruptcy on Certain Relationships.............................................78
E. No Assurance that a Public Market for the Securities Will Develop..........................................78
F. Uncertainties of and Fluctuations of Market Prices.........................................................78
G. Liquidity Risks -- Restrictions on Transfer................................................................78
H. Risk that Distributions Will Be Less than Estimated by the Debtor..........................................79
I. Litigation Risks...........................................................................................79
</TABLE>
(iv)
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C> <C>
J. Environmental Regulation Issues............................................................................79
VIII. SECURITIES LAW MATTERS.............................................................................................80
A. Initial Issuance of New Common Stock, New Notes and Warrants Under the Plan................................80
B. Resale of Securities.......................................................................................81
IX. CERTAIN FEDERAL INCOME TAX CONSEQUENCES..............................................................................82
A. Federal Income Tax Consequences to the Debtor..............................................................83
B. Federal Income Tax Treatment on Post Reorganization Estate.................................................83
C. Federal Income Tax Consequences to Claims and Interest Holders.............................................85
1. Generally...........................................................................................85
2. Claims Holders Receiving Only Cash or Certain Other Property........................................85
3. Claims Holders Receiving Cash, New Notes, and New Stock.............................................85
4. Claims Holders Receiving Stock and Cash.............................................................88
5. Interest Holders Receiving Warrants and Cash........................................................89
6. Wellspring Rights Offering..........................................................................90
7. Receipt of Interest.................................................................................90
X. CONCLUSION............................................................................................................92
EXHIBITS
Debtor's Plan of Reorganization...........................................................................................A
List of Members of the Creditors' Committee...............................................................................B
List of Members of the Equity Committee...................................................................................C
Voting Procedures Order...................................................................................................D
Liquidation Analysis......................................................................................................E
Schedule of Ordinary Course Professionals Retained by the Debtor..........................................................F
Financial Projections and Valuation (Wellspring Stock Purchase Agreement Consummated).....................................G
Financial Projections and Valuation (Wellspring Stock Purchase Agreement Not Consummated).................................H
</TABLE>
(v)
<PAGE> 9
I INTRODUCTION AND SUMMARY
The following introduction and summary is qualified in its
entirety by, and should be read in conjunction with, the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Disclosure Statement and the exhibits hereto. References herein to a
"fiscal" year refers to the fiscal year of Paragon Trade Brands, Inc. ("Paragon"
or the "Debtor") ended the last day of the fiscal year so indicated. All
capitalized terms used but not defined in this Disclosure Statement have the
meanings ascribed to such terms in the Plan, a copy of which is annexed hereto
as Exhibit A.
A. GENERAL
Paragon filed its voluntary petition for relief under chapter
11 of title 11 of the United States Code (the "Bankruptcy Code") on January 6,
1998 (the "Petition Date"). Since that time, Paragon has continued in the
possession of its properties and in the management and operation of its business
as a debtor in possession pursuant to sections 1107 and 1108 of the Bankruptcy
Code. On January 16, 1998, the United States Trustee for the Northern District
of Georgia (the "United States Trustee") appointed an Official Committee of
Unsecured Creditors (the "Creditors' Committee"). A list of the current members
of the Creditors' Committee is annexed hereto as Exhibit B. On November 2, 1998,
the United Sates Trustee appointed an Official Committee of Equity Interest
Holders (the "Equity Committee"). A list of the current members of the Equity
Committee is annexed hereto as Exhibit C.
The Plan is being jointly proposed by Paragon and the
Creditors' Committee (together, the "Proponents"). Paragon submits this
Disclosure Statement (the "Disclosure Statement") pursuant to section 1125 of
the Bankruptcy Code in connection with the solicitation of acceptances of the
Plan. As a Plan Proponent, the Creditors' Committee strongly supports
confirmation of the Plan and urges holders of Unsecured Claims to vote in favor
of the Plan. The Equity Committee also strongly supports confirmation of the
Plan and urges holders of Old Common Stock Interests to vote in favor of the
Plan.
Under the Plan, Paragon will be reorganized either (a) through
the consummation of a stock purchase agreement (the "Wellspring Stock Purchase
Agreement") with PTB Acquisition Company LLC, a wholly-owned subsidiary of
Wellspring Capital Management LLC ("Wellspring"), and the distribution of the
proceeds thereof to fund certain distributions under the Plan, or (b)
alternatively, on a stand-alone plan of reorganization basis. If all of the
conditions to the Wellspring Stock Purchase Agreement are satisfied or waived,
Paragon will not proceed on a stand-alone plan of reorganization basis.
In the event that the Wellspring Stock Purchase Agreement is
consummated, holders of Allowed Unsecured Claims will receive Distributions in
amounts equal to their Pro Rata Share of Cash and New Notes, and the right to
participate in the Wellspring Rights Offering, and holders of Allowed Old Common
Stock Interests will receive their Pro Rata Share of the Interest Holders' New
Common Stock Amount, the right to participate in the Wellspring Rights Offering
(to the extent all such rights are not exercised by holders of Allowed Unsecured
Claims in the Wellspring Rights Offering), and the Warrants. (Pursuant to the
Wellspring Stock Purchase Agreement, Wellspring will purchase 98.5% (subject to
reduction with respect to any New Common Stock issued under the TEEP Retention
Plan and any New Common Stock distributed in accordance with the Wellspring
Rights Offering) of the New Common Stock to be issued and outstanding on the
Effective Date for a purchase price equal to $10.00 per share of New Common
Stock, or approximately $117.1 million in Cash in the aggregate.) If the
Wellspring Stock Purchase Agreement is not consummated and Paragon is
reorganized on a stand-alone basis under the Plan, holders of Allowed Unsecured
Claims will receive Distributions in amounts equal to their Pro Rata Share of
the Unsecured Creditor New Common Stock and holders of Allowed Old Common Stock
Interests will receive their Pro Rata Share of the Interest Holders' New Common
Stock Amount and the Warrants. Whether or not the Wellspring Stock Purchase
Agreement is consummated, holders of Allowed Unsecured Claims and holders of
Allowed Old Common Stock Interests also will receive such portion of the
<PAGE> 10
Litigation Proceeds, if any, as is allocable to such Claims and Interests in
accordance with the provisions of the Plan. Parties are referred to Section I.G
and IV.D hereof and Article VI of the Plan for a more detailed description of
the treatment to be afforded Allowed Claims and Allowed Interests under the
Plan. Section 7.5 of the Plan sets forth the circumstances in which the
different plan alternatives set forth in this paragraph will be pursued.
B. THE SOLICITATION
On August 24, 1999, Paragon filed a plan of reorganization
dated as of such date with the Bankruptcy Court. Simultaneously therewith,
Paragon filed a disclosure statement dated August 24, 1999 with the Bankruptcy
Court pursuant to section 1125 of the Bankruptcy Code. On October 15, 1999, the
Proponents filed the First Amended Plan of Reorganization, dated October 15,
1999, which amended the August 24, 1999 plan of reorganization, and the Debtor
filed the related Disclosure Statement for First Amended Plan of Reorganization,
dated October 15, 1999. On November 15, 1999, the Proponents filed the Plan,
which amends the October 15, 1999 First Amended Plan of Reorganization, and the
Debtor filed this Disclosure Statement with the Bankruptcy Court pursuant to
section 1125 of the Bankruptcy Code and in connection with the solicitation of
acceptances (the "Solicitation") with respect to the Plan.
On November 18, 1999, the Bankruptcy Court determined that
this Disclosure Statement contains "adequate information" in accordance with
section 1125 of the Bankruptcy Code. Pursuant to section 1125(a)(1) of the
Bankruptcy Code, "adequate information" is defined as "information of a kind,
and in sufficient detail, as far as reasonably practicable in light of the
nature and history of the debtor and the condition of the debtor's books and
records, that would enable a hypothetical reasonable investor typical of holders
of claims or interests of the relevant class to make an informed judgment about
the plan . . ." 11 U.S.C. ss. 1125(a)(1).
C. VOTING
Pursuant to applicable provisions of the Bankruptcy Code, only
classes of claims against or equity interests in a debtor that are impaired
within the meaning of section 1124 of the Bankruptcy Code ("Impaired") and that
may receive distributions under the terms and provisions of a chapter 11 plan
are entitled to vote to accept or reject such plan.
Under the Plan, holders of Allowed Claims in Classes 3A and 3B
and holders of Allowed Old Common Stock Interests in Class 4A (the "Voting
Classes") are treated as Impaired and entitled to vote on the Plan. Holders of
Interests in Class 4B, who will receive no Distribution under the Plan, are
deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy
Code and are not entitled to vote. Claims in Classes 1 and 2 and Allowed
Administrative Claims, Fee Claims, Priority Tax Claims and DIP Claims are not
Impaired under the Plan and thus holders of Claims in such Classes and
categories are presumed to have accepted the Plan pursuant to section 1126(f) of
the Bankruptcy Code and are not entitled to vote. For a description of the
Classes of Claims and Interests and their treatment under the Plan, see Article
III of the Plan ("Identification of Classes of Claims and Interests Impaired and
Not Impaired by the Plan") and Section I.G ("Summary of Classification and
Treatment Under Plan") below.
The rules and procedures for soliciting and tabulating votes
for and against the Plan are set forth in a voting procedures order dated
November 18, 1999 (the "Voting Procedures Order"). A copy of the Voting
Procedures Order is annexed hereto as Exhibit D.
Some holders of Claims and Interests might hold Claims and/or
Interests in more than one Impaired Class. Such holders must vote each such
Claim or Interest separately in the appropriate Class. Such holders will receive
a separate ballot (a "Ballot") for each Claim and/or Interest in each Class (in
accordance with Paragon's records) and should complete and sign each Ballot
separately. For most holders of Claims and Interests in Impaired Classes, the
Ballot
-2-
<PAGE> 11
enclosed with the Disclosure Statement has been encoded with the amount of such
holder's Allowed Claim or Allowed Interest for voting purposes and the Class to
which the Claim or Interest has been attributed.
Pursuant to the terms and conditions of the Wellspring Rights
Offering Procedures annexed to the Plan as Exhibit D, each holder of a Class 3A
Claim whose claim is allowed for voting purposes may elect to subscribe up to an
amount equal to its pro rata share (as determined in accordance with the
Wellspring Rights Offering Procedures) of rights, which rights consist of the
right to purchase up to 35% of the issued and outstanding shares of New Common
Stock as of the Effective Date. In addition, each holder of an Allowed Old
Common Stock Interest shall have the right to subscribe to any rights not
exercised by holders of Class 3A Claims pursuant to the Wellspring Rights
Offering Procedures. The ability to receive additional shares of New Common
Stock pursuant to the Wellspring Rights Offering is conditioned upon
consummation of the Wellspring Stock Purchase Agreement. PLEASE REFER TO EXHIBIT
D TO THE PLAN FOR THE TERMS AND CONDITIONS OF THE WELLSPRING RIGHTS OFFERING
PROCEDURES.
THE BANKRUPTCY COURT HAS FIXED JANUARY 7, 2000, AT 5:00 P.M.
(ATLANTA, GEORGIA TIME) AS THE "VOTING RECORD DATE." ONLY PERSONS WHO HOLD
CLAIMS OR INTERESTS ON THE VOTING RECORD DATE ARE ENTITLED TO RECEIVE A COPY OF
THIS DISCLOSURE STATEMENT AND ALL OF THE RELATED MATERIALS. ONLY PERSONS WHO
HOLD CLAIMS OR INTERESTS THAT ARE IMPAIRED UNDER THE PLAN AND ARE NOT DEEMED TO
HAVE REJECTED THE PLAN ARE ENTITLED TO VOTE WHETHER TO ACCEPT THE PLAN.
The Ballots have been specifically designed for the purpose of
soliciting votes on the Plan from each Class entitled to vote with respect
thereto. Accordingly, in voting on the Plan, please use only the Ballot sent to
you with this Disclosure Statement. Except as set forth below, please complete
and sign your Ballot and return it in the enclosed pre-addressed envelope to the
Debtor's "Balloting Agent":
If sent by regular mail, to: If sent by overnight mail, to:
Bankruptcy Services LLC Bankruptcy Services LLC (Paragon
Paragon Plan Voting Center Plan Voting Center)
P.O. Box 5159 70 East 55th Street
FDR Station 6th Floor
New York, NY 10150-5159 New York, New York 10022
UNLESS OTHERWISE PROVIDED IN THE VOTING PROCEDURES ORDER, ALL
PROPERLY COMPLETED BALLOTS RECEIVED BY THE BALLOTING AGENT PRIOR TO 5:00 P.M.
(ATLANTA, GEORGIA TIME) ON JANUARY 7, 2000 (THE "VOTING DEADLINE"), WILL BE
COUNTED FOR PURPOSES OF DETERMINING WHETHER EACH CLASS OF IMPAIRED CLAIMS AND
INTERESTS ENTITLED TO VOTE THEREON HAS ACCEPTED THE PLAN. ANY BALLOTS RECEIVED
AFTER THE VOTING DEADLINE WILL NOT BE COUNTED, UNLESS OTHERWISE ORDERED BY THE
BANKRUPTCY COURT. The Balloting Agent will prepare and File with the Bankruptcy
Court a certificate of the results of the balloting with respect to the Plan on
a Class-by-Class basis.
In accordance with Bankruptcy Rule 3017(d), the Debtor will
send Ballots to transfer agents, registrars, servicing agents, or other
intermediaries holding Old Common Stock Interests for or acting on behalf of
record holders of such Interests (collectively, the "Intermediaries"). Each
Intermediary shall be entitled to receive, upon request submitted to the Debtor,
a reasonably sufficient number of copies of Ballots to distribute to the
beneficial owners of the Old Common Stock Interests for which it is an
Intermediary, and the Debtor shall be responsible for and pay each such
Intermediary's reasonable costs and expenses associated with the distribution of
Ballots to the beneficial owners of such Interests and tabulation of the
Ballots. Additionally, each Intermediary shall receive Ballots returned by the
beneficial owners of such Interests and shall tabulate and return the results to
the Balloting Agent in a Summary Ballot by 5:00 p.m.
-3-
<PAGE> 12
(Atlanta, Georgia time) on January 7, 2000, indicating the number of cast
Ballots in the group of Interest holders for which it is an Intermediary. The
Intermediaries must certify that each beneficial holder has not cast more than
one vote for any purpose, even if such holder holds securities of the same type
in more than one account.
IF YOUR VOTE IS BEING PROCESSED BY AN INTERMEDIARY, PLEASE
ALLOW TIME FOR TRANSMISSION OF YOUR BALLOT TO SUCH INTERMEDIARY AND FROM THE
INTERMEDIARY TO THE BALLOTING AGENT. IF YOU HAVE A QUESTION CONCERNING THE
VOTING PROCEDURE, CONTACT THE APPLICABLE INTERMEDIARY. DO NOT RETURN YOUR
SECURITIES WITH YOUR BALLOTS.
YOUR VOTE ON THE PLAN IS IMPORTANT. THE BANKRUPTCY CODE
REQUIRES AS A CONDITION TO CONFIRMATION OF A PLAN OF REORGANIZATION THAT EACH
CLASS THAT IS IMPAIRED UNDER SUCH PLAN VOTE TO ACCEPT SUCH PLAN, UNLESS THE
"CRAM DOWN" PROVISIONS OF THE BANKRUPTCY CODE ARE EMPLOYED. SEE SECTION V.D.4,
BELOW ("CRAM DOWN").
D. VOTE REQUIRED FOR ACCEPTANCE
The Bankruptcy Code defines acceptance of a plan by an
Impaired class of claims as acceptance by holders of at least two-thirds in
dollar amount, and more than one-half in number, of the claims of that class
which actually cast ballots. The Bankruptcy Code defines acceptance of a plan by
an Impaired class of equity interests as acceptance by holders of at least
two-thirds in amount of the equity interests of that class that actually cast
ballots. The vote of a holder of a claim or interest may be disregarded if the
bankruptcy court determines, after notice and hearing, that the acceptance or
rejection was not solicited or procured in good faith.
In addition to this voting requirement, section 1129 of the
Bankruptcy Code requires that a plan be accepted by each holder of a claim or
interest in an Impaired class or that the plan be found by the court to provide
the holder with at least as much value on account of its claim or interest as it
would receive if the debtor were liquidated under chapter 7 of the Bankruptcy
Code. See the Debtor's liquidation analysis, annexed hereto as Exhibit E.
Confirmation of the Plan will make the Plan binding upon
Paragon, holders of Claims against and Interests in Paragon and other parties in
interest regardless of whether they have accepted the Plan, and such holders of
Claims and/or Interests will be prohibited from receiving payment from, or
seeking recourse against Reorganized Paragon or any assets that are distributed
to other such holders of Claims and/or Interests under the Plan. In addition,
Confirmation of the Plan will enjoin creditors and equity interest holders from
taking a wide variety of actions on account of a debt, claim, liability,
interest or right that arose prior to the Confirmation Date. As of the Effective
Date of the Plan, Confirmation also will operate as a discharge of all Claims
against and Interests in Paragon, to the fullest extent authorized by section
1141(d) of the Bankruptcy Code.
E. CONFIRMATION HEARING
THE BANKRUPTCY COURT WILL HOLD THE CONFIRMATION HEARING
COMMENCING AT 10:00 A.M. (ATLANTA, GEORGIA TIME) ON JANUARY 13, 2000, AT THE
UNITED STATES BANKRUPTCY COURT, COURTROOM 1204, RICHARD B. RUSSELL FEDERAL
BUILDING, 75 SPRING STREET, S.W., ATLANTA, GEORGIA 30303. The Confirmation
Hearing may be adjourned from time to time without further notice other than by
announcement by the Proponents in the Bankruptcy Court on the scheduled date of
such hearing. At the Confirmation Hearing, the Bankruptcy Court will (i)
determine whether the requisite vote has been obtained for each Voting Class,
(ii) hear and determine objections, if any, to confirmation of the Plan that
have not been previously disposed of, (iii) determine whether the Plan meets the
confirmation requirements of the Bankruptcy Code and (iv) determine whether to
confirm the Plan.
-4-
<PAGE> 13
Any objection to confirmation of the Plan must be in writing
and Filed and served as required by the Bankruptcy Court pursuant to the order
approving the Disclosure Statement, a copy of which accompanies this Disclosure
Statement. Specifically, all objections to the confirmation of the Plan must be
served in a manner so as to be received on or before January 7, 2000 at 4:45
p.m. (Atlanta, Georgia time) by: (a) Willkie Farr & Gallagher, special
reorganization counsel for the Debtor, 787 Seventh Avenue, New York, New York
10019, Attention: Myron Trepper, Esq. and Paul V. Shalhoub, Esq., and (b)
counsel to the Official Committee of Unsecured Creditors, O'Melveny & Myers, 153
East 53rd Street, New York, New York 10022, Attention: Joel Zweibel, Esq. and
Adam Harris, Esq.
F. EFFECTIVE DATE OF THE PLAN
The Plan will not be consummated immediately upon
confirmation, but only upon the Effective Date. The Effective Date will not
occur unless various conditions to confirmation and consummation are satisfied
(or waived pursuant to, and in accordance with, the terms of the Plan). Certain
of the conditions to confirmation and consummation may be waived by the
Proponents, with the consent of P&G, K-C and/or Wellspring. There is no
assurance that the Proponents would waive any of such conditions, or that P&G,
K-C and/or Wellspring would consent to such waiver. The Confirmation Order may
be vacated if the conditions to the Effective Date are not timely met or waived.
Because of the conditions to the Effective Date provided in
the Plan, a delay may occur between confirmation of the Plan and the Effective
Date. There is no assurance that the conditions to the Effective Date will be
fulfilled, or that any condition which is not fulfilled will in fact be waived.
The Plan provides that it is a condition to the Effective Date of the Plan that
each of the conditions set forth in Sections 14.2 and 14.3 the Plan has been
satisfied or waived in accordance with Section 14.4 of the Plan.
The implementation of the Plan includes certain risks and,
similarly, the business in which Paragon operates is and will continue to be
engaged involves certain risks. For a discussion of these risks, see Section VII
("Certain Risk Factors to be Considered") below.
G. SUMMARY OF CLASSIFICATION AND TREATMENT UNDER THE PLAN
The following table sets forth a brief summary of the
classification and treatment of Claims and Interests under the Plan. The
information set forth in the tables is for convenience of reference only. Each
holder of a Claim or Interest should refer to Articles IV ("Classification of
Claims and Treatment"), V ("Provisions for Allowance, Treatment and Payment of
Administrative Claims and Priority Tax Claims") and VI ("Treatment of Classes of
Allowed Claims and Allowed Interests") of the Plan, and Section IV.D ("Treatment
of Claims and Interests") below, for a complete description of the
classification and treatment of Claims and Interests provided under the Plan.
-5-
<PAGE> 14
<TABLE>
<CAPTION>
TYPE OF CLAIM OR ESTIMATED
STOCK INTEREST ALLOWABLE
AMOUNT TREATMENT UNDER THE PLAN
<S> <C> <C> <C>
N/A Allowed $15,251,000 Unless otherwise provided for in the Plan, each holder of an Allowed
Administrative Claims Administrative Claim shall receive Cash equal to 100% of the unpaid
amount of such Allowed Administrative Claim on or as soon as reasonably
practicable after the later of: (a) the Effective Date; (b) the first
Business Day after the date that is thirty (30) calendar days after the date
such Administrative Claim becomes an Allowed Claim; or (c) such other date
established pursuant to the terms of any Final Order of the Bankruptcy Court,
which may include the Confirmation Order. Holders of Allowed Administrative
Claims shall be limited to the consideration provided under the Plan and
shall have no recourse to Reorganized Paragon for any pre-Confirmation Date
Administrative Claims against the Debtor. Notwithstanding the two immediately
preceding sentences, Allowed Administrative Claims for goods sold or services
rendered representing liabilities incurred by the Debtor in the ordinary
course of business during the Chapter 11 Case shall be paid by Reorganized
Paragon in the ordinary course of business in accordance with the terms and
conditions of any agreements, understandings, or trade terms relating
thereto, or pursuant to the terms of a Final Order of the Bankruptcy Court,
which may include the Confirmation Order. Notwithstanding the foregoing, the
holder of an Allowed Administrative Claim may receive such other, less
favorable treatment as may be agreed upon by such holder and the Debtor or
Reorganized Paragon, as applicable.
N/A Allowed DIP Claims $80,000 On the Effective Date, the DIP Bank Agent shall be paid 100% of the unpaid
non-contingent amounts of the Allowed DIP Claims and such Claims otherwise
shall be treated pursuant to the terms of the DIP Credit Agreement. Upon
payment or satisfaction in full of the Allowed DIP Claims, the DIP Credit
Agreement shall be deemed terminated and the obligations or rights issued or
granted pursuant thereto shall be canceled, subject in all respects to any
carve-out provided in the Bankruptcy Court order approving the DIP Credit
Agreement on a final basis. On or as soon as reasonably practicable after the
Effective Date, all interest, fees, expenses and other charges that have
accrued and are required to be paid pursuant to the terms of the DIP Credit
Agreement but have not been paid as of the Effective Date shall be paid
(subject to proration) to the DIP Bank Agent for distribution to those
parties entitled to receive such interest, fees, expenses and other charges
pursuant to the DIP Credit Agreement.
</TABLE>
-6-
<PAGE> 15
<TABLE>
<CAPTION>
TYPE OF CLAIM OR ESTIMATED
STOCK INTEREST ALLOWABLE
AMOUNT TREATMENT UNDER THE PLAN
<S> <C> <C> <C>
N/A Allowed Fee Claims $8,000,000 Each holder of a Fee Claim shall receive Cash from the Professional Fee
Reserve equal to 100% of the unpaid amount of such Fee Claim in such amounts
as are allowed by the Bankruptcy Court (a) on the later of (i) the Effective
Date, and (ii) a date which is no later than five (5) Business Days after the
entry of an order of the Bankruptcy Court allowing such Fee Claim, or (b)
upon such other less favorable terms as may be mutually agreed upon between
such holder of a Fee Claim and the Debtor or Reorganized Paragon, as
applicable. In the event that the aggregate amount of all Fee Claims allowed
by the Bankruptcy Court is less than the Professional Fee Reserve, the excess
shall be allocated and made available for Distribution to holders of Allowed
Unsecured Claims in accordance with the terms of the Plan. In the event that
the aggregate amount of all Fee Claims allowed by the Bankruptcy Court is
more than the Professional Fee Reserve, the deficiency shall be withdrawn
from the Class 3A Disputed Claims Reserve for payment to the holders of
Allowed Fee Claims.
N/A Allowed Priority Tax $1,315,000 Payment. Each holder of an Allowed Priority Tax Claim shall receive, Claims
Claims at the option of the Debtor or, on and after the Effective Date, Reorganized
Paragon, either (i) Cash equal to 100% of the unpaid amount of such Allowed
Claim on or as soon as reasonably practicable after the later of (A) the
Effective Date, or (B) the first Business Day after the date that is thirty
(30) calendar days after the date such Priority Tax Claim becomes an Allowed
Claim, or (ii) annual Cash payments commencing on or as soon as reasonably
practicable after the later to occur of the Effective Date and the date on
which such Priority Tax Claim becomes an Allowed Claim, over a period not
exceeding six (6) years after the date of assessment of such Allowed Priority
Tax Claim, together with interest (payable quarterly in arrears) on the
unpaid balance of such Allowed Priority Tax Claim at a per annum rate equal
to the federal judgment statutory rate as of the Effective Date. Allowed
Priority Tax Claims may be prepaid, at any time, without penalty. Any Claim
or demand for a penalty relating to an Allowed Priority Tax Claim shall be
Disallowed pursuant to the Plan, and the holder of an Allowed Priority Tax
Claim shall not assess or attempt to collect such penalty from the Debtor,
the Estate, Reorganized Paragon or its property. Holders of Allowed Priority
Tax Claims shall be limited to the consideration provided under the Plan and
shall have no recourse to Reorganized Paragon for any pre-Confirmation Date
Priority Tax Claims against the Debtor. Notwithstanding the foregoing, the
holder of an Allowed Priority Tax Claim may receive such other, less
favorable treatment as may be agreed upon by the claimant and the Debtor or
Reorganized Paragon, as applicable.
Release of Security Interests. All liens, security interests and like
encumbrances of a holder of an Allowed Priority Tax Claim on property of the
Debtor or the Estate respecting such Claim shall be deemed released pursuant
to the Plan as of the Effective Date, and shall not attach to Reorganized
Paragon's property.
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
TYPE OF CLAIM OR ESTIMATED
STOCK INTEREST ALLOWABLE
AMOUNT TREATMENT UNDER THE PLAN
<S> <C> <C>
1 Secured Claims $500,000 Payment. On or as soon as reasonably practicable after the later of (i) the
Effective Date, or (ii) the first Business Day after the date that is thirty
(30) calendar days after the date such Secured Claim becomes an Allowed
Claim, each holder of an Allowed Secured Claim shall receive, at the election
of the Debtor or Reorganized Paragon, as applicable, one of the following
distributions: (1) Cash equal to 100% of the unpaid amount of such Allowed
Secured Claim; (2) the proceeds of the sale or disposition of the property
securing such Allowed Secured Claim to the extent of the value of such
holder's interest in such property; (3) the surrender to the holder of such
Allowed Secured Claim of the property securing such Claim; (4) such treatment
that leaves unaltered the legal, equitable or contractual rights of the
holder of such Allowed Secured Claim; or (5) such other distribution as shall
be necessary to leave the holder of such Secured Claim Unimpaired and to
satisfy the requirements of chapter 11 of the Bankruptcy Code. The manner and
treatment of each Allowed Secured Claim shall be determined by the Debtor, in
its discretion, on or before the Effective Date, or by Reorganized Paragon,
after the Effective Date, and upon notice to the holder of such Secured
Claim. To the extent a Claim is partially an Allowed Secured Claim based on
an offset right and partially an Allowed Claim of another type, (x) the
portion of such Claim that is a Secured Claim shall be equal to the amount of
the allowed, liquidated, nondisputed, noncontingent claim owing to the Debtor
as to which a valid setoff right exists, and (y) the remainder of such Claim
shall be classified in another relevant Class to the extent of the excess. If
a Claim is a fully Secured Claim based on an offset right, the allowance of
such Claim shall not affect any obligations or liabilities due and payable
(at such time) to the Debtor that is in an amount in excess of the amount
offset and the payment, in full and in Cash, of all amounts due and owing as
of the Effective Date to the Debtor and the turnover of any property of the
Debtor held by such claimant on account of any unliquidated, disputed or
contingent right of setoff shall be a precondition to the allowance of such
Secured Claim. Notwithstanding the foregoing, the holder of an Allowed
Secured Claim may receive such other less favorable treatment as may be
agreed to by such holder and the Debtor or Reorganized Paragon, as
applicable.
Release of Security Interests. Unless an Allowed Secured Claim is treated
pursuant to Section 6.1(a)(4) of the Plan, all liens, security interests and
like encumbrances of a holder of an Allowed Secured Claim on property of the
Debtor or the Estate respecting such Claim shall be deemed released pursuant
to the Plan as of the Effective Date, and shall not attach to Reorganized
Paragon's property.
2 Priority Non-Tax $0 On or as soon as reasonably practicable after the later of (a) the Claims
Claims Effective Date, and (b) the first Business Day after the date that is thirty
(30) calendar days after the date such Priority Non-Tax Claim becomes an
Allowed Claim, each holder of an Allowed Priority Non-Tax Claim shall be
entitled to receive payment, in Cash, in an amount equal to 100% of the
unpaid amount of its Allowed Priority Non-Tax Claim. Notwithstanding the
foregoing, the holder of an Allowed Priority Non-Tax Claim may receive such
other less favorable treatment as may be agreed to by such holder and the
Debtor or Reorganized Paragon, as applicable.
</TABLE>
-8-
<PAGE> 17
<TABLE>
<CAPTION>
TYPE OF CLAIM OR ESTIMATED
STOCK INTEREST ALLOWABLE
AMOUNT TREATMENT UNDER THE PLAN
<S> <C> <C> <C>
3A Unsecured Claims $398,808,000 (a) Treatment if the Wellspring Stock Purchase Agreement is Consummated. If
the Wellspring Stock Purchase Agreement has been consummated, then, on or as
soon as reasonably practicable after the Initial Distribution Date, each
Periodic Distribution Date thereafter and the Final Distribution Date, each
holder of an Allowed Unsecured Claim in Class 3A shall receive on account of
such Allowed Unsecured Claim, in accordance with Article XI of the Plan, (i)
such holder's Pro Rata Share of (1) the Wellspring Investment Amount (minus
the sum of $1,094,500.00 in Cash plus the amount of Cash used to make
Distributions to Class 3B (Convenience Claims)), and subject to reduction as
to any holder as a result of such holder's exercise of rights pursuant to the
Wellspring Rights Offering), (2) the New Notes, and (3) that portion of
Litigation Proceeds allocable to holders of Allowed Unsecured Claims under
the Plan, and (ii) any New Common Stock properly subscribed for by such
holder under the Wellspring Rights Offering pursuant to Section 9.22 of the
Plan. For purposes of determining the Litigation Proceeds which are allocable
to holders of Allowed Unsecured Claims: (a) with respect to Litigation Claims
against Weyerhaeuser and Pope & Talbot, 25% of the Litigation Proceeds shall
be allocable to holders of Allowed Unsecured Claims as and when such
Litigation Proceeds are received, with the remainder of the Litigation
Proceeds being available for Distributions to holders of Allowed Old Common
Stock Interests; and (b) with respect to Litigation Claims against Oracle
Corporation and/or Andersen Consulting LLP, 50% of the Litigation Proceeds
shall be allocable to holders of Allowed Unsecured Claims and 50% of the
Litigation Proceeds shall be allocable to holders of Allowed Old Common Stock
Interests. Notwithstanding anything to the contrary herein, once the holders
of Allowed Unsecured Claims receive payment in full (including postpetition
interest to the extent provided under Section 7.4 of the Plan), any
Litigation Proceeds which would otherwise be distributed to the holders of
such Claims shall be distributed pro rata to the holders of Allowed Old
Common Stock Interests pursuant to Section 6.5 of the Plan.
(b) Treatment if the Wellspring Stock Purchase Agreement is Not Consummated.
If the Wellspring Stock Purchase Agreement is not executed, or is executed
and is terminated or not consummated, then, on or as soon as reasonably
practicable after the Initial Distribution Date, each Periodic Distribution
Date thereafter and the Final Distribution Date, each holder of an Allowed
Unsecured Claim in Class 3A shall receive on account of such Allowed
Unsecured Claim, in accordance with Article XI of the Plan, such holder's Pro
Rata Share of the Unsecured Claims Distribution Pool then available for
Distribution. For purposes of determining the Litigation Proceeds which are
part of the Unsecured Claims Distribution Pool: (a) with respect to
Litigation Claims against Weyerhaeuser and Pope & Talbot, 25% of the
Litigation Proceeds shall be deposited in the Unsecured
</TABLE>
-9-
<PAGE> 18
<TABLE>
<CAPTION>
TYPE OF CLAIM OR ESTIMATED
STOCK INTEREST ALLOWABLE
AMOUNT TREATMENT UNDER THE PLAN
<S> <C> <C> <C>
Claims Distribution Pool as and when such Litigation Proceeds are received,
with the remainder of the Litigation Proceeds being available for
Distributions to holders of Allowed Old Common Stock Interests; and (b) with
respect to Litigation Claims against Oracle Corporation and/or Andersen
Consulting LLP, 50% of the Litigation Proceeds shall be deposited in the
Unsecured Claims Distribution Pool and 50% of the Litigation Proceeds shall
be available for distributions to holders of Allowed Old Common Stock
Interests. Notwithstanding anything to the contrary herein, once the holders
of Allowed Unsecured Claims receive payment in full (including postpetition
interest to the extent provided under Section 7.4 of the Plan), any
Litigation Proceeds which would otherwise be distributed to the holders of
such Claims or deposited in the Unsecured Claims Distribution Pool shall be
distributed pro rata to the holders of Allowed Old Common Stock Interests
pursuant to Section 6.5 of the Plan.
3B Convenience Claims $1,600,000 Treatment. On or as soon as reasonably practicable after the later of (i) the
Effective Date, and (ii) the first Business Day after the date that is thirty
(30) calendar days after such Convenience Claim becomes an Allowed Claim,
each holder of an Allowed Convenience Claim shall receive Cash equal to fifty
percent (50%) of the unpaid amount of such Allowed Claim.
Election of Treatment. Any holder of an Allowed Unsecured Claim whose Allowed
Unsecured Claim is equal to or less than five thousand dollars ($5,000.00)
shall receive Convenience Claim treatment of its Allowed Claim in full
settlement, satisfaction, release and discharge of such Allowed Claim. Any
holder of an Allowed Unsecured Claim whose Allowed Unsecured Claim is more
than five thousand dollars ($5,000.00) but not more than ten thousand dollars
($10,000.00), and who timely elects to reduce the amount of such Allowed
Claim to five thousand dollars ($5,000.00) in accordance with the terms of
the Plan, also shall receive Convenience Claim treatment of its Allowed
Claim, as so reduced, in full settlement, satisfaction, release and discharge
of such Allowed Claim. No holder of an Allowed Unsecured Claim in excess of
ten thousand dollars ($10,000.00) shall be entitled to elect Convenience
Claim treatment under Section 6.4(a) of the Plan with respect to such Allowed
Unsecured Claim. Election of treatment in Class 3B must be made on such
holder's Ballot and be received by the Debtor on or prior to the Plan Voting
Deadline. Any election of Convenience Claim treatment made after the Plan
Voting Deadline shall not be binding upon the Debtor or Reorganized Paragon
unless the Plan Voting Deadline is expressly waived, in writing, by the
Debtor or Reorganized Paragon, as applicable, with the consent of the
Creditors' Committee. The exercise of such an election shall in no way
preclude the Debtor, Reorganized Paragon or other parties in interest from
objecting to the Claim.
</TABLE>
-10-
<PAGE> 19
<TABLE>
<CAPTION>
TYPE OF CLAIM OR ESTIMATED
STOCK INTEREST ALLOWABLE
AMOUNT TREATMENT UNDER THE PLAN
<S> <C> <C> <C>
4A Old Common Stock N/A On or as soon as reasonably practicable after the Initial Distribution Date,
Interests each Periodic Distribution Date thereafter and the Final Distribution Date,
each holder of an Allowed Old Common Stock Interest shall be entitled to
receive, in accordance with Article XI of the Plan, (a) such holder's Pro
Rata Share of (i) the Interest Holders' New Common Stock Amount, (ii) the
Warrants and (iii) that portion of the Litigation Proceeds allocable to
holders of Allowed Old Common Stock Interests under the Plan, and (b) any New
Common Stock properly subscribed for by any such holder under the Wellspring
Rights Offering pursuant to Section 9.22 of the Plan. For purposes of
determining the Litigation Proceeds which are allocable to holders of Allowed
Old Common Stock Interests: (a) with respect to Litigation Claims against
Weyerhaeuser and Pope & Talbot, 25% of the Litigation Proceeds shall be
deposited in the Unsecured Claims Distribution Pool as and when such
Litigation Proceeds are received, with the remainder of the Litigation
Proceeds being available for Distributions to holders of Allowed Old Common
Stock Interests; and (b) with respect to Litigation Claims against Oracle
Corporation and/or Andersen Consulting LLP, 50% of the Litigation Proceeds
shall be allocable to holders of Allowed Unsecured Claims as and when such
Litigation Proceeds are received and 50% of the Litigation Proceeds shall be
available for Distribution to holders of Allowed Old Common Stock Interests.
On the Effective Date, all Old Common Stock Interests shall be deemed treated
as set forth in Section 9.14(b) of the Plan.
4B Old Stock Option N/A All Old Stock Option Interests shall be deemed canceled and the holders of
Interests such Interests shall receive no Distribution of any kind under this Plan. On
the Effective Date, all such Interests shall be deemed extinguished and the
certificates representing such Interests shall be canceled and of no force
and effect.
</TABLE>
II. HISTORICAL INFORMATION
A. BUSINESS
1. GENERAL
Paragon is the leading manufacturer of store brand infant
disposable diapers in the United States and, through Paragon Trade Brands
(Canada), Inc. ("Paragon Canada"), a wholly-owned subsidiary, a leading marketer
of store brand infant disposable diapers in Canada. Paragon's executive offices
are located in Norcross, Georgia and, as of the Petition Date, it employed
approximately 1,100 full-time employees, including approximately 910 employees
at its five manufacturing facilities. (Paragon presently employs approximately
1,160 full-time employees, including approximately 940 employees at its four
remaining manufacturing facilities.) Paragon manufactures a line of premium and
economy diapers, training pants, feminine care and adult incontinence products
which are distributed throughout the United States and Canada, primarily through
grocery and food stores, mass merchandisers, warehouse clubs, toy stores and
drug stores that market Paragon's products under their own store brand names.
Paragon also has established international joint ventures in Mexico, Argentina,
Brazil and China for the manufacture and sale of infant disposable diapers and
other absorbent personal care products.
Paragon, previously a division of Weyerhaeuser Company
("Weyerhaeuser"), became a publicly held, independent company as a result of a
public stock offering completed February 2, 1993 (the "Weyerhaeuser Spin-off").
Paragon acquired substantially all of the assets and liabilities of
Weyerhaeuser's store brand diaper business in exchange
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<PAGE> 20
for 10 million shares of stock and $35 million in cash. On February 9, 1996,
Paragon completed the purchase of substantially all of the assets of the
disposable diaper business of Pope & Talbot, Inc. ("Pope & Talbot"). The
purchase price of $63.5 million was paid in a combination of cash and stock. In
1996, Paragon closed all the aspects of the acquired Pope & Talbot operations
which were duplicative of its existing operations. Since then, Paragon has sold
all or a majority of the acquired Pope & Talbot manufacturing facilities and
equipment, including the Oneonta Facility and the Porterville Facility (each as
defined and described below).
2. PRODUCTS
Paragon manufactures several diaper product lines: a
premium-quality Ultra line ("Ultra"), an economy line ("Economy") and a Supreme
line ("Supreme"). Paragon also manufactures a line of training pants. Ultra
diaper sales accounted for approximately 86 percent, 81 percent and 78 percent
of Paragon's total unit sales in fiscal years 1998, 1997 and 1996, respectively.
Economy diaper units represented approximately 7 percent, 9 percent and 12
percent of Paragon's total unit sales in fiscal years 1998, 1997 and 1996,
respectively. The Supreme product represented approximately 4 percent, 5 percent
and 4 percent of Paragon's total unit sales in fiscal years 1998, 1997 and 1996,
respectively. Training pant sales represented approximately 4 percent of
Paragon's total unit sales over the same periods.
Paragon's Ultra diaper combines fluff pulp with
super-absorbent polymer ("SAP") in the absorbent inner core. SAP is
significantly more absorbent and better able to retain liquids than fluff pulp.
To enhance performance and appearance, the Ultra diaper incorporates a number of
product features comparable to those introduced by the national branded
manufacturers, P&G and K-C. Paragon now produces its Ultra diaper in six
different sizes which are designed to fit babies better as they grow and
develop. In late 1996 and 1997, Paragon introduced an improved Ultra diaper
which incorporates a cloth-like backsheet and breathable side panels. In 1998,
Paragon introduced further improvements to the Ultra diaper which incorporated
stretch tabs and a hook and loop closure system.
The Economy diaper is designed to satisfy the needs of the
more cost-conscious value segment shopper. Its absorbent pad contains fluff pulp
and SAP. Its features also include a "tape landing zone" allowing for easy
fitting and re-adjustment after fastening. Paragon produces the Economy diaper
in three unisex sizes.
Paragon's Supreme diaper product is similar to its Ultra
diaper but contains a premium absorbent core and parts of the outer cover and
closer systems use premium materials.
Paragon's training pant is designed for use by children
primarily during their transition from diapers. Paragon's training pant utilizes
an absorbent core of fluff pulp and SAP and a cloth-like nonwoven outer cover.
Paragon produces its training pant in two gender-specific sizes and two unisex
sizes.
In 1996, Paragon began manufacturing a line of feminine care
products that included ultra thin, maxi and super maxi pads, pantiliners, panty
shields and regular and super absorbent tampons. In 1997, Paragon began
manufacturing a line of adult incontinence products that includes guards,
undergarments and bladder control pads. In 1998, Paragon curtailed its tampon
manufacturing operations after experiencing greater-than-expected operating
losses with respect to such products.
3. PRODUCT DEVELOPMENT
To enhance Paragon's objective of providing its trade
customers with premium-quality store brand disposable diapers and feminine care
and adult incontinence products, Paragon devotes significant resources to market
research and product design and development to enable it to improve product
performance and consumer acceptance. Paragon believes that, other than the
national branded manufacturers, it has the largest product development program
of
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<PAGE> 21
any manufacturer in the disposable diaper market. Paragon spent approximately
$4.2 million, $5.1 million and $4.2 million on research and development in
fiscal years 1998, 1997 and 1996, respectively.
4. PATENT RIGHTS
Because of the emphasis on product innovations in the
disposable diaper, feminine care and adult incontinence markets, patents and
other intellectual property rights are an important competitive factor. The
national branded manufacturers have vigorously sought to enforce their patent
rights. In fact, a patent infringement judgment against Paragon, in an action
brought by P&G and discussed below, was the primary factor leading to the
commencement of the Chapter 11 Case. To protect its competitive position,
Paragon has created an intellectual property portfolio through development,
acquisition and licensing that includes approximately 300 United States and
foreign patents relating to disposable diaper, feminine care and adult
incontinence product features and manufacturing processes. Paragon also subjects
new product innovations to a rigorous patent clearance process which includes a
review by Paragon's outside patent counsel. This process is designed to minimize
patent risk related to Paragon's products.
5. MAJOR CUSTOMERS
Paragon's net sales to its largest trade customer, Wal-Mart
Stores, Inc. ("Wal-Mart"), and Sam's Club, a division of Wal-Mart, represented
an aggregate of approximately 19 percent, 15 percent and 13 percent of total net
sales in fiscal years 1998, 1997 and 1996, respectively. As is customary in the
infant disposable diaper market, Paragon in most cases does not have long-term
contracts with its trade customers. Paragon estimates that approximately 7
percent, 7 percent and 9 percent of net sales were to trade customers in Canada
in fiscal years 1998, 1997 and 1996, respectively. In the second quarter of
1999, Paragon was informed by Wal-Mart that Wal-Mart will shift a significant
portion of Paragon's existing volume to a competitor during the second half of
1999. Paragon expects to offset the loss of this business as the sole supplier
of a new diaper in connection with a new product introduction by Wal-Mart which
was launched during the third quarter of 1999, but cannot predict at this time
when or whether such new volume will be sufficient to offset the loss of
existing volume.
6. FOREIGN OPERATIONS
On January 26, 1996, Paragon, through its wholly owned
subsidiary PTB International, Inc. ("PTBI"), completed the purchase of a 15
percent interest in Grupo P.I. Mabe, S.A. de C.V. ("Mabesa"), the second largest
manufacturer of infant disposable diapers in Mexico, for approximately $15.3
million in cash plus additional consideration based on Mabesa's future financial
results through 2001. Paragon also acquired an option to purchase an additional
34 percent interest in Mabesa at a contractually determined price. In 1997, 1998
and 1999, based on Mabesa's prior year's financial results, Paragon paid
additional consideration of approximately $3.4 million, $2.8 million and
$200,000, respectively.
In addition, PTBI acquired a 49 percent interest for
approximately $1.6 million in cash in Paragon-Mabesa International, S.A. de C.V.
("PMI"), a joint venture that developed a manufacturing facility in Tijuana,
Mexico. An affiliate of Mabesa owns the remaining 51% of PMI. Paragon sold
certain assets to PMI as part of the development of PMI's manufacturing facility
in Tijuana, Mexico. Paragon also assisted in financing the equipment, building
construction and start-up of the Tijuana, Mexico facility, which is completely
operational. Paragon has signed a Product Supply Agreement with PMI and
purchases basically all of PMI's production for sale to retail customers in the
United States and Europe.
On August 26, 1997, PTBI purchased a 49 percent interest in
Stronger Corporation S.A. ("Stronger"), a financial investment corporation
incorporated under Uruguayan law. An affiliate of Mabesa owns the remaining
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<PAGE> 22
51 percent of Stronger. Stronger has been used to establish joint ventures in
Argentina and Brazil and can be used to establish additional Latin American
joint ventures.
On August 26, 1997, Stronger acquired 70 percent of Serenity
S.A., the third largest diaper manufacturer in Argentina, for approximately
$11.6 million in cash plus additional consideration based on Serenity's future
financial results through 2000. Stronger also acquired an option to purchase the
remaining 30 percent interest in Serenity by 2002 at a contractually determined
exercise price. Serenity manufactures infant disposable diapers, sanitary
napkins and adult incontinence products in two facilities. PTBI advanced
approximately $5.7 million to Stronger, its pro-rata share of the purchase
price, and paid additional consideration of $600,000 in 1998. PTBI has
guaranteed Stronger's additional consideration obligations which are estimated
not to exceed an aggregate of $2.3 million through 2000.
On November 10, 1997, Stronger acquired 99 percent of the
disposable diaper business of MPC Productos para Higiene Ltda. ("MPC") for
approximately $10.5 million in cash from Cremer S.A., a Brazilian textile
manufacturer. MPC is engaged in the manufacture, distribution, and sale of
disposable diapers, skin lotions for children and other personal care products.
PTBI advanced approximately $5.1 million to Stronger, its pro-rata share of the
purchase price, in 1997. In 1998, PTBI converted $2 million of outstanding notes
receivable and accumulated interest for equipment sales into an additional
capital contribution.
In December of 1997, Paragon established Goodbaby Paragon
Hygienic Products Co. Ltd., a manufacturing and marketing joint venture in China
with Goodbaby Group of Kunshan City and First Shanghai Investment of Hong Kong.
Paragon purchased a 40 percent interest in the joint venture with Goodbaby Group
and First Shanghai Investment at 30 percent each. Initial registered capital of
the venture was approved by the Chinese government at $15 million, to be funded
over a two year period. A joint venture business license was approved by the
Chinese government on December 31, 1997. Groundbreaking for a new factory took
place in February 1998 and production and distribution of infant disposable
diapers began in October 1998. Paragon advanced its pro rata share, which thus
far has constituted $4 million in 1998 and an additional $800,000 in the first
quarter of 1999.
7. RAW MATERIALS
The principal raw material components of Paragon's products
are SAP, fluff pulp, polypropylene nonwoven film laminate backsheet,
polypropylene nonwoven liner, adhesive closure tape, hook and loop closure
components, hotmelt adhesive, elastic and tissue.
One of the primary raw materials used in the production of
disposable diapers is SAP. In early 1996, Paragon entered into an agreement with
Clariant International Ltd. (subsequently purchased by BASF Corporation) whereby
it agreed, subject to certain limitations, to purchase 100 percent of its
requirements of SAP through December 31, 2001. Fluff pulp, a product made from
wood fibers, is another primary raw material. Paragon's supply contract with
Weyerhaeuser, pursuant to which Paragon purchased 100 percent of its
requirements of bleached chemical fluff pulp, expired August 31, 1998. Paragon
has since continued purchasing substantially all of its fluff pulp requirements
from Weyerhaeuser. Paragon believes that at least two other sources of supply
exist for fluff pulp.
8. COMPETITION
The principal aspects of competition from the national branded
manufacturers, P&G and K-C, are price, product quality, product innovation and
customer service. The infant disposable diaper market in the United States is
led by the national brands manufactured by P&G and K-C. Paragon estimates that,
in 1998 and 1997, the national branded manufacturers accounted for approximately
74% of all disposable diaper sales in the United States. The market position of
these manufacturers, relative to Paragon, varies among geographic regions, but
each of these companies has the ability,
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<PAGE> 23
due to their substantial financial, technical and marketing resources, to exert
significant influence on the infant disposable diaper market.
The market for infant disposable diapers is divided into the
premium and value segments. The premium segment accounts for approximately 60%
of unit volume and is dominated by K-C and P&G. The value segment of the
industry, which Paragon estimates accounts for approximately 40% of unit volume
is highly competitive. Paragon includes the following products in the value
segment: store brands, control labels, P&G's Luvs(R), Drypers(R), Fitti(R), and
all other regional brands.
In total, P&G is the dominant manufacturer in the United
States infant disposable diaper market, with an approximately 40 percent market
share. P&G manufactures two brands: Pampers(R), its premium brand, which enjoys
an approximately 26 percent market share, and Luvs(R), its value brand, which
holds an approximately 14 percent market share. Luvs(R) was repositioned from a
premium brand to a value brand in November 1994. K-C manufactures the number one
diaper brand, Huggies(R), which holds an approximately 34 percent market share.
K-C does not offer a value brand, but supplies some store brand training pants
within the value segment.
Price has been a significant variable in the competitive
strategy of the national branded companies in the past three years. In recent
years, pricing pressure by the brands has been most evident in the shift of
volume to mass merchants who aggressively sell multi-packs. Multi-packs
represent a package configuration that provides the consumer 2, 3 or 4 times the
amount of diapers found in a standard convenience count package. These
multi-packs sell at prices 10 to 15 percent below the branded convenience count
package. For most of 1998, pricing pressures from store brand competitors and a
shift of volume to mass merchants continued. In October of 1998, the national
brands instituted a 5 percent price increase on certain of their product
offerings. Paragon began implementing a similar price increase on certain of its
products in the fourth quarter of 1998. To date, Paragon believes it has
realized approximately 3 percent of the proposed price increase. Competitive
factors may prevent the Company from realizing the full benefit of the price
increase. Paragon believes that the national branded manufacturers have lower
per-unit costs and higher margins than Paragon, principally due to their higher
volume and prices, coupled with fewer variations in product and packaging. In
addition, the national branded manufacturers have access to substantially
greater financial resources than does Paragon. As a result, Paragon believes
that the national branded manufacturers are capable of maintaining or reducing
prices, even in an environment of rising raw material prices.
Product quality and innovation are also critical aspects of
competition for the national branded manufacturers. They have substantially
larger research and development expenditures than Paragon and are able to
develop product innovations more rapidly than Paragon and thereby may gain
market share at Paragon's expense. Paragon estimates that since 1985, the
national branded manufacturers generally have introduced a product innovation
approximately every 12 months.
Paragon competes in the value segment of the market with
national value brands and store brand products. The value segment is
characterized by excess capacity and vigorous price competition. Paragon's
largest competitor in the value segment is P&G's Luvs(R) brand. The next largest
competitor is Drypers Corp. K-C also produces store brand training pants.
Paragon seeks to compete against other value segment
manufacturers by emphasizing research and development and striving to maintain a
leading position among value segment competitors in product quality. Smaller
competitors of Paragon are sometimes able to introduce new product features more
quickly than Paragon, in part as a result of having fewer diaper machines to
convert to new production processes.
The principal bases of competition in the feminine care and
adult incontinence market are price, product quality, product innovation and
customer service. The feminine care and adult incontinence retail market in the
United
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<PAGE> 24
States is led by national branded manufacturers including K-C, P&G, Johnson and
Johnson, Inc., and Playtex Products, Inc. Paragon estimates that, in 1997 and
1998, the national branded manufacturers accounted for approximately 88 percent
and 92 percent, respectively, of all United States feminine care and
approximately 70 percent and 76 percent, respectively, of all United States
retail adult incontinence sales. The market position of these manufacturers,
relative to Paragon, varies among geographic regions, but due to their
substantial financial, technical and marketing resources, each of these
companies has the ability to exert significant influence on the feminine care
and adult incontinence markets. Another manufacturer is the dominant supplier
of store brand feminine care and adult incontinence products. Paragon
experienced greater than anticipated operating losses in its feminine care and
adult incontinence business in 1998 and 1997 and expects these losses to
continue near term. Paragon has developed a business plan that supports the
realization of its investment in its feminine care and adult incontinence
business. Accordingly, Paragon has not recorded any adjustments in its
financial statements relating to the recoverability of the operating assets of
the feminine care and adult incontinence business. Paragon's ability to recover
its investment is dependent upon a prompt emergence from chapter 11 and the
successful execution of Paragon's feminine care and adult incontinence business
plan.
9. PROPERTIES
As of December 27, 1998, Paragon operated five manufacturing
facilities, with plants located in the United States at Macon, Georgia; Harmony,
Pennsylvania; Gaffney, South Carolina; and Waco, Texas; and in Canada at
Brampton, Ontario. Paragon ceased manufacturing operations at its Brampton,
Ontario facility in May 1999. Paragon, directly or through Paragon Canada, owns
four of its manufacturing facilities.
10. PREPETITION FINANCING AND EQUITY STRUCTURE
Prior to the Petition Date, Paragon maintained (a) a $150
million unsecured credit facility pursuant to a credit agreement dated as of
December 28, 1997 (as amended, the "Prepetition Revolving Credit Agreement")
with a group of nine financial institutions available through February 2001 and
(b) a $50 million unsecured short-term line of credit (as amended, the
"Prepetition Line of Credit" and, together with the Prepetition Revolving Credit
Agreement, the "Prepetition Credit Agreements") with Wachovia Bank of Georgia,
N.A. ("Wachovia"). In addition, Paragon guaranteed a Cdn.$5 million unsecured
line of credit (the "Paragon Canada Credit Line") from The Bank of Nova Scotia
which was available to Paragon Canada, a non-debtor wholly-owned subsidiary of
Paragon. The filing of the Chapter 11 Case constituted a default under each of
the Prepetition Credit Agreements and the Paragon Canada Credit Line.
The Prepetition Revolving Credit Agreement provided for loans,
on a revolving basis, to finance the prepetition working capital needs and
general corporate purposes of Paragon. At December 28, 1997, approximately $70
million in obligations were outstanding under the Prepetition Revolving Credit
Agreement. As of the Petition Date, approximately $11.4 million, with an
additional approximately $1.4 million in overdraft obligations and approximately
$2 million in letter of credit obligations, were outstanding under the
Prepetition Line of Credit. In addition, approximately $1.385 million was
outstanding under the Paragon Canada Credit Line as of December 28, 1997.
As of the Petition Date, Paragon's Old Common Stock was listed
on the New York Stock Exchange. As of January 5, 1998, there were approximately
11.9 million ($.01 par value) shares of Old Common Stock outstanding. As of
January 5, 1998, there were approximately 263 holders of record of Old Common
Stock. Trading in the Old Common Stock was suspended by the New York Stock
Exchange prior to the opening of trading on July 8, 1999. As of July 9, 1999,
the Old Common Stock began trading on the National Association of Securities
Dealers, Inc. Over-the-Counter Bulletin Board under the symbol PGNFQ.
B. EVENTS LEADING TO CHAPTER 11 FILING
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Prior to filing the Chapter 11 Case, Paragon was involved in
separate complex patent litigations brought by its principal competitors, P&G
and K-C. The Chapter 11 Case was precipitated primarily by the entry of a
judgment in the United States District Court for the District of Delaware (the
"Delaware Court") against the Debtor in a patent infringement action commenced
by P&G and entitled The Procter & Gamble Company v. Paragon Trade Brands, Inc.,
Civ. Action No. 94-CV-16 (LON) (D. Del.) (the "Delaware Action").
1. THE DELAWARE ACTION.
P&G commenced the Delaware Action in January 1994 alleging
that Paragon's "Ultra" disposable baby diaper products infringed two of P&G's
inner-leg gather patents -- P&G's "Lawson" and "Dragoo" patents -- and seeking
injunctive relief, lost profit and royalty damages, treble damages, attorneys'
fees and costs. Paragon denied liability in the Delaware Action and
counterclaimed for patent infringement and violation of antitrust laws by P&G.
In March 1996, the Delaware Court granted P&G's motion for summary judgment
regarding Paragon's antitrust counterclaim. The trial in the Delaware Action was
completed in February 1997, the parties submitted post-trial briefs and closing
arguments were conducted on October 22, 1997.
On or about September 4, 1997, prior to closing arguments,
Paragon and P&G entered into an agreement (the "P&G Conversion Agreement") which
provided that if either party was found to have infringed the other's patents,
the infringing party could elect to convert to a non-infringing product "as
quickly as feasible," but in no event longer than six months from entry of a
judgment of infringement (the "Conversion Period"), and would pay a reasonable
royalty as determined by the Court.
On December 30, 1997, the Delaware Court issued a Judgment and
Opinion finding that P&G's Lawson and Dragoo patents were valid and infringed,
while at the same time finding Paragon's patent to be invalid, unenforceable and
not infringed by P&G's products. Judgment was entered on January 6, 1998.
Damages of approximately $178.4 million were entered against Paragon by the
District Court on June 2, 1998. At the same time, the District Court entered
injunctive relief agreed upon by P&G and Paragon.
The Judgment resulted in violation of certain covenants under
the Prepetition Credit Agreements. As a result, the issuance of the Judgment and
the uncertainty it created caused an immediate and critical liquidity issue for
Paragon. In addition, upon the Judgment's entry on the Delaware Court's docket,
P&G may have been able to begin placing and executing on liens on Paragon's
assets. As a result, Paragon filed the Chapter 11 Case. The chapter 11 filing
was designed to, among other things, prevent P&G from placing liens on Paragon's
property, permit Paragon to appeal the Judgment in an orderly fashion, and give
Paragon the opportunity to resolve liquidated and unliquidated claims against it
which arose prior to the chapter 11 filing. None of Paragon's subsidiaries or
affiliates have commenced bankruptcy proceedings in connection with the Chapter
11 Case. See Section III.L.3.a hereof for a discussion of post-petition P&G
litigation.
2. THE TEXAS ACTION
On October 26, 1995, K-C filed a lawsuit against the Debtor in
the United States District Court for the Northern District of Texas (the "Texas
Court") and entitled Kimberly-Clark Corporation v. Paragon Trade Brands, Inc.,
No. 95-CV-2574 (the "Texas Action"). In the Texas Action, K-C alleged
infringement by Paragon's Ultra diapers, of two K-C patents (the "Enloe I" and
"Enloe II" patents) relating to inner-leg gathers or dual cuffs. K-C sought
injunctive relief, royalty damages, treble damages and attorneys' fees and
costs. The Debtor denied liability under the patents and counterclaimed for
patent infringement and violation of antitrust laws. Each party filed several
pre-trial motions, including K-C's motion for summary judgment with respect to
Paragon's antitrust counterclaim and Paragon's motion for summary judgment on
one of the patents asserted by K-C. In addition, K-C sued Paragon on another
dual cuff patent issued to K-C in February 1997 (the "Enloe III" patent), which
is based on a further continuation of one of the K-C dual
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cuff patents asserted in the case. That action was consolidated with the
pending action. The Texas Court appointed a special master (the "Special
Master") to rule on the various pending motions. As of the Petition Date, the
Special Master had not issued a report on these motions and, upon the
commencement of the Chapter 11 Case, the Texas Action was stayed by the
automatic stay provisions of section 362 of the Bankruptcy Code. See Section
III.L.3.b hereof for a discussion of post-petition K-C litigation.
III. THE CHAPTER 11 CASE
A. COMMENCEMENT OF THE CHAPTER 11 CASE
On the Petition Date, Paragon commenced a voluntary case
pursuant to chapter 11 of the Bankruptcy Code. Paragon since has continued to
operate as a debtor-in-possession subject to the supervision of the Bankruptcy
Court in accordance with the Bankruptcy Code. As described below, a variety of
steps have been taken since the Petition Date to strengthen and enhance the
value of the Debtor's business.
An immediate effect of the chapter 11 filing was the
imposition of the automatic stay under section 362 of the Bankruptcy Code which,
with limited exceptions, enjoined the commencement or continuation of all
collection efforts by creditors, and all litigation and enforcement of liens
against Paragon.
In the early stages of the Chapter 11 Case, the Debtor sought
and received a number of orders of the Bankruptcy Court (described below -- See
Sections III.C through III.G) designed to stabilize the Debtor's operations in
the bankruptcy environment.
B. MANAGEMENT
Since the Petition Date, the Debtor's corporate executive
management has been led by Bobby V. Abraham as Chairman and Chief Executive
Officer; David W. Cole as President; Alan J. Cyron as Executive Vice President,
Chief Financial Officer and Assistant Secretary; Catherine O. Hasbrouck as Vice
President, General Counsel and Secretary; Robert E. McClain as Executive Vice
President--Sales and Marketing; and Kathy Evenson as Director, Human Resources.
In addition, Arrigo D. Jezzi served as Executive Vice President - Operations,
Technology and International until his resignation in April 1999. Since that
time, Stan Littman has served as Vice President - Technology and Materials, Jeff
Schoen has served as Vice President - Manufacturing and John R. Cook has serve
as Vice President - Quality. Also, in June 1999, Paragon's Board of Directors
appointed Chris Oliver as Executive Vice President - Customer Management. Kevin
B. Higgins served as Vice President, Treasurer and Assistant Secretary until his
resignation in October 1999. Further, David Cole has resigned from the Debtor's
employ effective December 8, 1999. Wellspring has asked Mr. Cole, and Mr. Cole
has agreed, to serve as a member of the Board of Directors of Reorganized
Paragon if the Wellspring Stock Purchase Agreement is consummated.
1. MR. ABRAHAM
Mr. Abraham has been a director and Chief Executive Officer of
the Debtor since its initial public offering in February 1993, has been Chairman
of the Debtor's Board of Directors since August 1993 and served as the Debtor's
President from February 1993 to November 1993. From February 1988 to February
1993, Mr. Abraham was President of the Personal Care Products Division of
Weyerhaeuser. From 1986 until February 1988, Mr. Abraham served as Vice
President and General Manager of the Personal Care Products Division of
Weyerhaeuser.
2. MR. COLE
Mr. Cole, who has tendered his resignation effective as of
December 8, 1999, has been President since September 1999. Prior to that time,
he served as President, Sales and Marketing, from March 1998, and as President
and
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Chief Operating Officer of the Debtor from November 1, 1993 to March 1998.
Prior to that time, he served, from February 1993, as Paragon's Executive Vice
President and Chief Operating Officer. Before the Debtor's initial public
offering in February 1993, Mr. Cole was employed at Weyerhaeuser, as Vice
President and General Manager of the Personal Care Products Division from May
1990 to November 1993, and as Executive Vice President of Sales from 1989 to
1990. Prior to joining Weyerhaeuser, Mr. Cole served as Director of Field Sales
with Cadbury USA, a division of Cadbury Schweppes PLC, and its successor,
Hershey Chocolate Company.
3. MR. CYRON
Mr. Cyron has been Executive Vice President, Chief Financial
Officer and Assistant Secretary of the Debtor since February 28, 1997. From
April 4, 1995 until that date, he served as Paragon's Vice President and Chief
Financial Officer, and served as its Treasurer from May through July 1995. Prior
to joining the Debtor, Mr. Cyron was employed at several subsidiaries of
Chemical Banking Corp., including as Managing Director of Chemical Securities,
Inc. (January 1992 through March 1995), Managing Director of Chemical Bank (June
1991 to January 1992), and Managing Director of Chemical New York Corp.--USA,
Inc. (November 1990 to June 1991).
4. MS. HASBROUCK
Ms. Hasbrouck has been the Vice President, General Counsel and
Secretary of the Debtor since June 3, 1996. Prior to joining the Debtor, Ms.
Hasbrouck practiced law as an associate with the law firms of Troutman Sanders
LLP (January 1992 to June 1996) and Winthrop, Stimson, Putnam & Roberts
(September 1989 to January 1992).
5. MR. MCCLAIN
Mr. McClain was appointed Executive Vice President -- Sales
and Marketing in January 1998. Prior to that time, Mr. McClain had served as the
Debtor's President of Sales from March 1997, and as Vice President -- Business
Development from September 1996 to March 1997. Before joining the Debtor, Mr.
McClain was Senior Vice President Sales and Marketing for Nice-Pak Products from
1992 to September 1996.
6. MS. EVENSON
Ms. Evenson was appointed Director, Human Resources for the
Debtor in April 1998. Prior to this time, Ms. Evenson served the Debtor as
Director, Compensation and Benefits (February 1998 to April 1998), Compensation
and Benefits Manager (June 1995 to February 1998), and Supervisor, Compensation
and Benefits (June 1994 to June 1995).
7. MR. LITTMAN
Mr. Littman has been Vice President - Technology and Materials
of the Debtor since September 1998. Prior to that time, Mr. Littman served the
Debtor as Vice President - Supply Management (November 1997 to September 1998)
and Director, Supply Management (April 1996 through October 1997). Prior to
joining the Debtor, Mr. Littman was employed by Fiberweb, a nonwovens
manufacturing company, as Research Director, Medical Fabrics, from 1992 to 1996.
8. MR. SCHOEN
Mr. Schoen was appointed Vice President - Manufacturing of the
Debtor in March 1999. Prior to that time, Mr. Schoen served the Debtor as a
Plant Manager at two of its manufacturing facilities (1994 to 1998), and as a
plant Operations Manager (1993 to 1994).
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9. MR. COOK
Mr. Cook has been Vice President - Technical Support of the
Debtor since 1998. Prior to that time, Mr. Cook served the Debtor as VP Quality
Management (1994 to 1998) and VP-R&D (1992 to 1994).
10. MS. OLIVER
Ms. Oliver was appointed Executive Vice President - Customer
Management of the Debtor in June 1999. Ms. Oliver also currently serves as
President of Paragon Trade Brands (Canada) Inc., a wholly owned subsidiary of
the Debtor and has served in that position since October 1997. From February
1993 to October 1997, Ms. Oliver served as Vice-President-Manufacturing for
Paragon Trade Brands (Canada) Inc.
C. EMPLOYEE BENEFITS
1. WAGE ORDERS
To retain valued employees and ensure Paragon's ability to
continue operating with a minimal amount of disruption from the commencement of
the Chapter 11 Case, Paragon, sought, by emergency motion dated January 7, 1998,
authorization to: (a) pay certain prepetition (i) employee wages, salaries and
other compensation, (ii) withholding taxes related to employee wages and
salaries, (iii) employee medical, dental and similar benefits, (iv) reimbursable
employee expenses, and (v) contributions to employer defined-contribution
retirement plans; and (b) maintain certain prepetition payroll and health plan
bank accounts. By Orders dated January 9, 1998 and January 14, 1998, the
Bankruptcy Court granted the requested relief.
2. RETENTION PROGRAMS
As a result of the Judgment and the pendency of the Chapter 11
Case, the Debtor faced a mounting employee retention crisis in the first part of
1998. From the Petition Date through May 28, 1998, the Debtor experienced
approximately 100 employee resignations (compared to forty-two (42) such
resignations during the comparable time period in 1997). The pendency of the
Chapter 11 Case and the concomitant uncertainties hampered the Debtor's ability
to attract qualified replacements. Accordingly, in an effort to retain the
employees and executives necessary to the Debtor's reorganization efforts, the
Debtor sought, by motion dated May 29, 1998 (the "Retention Plan Motion"), the
approval of certain retention programs, each as described more fully below.
A. TEEP BONUS AND RETENTION PLAN
In the Retention Plan Motion, the Debtor proposed a
two-pronged plan ("TEEP") whereby its top eight executives1 would be entitled to
receive (a) bonuses based on the timely confirmation of a plan of reorganization
in the Chapter 11 Case and (b) severance payments of two times annual base
salary upon termination of employment without cause or under certain other
specified circumstances. K-C objected to the proposed TEEP, which was supported
by P&G and the Creditors' Committee and, after hearings held on June 29, 1998
and July 22, 1998, the Bankruptcy Court approved the program by Order entered on
August 10, 1998.
- --------
1 The executives originally designated for eligibility under the TEEP
were Mr. Abraham, Mr. Cole, Mr. Cyron, Ms. Hasbrouck, Mr. Jezzi, Mr. McClain,
Mr. Higgins, and the then and still vacant office of Chief Operating Officer.
Mr. Jezzi resigned from Paragon in April 1999 and was paid severance in
accordance with the TEEP. In addition, Mr. Higgins has resigned effective as of
October 15, 1999 and will be paid severance in accordance with the TEEP. Mr.
Cole, who has resigned effective December 8, 1999, will not receive any
severance under the TEEP.
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Under the TEEP, each eligible individual's base confirmation
bonus amount is determined by adding such individual's annual base salary to
amounts such individual qualified for under the Debtor's preexisting 1998 bonus
plan, based on the Debtor's performance in achieving certain financial criteria
under such plan. The base bonus amount would have been subject to enhancement
had Confirmation occurred prior to July 15, 1999. Because Confirmation did not
occur prior to July 15, 1999, no enhancement of the confirmation bonuses will
take place.
The TEEP provides that confirmation bonuses are distributable
immediately upon consummation of a plan, up to the aggregate amount of $2
million in Cash. Confirmation bonuses in excess of that aggregate amount will be
paid in New Common Stock, unless the New Board determines that it is fair and
prudent to pay such amounts in Cash. Paragon has determined that the aggregate
amount of Confirmation bonuses to be paid will equal $2,164,925: at least $2
million of which will be paid in Cash, and the balance of which will be paid, in
the New Board's discretion, in Cash or in New Common Stock. Pursuant to the
TEEP, Confirmation bonuses will be payable to the following individuals as
indicated (assuming each such individual's entitlement thereto does not change
between the date hereof and the Effective Date): (a) Mr. Abraham, $1,061,000;
(b) Mr. Cyron, $435,375; (c) Mr. McClain, $406,350; and (d) Ms. Hasbrouck,
$262,200.
B. NON-TEEP RETENTION PLANS
Other than with regard to the TEEP, the relief requested in
the Retention Plan Motion was granted without objection on July 2, 1998. Such
relief included: (i) a general bonus retention plan whereby approximately 190 of
the Debtor's employees as of the Petition Date (excluding those executives
eligible for the TEEP) became eligible to participate in a $2 million bonus pool
if they were still employed by the Debtor as of January 6, 1999, the first
anniversary of the Petition Date, and could become eligible for additional bonus
amounts if they remained in the Debtor's employ through the later of March 31,
1999 and the Confirmation Date; (ii) authorization to pay certain amounts earned
by hourly plant employees and sales managers prior to the Petition Date under
preexisting performance-related bonus programs, which amounts were not paid as a
result of the commencement of the Chapter 11 Case; and (iii) the continuation of
certain prepetition incentive and retention programs in the ordinary course of
the Debtor's business. Paragon implemented the Non-TEEP retention plans in
accordance with their terms.
Given the Debtor's financial performance to date in 1999, it
has become apparent that there will likely be no bonus payout for 1999. As a
result, the Debtor has received the support of the Creditors' Committee for a
retention plan designed to incent employees to remain with the Debtor through
confirmation of a plan of reorganization and some reasonable transition period
thereafter. None of the executives eligible to participate in the TEEP Plan
described herein will be eligible to participate in this new retention plan. The
Debtor intends to seek Bankruptcy Court approval of the new retention plan
shortly.
D. CASH MANAGEMENT SYSTEM
Prior to the Petition Date, Paragon maintained its cash and
receivables due from customers in various depository accounts and lockbox
accounts from which proceeds were regularly swept into a concentration account
maintained with Wachovia (the "Wachovia Concentration Account").
Funds in the Wachovia Concentration Account then were
automatically transferred, on an as-needed basis, into various zero-balance
accounts maintained with Wachovia for payment of payroll expenses, trade
payables, employee medical benefits, employee expenses, research and development
costs and customer promotions. By Order dated January 23, 1998, the Bankruptcy
Court granted authority for Paragon to maintain and modify its existing cash
management system by maintaining its existing depository and lockbox accounts,
creating new accounts, and replacing the Wachovia Concentration Account with
similar accounts at Wachovia (the "Postpetition Wachovia Concentration Account")
and the DIP Bank Agent.
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On January 9, 1998, Wachovia filed a motion with the
Bankruptcy Court seeking authorization for the exercise of purported rights of
recoupment and/or offset with regard to certain of the Debtor's funds on deposit
with Wachovia. Wachovia filed an amended and restated motion seeking such relief
on February 25, 1998. The Debtor and the Creditors' Committee initially opposed
such motions, but the parties resolved their disputes through an agreement
embodied in a consent order entered by the Bankruptcy Court on April 24, 1998.
Pursuant to that consent order, Wachovia was authorized to: (a) debit the
Postpetition Wachovia Concentration Account in the amount of $202,009.31 on
account of certain payments authorized by the Bankruptcy Court's January 1998
wage orders and made by Wachovia for certain of the Debtor's payroll expenses;
and (b) reimburse itself, in the amount of $1,866,625.22 from another of the
Debtor's accounts, for certain payments and wire transfers made on the Debtor's
behalf, without prejudice to any claim, defense or position that such amount
should be returned to the Debtor.
E. UTILITIES
On January 23, 1998 and February 23, 1998, the Bankruptcy
Court ruled, on an interim and final basis, respectively, that the Debtor was
not required to post deposits as adequate assurance of future performance of its
obligations to utilities. Four utilities objected and were exempted from
applicability of such final order. The Debtor subsequently reached, and the
Bankruptcy Court approved, consensual agreements with each of the objecting
utilities.
F. RECLAMATION CLAIMS
In the twenty (20) day period immediately following the
Petition Date, the Debtor received demands from approximately twenty (20) trade
suppliers for the return of goods pursuant to applicable state law and section
546(c) of the Bankruptcy Code. The value of the goods subject to such Claims
totaled approximately $8 million. After thorough examination, Paragon determined
that approximately $2.9 million of such Claims were valid reclamation claims
under applicable law. In order to preserve valuable trade relationships with the
respective vendors and to forestall the potential morass of adversary
proceedings in the Bankruptcy Court to enforce such claims, the Debtor, by
motion dated August 26, 1998, proposed certain procedures (the "Reclamation
Program") for the resolution and treatment of all such reclamation claims.
Pursuant to the Reclamation Program, which was approved by the Bankruptcy Court
on October 8, 1998, the Debtor was authorized to enter into stipulations with
the holders of such Claims, which stipulations, subject to approval of the
Creditors' Committee, would establish the allowed amounts of such Claims and
provide for the Cash payment of such allowed amounts. To the extent claimants
receiving such payments had filed proofs of Claim including their reclamation
Claims, they were required under the Reclamation Program and in the respective
stipulations to reduce such proofs of Claim by the amount of any payments
received under the Reclamation Program. As of July 9, 1999, the Debtor had
resolved 9 reclamation claims, aggregating approximately $1.6 million in allowed
claims. As of such date, 11 reclamation claims, asserting approximately $1.3
million in the aggregate, remained unresolved.
G. POSTPETITION FINANCING
In connection with the Chapter 11 Case, on January 21, 1998
and January 30, 1998, the Bankruptcy Court entered interim and final orders,
respectively, approving a $75 million postpetition financing facility (the "DIP
Credit Facility") as provided under the Revolving Credit and Guarantee Agreement
dated as of January 7, 1998, as amended, among Paragon, as borrower, four
wholly-owned subsidiaries of Paragon as guarantors, and a bank group led by
Chase. Pursuant to the terms of the DIP Credit Facility, Chase has made
available to Paragon a revolving credit and letter of credit facility in an
aggregate principal amount of $75 million. Paragon's maximum borrowing under the
DIP Credit Facility may not exceed the lesser of $75 million or an available
amount determined in accordance with a specified borrowing base formula. The DIP
Credit Facility has a sublimit of $10 million for the issuance of letters of
credit. The DIP Credit Facility was originally scheduled to expire on the
earlier of July 7, 1999 and the date of substantial consummation of a plan of
reorganization in the Chapter 11 Case (the "Maturity Date"). Pursuant to an
order of the Bankruptcy Court dated July 2, 1999, the Maturity Date was extended
through March 26, 2000.
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The establishment of the DIP Credit Facility was necessary at
the commencement of the Chapter 11 Case to maintain the confidence of Paragon's
vendors and suppliers in Paragon's trade credit. Although approximately $1.3
million in standby letters of credit have been issued under the DIP Credit
Facility to secure certain workers' compensation self-insurance liabilities and
equipment purchases, no direct borrowings were outstanding under the DIP Credit
Facility as of the date hereof.
H. STRATEGIC BUSINESS INITIATIVES
1. SETTLEMENTS WITH P&G AND K-C.
Throughout the Chapter 11 Case, Paragon has believed that the
most important factors in crafting a successful emergence from the chapter 11
process would be the prompt resolution of the Claims of P&G and K-C. After
lengthy and arduous negotiations to resolve such Claims and related disputes,
the Debtor was able to negotiate and enter into the P&G Settlement Agreement and
the K-C Settlement Agreement, each of which was approved by the Bankruptcy Court
on August 6, 1999. These agreements are described more fully in Section III.L.3
("Claims"), below.
2. ASSET SALES.
In addition, Paragon has entered into certain strategic asset
sale agreements, discussed below.
A. CPI ASSET SALE
Prior to the Petition Date, the Debtor owned 100% of the
outstanding stock of Changing Paradigms, Inc. ("CPI"), a distributor of products
such as air fresheners and household cleaners with assets worth approximately
$7.8 million (book value) as of June 28, 1998. In an effort to focus more
sharply on its core business, the Debtor determined to dispose of its interest
in CPI, either through a sale of stock or a sale of CPI's assets. On July 2,
1998, the Debtor and CPI entered into a letter of intent with House, Home &
Hardware, LLC ("House") to sell substantially all of CPI's assets to House for
$7 million and the assumption of certain payables. A definitive sale agreement
was executed as of September 1, 1998. By motion dated September 4, 1998, the
Debtor sought the Bankruptcy Court's approval, pursuant to section 363 of the
Bankruptcy Code, for its consent to the sale (which consent was required under
applicable state law). The Bankruptcy Court granted that motion by order dated
September 28, 1998, and the CPI sale was consummated on October 16, 1998.
B. ONEONTA FACILITY SALE
As part of Paragon's February 1996 acquisition of Pope &
Talbot's disposable diaper business, Paragon acquired a manufacturing facility
in Oneonta, New York (the "Oneonta Facility"). After consolidating the acquired
operations into its existing operations, the Debtor shut down the Oneonta
Facility in early 1997. Both before and after the Petition Date, Paragon
attempted to market the Oneonta Facility. On May 8, 1998, the Bankruptcy Court
approved the Debtor's retention of Hart Corporation ("Hart") as real estate
broker to aid in those and other similar marketing efforts. The Debtor
ultimately entered into an agreement to sell the Oneonta Facility, together with
certain related personal property, to Drogen Wholesale Electric Supply, Inc. for
$1.15 million. The Bankruptcy Court approved this transaction by order dated
December 23, 1998, and the sale of the Oneonta Facility was consummated on
February 1, 1999.
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C. PORTERVILLE FACILITY SALE
As with the Oneonta Facility, the Debtor also acquired a
manufacturing facility in Porterville, California (the "Porterville Facility")
in connection with the February 1996 Pope & Talbot transaction. The Porterville
Facility was not necessary to the Debtor's integrated operations and was closed
upon consummation of the Pope & Talbot acquisition. The Debtor had begun
attempting to market the Porterville Facility prior to the Petition Date. With
Hart's assistance, Paragon entered into an agreement, which was approved by the
Bankruptcy Court on February 12, 1999, to sell the Porterville Facility to Del
Mesa Farms for $800,000. The sale of the Porterville Facility was consummated on
February 18, 1999.
3. PRODUCT CONVERSIONS.
Following the commencement of the Chapter 11 Case, and in
accordance with the terms of the P&G Conversion Agreement (See Section II.B.1 --
The Delaware Action), Paragon focused much of its time and energy on converting
the dual cuff product that was the subject of the Judgment to a single cuff
product that Paragon believes does not infringe any valid claims of P&G's Lawson
and Dragoo patents or violate the terms of the stipulated permanent injunction
entered by the Delaware Court, which injunction enjoins Paragon's sale of the
dual cuff product found to infringe such patents and such other products that
are no more than colorably different than the allegedly infringing diaper.
Pursuant to the P&G Conversion Agreement, Paragon was required to and did
convert to a non-infringing product (Paragon's single cuff product) by July 6,
1999. (As discussed below, P&G has asserted that Paragon's single cuff product
violates the terms of the stipulated permanent injunction.) While initial
feedback on the single cuff diaper generally was positive, the introduction of
the single cuff design (like the introduction of any design change) was a
business risk that Paragon was required to manage in order to eliminate and/or
reduce, among other things, product performance and customer acceptance issues
related to the design change. Nevertheless, as a result of the settlement
agreements with P&G and K-C, Paragon began, in February 1999, the process of
converting to a dual cuff product design, which already was well known and
widely accepted in the marketplace. This conversion was completed by May 1,
1999. See Section VII (Risk Factors to be Considered -- Risk of Non-Approval of
the P&G and K-C Settlement Agreements) below.
I. LONG-RANGE BUSINESS PLAN
Early in the Chapter 11 Case, the Debtor retained The
Blackstone Group, L.P. ("Blackstone") as its financial advisor and restructuring
expert. The Bankruptcy Court approved Blackstone's retention on a final basis on
May 20, 1998. As part of its duties, Blackstone assisted the Debtor in its
development of the Debtor's Long-Range Business Plan (the "Business Plan") in
early 1998. The Debtor shared the Business Plan with the Creditors' Committee
and its Professionals in early May 1998, and, once the basic economic terms of
the P&G Settlement and the K-C Settlement had been negotiated, shared a revised
Business Plan (reflecting the economic terms of these settlements and certain
new business opportunities not included in the original Business Plan) with the
Creditors' Committee, P&G and K-C and their advisors in November 1998. The
revised Business Plan also was shared with the Equity Committee and its advisors
around that time.
As part of the K-C Settlement Agreement, K-C has agreed not to
sue Paragon on two of K-C's patents (K-C's Kellenberger and Melius patents --
U.S. Patent Nos. B1 5,147,343 and 5,601,542, respectively), so long as Paragon
uses SAP which exhibits certain performance characteristics (the "SAP Safe
Harbor"). In connection therewith, Paragon converted to an interim safe harbor
SAP in December 1998 and subsequently converted to the safe harbor SAP it is
currently using in March 1999. As a result of, among other things, these
changes, Paragon experienced certain product performance issues that Paragon
believes may have impacted volume for the first half of 1999. Paragon also is
encountering increased product costs due to product design costs associated with
Paragon's hook and loop closure system and the increased price and usage of the
new SAP. While Paragon is working diligently with its SAP supplier to develop
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a more cost-effective alternative, Paragon cannot predict at this time whether
or when the added costs will be fully offset. Paragon expects that these
increased costs also will have a material adverse impact on its financial
condition and results of operations for at least fiscal year 1999 and possibly
beyond.
The issues faced by Paragon with respect to decreased volume
in the first quarter of 1999, the loss of certain anticipated volume increases,
a slower than expected realization of the 5% price increase announced in October
1998, and higher than anticipated manufacturing and product costs, caused
Paragon to further revise its Business Plan. This process was completed at the
end of April 1999, and on May 5, 1999, Paragon and its legal and financial
advisors presented the Creditors' Committee, the Equity Committee, P&G and K-C
with its updated Business Plan (as updated and revised, the "May 1999 Business
Plan") in order to further plan of reorganization discussions based upon the May
1999 Business Plan. Subsequent to the issuance of the May 1999 Business Plan,
Paragon continued to experience lower than expected sales and profitability
beyond that which had been projected. That trend, which continued in the third
quarter, caused the Debtor to re-evaluate the assumptions underlying its May
1999 Business Plan in August 1999. The Debtor concluded that evaluation toward
the end of August 1999 and completed a revision of the May 1999 Business Plan on
August 23, 1999 (as further refined on September 7, 1999, the "Revised Business
Plan") that reflected the further decrease in Paragon's sales and profitability.
The Debtor shared the Revised Business Plan with its principal creditor and
equity constituencies. The Revised Business Plan forms the basis for the
Wellspring Commitment and the Plan.
J. DISCUSSIONS WITH POTENTIAL ACQUIRORS AND/OR PLAN FUNDERS
In addition to assisting the Debtor in formulating the basic
structure for the Plan, Blackstone has conducted discussions throughout the
pendency of the Chapter 11 Case with numerous third parties regarding a sale of
Paragon and its assets and/or the funding of a plan of reorganization. In
general, these parties were not prepared to engage in serious discussions with
Paragon until Paragon had resolved its disputes with P&G and K-C. Nonetheless,
Paragon, with the assistance of Blackstone and its other professionals, kept
interested parties apprised of the status of Paragon's case, executed
appropriate confidentiality agreements, provided due diligence access and met
with potential buyers to facilitate such parties' ability to move forward with a
transaction shortly after agreements with P&G and K-C were reached.
In late February 1999, as a result of such discussions,
Paragon received an offer from Wellspring Capital Management LLC ("Wellspring")
that was shared with each of Paragon's principal constituencies and that formed
the basis for negotiations between Paragon and Wellspring regarding Wellspring's
sponsorship of a plan of reorganization for Paragon. However, and as described
above, Paragon's sales volume and profitability began to decline to levels
meaningfully below the levels projected in the November 1998 Business Plan. As
the November 1998 Business Plan formed the basis upon which the Wellspring
February 1999 proposal was based, the negotiations were put on hold to provide
both Paragon and Wellspring time to review and analyze the results of Paragon's
recent operations. Upon Paragon's revision of the November 1998 Business Plan
and issuance of the May 1999 Business Plan, and Wellspring's review of such plan
during May 1999, Paragon and Wellspring ultimately agreed upon the terms of a
plan outline (the "Plan Outline"), that provided, generally, for (a) a $100
million equity investment in the Debtor by Wellspring pursuant to a plan of
reorganization in return for 84.1% of the common stock of Reorganized Paragon,
subject to reduction and dilution as a result of an equity rights offering (the
"Wellspring Investment"), (b) the issuance by Reorganized Paragon of
approximately $200 million in notes, subject to adjustment, and (c) the raising
of new working capital financing in the amount of at least $50 million, which
investment and financing could form the basis of a proposed plan of
reorganization for Paragon (such plan, or any other chapter 11 plan that
provides for the Wellspring Investment, the "Wellspring Plan") consistent with
the Plan Outline.
Initially, it was anticipated that under a Wellspring Plan, if
pursued, there would be approximately $325 million in value to be distributed to
holders of allowed general unsecured claims (and, potentially, holders of
Paragon's common stock). These distributions were to be comprised of such
creditors' pro rata shares of (i) $100 million in cash,
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(ii) $200 million in notes, (2) and (iii) as much as 15.9% of the equity in
Reorganized Paragon. Holders of allowed general unsecured claims (and,
potentially, holders of allowed common stock interests) also were to have the
opportunity to participate in an equity rights offering to acquire up to 24.1%
of additional equity in Reorganized Paragon at the same price as Wellspring.
Parties (other than Wellspring) receiving equity in Reorganized Paragon also
were to have the opportunity to sell such equity in connection with the equity
rights offering.
The Plan Outline contemplated, and the parties acknowledged,
that Paragon simultaneously was permitted to prepare and pursue confirmation of
a stand-alone plan of reorganization so that the plan process and Paragon's
emergence from chapter 11 were not delayed in the event that (a) Wellspring did
not commit to provide the Wellspring Investment within the time-frame
contemplated by the Plan Outline, (b) Wellspring ultimately was unable to
provide such investment, or (c) Paragon was unable to obtain confirmation of the
Wellspring Plan or the approval of a higher or otherwise better alternative
transaction. The Plan Outline also contemplated that Paragon would use the
Wellspring proposal to solicit potentially higher and/or better offers for a
sale of Paragon or its assets, or the funding of a plan for Paragon, through a
bidding and auction process that would be approved by the Bankruptcy Court. By
motion dated June 11, 1999, Paragon moved for approval of that bidding process.
By order dated July 13, 1999, the Bankruptcy Court approved,
over the Equity Committee's objection, the proposed auction and bidding process,
and established (a) August 30, 1999, as the deadline by which parties could
submit competing bids to the Wellspring proposal, and (b) September 2, 1999, as
the date on which an auction would take place if competing bids were made. By
motion dated July 22, 1999, the Equity Committee requested the Bankruptcy Court
to amend its decision. Both Paragon and the Creditors' Committee filed pleadings
in opposition to that motion, and the Bankruptcy Court denied such motion by
order entered on August 20, 1999. The Equity Committee has appealed both of the
Bankruptcy Court's orders regarding the Wellspring proposal. Upon reaching an
agreement in principle regarding the allocation of value to holders of Allowed
Old Common Stock Interests under the Plan, the Debtor and the Equity Committee
jointly requested the Georgia District Court to extend Paragon's time to file
its reply brief on appeal. By order dated November 9, 1999, the Georgia District
Court extended this deadline to January 30, 2000.
By letter dated August 19, 1999, Wellspring purported to
commit to the Wellspring proposal. On August 20, 1999, Paragon informed
Wellspring in writing that Paragon did not find the purported Wellspring
commitment satisfactory because, among other reasons, it permitted Wellspring to
terminate the proposed transaction if, in the course of additional due diligence
that Wellspring needed to conduct, Wellspring determined that a material adverse
change had occurred or would occur in Paragon's business or business prospects
following April 27, 1999. (By letter dated August 23, 1999, Wellspring disputed
Paragon's position that the commitment was unsatisfactory.) Pursuant to a
stipulation and order "so ordered" by the Bankruptcy Court on September 14,
1999, Paragon and Wellspring agreed that (a) the date by which Wellspring would
be required to provide a commitment satisfactory to Paragon would be extended
until September 3, 1999, (b) the deadline for competing bids would be extended
until September 15, 1999, and (c) an auction would commence on September 21,
1999 (the "Auction").
On September 3, 1999, Wellspring submitted a revised
commitment to Paragon that embodied the terms of a revised Plan Outline (as
further modified and revised as a result of the Auction and discussions between
and among, among others, Paragon and Wellspring, the "Wellspring Commitment"). A
competing bid was made by one competing bidder on September 15, 1999, and the
Auction began on September 21, 1999. The Auction thereafter continued until
Paragon, after consultation with the Creditors' Committee, the Equity Committee,
P&G and K-C, determined to conclude the Auction on October 4, 1999. At the
conclusion of the Auction, Paragon, after consultation with the Creditors'
- ------------
(2) The principal amount of the notes would be subject to adjustment (up
or down) based on the amount of Paragon's cash on hand on the effective date of
the Wellspring Plan.
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<PAGE> 35
Committee, the Equity Committee, P&G and K-C, determined that Wellspring had
submitted the best bid. Although the auction has concluded, the competing bidder
has continued to express an interest in pursuing a transaction with Paragon.
Following the conclusion of the Auction, Paragon, in
consultation with its principal creditor constituencies, worked to refine the
revised Plan Outline proposed by Wellspring and ultimately agreed to the terms
of the Wellspring Commitment attached to the Plan as Exhibit "C". Following the
parties' execution of the Wellspring Commitment, Paragon and Wellspring engaged
in negotiations with each other regarding the terms of definitive documentation
that incorporates the agreements and understandings contained in the Wellspring
Commitment. Numerous drafts were exchanged between the parties and shared with
the Creditors' Committee, the Equity Committee, P&G and K-C. Ultimately, after
extensive negotiations between Paragon, Wellspring and the Creditors' Committee,
Paragon and Wellspring agreed to the terms and conditions contained in the
Wellspring Stock Purchase Agreement.
Under the Plan, Paragon will be reorganized either (a) through
the Wellspring Stock Purchase Agreement and the distribution of the proceeds
thereof to fund certain distributions under the Plan, or (b) alternatively, on a
stand-alone plan of reorganization basis. If all the conditions to the
Wellspring Stock Purchase Agreement are satisfied or waived, Paragon will not
proceed on a stand-alone plan of reorganization basis.
In the event that the Wellspring Stock Purchase Agreement is
consummated, holders of Allowed Unsecured Claims will receive Distributions in
amounts equal to their Pro Rata Share of Cash and New Notes, and the right to
participate in the Wellspring Rights Offering, and holders of Allowed Old Common
Stock Interests will receive their Pro Rata Share of the Interest Holders' New
Common Stock Amount, the right to participate in the Wellspring Rights Offering
(to the extent all such rights are not exercised by holders of Allowed Unsecured
Claims in the Wellspring Rights Offering), and the Warrants. If the Wellspring
Stock Purchase Agreement is not consummated and Paragon is reorganized on a
stand-alone basis under the Plan, holders of Allowed Unsecured Claims will
receive Distributions in amounts equal to their Pro Rata Share of the Unsecured
Creditor New Common Stock and holders of Allowed Old Common Stock Interests will
receive their Pro Rata Share of the Interest Holders' New Common Stock Amount
and the Warrants. In either scenario, holders of Allowed Unsecured Claims and
holders of Allowed Old Common Stock Interests also will receive a portion of the
Litigation Proceeds, if any, allocable to such Claims and Interests in
accordance with the provisions of the Plan. Parties are referred to Section I.G
and IV.D hereof and Article VI of the Plan for a more detailed description of
the treatment to be afforded Allowed Claims and Allowed Interests under the
Plan. Section 7.5 of the Plan sets forth the circumstances in which the
different plan alternatives set forth in this paragraph will be pursued.
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<PAGE> 36
K. CASE ADMINISTRATION
1. REPRESENTATION OF THE DEBTOR
Paragon retained and has been represented in the Chapter 11
Case by: Alston & Bird LLP, located at One Atlantic Center, 1201 West Peachtree
Street, Atlanta, Georgia 30309-3424, as bankruptcy counsel; Willkie Farr &
Gallagher, located at 787 Seventh Avenue, New York, New York 10019, as special
reorganization counsel; Cravath, Swaine & Moore, located at Worldwide Plaza, 825
Eighth Avenue, New York, New York 10019, as special litigation counsel for the
Delaware and Texas Actions; The Blackstone Group, L.P., located at 345 Park
Avenue, New York, New York 10154, as financial advisor; Arthur Andersen LLP,
located at Suite 2500, 133 Peachtree Street NE, Atlanta, Georgia 30303, as
accounting consultants; Baker & Botts, L.L.P., located at 1299 Pennsylvania
Avenue, N.W., Washington, D.C. 20004-2400, as special counsel for the K-C
Action; Connolly, Bove, Lodge & Hutz, located at 1220 Market Street, Wilmington,
Delaware 19899, as special local litigation counsel in the Delaware Action;
Rockey, Milnamow & Katz, Ltd., located at Two Prudential Plaza, Suite 4700, 180
North Stetson Avenue, Chicago, Illinois 60601, as special patent counsel;
Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P., located at 3200 One
Peachtree Center, 303 Peachtree Street, N.E., Atlanta, Georgia 30308, as special
patent counsel; and Hopgood, Calimafde, Kalil & Judlowe, L.L.P., located at 60
East 42nd Street, Room 4207, New York, New York 10165, as special counsel. A
variety of special counsel also have been retained by Paragon from time to time
to handle ordinary course matters pursuant to an Order of the Bankruptcy Court
dated May 5, 1998 and amended by order dated May 21, 1999. A schedule of the
Debtor's ordinary course professionals retained in the Chapter 11 Case is
annexed hereto as Exhibit F.
2. REPRESENTATION OF THE OFFICIAL COMMITTEES
Pursuant to section 1102(a) of the Bankruptcy Code, following
the commencement of a chapter 11 case, the United States Trustee appoints a
committee of certain of a debtor's largest creditors holding unsecured claims
against the chapter 11 debtor, and may appoint additional committees of
creditors as deemed appropriate to assure the adequate representation of
creditors in a chapter 11 case.
The role of a creditors' committee includes, among other
things: (i) consultation with the debtor concerning the administration of the
chapter 11 case, and (ii) participation in the formulation of a plan of
reorganization. In discharging these responsibilities, a creditors' committee
has standing to raise issues with the bankruptcy court relating to the debtor's
business and the conduct and course of the chapter 11 case. The debtor is
required to pay certain expenses of the committee, including professional fees,
to the extent allowed by the bankruptcy court.
On January 16, 1998, the Creditors' Committee was appointed by
the United States Trustee to represent the interests of all of the Debtor's
unsecured creditors in the Chapter 11 Case. The Creditors' Committee retained
the law firm of O'Melveny & Myers LLP, located at 153 East 53rd Street, New
York, New York 10022, as counsel; Parker, Hudson Rainer & Dobbs, located at
Suite 1500, 285 Peachtree Center Avenue, Atlanta, Georgia 30303, as co-counsel;
Fish & Neave, located at 1251 Avenue of the Americas, New York, New York 10022,
as special patent counsel; and PricewaterhouseCoopers LLP, located at Suite
1700, 50 Hurt Plaza, Atlanta, Georgia 30303, as financial advisor.
A list of the current members of the Creditors' Committee is
annexed hereto as Exhibit B.
Pursuant to section 1102(a)(2) of the Bankruptcy Code, on
request of a party in interest, a committee of equity security holders also may
be appointed if necessary to assure adequate representation of equity security
holders. On November 2, 1998, the Equity Committee was appointed by the United
States Trustee to represent the interests of all equity interest holders in the
Chapter 11 Case. The Equity Committee retained the law firms of Andrews & Kurth
L.L.P., located at 600 Travis Street, Suite 4200, Houston, Texas 77002, and Olim
& Loeb, located at Five Piedmont Center,
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<PAGE> 37
Suite 415, 3525 Piedmont Road, N.E., Atlanta, Georgia 30305; and retained
Chanin Kirkland Messina, located at 12 East 49th Street, 14th Floor, New York,
New York 10017, as financial advisors.
A list of the current members of the Equity Committee is
annexed hereto as Exhibit C.
3. EXCLUSIVITY
By orders of the Bankruptcy Court (and/or stipulations of the
relevant parties approved by the Bankruptcy Court) dated May 8, 1998, May 20,
1998, July 9, 1998, August 24, 1998, September 15, 1998, October 19, 1998,
December 15, 1998, February 17, 1999, April 19, 1999, June 21, 1999, and July
20, 1999, Paragon has obtained various extensions of each of the periods during
which only the Debtor may File a plan of reorganization and the period during
which only the Debtor may solicit acceptances of a plan of reorganization,
through and including August 31, 1999 and October 31, 1999, respectively. By
order dated October 26, 1999, Paragon's exclusive period to solicit acceptances
to a plan of reorganization was extended through and including January 31, 2000.
4. SCHEDULES AND ESTABLISHMENT OF PREPETITION CLAIMS
BAR DATE
By order of the Bankruptcy Court dated February 5, 1998, the
Debtor obtained an extension of the time to file its Schedules through and
including March 3, 1998. The Debtor filed its Schedules on March 3, 1998, and
amended its Schedules on March 30, 1998 and April 17, 1998.
In accordance with Bankruptcy Rule 3003(c)(3), by order dated
March 24, 1998, the Bankruptcy Court established June 5, 1998 (the "Prepetition
Claims Bar Date") as the final date for submitting proofs of Claim against the
Debtor, subject to certain exceptions. Pursuant to Bankruptcy Rule 3003(c)(2)
and the Order establishing the Prepetition Claims Bar Date, any creditor whose
Claim was not Scheduled by Paragon or was Scheduled as disputed, contingent or
unliquidated, and who failed to File a proof of Claim on or before the
Prepetition Claims Bar Date, will not be treated as a creditor with respect to
that Claim for purposes of voting on the Plan or receiving a distribution under
the Plan. The Prepetition Claims Bar Date does not apply to Administrative
Claims.
The Debtor intends to object to all Claims filed after the
Prepetition Claims Bar Date (unless otherwise ordered by the Court or agreed to
by the Debtor) as well as Claims that are duplicative, excessive or otherwise
meritless.
5. EXTENSIONS OF TIME TO ASSUME OR REJECT LEASES
Upon the Filing of its chapter 11 petition, Paragon determined
that it would be in the best interests of its Estate to extend the 60-day time
limit provided for in section 365(d)(4) of the Bankruptcy Code to assume or
reject all its unexpired leases of nonresidential property. As a result, by
motion dated January 30, 1998, Paragon sought, and on February 25, 1998 the
Bankruptcy Court issued, an omnibus order extending the time to assume or reject
all of Paragon's nonresidential real property leases through the Confirmation
Date. Subsequently, pursuant to orders of the Bankruptcy Court, Paragon (a) has
assumed its Warehouse Contract with Exporter & Traders Compress & Warehouse Co.
(d/b/a Tejas Warehouse Systems), (b) rejected its leases for Paragon's former
sales offices in Columbus, Ohio; Limerick, Pennsylvania; and Concord,
California, and (c) rejected certain subleases for warehouse space in Newnan,
Georgia.
L. CLAIMS
1. CLAIMS INFORMATION AND ESTIMATES
Approximately 1,040 proofs of Claim aggregating in excess of
$703 million (not including the proofs of Claim filed by P&G and K-C which are
discussed in Section III.L.3 below) plus unliquidated amounts have been asserted
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against the Estate. Paragon disputes a vast majority of the dollar amounts of
the Claims asserted against it, and has filed, or will file, objections to such
Claims.
The Plan is predicated upon, incorporates and embodies the
settlement of the various Claims asserted by K-C and P&G, as embodied in the K-C
Settlement Agreement and the P&G Settlement Agreement. The Plan also is
predicated upon and embodies the terms of a settlement reached with the Equity
Committee concerning its objections to and appeals of, among other things, the
Bankruptcy Court's approval of the P&G Settlement Agreement and the K-C
Settlement Agreement.
The Debtor has estimated the approximate aggregate allowed
amounts of Claims and Interests and has set forth such estimates below. THESE
AMOUNTS REPRESENT ESTIMATES BY THE DEBTOR BASED ON CURRENT INFORMATION ONLY. THE
DEBTOR MAKES NO REPRESENTATION AS TO THE EXTENT THESE ESTIMATES ULTIMATELY PROVE
ACCURATE IN LIGHT OF ACTUAL CLAIMS AND INTERESTS AND THE RESOLUTION OF DISPUTES.
FOR INFORMATION REGARDING THE LIMITATIONS OF AND UNCERTAINTIES RELATING TO THESE
ESTIMATES, SEE SECTION VII ("CERTAIN RISK FACTORS TO BE CONSIDERED") BELOW.
<TABLE>
<CAPTION>
Class or Type of Claim Estimated Aggregate Allowed
or Interest Amount (in thousands of dollars)
- ----------------------- --------------------------------
<S> <C>
DIP Claims $ 80,000.00
Administrative Claims $ 15,251,000.00
Fee Claims $ 8,000,000.00
Secured Claims $ 500,000.00
Priority Tax Claims $ 1,315,000.00
Priority Non-Tax Claims $ 0.00
Unsecured Claims $ 398,808,000.00
Convenience Claims $ 1,600,000.00
Old Common Stock Interests Not Applicable
Old Common Stock Option Interests Not Applicable
</TABLE>
2. PREFERENCES AND FRAUDULENT CONVEYANCES
Pursuant to the Bankruptcy Code, a debtor may seek to recover,
through adversary proceedings in the bankruptcy court, certain transfers of the
debtor's property, including payments of cash, made while the debtor was
insolvent during the ninety (90) days immediately prior to the commencement of
the bankruptcy case (or, in the case of a transfer to or on behalf of an
"insider," one (1) year prior to the commencement of the bankruptcy case) in
respect of antecedent debts to the extent the transferee received more than it
would have received on account of such pre-existing debt had the debtor been
liquidated under chapter 7 of the Bankruptcy Code. Such transfers include cash
payments,
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pledges of security interests or other transfers of an interest in property. In
order to be preferential, such payments must have been made while the debtor
was insolvent; debtors are rebuttably presumed to have been insolvent during
the 90-day preference period. The Bankruptcy Code's preference statute can be
very broad in its application because it allows the debtor to recover payments
regardless of whether there was any impropriety in such payments.
There are certain defenses to preference claims in general.
For example, transfers made in the ordinary course of the debtor's and the
transferee's business according to ordinary business terms are not recoverable.
Furthermore, if the transferee extended credit contemporaneously with or
subsequent to the transfer, and prior to the commencement of the bankruptcy
case, for which the transferee was not repaid, such extension constitutes an
offset against an otherwise recoverable transfer of property. If a transfer is
recovered by a debtor, the transferee has a general unsecured claim against the
debtor to the extent of the recovery.
Under the Bankruptcy Code and under various state laws, a
debtor may also recover or set aside certain transfers of property (fraudulent
transfers), including the grant of a security interest in property, made while
the debtor was insolvent or which rendered the debtor insolvent or
undercapitalized to the extent that the debtor received less than reasonably
equivalent value for such transfer.
Paragon will waive and release its preference avoidance and
fraudulent conveyance claims under the Plan, provided, however, that nothing in
the Plan will prohibit the Debtor, the Creditors' Committee or the Equity
Committee from challenging the validity, priority, extent or perfection of any
lien, mortgage or security agreement. Paragon has provided for the waiver and
release of such claims under the Plan for a number of reasons including, but not
limited to its desire not to impair ongoing trade relationships with suppliers
and other parties that are crucial to the success of Reorganized Paragon by
commencing avoidance actions against such parties.
3. SIGNIFICANT CLAIMS, LITIGATION AND SETTLEMENTS
Both P&G and K-C filed proofs of Claim in the Chapter 11 Case
asserting claims aggregating in excess of $8.5 billion (including trebling).(3)
Negotiating the P&G Settlement and the K-C Settlement, which resolve those
Claims and related issues (including, in the case of P&G, the Judgment) has been
one of the primary focuses of the Chapter 11 Case. When the Debtor's
negotiations with P&G and K-C stalled in late August 1998, counsel to the
Creditors' Committee offered to mediate the Debtor's disputes with each of these
parties. While the P&G Settlement ultimately was achieved with the facilitation
of such counsel as mediator, K-C ultimately determined to proceed with
settlement discussions directly with Paragon and without Creditors' Committee
counsel as mediator.
A. THE P&G LITIGATION AND CLAIMS -- SIGNIFICANT
POSTPETITION EVENTS
On January 9, 1998, Paragon moved the Bankruptcy Court for
relief from the automatic stay imposed by section 362 of the Bankruptcy Code to
the extent necessary to allow Paragon to appeal the Judgment to the United
States Court of Appeals for the Federal Circuit (the "Federal Circuit"). On
January 14, 1998, Paragon filed a further motion for stay relief, seeking (to
the extent necessary) the Bankruptcy Court's authorization to file a motion in
the Delaware Court, pursuant to Rule 59 of the Federal Rules of Civil Procedure
("Rule 59"), for a new trial or to alter or amend the Judgment. The Bankruptcy
Court granted the Debtor's January 14, 1998 motion by Order issued on that date
(as amended January 15, 1998 to allow P&G to respond to any such Rule 59 motion
by the Debtor). Paragon filed its Rule 59 motion in the Delaware Court on
January 16, 1998. On January 27, 1998, the Debtor moved for clarification of the
Bankruptcy Court's January 15, 1998 stay modification order, or in the
alternative for additional stay relief, to authorize certain activities in
- -------------
(3) A plaintiff in a patent infringement dispute is entitled to seek
treble damages upon a showing of willful infringement. While Paragon
steadfastly has denied any type of infringement, both K-C and P&G have alleged
that Paragon willfully infringed their patents.
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<PAGE> 40
the Delaware Court and the K-C Action related to Paragon's Rule 59 Motion in
the Delaware Action. P&G opposed this motion, arguing that the automatic stay
should be modified to allow all potential post-Judgment activities in the
Delaware Action. On February 13, 1998, the Bankruptcy Court granted Paragon's
clarification motion.
By Order dated February 4, 1998, the Bankruptcy Court granted
the Debtor's January 9, 1998 relief from stay motion, and authorized the Debtor
to prosecute, and P&G to respond to, an appeal of the Judgment. Also on February
4, 1998, P&G supplemented its objection to the Debtor's January 9, 1998 relief
from stay motion, arguing that an appeal of the Judgment would be premature
until the Delaware Court ruled on the issue of damages and P&G's requests for
injunctive relief. The Bankruptcy Court determined to treat this supplemental
objection as a motion for reconsideration of its February 4, 1998 order. The
Debtor opposed the reconsideration motion and, on March 30, 1998, the Federal
Circuit rendered P&G's reconsideration motion moot when it dismissed Paragon's
appeal as premature based on the absence of any damages award or resolution of
P&G's request for injunctive relief in the Delaware Action.
On February 10, 1998, P&G moved the Bankruptcy Court to compel
the Debtor to assume the P&G Conversion Agreement pursuant to section 365 of the
Bankruptcy Code. The Debtor and the Creditors' Committee opposed this motion
and, after extensive briefing by the parties, the Bankruptcy Court denied P&G's
motion on June 3, 1998. In any event, the issue became moot on July 6, 1998, six
months after the entry of the Judgment, when the applicable conversion period
expired pursuant to the terms of the P&G Conversion Agreement. All royalty
payments for the Conversion Period have been paid in full.
By motion dated February 10, 1998, P&G also sought additional
relief from the automatic stay to allow it to finalize the Judgment, including
the calculation of damages, and pursue injunctive relief against the Debtor in
the Delaware Court. The Debtor and the Creditors' Committee opposed this motion.
After extensive discussions between, and multiple pleadings filed by, the Debtor
and P&G, the parties agreed on the provisions of a consent order, which the
Bankruptcy Court entered on May 19, 1998. Pursuant to this consent order, the
Bankruptcy Court modified the automatic stay to allow P&G to move the Delaware
Court to enter (a) a money judgment fixing the amount of damages pursuant to the
Judgment in the approximate amount of $178.4 million and (b) a permanent
injunction against the Debtor's continued sale of the product that the Delaware
Court found to infringe P&G's patents, each in form mutually agreed to by the
Debtor and P&G, together with related relief. The negotiated damages award and
stipulated permanent injunction were entered by the Delaware Court on June 2,
1998.
By motion dated June 4, 1998, P&G sought additional relief
from the automatic stay to move the Delaware Court for an award of attorneys'
fees expended in defending one of the Debtor's counterclaims in the Delaware
Action. The Debtor did not oppose P&G's motion and the Bankruptcy Court granted
the requested relief on June 11, 1998.
On July 31, 1998, the Delaware Court denied (a) Paragon's Rule
59 motion for a new trial or to alter or amend the Judgment and (b) P&G's motion
for an award of attorneys' fees. Paragon then filed, with leave of the
Bankruptcy Court, a second appeal of the Judgment (which appeal had been
rendered timely in light of the Delaware Court's entry of the negotiated damages
award and permanent injunction and its denial of Paragon's Rule 59 motion) with
the Federal Circuit. That appeal has been administratively stayed pending
approval or disapproval of the P&G Settlement Agreement.
On or about June 5, 1998, P&G filed a proof of claim (the "P&G
Proof of Claim") against Paragon asserting prepetition claims ranging from
approximately $2 billion to approximately $6.4 billion (depending on trebling),
amounts that substantially exceed the approximately $178.4 million sum fixed in
the damages stipulation related to the Judgment. In the P&G Proof of Claim, P&G
asserts additional prepetition claims beyond those alleged in the Delaware
Action, including alleged patent infringement claims in foreign countries
against foreign joint ventures in which Paragon is a non-controlling minority
shareholder, and additional, previously unasserted domestic patent claims
against Paragon.
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<PAGE> 41
Moreover, P&G asserted Administrative Claims against Paragon in the P&G Proof
of Claim, ranging in amount from $300 million to $800 million, for alleged
postpetition infringement of several P&G patents.
On or about September 22, 1998, P&G filed a motion (the
"Contempt Motion") in the Delaware Court, seeking a finding of contempt for an
alleged violation of the negotiated permanent injunction entered by the Delaware
Court, based on Paragon's sale of single cuff diaper products which P&G alleged
were no more than "colorably different" from those subject to the Judgment. In
the Contempt Motion, P&G requested that the Delaware Court order Paragon to: (i)
immediately cease the manufacture, offer for sale and sale of its
"design-around" single cuff diaper; (ii) refrain from introducing further
purportedly infringing variations of the product prior to the expiration of
P&G's Lawson and Dragoo patents; and (iii) send a letter to all of Paragon's
customers that had purchased the "design-around" single cuff product, notifying
each customer of Paragon's purported contempt and that resale of the allegedly
infringing products would constitute an infringement of the Lawson and Dragoo
patents. Paragon vigorously disputed the alleged infringement and contempt in
its opposition papers.
The Contempt Motion was not placed on the Delaware Court's
calendar until all pleadings, including P&G's reply papers, were filed. Paragon
and P&G agreed to defer filing their pleadings pending ongoing settlement
negotiations. P&G, however, filed pleadings in support of the Contempt Motion on
January 8, 1999, and Paragon subsequently filed its opposition papers. After
announcing a settlement in principle with P&G on January 22, 1999, P&G filed a
motion, with Paragon's consent, to administratively stay the Contempt Motion
pending approval of the P&G Settlement Agreement. That motion was granted by
order dated January 29, 1999.
The P&G Settlement, which was approved by the Bankruptcy Court
on August 6, 1999, generally provides, among other things, that:
(a) In full satisfaction of all P&G's prepetition and postpetition
Claims (to the extent such postpetition Claims were known or
could have been determined by P&G with the exercise of
reasonable due diligence) through the date of the P&G
Settlement Agreement (including, but not limited to, the
Claims asserted in the Delaware Action and the Claims arising
from the Judgment), P&G shall receive an Allowed Unsecured
Claim in the amount of $158.5 million (plus interest, to the
extent allowable, at 6% per annum from April 15, 1999 through
the Effective Date) and an Administrative Claim in the amount
of $5 million;
(b) Paragon shall receive royalty-bearing licenses on all of the
patents P&G has asserted against Paragon and P&G shall not
prosecute any claims against Paragon based upon any existing
patents and pending patent applications of P&G as of the date
of execution of the P&G Settlement Agreement;
(c) P&G will make future licenses available to Paragon if Paragon
develops new products or enters new markets not covered by
existing P&G licenses on terms no less favorable to Paragon
than those of other P&G licenses, if any, of such patents at
such time;
(d) Any future patent dispute between P&G and Paragon will be
subject to good faith negotiations and, if necessary,
escalation to senior business executives and discussion of
some form of alternative dispute resolution before any
litigation is commenced;
(e) Paragon will assume and continue to perform under its license
of P&G's Van Tilberg patent, relating to "winged" feminine
care pad products;
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(f) P&G represents, warrants and covenants that it has no patents,
other than those patents covered by the P&G Settlement, that
it asserts have been infringed in the Approved Countries (as
that term is defined in the P&G Settlement Agreement) as of
the date of the P&G Settlement Agreement;
(g) With respect to P&G's claims that diapers manufactured by PMI
infringe certain of P&G's Mexican patents, P&G has granted
Paragon a two year forbearance period running from the date of
execution of the P&G Settlement Agreement during which time
P&G has agreed not to take any action against Paragon on
account of diapers manufactured at PMI. During this two year
forbearance period, Paragon has agreed to use its best efforts
to cause its Mexican joint venture partner to engage in good
faith settlement discussions with P&G regarding this issue. To
Paragon's knowledge, no such discussions have taken place to
date;
(h) Each party is granted a release with respect to claims which
could have been asserted prior to the date of the P&G
Settlement Agreement; and
(i) Within five (5) days of the Bankruptcy Court's issuance of a
Final Order (as defined in the P&G Settlement Agreement)
approving the P&G Settlement Agreement, P&G will withdraw the
Contempt Motion with prejudice and Paragon will withdraw its
appeal of the Judgment, thereby ending the Delaware Action in
its entirety. The P&G Settlement Agreement defines Final
Order, for the purposes thereof, to mean an order or judgment
of the Bankruptcy Court, as entered on the docket in the
Chapter 11 Case, that has not been reversed, stayed, modified
or amended and as to which the time to appeal or seek review,
rehearing, reargument or certiorari has expired and as to
which no appeal or petition for review, rehearing, reargument,
stay or certiorari is pending, or as to which any right to
appeal or to seek certiorari, review, or rehearing has been
waived, or, if an appeal, reargument, petition for review,
certiorari or rehearing has been sought, the order or judgment
of the Bankruptcy Court that has been affirmed by the highest
court to which the order was appealed or from which the
reargument, review or rehearing was sought, or certiorari has
been denied, and as to which the time to take any further
appeal or seek further reargument, review or rehearing has
expired; provided, however, that for purposes of the P&G
Settlement Agreement, the P&G Settlement Order shall be deemed
a Final Order upon the occurrence of the Effective Date of the
Plan.
Because the Bankruptcy Court's August 6, 1999 order has not
yet become a Final Order, as defined in the Settlement Agreement, the P&G
License Agreements described above are terminable at P&G's option. If the P&G
License Agreements are terminated, Paragon could be faced with having to convert
to a diaper design other than the dual cuff design covered by the licenses. At
this time, Paragon's only viable alternative product design is the single cuff
product which is the subject of P&G's Contempt Motion in Delaware. P&G has
informed Paragon that it is P&G's present intention, while not waiving any
contractual or other legal rights P&G might have, to continue to operate as if
the Settlement Agreement had been approved by a Final Order, as defined therein,
and not to terminate the licenses.
The Equity Committee vigorously opposed Bankruptcy Court
approval of the P&G Settlement Agreement and appealed the Bankruptcy Court's
approval thereof to the United States District Court for the Northern District
of Georgia (the "Georgia District Court"). Pursuant to the Plan, if the Plan is
confirmed by the Bankruptcy Court, Paragon will implement the terms of the P&G
Settlement Agreement in the absence of any stay pending appeal of the
Confirmation Order.
On October 14, 1999, the Georgia District Court denied the
Equity Committee's motion for expedited briefing concerning this appeal and
offered the Equity Committee the option of consenting to the Georgia District
Court's adoption of the Bankruptcy Court's order approving the P&G Settlement
Agreement to permit the Equity Committee to take its appeal of the P&G
Settlement directly to the Eleventh Circuit Court of Appeals. On October 14,
1999, after the
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Equity Committee consented to the Georgia District Court's adoption of the
Bankruptcy Court's August 6, 1999 order approving the P&G Settlement Agreement,
the Georgia District Court entered a final judgment adopting the Bankruptcy
Court's order approving the P&G Settlement Agreement. The Equity Committee
thereafter filed an appeal of the Bankruptcy Court's approval order and the
Georgia District Court's final judgment with the Eleventh Circuit Court of
Appeals. This appeal has not yet been docketed and a briefing schedule has not
yet been scheduled.
As a result of the settlement of the Equity Committee's
objections to, among other things, the P&G Settlement Agreement and the K-C
Settlement Agreement that is embodied in the terms of the Plan, the Debtor and
the Equity Committee will jointly request the Eleventh Circuit Court of Appeals
to administratively stay the Equity Committee's appeal pending confirmation and
consummation of the Plan and/or extend the parties' time to file their
respective appellate briefs. Within five (5) Business Days of the Effective Date
of the Plan, the Equity Committee will dismiss this appeal with prejudice.
B. THE K-C LITIGATION AND CLAIMS -- SIGNIFICANT
POSTPETITION EVENTS
As a result of the Chapter 11 Case, the proceedings in the
Texas Action were stayed as of the Petition Date pursuant to section 362 of the
Bankruptcy Code. On January 13, 1998, K-C moved in the Bankruptcy Court for an
order lifting the automatic stay to allow it to continue the Texas Action.
Paragon opposed this motion and, on April 10, 1998, the Bankruptcy Court issued
an order (a) partially lifting the automatic stay to allow the issuance of the
Special Master's report on the items under his consideration and (b) directing
the parties to meet and confer in good faith regarding the settlement of the
claims asserted in the Texas Action. On April 20, 1998, K-C moved for
reconsideration of that order; the Bankruptcy Court denied the reconsideration
motion on June 17, 1998. K-C has appealed this denial to the United States
District Court for the Northern District of Georgia and Paragon has opposed
K-C's appeal and sought to have it dismissed.
On May 26, 1998, the Special Master issued his report on the
majority of the motions pending before him. His report included a recommended
finding, among other things, that Paragon, as the successor-in-interest to Pope
& Talbot's disposable diaper business, has a fully paid-up license to one of the
three asserted K-C inner-leg gather patents (the Enloe I patent), which license
runs from the date of the Debtor's acquisition of Pope & Talbot's diaper
operations (Pope & Talbot had previously obtained the license from K-C). The
Special Master also recommended that K-C should be held to the narrow
interpretation of its patent which had been applied in the United States
District Court for the Western District of Washington in earlier litigation
between P&G and K-C on the patent. In addition, the Special Master recommended
that the Debtor's antitrust counterclaim and any discovery-related matters in
connection therewith should be dismissed.
On or about June 5, 1998, K-C filed a proof of Claim in the
Chapter 11 Case asserting Claims in the approximate amount of $893 million
(without trebling) to $2.3 billion (with trebling). These Claims were based on
the Debtor's alleged infringement of the Enloe I, Enloe II and Enloe III
patents.
On June 5, 1998, K-C also filed a motion, pursuant to section
157(d) of title 28 of the United States Code, to withdraw the reference to the
Bankruptcy Court with respect to all matters pertaining to its proof of claim.
Paragon and the Creditors' Committee both filed opposition papers to this
motion. The United States District Court for the Northern District of Georgia
has dismissed the appeal of K-C's motion for reconsideration, the motion for
withdrawal of the reference and the Debtor's motion to dismiss the appeal
without prejudice, with directions to reopen these matters if the parties were
unable to obtain approval of the settlement.
After extensive negotiations between the Debtor and K-C, on
March 19, 1999, the parties entered into the K-C Settlement Agreement, which was
approved by the Bankruptcy Court on August 6, 1999. In general, the K-C
Settlement Agreement provides, among other things that:
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(a) In exchange for the dismissal of the K-C Action with
prejudice, and in full and final satisfaction of all of K-C's
prepetition claims and those administrative claims of K-C
that were known or could have been determined by K-C with the
exercise of reasonable due diligence through the date of the
K-C Settlement Agreement, K-C shall receive (i) an Allowed
Unsecured Claim in the amount of $110 million, which Allowed
Claim shall accrue interest, to the extent allowable, at the
rate of six percent (6%) per annum from April 15, 1999
through the Effective Date, (ii) a conditionally allowed
Unsecured Claim in an amount equal to (A) forty percent (40%)
of the amount by which the Judgment amount is reduced as a
result of Paragon's appeal of the Judgment, minus (B)
$20,000,000.00, with the existence of such a claim being
contingent upon the absence of a settlement between Paragon
and P&G, and (iii) an Allowed Administrative Claim in the
amount of $5 million;
(b) Paragon will classify K-C's fixed Allowed General Unsecured
Claim in the same Class as all other prepetition, general
unsecured claims against Paragon under the Plan (subject to
inclusion of a "convenience class" in the Plan);
(c) Within five (5) business days of the Settlement Effective Date
(as that term is defined in the K-C Settlement Agreement),
each party will withdraw with prejudice its claims in the
Texas Action, and K-C will withdraw with prejudice (i) its
appeal of the Bankruptcy Court's denial of its reconsideration
motion and (ii) its motion to withdraw the reference.
"Settlement Effective Date" is defined by the K-C Settlement
Agreement to mean the first business day after the order
approving the K-C Settlement Agreement is entered and is not
subject to any stay;
(d) K-C shall grant Paragon licenses to its Enloe I, Enloe II and
Enloe III patents and Paragon shall enjoy the benefits of a
covenant not to sue with respect to K-C's Kellenberger, Melius
and Good patents provided Paragon's products fit within
certain safe harbors agreed to by Paragon and K-C regarding
such patents;
(e) Paragon will grant K-C a fully paid up license for the use of
Paragon's Smith and Suzuki patents (which are the subject of
Paragon's counterclaims in the Texas Action);
(f) K-C, on behalf of itself and Kimberly-Clark Worldwide, Inc.
("K-C Worldwide"), shall not sue Paragon or its wholly-owned
Canadian subsidiary for infringement of any of K-C's or K-C
Worldwide's patents which were issued as of March 1, 1999,
including any reissues and reexaminations thereof, in the
United States or Canada with respect to certain identified
products;
(g) Each party shall be granted a release with respect to claims
which could have been asserted prior to the date of the K-C
Settlement Agreement
The Equity Committee vigorously opposed Bankruptcy Court
approval of the K-C Settlement Agreement and filed a Notice of Appeal of the
Bankruptcy Court's approval thereof with the United States District Court for
the Northern District of Georgia. The Equity Committee also filed an emergency
motion for an 80-day stay pending appeal of the Bankruptcy Court's order
approving the K-C Settlement Agreement. Both Paragon and K-C filed pleadings in
opposition to such motion. By order dated August 17, 1999, and amended August
18, 1999, the Bankruptcy Court denied the Equity Committee's request, but
granted a limited stay through August 25, 1999 to permit the Georgia District
Court to consider the matter. On August 24, 1999, the Georgia District Court
heard arguments on the Equity Committee's motion for an emergency 80-day stay.
At that time, the limited stay was extended to September 3, 1999 by agreement of
the parties in order to allow the Georgia District Court to further consider the
matter. On September 2, 1999, the Georgia District Court issued an order denying
the Equity Committee's motion for an emergency stay. In denying the Equity
Committee's request, the Georgia District found, among other things, that the
Equity Committee had failed to show that it has a substantial likelihood of
success on its appeal of the K-C Settlement Agreement. The Georgia District
Court also
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found that the Bankruptcy Court's order approving the K-C settlement was
thorough and that the Bankruptcy Court did not abuse its discretion in
approving the K-C settlement. In its September 2, 1999 order, the Georgia
District Court offered the Equity Committee the option of consenting to the
Georgia District Court's adoption of the Bankruptcy Court's approval order to
permit the Equity Committee to take its appeal of the Bankruptcy Court's
approval of the K-C Settlement Agreement directly to the 11th Circuit Court of
Appeals, in which event, the Georgia District Court stated that it would enter
a limited stay through October 28, 1999. On September 8, 1999, the Equity
Committee consented to the procedure proposed by the Georgia District Court and
on September 9, 1999, the Georgia District Court entered a final judgment
adopting the Bankruptcy Court's order approving the K-C Settlement Agreement
and granting a temporary stay of such agreement through October 28, 1999
pending the Equity Committee's appeal of such order to the 11th Circuit Court
of Appeals. The Equity Committee thereafter filed a notice of appeal with the
11th Circuit Court of Appeals.
On October 18, 1999, the Equity Committee filed an emergency
motion with the Eleventh Circuit Court of Appeals to extend the temporary stay
entered by the Georgia District Court. At the same time, the Equity Committee
also filed its initial brief on appeal and requested in its emergency motion
that the Eleventh Circuit Court of Appeals expedite the briefing schedule on the
appeal and shorten the time within which the Debtor would be required to file
its reply brief. The Debtor opposed both these requests in a response filed with
the Eleventh Circuit on October 22, 1999. K-C also opposed the Equity
Committee's emergency motion and requested that it be identified as an
additional appellee. On October 28, 1999, the Eleventh Circuit Court of Appeals
denied both the Equity Committee's request for an extension of the stay entered
by the Georgia District Court and the Equity Committee's request for an
expedited briefing schedule. The Eleventh Circuit Court of Appeals also granted
K-C's motion to be treated as an additional appellee. In its decision, the
Eleventh Circuit Court of Appeals held, among other things, that the Equity
Committee failed to show that it had a likelihood of success on its appeal of
the Bankruptcy Court's and the Georgia District Court's approval of the K-C
Settlement Agreement and that substantial harm would not occur to Paragon from
an extension of the stay. By joint motion dated November 12, 1999, the Debtor
and the Equity Committee jointly requested the Eleventh Circuit Court of Appeals
to extend Paragon's time to file its reply brief through January 30, 2000. If
this request is not granted, the Debtor's reply brief would be due on or before
November 17, 1999.
As a result of the settlement of the Equity Committee's
objections to, among other things, the P&G Settlement Agreement and the K-C
Settlement Agreement that is embodied in the terms of the Plan, the Debtor and
the Equity Committee will jointly request the Eleventh Circuit Court of Appeals
to administratively stay the Equity Committee's appeal of the K-C Settlement
Agreement pending confirmation and consummation of the Plan. Within five (5)
Business Days of the Effective Date of the Plan, the Equity Committee will
dismiss this appeal with prejudice.
In accordance with the terms of the K-C Settlement Agreement,
following the expiration of the limited stay entered by the Georgia District
Court on October 28, 1999, K-C dismissed with prejudice its complaint in the
Texas action, as well as its related filings in the Georgia District Court, and
Paragon simultaneously dismissed with prejudice its counterclaims in the Texas
action. On November 2, 1999, Paragon and K-C also exchanged mutual general
releases.
On November 1, 1999, the trial court in Kimberly-Clark Corp.
v. Tyco International (US), Inc., et al., 98-C-756-C (W.D. Wis.) entered an
opinion and order construing the claims of the three Enloe patents also asserted
against Paragon in the Texas Action. Based on those claim constructions, K-C
stipulated to entry of final judgment of noninfringement by the defendants, in
order to allow K-C to appeal the claim construction rulings to the Federal
Circuit. Among other things, the claim constructions adopted by the K-C v. Tyco
trial court imported into the claims of Enloe II and Enloe III the "fluid
pervious" limitation of Enloe I, even though that limitation does not appear in
the text of the claims of either Enloe II or Enloe III. The claim constructions
adopted by the K-C v. Tyco trial court also imported into the claims of Enloe
III a "tracking down" limitation from the claims of Enloe II, even though that
limitation does not appear in the text of the claims of Enloe III. The K-C v.
Tyco trial also construed the "fluid pervious" limitation in Enloe I in a manner
materially different from the claim construction previously adopted by Judge
Dwyer in Kimberly-Clark Corp. v. The Procter & Gamble Co., which was the claim
construction recommended by the Special Master in the Texas
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Action. Under the K-C v. Tyco court's claim construction rulings, if affirmed
on appeal, the Debtor believes that Paragon's dual cuff product at issue in the
Texas Action should be found not to infringe any of the three Enloe patents.
These particular claim constructions have been reviewed by Paragon's patent
counsel, and Paragon believes it is unlikely these claim constructions will be
affirmed on appeal.
The Equity Committee has requested the United States Patent and
Trademark Office (the "PTO") to reexamine the validity of P&G's Lawson patent
and K-C's Enloe I and Enloe III patents. The reexamination applications with
respect to the Lawson, Enloe I and Enloe III patents have been granted by the
PTO and reexamination proceedings are underway with respect to those patents. On
November 12, 1999, the PTO issued an Office Action In Reexamination (the "Office
Action") with respect to the Lawson patent that rejected claims 17, 21, 27 and
28 of the Lawson patent as being unpatentable in light of certain prior patents.
The Office Action indicates that no response was received from P&G in response
to the reexamination order (P&G was not required to file a response). Pursuant
to the Office Action, P&G has one month form November 12, 1999, to file its
response to the Office Action, subject to P&G obtaining an extension (if any).
After P&G has had an opportunity to respond, the PTO will issue a final action,
which is appealable.
Prior to its settlement with the Debtor, the Equity Committee
had asserted that the pendency of the reexamination proceedings and the
possibility that the patents at issue may be invalidated were factors that
weighed heavily against approval of both the P&G Settlement Agreement and the
K-C Settlement Agreement. Paragon believes that neither the pendency of the
reexamination proceedings nor the possibility that the Lawson patent and/or the
Enloe I and Enloe III patents may be invalidated by the PTO affects the
reasonableness of the settlements. In approving the two settlements, the
Bankruptcy Court determined that the settlements satisfied the applicable
standards for approval notwithstanding the pendency of the reexamination
proceedings with respect to P&G's Lawson patent and K-C's Enloe III patent. (The
reexamination request with respect to Enloe I was not pending at the time the
Bankruptcy Court approved the settlements.)
C. RHONDA TRACY SETTLEMENT
On or about September 1, 1998, Paragon received notice from a
Ms. Rhonda Tracy that Ms. Tracy believes that certain of Paragon's diapers
infringe U.S. Patent No. 5,797,824 (the "Tracy patent"), which issued on August
25, 1998, to Ms. Tracy. The Tracy patent concerns a disposable diaper with a
padded waistband and legholes. Paragon responded, based upon advice of Rockey,
Milnamow & Katz (Paragon's independent patent counsel), that Paragon believes
its products do not infringe any valid claim of the Tracy patents. On April 29,
1999, Paragon received notice that Ms. Tracy had filed suit in the United States
District Court for the Northern District of Illinois against Kimberly-Clark
Corporation, Tyco International, Ltd., Drypers Corporation and a number of
Paragon's customers, alleging infringement by those parties of the Tracy patent.
Paragon was not named as a defendant in that suit. However, Ms. Tracy indicated
in her April 29, 1999 letter that she also intended to sue Paragon in the
future.
Although Paragon does not believe that any of its products
infringe any valid claim under the Tracy patent, Paragon determined that the
costs and uncertainties of litigation warranted that it engage in settlement
negotiations with Ms. Tracy in order to determine if Paragon would be able to
settle Ms. Tracy's alleged claims against Paragon without the necessity of
engaging in expensive, lengthy and time-consuming complex patent litigation with
Ms. Tracy. Achieving a negotiated settlement of Ms. Tracy's claims also is
desirable to Paragon because certain of Paragon's customers have been named in
the suit referenced above and have indicated to Paragon that they expect to be
indemnified and held harmless by Paragon from the claims asserted by Ms. Tracy
against them in accordance with agreements between Paragon and such customers.
Accordingly, Paragon and Ms. Tracy engaged in settlement negotiations for
several months and ultimately agreed, subject to Bankruptcy Court approval, on
the terms of a settlement.
The more salient provisions of the proposed settlement with
Tracy are as follows: (a) Settlement Amount: $500,000, paid when the order
approving the Settlement becomes final; (b) License Grant: Tracy grants a
nonexclusive,
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royalty-free, irrevocable, worldwide license to permit Paragon and its
affiliates to make, have made, lease, use, import, offer to sell, and sell
disposable absorbent products under the terms of the Tracy patent, its parent
patent (U.S. Patent No. 5,064,421) and all continuations,
continuations-in-part, divisionals, reissues, and reexaminations thereof. The
license also extends to retailers that sell products manufactured by Paragon
and its affiliates; (c) Release: Upon receipt of the $500,000 settlement
amount, Ms. Tracy shall be deemed to have released Paragon, its affiliates, and
third party vendors insofar as they distribute or use products made by or for
Paragon or its affiliates; and (d) Bankruptcy Court Approval: The Settlement is
not binding on Paragon unless and until it is approved by a final,
non-appealable (or, if appealable, then not appealed) order of the Bankruptcy
Court. In the event that the Bankruptcy Court does not approve the settlement,
the terms of the settlement shall not be binding on the parties. Paragon has
filed a motion seeking Bankruptcy Court approval of the proposed settlement
with Ms. Tracy. The Equity Committee has filed an objection to such motion, and
a hearing to consider the motion has been scheduled for December 9, 1999. The
Equity Committee has agreed to withdraw this objection provided Paragon
provides the Equity Committee with a reasonable explanation of the
reasonableness of the settlement.
4. CLAIMS AGAINST WEYERHAEUSER/RULE 2004 DISCOVERY
Since its appointment, the Equity Committee has expended
significant time and effort in investigating potential causes of action against
Weyerhaeuser in connection with the 1993 transaction in which Weyerhaeuser spun
off Paragon to the public. The Equity Committee has asserted that claims against
Weyerhaeuser aggregating potentially in excess of $500 million exist as a result
of this transaction and the related documents between the parties. By order
dated May 20, 1999, the Bankruptcy Court authorized the Equity Committee to take
discovery from Weyerhaeuser pursuant to Bankruptcy Rule 2004 in order to assist
the Equity Committee in its identification and evaluation of potential claims
against Weyerhaeuser. Pursuant to an order of the Bankruptcy Court dated July 2,
1999, the Equity Committee subsequently obtained authority to take Bankruptcy
Rule 2004 discovery from P&G in respect of such potential claims.
By motion dated May 26, 1999, the Equity Committee requested
that the Bankruptcy Court authorize the Equity Committee to prosecute, for the
benefit of the Estate, claims against Weyerhaeuser on the grounds that colorable
claims against Weyerhaeuser existed and the Debtor unjustifiably was failing to
prosecute them. Weyerhaeuser objected to this motion. The Debtor and the
Creditors' Committee also filed papers in opposition to this motion because,
among other reasons, the Debtor contemplated filing a plan that provided for the
assignment of claims against Weyerhaeuser, among others, to a litigation trust.
Pursuant to the Plan, the Litigation Claims Representative, who will be selected
by the Equity Committee, will be vested with the authority to pursue these
claims on behalf of the Estate. Ultimately, Paragon, the Creditors' Committee
and the Equity Committee agreed to the terms of a stipulation pursuant to which
the parties agreed that, among other things, the Equity Committee could
prosecute claims against Weyerhaeuser on behalf of the Estate. After a hearing
on the motion, the Bankruptcy Court approved the stipulation and authorized the
Equity Committee to file a complaint against Weyerhaeuser. On or about October
4, 1999, the Equity Committee filed such complaint. Weyerhaeuser has served its
answer to the complaint and is seeking to take the deposition of Mr. Bobby
Abraham in connection with this litigation.
5. OTHER CLAIMS
Paragon and the Equity Committee believe that the Estate may
possess claims and/or causes of action against certain parties that should be
pursued after the Effective Date for the benefit of the Estate. Pursuant to
Section 9.21 of the Plan, these Litigation Claims (which are against
Weyerhaeuser, Pope & Talbot, Oracle Corporation and Andersen Consulting LLP)
will remain vested in the Estate and will be investigated, prosecuted and/or
settled by the Litigation Claims Representative for the benefit of the Estate.
Any Litigation Proceeds received will be allocated between and distributed to
holders of Allowed Unsecured Claims and Allowed Old Common Stock Interests in
accordance with the terms of the Plan.
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6. LITIGATION
Other than as set forth herein, Paragon is not a defendant in
any action or proceeding which Paragon believes, if Paragon were found liable in
such action or proceeding, would materially adversely impact Paragon's financial
condition.
M. ANNUAL SHAREHOLDER MEETING
The Debtor's 1999 Annual Meeting of Shareholders (the "Annual
Meeting") was originally scheduled to take place on November 29, 1999. The
purpose of the Annual Meeting is to elect two Class III directors (Mr. Adrian
D.P. Bellamy and Mr. Robert L. Schuyler) for terms expiring in 2002 and to
transact such other business as may properly come before the Annual Meeting or
any postponement or adjournment thereof. Paragon has been notified by Mr. Robin
Winslow, a shareholder of Paragon and the Chairman of the Equity Committee, that
he and certain other shareholders intend to propose at the Annual Meeting a
motion calling for the removal of Paragon's entire Board of Directors and the
election of three individuals nominated by Mr. Winslow to the Board of Directors
(any such motion, the "Stockholder Proposal"). Mr. Winslow has informed Paragon
that the three individuals he intends to nominate as part of the Stockholder
Proposal are himself, Mr. Frank Williams and Mr. Matthew Metcalfe, each of whom
are members of the Equity Committee. Paragon recommends to its shareholders a
vote "FOR" the election of its nominees for the Board of Directors and "AGAINST"
the Stockholder Proposal.
The Debtor has been advised by counsel to the Creditors'
Committee that, on or prior to the hearing to consider approval of the
Disclosure Statement, the Creditors' Committee and the Equity Committee will
jointly request that the Annual Meeting be adjourned pending the Bankruptcy
Court's consideration of confirmation of the Plan.
IV. THE PLAN
A. GENERAL
THE FOLLOWING IS A SUMMARY OF THE MATTERS CONTEMPLATED TO OCCUR
EITHER PURSUANT TO OR IN CONNECTION WITH CONFIRMATION OF THE PLAN. THIS SUMMARY
HIGHLIGHTS THE SUBSTANTIVE PROVISIONS OF THE PLAN AND IS NOT, NOR IS IT INTENDED
TO BE, A COMPLETE DESCRIPTION OR A SUBSTITUTE FOR A FULL AND COMPLETE REVIEW OF
THE PLAN. STATEMENTS REGARDING PROJECTED AMOUNTS OF CLAIMS OR DISTRIBUTIONS (OR
THE VALUE OF SUCH DISTRIBUTIONS) ARE ESTIMATES BY PARAGON BASED ON CURRENT
INFORMATION AND ARE NOT A REPRESENTATION AS TO THE ACCURACY OF THESE AMOUNTS.
FOR AN EXPLANATION OF THE BASIS FOR, LIMITATIONS OF AND UNCERTAINTIES RELATING
TO THESE CALCULATIONS, SEE SECTION VII ("Certain Risk Factors to be Considered")
BELOW.
Chapter 11 is the principal business reorganization chapter of
the Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its
business for the benefit of itself and its creditors and stockholders.
Formulation of a plan of reorganization is the principal
objective of a chapter 11 reorganization case. In general, a chapter 11 plan of
reorganization divides claims and equity interests into separate classes,
specifies the property that each class is to receive under the plan and contains
other provisions necessary to the reorganization of the debtor. Distributions to
be made under the Plan will be made after Confirmation on the Effective Date,
Initial Distribution Date, Periodic Distribution Dates, Final Distribution Date
and/or at such other time or times specified in the Plan.
B. FUNDING OF THE PLAN
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Pursuant to Section 9.1 of the Plan, on or before the Effective
Date, the Debtor shall obtain all Cash necessary to make the Cash payments
required to be made under the Plan. Such Cash may be obtained in any lawful
manner, including, without limitation, from results of operations, sales of
assets, through loans or dividends from Affiliates, from debt or equity
financing to be arranged by the Debtor, or from consummation of the Wellspring
Stock Purchase Agreement. On or before the Effective Date, the Debtor also shall
obtain a working capital line of credit for post-Effective Date operations (the
"New Credit Agreement"). On October 13, 1999, the Debtor received a $75 million
commitment from Citicorp USA for the New Credit Agreement.
C. METHOD OF CLASSIFICATION OF CLAIMS AND INTERESTS AND GENERAL
PROVISIONS
Section 1123(a)(1) of the Bankruptcy Code requires that a plan
of reorganization classify the claims of a debtor's creditors (other than
administrative expenses and priority tax claims) and the interests of its equity
holders. Section 1122 of the Bankruptcy Code also provides that, except for
certain claims classified for administrative convenience, a plan of
reorganization may place a claim or interest of a creditor or equity holder in a
particular class only if such claim or interest is substantially similar to the
other claims or interests of such class. The Plan places Priority Non-Tax
Claims, Secured Claims, Unsecured Claims, Convenience Claims, Old Common Stock
Interests and Old Stock Option Interests in separate Classes. The Proponents
believe that they have classified all Claims and Interests in compliance with
the provisions of section 1122 of the Bankruptcy Code. If a creditor or equity
interest holder challenges such classification of Claims or Interests and the
Bankruptcy Court finds that a different classification is required for the Plan
to be confirmed, Paragon, to the extent permitted by the Bankruptcy Court,
intends to make such modifications to the classification of Claims or Interests
under the Plan to provide for whatever classification might be required by the
Bankruptcy Court for Confirmation.
Except to the extent that such modification of classification
materially adversely affects the treatment of a holder of a Claim or Interest
and requires resolicitation, acceptance of the Plan by any holder of a Claim or
Interest pursuant to the Solicitation will be deemed to be a consent to the
Plan's treatment of such holder of a Claim or Interest regardless of the Class
as to which such holder of a Claim or Interest is ultimately deemed to be a
member.
The Bankruptcy Code also requires that a plan of reorganization
provide the same treatment for each claim or interest of a particular class
unless the holder of a particular claim or interest agrees to a less favorable
treatment of its claim or interest. The Proponents believe that they have
complied with such requirement. If the Bankruptcy Court finds otherwise, it
could deny confirmation of the Plan if the holders of Claims or Interests
affected do not consent to the treatment afforded them under the Plan.
1. GENERAL RULES OF CLASSIFICATION
Generally, a Claim or Interest is classified in a particular
Class for voting and Distribution purposes only to the extent the Claim or
Interest qualifies within the description of that Class, and is classified in
another Class or Classes to the extent the Claim or Interest qualifies within
the description of such other Class or Classes. Unless otherwise provided, to
the extent a Claim qualifies for inclusion in a more specifically defined Class
and a more generally defined Class, it shall be included in the more
specifically defined Class. A Claim or Interest is classified in a particular
Class only to the extent that the Claim or Interest is an Allowed Claim or
Allowed Interest in that Class and has not been paid, released or otherwise
satisfied before the Effective Date. Only holders of Allowed Claims or Allowed
Interests will receive Distributions under the Plan.
The Plan classifies the various Claims and Interests against
the Debtor into: (i) Priority Non-Tax Claims; (ii) Secured Claims; (iii)
Unsecured Claims; (iv) Convenience Claims; (v) Old Common Stock Interests; and
(vi) Old Stock Option Interests. Administrative Claims, Fee Claims and Priority
Tax Claims are not classified and are excluded from the Classes set forth in
Article IV of the Plan in accordance with section 1123(a)(1) of the Bankruptcy
Code.
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The treatment to be provided for Allowed Claims and Allowed
Interests pursuant to the Plan and the consideration provided for in the Plan
shall be in full satisfaction, settlement, release and discharge of such Allowed
Claims and Allowed Interests.
2. BAR DATE FOR FEE CLAIMS
The Confirmation Order shall provide for a bar date for the
filing of Fee Claims and the date for filing objections to any Fee Claim. Notice
of entry of the Confirmation Order shall be served on all Professionals. Any
Person that fails to File a proof of Fee Claim or application for payment of a
Fee Claim pursuant to and on or before the time and date established in the
Confirmation Order shall be forever barred from asserting such Fee Claim against
Paragon, the Estate, Reorganized Paragon or their property and the holder
thereof shall be enjoined from commencing or continuing any action, employment
of process or act to collect, offset or recover such Fee Claim.
D. TREATMENT OF CLAIMS AND INTERESTS
Holders of Claims and Interests will receive treatment under
the Plan, on account of such Claims and Interests, in accordance with the tables
set forth in Section I.G above.
E. PARAGON'S RESTRUCTURING AND DISCHARGE
1. NEW SECURITIES
The following is a brief summary of the New Common Stock, New
Notes and Warrants that will be issued pursuant to the Plan. The issuance of New
Common Stock, New Notes and Warrants by Reorganized Paragon will be authorized
by and reserved under the Plan without the need for any further corporate
action.
Pursuant to the Plan, Reorganized Paragon shall issue (a)
13,566,574 shares of New Common Stock (provided, that 11,891,000 shares of New
Common Stock shall be issued if the Wellspring Stock Purchase Agreement is
consummated), (b) if the Wellspring Stock Purchase Agreement is consummated, a
principal amount of New Notes equal to the New Notes Amount (i.e., $160 million,
subject to adjustment as set forth in Section 1.73 of the Plan); and (c) the
Warrants. Holders of New Common Stock shall have such rights with respect to
dividends, liquidation, voting and other matters as are set forth in the
Restated Certificate of Incorporation. All authorized and issued shares of New
Common Stock not Distributed in accordance with the Plan will be retained by
Reorganized Paragon in its treasury. Reorganized Paragon may distribute, at its
sole discretion, a portion of the shares of New Common Stock held in treasury in
connection with an employee stock incentive plan.
Reorganized Paragon shall continue to have the obligation to
file periodic reports with the Securities and Exchange Commission and shall make
commercially reasonable efforts to have the New Common Stock listed on a
nationally recognized market or exchange. All New Common Stock, Warrants and
Rights distributed pursuant to the Plan shall be entitled to the benefits and
exemptions provided by Section 1145 of the Bankruptcy Code to the maximum extent
allowable by law.
(a) Registration Rights in the Event that the Wellspring Stock
Purchase Agreement is Consummated: In the event that the Wellspring Stock
Purchase Agreement is consummated, the holders of New Common Stock whose resale
of such New Common Stock would be limited or restricted by federal securities
law shall have the right, pursuant to a registration rights agreement, the form
of which will be filed with the Bankruptcy Court (the "Registration Rights
Agreement") at least three (3) calendar days before the date of the Confirmation
Hearing, to cause Reorganized Paragon to (i) include the New Common Stock
issuable to them under the Plan (including any New Common Stock issued or
issuable in respect of the Warrants), on customary terms, in "piggyback"
underwritings and registrations and (ii) effect on customary terms, one demand
registration under the Securities Act for the public offering and sale of the
New Common
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Stock to them distributed under the Plan. If P&G and K-C participate in the
Wellspring Rights Offering, the Registration Rights Agreement must be
reasonably satisfactory to P&G and K-C.
(b) Registration Rights in the Event that the Wellspring Stock
Purchase Agreement is not Consummated: If the Wellspring Stock Purchase
Agreement is not consummated, as soon as reasonably practicable after the
Effective Date, Reorganized Paragon shall file a "shelf" registration statement
pursuant to Rule 415 under the Securities Act (the "Shelf Registration") with
respect to all of the New Common Stock Distributed to the holders of Allowed
Unsecured Claims hereunder (the "Registrable Securities"). Reorganized Paragon
shall, subject to customary provisions for postponement of registration rights
by the issuer, use its reasonable efforts to cause the Shelf Registration to
become effective as soon as possible after the filing thereof and shall use its
reasonable efforts to keep the Shelf Registration continuously effective from
the date such Shelf Registration is effective until the second anniversary of
the Effective Date, in order to permit the prospectus forming a part thereof to
be usable by the holders of the Registrable Securities during such period. The
Shelf Registration shall provide for the offering and sale of the Registrable
Securities to or through brokers or dealers, acting as principal or agent, in
transactions (which may involve block transactions) on the nationally recognized
market or exchange on which the New Common Stock is listed, in ordinary
brokerage transactions, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or otherwise, or directly or indirectly
through brokers or agents in private sales at negotiated prices or through a
combination of any such methods of sale, including but not limited to a bulk
sale to a brokerage firm, but not pursuant to an underwritten public offering
(whether on a firm commitment or best efforts basis or otherwise).
The New Notes, which shall be issued under the Wellspring New
Notes Indenture only if the Wellspring Stock Purchase Agreement is consummated,
will represent unsecured obligations of Reorganized Paragon. The New Notes will
bear interest at the non-default rate of 11.25% per annum and mature on the
fifth (5th) anniversary of the Effective Date. A detailed summary of the terms
of the New Notes is annexed to the Wellspring Stock Purchase Agreement as
Appendix 1. With respect to New Notes that will be issued under the Plan in the
event that the Wellspring Stock Purchase Agreement is consummated, the
Proponents intend to qualify the Wellspring New Notes Indenture under the Trust
Indenture Act of 1939, as amended. In this regard, Section 14.3(c) of the Plan
provides that, in the event that the Wellspring Stock Purchase Agreement has
been executed and has not been terminated, it shall be a condition to
consummation of the Plan that the New Notes qualify under the Trust Indenture
Act of 1939, as amended.
Pursuant to the Plan, Reorganized Paragon also shall issue
Warrants to the holders of Allowed Interests in Class 4A. If the Wellspring
Stock Purchase Agreement is consummated, the Warrants shall contain terms
substantially similar to the summary of terms contained on Exhibit "A" to the
Plan. If the Wellspring Stock Purchase is not consummated, the Warrants shall
contain terms substantially similar to the summary of terms contained on Exhibit
"B" annexed to the Plan.
In accordance with the terms contained in the Wellspring Rights
Offering Procedures annexed to the Plan as Exhibit D, the Wellspring Rights
Offering will permit each holder of a Class 3A Claim entitled to vote in respect
of the Plan to elect to subscribe for Rights. Collectively, the Rights, which
will not be evidenced by certificates, shall consist of the right to purchase up
to 35% of the issued and outstanding shares of New Common Stock (prior to
dilution) as of the Effective Date. Each Right shall represent the right to
purchase one share of New Common Stock for a purchase price of $10.00 per share.
Subject to any requirement of the securities laws, the Rights will be
transferable in accordance with the provisions set forth in the Wellspring
Rights Offering Procedures; provided, however, that no Person may acquire Rights
by way of transfer such that as of the Effective Date (after giving effect to
the exercise of all Rights properly subscribed to and acquired by transfer) such
Person would hold an amount of New Common Stock greater than ten percent (10%)
of the New Common Stock Amount. In accordance with the terms contained in the
Wellspring Rights Offering Procedures, the Wellspring Rights Offering also will
permit each holder of an Allowed Old Common Stock Interest as of the Voting
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Record Date to subscribe for Rights not purchased by holders of Allowed
Unsecured Claims under the Plan and the Wellspring Rights Offering Procedures.
2. EXEMPTION FROM CERTAIN TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code: (i) the
issuance, transfer or exchange of any securities, instruments or documents; (ii)
the creation of any other lien, mortgage, deed of trust or other security
interest; or (iii) the making or assignment of any lease or sublease or the
making or delivery of any deed or other instrument of transfer under, pursuant
to, in furtherance of or in connection with, the Plan, including any deeds,
bills of sale or assignments executed in connection with the Plan, the
Confirmation Order, the sale of any assets of the Estate or the transfer and
revesting of the assets shall not be subject to any stamp tax, transfer tax,
intangible tax, recording fee, or similar tax, charge or expense to the fullest
extent provided for under section 1146(c) of the Bankruptcy Code.
3. RELEASE OF LIENS AND PERFECTION OF LIENS
A. PROCEDURES FOR RELEASING OF LIENS
Except as otherwise specifically provided in the Plan, the
Confirmation Order or in any contract, instrument or other agreement or
document created in connection with the Plan: (i) each holder of: (1) a Secured
Claim (other than an Allowed Secured Claim treated pursuant to Section
6.1(a)(4) of the Plan); (2) a Claim that is purportedly secured; and/or (3) a
judgment, personal property or ad valorem tax, mechanics' or similar lien
Claim, in each case regardless of whether such Claim is an Allowed Claim,
shall, on the Effective Date and regardless of whether such Claim has been
Scheduled or proof of such Claim has been Filed: (y) turn over and release to
the Debtor or Reorganized Paragon, as the case may be, any and all property of
the Debtor that secures or purportedly secures such Claim, or such lien and/or
Claim shall automatically, and without further action by the Debtor, the Estate
or Reorganized Paragon, be deemed released; and (z) execute such documents and
instruments as the Debtor or Reorganized Paragon, as the case may be, require
to evidence such Claim holder's release of such property or lien, and if such
holder refuses to execute appropriate documents or instruments, the Debtor or
Reorganized Paragon (as applicable) may, in its discretion, file a copy of the
Confirmation Order which shall serve to release any Claim holder's rights in
such property; and (ii) on the Effective Date, all right, title and interest in
such property shall revert or be transferred to Reorganized Paragon, free and
clear of all Claims and Interests, including, without limitation, liens,
escrows, charges, pledges, encumbrances and/or security interests of any kind.
B. ENTITLEMENT TO DISTRIBUTIONS PENDING RELEASE
Without limiting the automatic release provisions of the
preceding section: (i) no Distribution under the Plan shall be made to or on
behalf of any Claim holder unless and until such holder executes and delivers
to the Debtor or Reorganized Paragon (as applicable) such release of liens or
otherwise turns over and releases such Cash, pledge or other possessory liens;
and (ii) any such holder that fails to execute and deliver such release of
liens within 180 calendar days of the Effective Date shall be deemed to have no
Claim against the Debtor, the Estate or Reorganized Paragon or its assets or
property in respect of such Claim and shall not participate in any Distribution
under the Plan.
4. DISCHARGE OF THE DEBTOR
Except as otherwise specifically provided by the Plan or the
Confirmation Order, Confirmation of the Plan (subject to the occurrence of the
Effective Date) shall operate as a discharge, pursuant to section 1141(d)(1) of
the Bankruptcy Code, of the Debtor and Reorganized Paragon from any debt, Claim
or Interest that arose before the Confirmation Date, including, but not limited
to, all principal and interest, whether accrued before, on, or after the
Petition Date, and any debt, Claim or Interest of the kind specified in
sections 502(g), 502(h) or 502(i) of the Bankruptcy
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Code, whether or not a proof of Claim or Interest is Filed or is deemed Filed,
whether or not such Claim or Interest is Allowed, and whether or not the holder
of such Claim or Interest has voted on the Plan. On the Effective Date, as to
every discharged debt, Claim and Interest, the holder of such debt, Claim or
Interest shall be precluded from asserting against the Debtor, the Debtor's
assets or properties, and against Reorganized Paragon, any other or further
Claim or Interest based upon any document, instrument or act, omission,
transaction or other activity of any kind or nature that occurred prior to the
Confirmation Date.
5. PRESERVATION OF INSURANCE
The discharge and release of the Debtors as provided in the
Plan shall not diminish or impair the enforceability of any insurance policies
that may cover Claims against the Debtor or other Person.
F. DISTRIBUTIONS AND IMPLEMENTATION OF THE PLAN
1. TIMING OF DISTRIBUTIONS
Notwithstanding any provision of the Plan obligating
Reorganized Paragon to make Distributions on a particular date, any
Distributions and deliveries to be made under the Plan to holders of Claims or
Interests that are Allowed Claims or Allowed Interests as of such date shall be
made on that date or as soon as reasonably practicable thereafter. Any
Distributions and deliveries to be made to any holder of a Claim or Interest
whose Claim or Interest is not an Allowed Claim or Allowed Interest at least
ten (10) Business Days prior to a particular Distribution Date shall be made on
the first Distribution Date thereafter or upon such other terms as agreed to by
Reorganized Paragon and the holder of such Claim or Interest.
2. MANNER OF PAYMENT
Except with respect to Allowed DIP Claims, the Allowed Claims
of P&G and K-C, and Allowed Prepetition Bank Claims, payment of which shall be
made by wire transfer of same day funds to the extent required to be made in
Cash, Cash Distributions to be made under the Plan in the amount of $500,000 or
less may, subject to Section 11.13 of the Plan, be made, at the option of
Reorganized Paragon, in Cash, by wire transfer or by check drawn on any
domestic bank. Pursuant to Section 11.12 of the Plan, Cash Distributions in
excess of $500,000 shall be made by wire transfer at the request of the holder
of such Claim or Interest.
3. PERSONS DEEMED HOLDERS OF REGISTERED SECURITIES
Except as otherwise provided in the Plan, Reorganized Paragon
(or its designee) shall be entitled, but not required, to treat the record
holder of a registered security as the holder of the Claim or Interest
respectively for purposes of all notices, payments or other Distributions under
the Plan unless Reorganized Paragon shall have received from such record holder
written notice by certified mail, return receipt requested, specifying the name
and address of any new holder thereof (and the nature and amount of the Claim
or Interest of such new holder) at least ten (10) Business Days prior to the
date of such notice, payment or other Distribution. In the event of any dispute
regarding the identity of any party entitled to any payment or Distribution in
respect of any Claim or Interest under the Plan, no payments or Distributions
shall be made in respect of such Claim or Interest until the Bankruptcy Court
resolves such dispute pursuant to a Final Order.
4. COMPLIANCE WITH TAX REQUIREMENTS
To the extent applicable, Reorganized Paragon shall comply
with all tax withholding and reporting requirements imposed on it by any
governmental unit, and all Distributions pursuant to the Plan shall be subject
to such
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withholding and reporting requirements. Reorganized Paragon shall be entitled
to deduct any federal, state or local withholding taxes from any payments made
with respect to Allowed Claims or Allowed Interests, as appropriate.
5. SET-OFFS
[Intentionally Omitted].
6. DE MINIMIS DISTRIBUTIONS
Notwithstanding anything in the Plan to the contrary, the
following provisions shall apply to Class 3A Claims and Class 4A Interests:
Reorganized Paragon shall not have any obligation to make a Distribution of
Cash, to a holder of an Allowed Claim or Allowed Interest if such Distribution
would be less than $10 (or such other amount ordered by the Bankruptcy Court)
(the "Threshold Amount") except as provided in the Plan. If, on any
Distribution Date, the Pro Rata Share of Cash that otherwise would have been
distributed to a holder of an Allowed Claim or Allowed Interest is less than
the Threshold Amount, Reorganized Paragon shall reserve such holder's Pro Rata
Share of Cash until the first Distribution Date on which the amount to be
distributed to such holder is equal to or greater than the Threshold Amount.
If, at the time of the Final Distribution, the Pro Rata Share of Cash then
allocable to an Allowed Claim or Allowed Interest but not distributed as a
result of the foregoing sentence, is less than the Threshold Amount (taking
into account prior amounts reserved under this section for such Claim or
Interest but not paid), Reorganized Paragon shall not be required to make a
Final Distribution of Cash on account of such Allowed Claim or Allowed
Interest. If, at the time of Final Distribution, the Pro Rata Share of Cash
then allocable to the holder of any Allowed Claim or Allowed Interest would be
less than the Threshold Amount, Reorganized Paragon shall not be required to
make a Final Distribution on account of such Allowed Claim or Allowed Interest
but, in the case of Cash, may donate the Cash in the name of Reorganized
Paragon to a not for profit charitable organization to be chosen by Reorganized
Paragon.
7. PERIODIC DISTRIBUTIONS TO HOLDERS OF ALLOWED
UNSECURED CLAIMS AND ALLOWED OLD COMMON
STOCK INTERESTS
On the Initial Distribution Date and each Periodic
Distribution Date thereafter, Reorganized Paragon shall make a Distribution of
Cash, New Securities and/or Warrants to each holder of an Allowed Unsecured
Claim or Allowed Old Common Stock Interest, as the case may be, in an amount
equal to its Pro Rata Share (calculated as of the applicable Distribution Date)
of the Cash, New Securities and/or Warrants, as the case may be, allocated to
the relevant Class.
8. INITIAL DISTRIBUTIONS TO THE HOLDERS OF SUBSEQUENTLY
ALLOWED UNSECURED CLAIMS AND ALLOWED INTERESTS
Reorganized Paragon shall distribute to the holders of
Disputed Claims and Disputed Interests, as the case may be, as of the Initial
Distribution Date, that become Allowed Claims or Allowed Interests after the
Initial Distribution Date, Cash, New Securities and/or Warrants, as the case
may be, in an amount equal to the aggregate amount of Cash, New Securities
and/or Warrants, as the case may be, that would have been distributed as of the
Initial Distribution Date and each prior Periodic Distribution Date (if any) to
such holder in respect of such Allowed Claim or Allowed Interest had it been an
Allowed Claim or Allowed Interest on the Initial Distribution Date and any
subsequent Periodic Distribution Date. Any holder of a Claim or Interest whose
Claim or Interest is so allowed after the tenth (10th) Business Day prior to
the next Periodic Distribution Date shall receive its initial Distribution on
the next succeeding Periodic Distribution Date. For purposes of determining the
accrual of interest or rights in respect of any other payment from and after
the Effective Date, the New Securities and Warrants to be issued shall be
deemed issued as of the Effective Date regardless of the date on which they are
actually dated, authenticated or received by the holders of Allowed Claims or
Allowed Interests; provided, however, that Reorganized Paragon shall withhold
any payment until such Distribution actually is made.
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9. SUBSEQUENT PERIODIC DISTRIBUTIONS TO HOLDERS OF
PREVIOUSLY ALLOWED CLAIMS AND PREVIOUSLY ALLOWED
INTERESTS
Subject to the second sentence of Section 11.8 of the Plan,
on each Periodic Distribution Date, Reorganized Paragon shall distribute to
each holder of an Allowed Claim or Allowed Interest, as the case may be, on
account of such Claim or Interest an amount of Cash, New Securities and/or
Warrants, as the case may be, equal to: (a) the Distribution from the relevant
Disputed Claims Reserve that such holder of an Allowed Claim or Allowed
Interest, as applicable, would have received had it not received any prior
Distributions in respect of its Allowed Claims or Allowed Interests, less (b)
the total amount of any Distributions previously received in respect of its
Allowed Claim or Allowed Interest. Subject to Section 11.16 of the Plan, such
Distributions shall continue until the relevant Disputed Claims Reserve is
depleted of Cash, New Securities and/or Warrants held in such Disputed Claims
Reserve, other than as set forth in the Plan.
10. FINAL DISTRIBUTION
On the first (1st) Business Day that is ten (10) Business
Days after the date on which all Claims or Interests in the relevant Class have
been allowed by Reorganized Paragon or by Final Orders, Disallowed or estimated
for Allowance purposes by Final Orders or withdrawn with prejudice (and in the
case of Classes 3A and 4A, all Litigation Claims have been resolved) and the
Chapter 11 Case can be closed under applicable law and rules, property
remaining in the relevant Disputed Claims Reserve shall be distributed to
holders of Allowed Claims and Allowed Interests or released to Reorganized
Paragon, as the case may be, in accordance with the procedure set forth above
for Periodic Distributions and subject to the provisions of Section 12.5 of the
Plan, provided, however, that such Distribution will be a final Distribution on
account of all Claims and Interests.
11. DISTRIBUTIONS ON DISPUTED CLAIMS
Notwithstanding anything to the contrary contained in the
Plan, no Distribution shall be made on account of any Claim or Interest that is
partially an Allowed Claim or Allowed Interest and partially a Disputed Claim
or Disputed Interest until such Claim or Interest is no longer Disputed in any
respect.
12. DISBURSEMENT OF FUNDS AND DELIVERY OF NEW SECURITIES
Reorganized Paragon shall make Cash payments to the holders
of Allowed Claims to the extent provided for in the Plan by check sent by
first-class mail (or by other equivalent or superior means as determined by
Reorganized Paragon in its sole and absolute discretion); provided, however,
that if any holder of an Allowed Claim is entitled to receive a Cash
Distribution under the Plan, as of the Effective Date, in an amount in excess
of $500,000, such holder shall have the option, exercisable by written notice
executed by such holder and providing appropriate instructions delivered to the
Debtor or Reorganized Paragon or such person designated by one of the
foregoing, within thirty (30) calendar days prior to the applicable
Distribution Date, to receive payment of Cash Distributions by wire transfer.
On the Effective Date, the Debtor shall deposit Cash in the Professional Fee
Reserve or provide other security (in form and substance reasonably acceptable
to counsel to the Proponents) sufficient to pay Fee Claim holdbacks and
estimated final allowances of compensation and reimbursement of expenses to
Professionals. Distributions of Cash, New Securities and/or Warrants, as the
case may be, pursuant to the Plan (including shares of New Common Stock
subscribed to as part of the Wellspring Rights Offering) shall be effectuated
on the Effective Date, the applicable Distribution Date, such other date
consistent with the provisions of the Plan, or, with respect to each holder of
an Allowed Claim or Allowed Interest, as soon thereafter as Reorganized Paragon
has received all documentation required pursuant to the Plan.
13. FRACTIONAL CENTS
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Whenever any payment of a fraction of a cent would otherwise be
called for, the actual payment shall reflect a rounding down of such fraction to
the nearest whole cent. To the extent Cash remains undistributed as a result of
the rounding of such fraction to the nearest whole cent, such Cash shall revert
to Reorganized Paragon.
14. FRACTIONAL SECURITIES
No fractional shares of New Common Stock or New Notes shall
be issued in connection with the Plan.
1. New Common Stock. Whenever the issuance of a
fractional interest of New Common Stock shall otherwise be called for,
fractional shares of New Common Stock will be rounded to the next greater or
lower number, as follows: (i) fractions of 1/2 or greater will be rounded to
the next higher whole number, and (ii) fractions of less than 1/2 will be
rounded to the next lower whole number, including zero.
2. New Notes. New Notes will be issued only if the
Wellspring Stock Purchase Agreement is consummated and only in denominations of
$1,000. Whenever the issuance of a fractional New Note shall otherwise be
called for, the actual issuance on account of New Notes will be rounded down to
the nearest multiple of $1,000.00 or $0, as the case may be, and the difference
in value will be provided by Paragon by a distribution of Cash.
3. Warrants. No fractional Warrants will be issued.
15. DISPUTED PAYMENTS
In the event of any dispute between or among claimants as to
the right of any Person to receive or retain any payment or Distribution to be
made to such Person under the Plan, Reorganized Paragon may, in lieu of making
such payment or Distribution to such Person, instead hold such payment or
Distribution until the disposition thereof is determined by Final Order of the
Bankruptcy Court.
16. UNCLAIMED PROPERTY
If any Distribution remains unclaimed for a period of twelve
(12) months after it has been delivered (or attempted to be delivered) in
accordance with the Plan to the holder entitled thereto, such Unclaimed Property
shall be forfeited by such holder whereupon all right, title and interest in and
to the Unclaimed Property shall immediately and irrevocably (a) in the case of
all Classes other than Classes 3A and 4A, become the property of Reorganized
Paragon, and (b) in the case of Classes 3A and 4A, be available for future
Distributions to remaining holders of Allowed Unsecured Claims in Class 3A or
Allowed Interests in Class 4A, as applicable, and the holder of the Allowed
Claim or Allowed Interest previously entitled to such Unclaimed Property shall
cease to be entitled thereto.
17. WITHHOLDING TAXES
Any federal, state or local withholding taxes or other amounts
required to be withheld under applicable law shall be deducted from
distributions under the Plan. All Persons holding Claims shall be required to
provide any information necessary to effect the withholding of such taxes.
G. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. ASSUMPTION OR REJECTION
Any unexpired lease or executory contract that has not been
expressly assumed or rejected by the Debtor with the Bankruptcy Court's approval
on or prior to the Confirmation Date shall, as of the Confirmation Date but
subject to the occurrence of the Effective Date, be deemed to have been assumed
by the Debtor (notwithstanding any provision
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thereof limiting or conditioning such assumption) unless (a) there is pending
before the Bankruptcy Court on the Confirmation Date a motion to reject such
unexpired lease or executory contract, (b) such executory contract or unexpired
lease is otherwise designated for rejection on a "Schedule of Executory
Contracts and Unexpired Leases to be Rejected" Filed and served by the Debtor
on the Committees, P&G, K-C and all non-Debtor parties to each of the executory
contracts and unexpired leases listed thereon at least twenty (20) calendar
days before the first date scheduled for the commencement of the Confirmation
Hearing, provided that such executory contract or unexpired lease is ultimately
rejected by operation of the Plan or order of the Bankruptcy Court, (c) such
executory contract or unexpired lease is designated for rejection by the Debtor
or Reorganized Paragon based on the existence of a cure amount dispute, as
described in Section 8.2 of the Plan, or (d) such executory contract or
unexpired lease is an agreement, obligation, security interest, transaction or
similar undertaking that the Debtor believes is not an executory contract or
unexpired lease and is later determined by the Bankruptcy Court to be an
executory contract or unexpired lease that is subject to assumption or
rejection under section 365 of the Bankruptcy Code. Any party to an executory
contract or unexpired lease to be assumed by the Debtor by operation of the
Plan must assert all amounts that such party believes must be paid or cured by
the Debtor pursuant to section 365 of the Bankruptcy Code in a writing (a "Cure
Statement") Filed and served on the Debtor's counsel on or before the day that
is ten (10) calendar days prior to the first date scheduled for the
commencement of the Confirmation Hearing. Failure to File and serve a Cure
Statement strictly in accordance with the foregoing shall, unless the Debtor or
Reorganized Paragon otherwise agrees in writing, result in the waiver and
release of any and all Claims and amounts that otherwise may have been due to
such party upon the Debtor's assumption of the respective executory contract or
unexpired lease in excess of the respective cure amount reflected in the
Debtor's books and records. Any order entered after the Confirmation Date by
the Bankruptcy Court, after notice and hearing, authorizing the rejection of an
executory contract or unexpired lease, even if such rejection takes place after
the Effective Date as provided above, shall cause such rejection to be a
prepetition breach under sections 365(g) and 502(g) of the Bankruptcy Code, as
if such relief were granted and such order were entered prior to the
Confirmation Date. Listing an executory contract or unexpired lease on the
Schedule of Executory Contracts and Unexpired Leases to be Rejected shall not
constitute an admission by the Debtor or Reorganized Paragon that such contract
or lease, including related agreements, is an executory contract or unexpired
lease or that the Debtor or Reorganized Paragon has any liability thereunder.
The Debtor may amend the Schedule of Executory Contracts and Unexpired Leases
to be Rejected to add or delete any contract or lease at any time prior to the
Confirmation Hearing.
2. CURE OF DEFAULTS UPON ASSUMPTION
All payments to cure defaults ("Cure Amounts") that may be
required by section 365(b)(1) of the Bankruptcy Code and Section 8.1 of the Plan
shall be made by the Debtor and treated as Allowed Administrative Claims
pursuant to Section 5.2 of the Plan. Any disputes with respect to Cure Amounts
shall be resolved by the Bankruptcy Court. In the event of any such dispute as
to a Cure Amount, the Debtor or Reorganized Paragon shall place in a segregated
account the full Cure Amount timely asserted in a Cure Statement in accordance
with Section 8.1 of the Plan, or such lesser amount approved by the Bankruptcy
Court or agreed to by the Debtor and the asserting party, in order to provide
adequate assurance of prompt cure upon the resolution of any such dispute. Any
executory contract or unexpired lease that is subject to a cure amount dispute
may be added by the Debtor or Reorganized Paragon to the "Schedule of Executory
Contracts and Unexpired Leases to be Rejected" at any time, including, without
limitation, after the resolution by the Court of such cure amount dispute,
regardless of the occurrence of the Confirmation Date or the Effective Date,
based on the existence of such dispute.
3. REJECTION DAMAGE CLAIMS
If the rejection of any executory contract or unexpired lease
under the Plan gives rise to a Claim by the other party or parties to such
contract or lease, such Claim, to the extent that it is timely Filed and is an
Allowed Claim, shall be an Allowed Unsecured Claim and classified in Class 3A;
provided, however, that the Unsecured Claim arising from such rejection shall be
forever barred and shall not be enforceable against the Debtor, the Estate,
Reorganized
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Paragon, its successors or properties, unless a proof of Claim is timely Filed
and served in accordance with Section 8.5 of the Plan.
4. OBJECTIONS
Any party to an executory contract or unexpired lease
objecting to assumption or rejection under Article VIII of the Plan must File
and serve upon the Debtor's counsel an objection in writing on or before the
date that is ten (10) calendar days prior to the first date scheduled for the
commencement of the Confirmation Hearing or such other date as set by the
Bankruptcy Court. If any party to an executory contract or unexpired lease that
is deemed assumed pursuant to Article VIII of Plan objects to such assumption,
the Bankruptcy Court may conduct a hearing on such objection at the Confirmation
Hearing or such other hearing date as selected by the Debtor on notice (which
notice may be given orally on the record of the Confirmation Hearing) to the
objecting party. In the event of a dispute regarding the amount of any cure
payment or the ability of the Debtor to assume or assign, including providing
adequate assurance of future performance, the Debtor may determine to reject
such contract or lease pursuant to Section 8.2 of the Plan, and otherwise will
make any payments required by section 365(b)(1) of the Bankruptcy Code only
after the entry of a Final Order resolving such dispute.
5. BAR DATE FOR REJECTION DAMAGE CLAIMS
All proofs of Claim with respect to Claims arising from the
rejection of executory contracts or unexpired leases, to the extent not subject
to an earlier date set by order of the Bankruptcy Court, must be filed with the
Bankruptcy Court within thirty (30) calendar days after the date of service of
notice of entry of an order (which order may be the Confirmation Order) of the
Bankruptcy Court approving such rejection or such Claims shall be forever
barred.
6. DEEMED CONSENTS
Unless a non-Debtor party to an executory contract, unexpired
lease, license or permit objects to the Debtor's assumption or retention thereof
in writing at least ten (10) calendar days prior to the Confirmation Hearing,
then, unless such executory contract, unexpired lease, license or permit has
been rejected by the Debtor or will be rejected by operation of the Plan,
Reorganized Paragon shall enjoy all of the rights and benefits under each such
executory contract, unexpired lease, license and permit without the necessity of
obtaining such non-Debtor's party's written consent to Reorganized Paragon's
assumption or retention of such rights and benefits.
H. WAIVERS, RELEASES AND INDEMNIFICATION
1. DISCHARGE OF DEBTOR
Except as otherwise specifically provided by the Plan or the
Confirmation Order, the Confirmation of the Plan (subject to the occurrence of
the Effective Date) shall operate as a discharge, pursuant to section 1141(d)(1)
of the Bankruptcy Code, of the Debtor and Reorganized Paragon from any debt,
Claim or Interest that arose before the Confirmation Date, including, but not
limited to, all principal and interest, whether accrued before, on, or after the
Petition Date, and any debt, Claim or Interest of the kind specified in sections
502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not a proof of Claim
or Interest is Filed or is deemed Filed, whether or not such Claim or Interest
is Allowed, and whether or not the holder of such Claim or Interest has voted on
the Plan. On the Effective Date, as to every discharged debt, Claim and
Interest, the holder of such debt, Claim or Interest shall be precluded from
asserting against the Debtor, the Debtor's assets or properties, and against
Reorganized Paragon, any other or further Claim or Interest based upon any
document, instrument or act, omission, transaction or other activity of any kind
or nature that occurred prior to the Confirmation Date.
2. COMPLETE SATISFACTION
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Except as otherwise specifically provided by the Plan, the
treatment of Claims and Interests and rights that are provided in the Plan shall
be in complete satisfaction, discharge and release, effective as of the
Confirmation Date (but subject to the occurrence of the Effective Date) of (a)
all Claims against, liabilities of, liens on, obligations of and Interests in
the Debtor or Reorganized Paragon or the direct or indirect assets and
properties of the Debtor or Reorganized Paragon, whether known or unknown, and
(b) all causes of action (whether known or unknown, either directly or
derivatively through the Debtor or Reorganized Paragon) against, Claims against,
liabilities (as guarantor of a Claim or otherwise) of, liens on the direct or
indirect assets and properties of, and obligations of the Debtor, Reorganized
Paragon and their successors and assigns, and present and former directors,
officers, attorneys, advisors, financial advisors, investment bankers and
employees of the Debtor based on the same subject matter as any Claim or
Interest, in each case regardless of whether a proof of Claim or Interest was
filed, whether or not allowed and whether or not the holder of the Claim or
Interest has voted on the Plan, or based on any act or omission, transaction or
other activity or security, instrument or other agreement of any kind or nature
occurring, arising or existing prior to the Effective Date that was or could
have been the subject of any Claim or Interest, in each case regardless of
whether a proof of Claim or Interest was filed, whether or not allowed and
whether or not the holder of the Claim or Interest has voted on the Plan.
3. RELEASE OF DEBTOR
Except as otherwise specifically provided by the Plan or the
Confirmation Order (and subject to the occurrence of the Effective Date), any
holder of a Claim or Interest accepting any Distribution or other treatment
pursuant to the Plan shall be presumed conclusively to have released the Debtor
and Reorganized Paragon, their successors and assigns, and their respective
present and former directors, officers, agents, attorneys, advisors, financial
advisors, investment bankers and employees of the Debtor, and any Person claimed
to be liable derivatively through and of the foregoing, from any Claim or cause
of action based on the same subject matter as the respective Claim or Interest.
The release described in the preceding sentence shall be enforceable as a matter
of contract against any holder of a Claim or Interest timely notified of the
provisions of the Plan.
4. EXONERATION
Neither the Debtor, Reorganized Paragon nor any of its
respective officers, directors, partners, employees, Affiliates, members or
agents nor any Professionals, attorneys, financial advisors, investment bankers,
accountants, or other professionals employed by any of them, nor the Creditors'
Committee nor the Equity Committee and the respective members thereof (in their
capacity as such), nor P&G, K-C nor Wellspring, nor any Professionals,
attorneys, financial advisors, investment bankers, accountants nor other
professionals employed by the Creditors' Committee, the Equity Committee, P&G,
K-C or Wellspring, shall have or incur any liability to any Person for any act
taken or omission occurring in good faith in connection with or related to: (a)
formulating, implementing, confirming, or consummating the Plan (including
soliciting acceptances or rejections hereto); (b) the Disclosure Statement or
any contract, instrument, release or other agreement or document entered into in
connection with the Plan; or (c) the administration of the Plan, any
Distributions made pursuant to the Plan or the Wellspring Rights Offering,
except for acts constituting fraud, willful misconduct, willful breach of
fiduciary duty or gross negligence, and in all respects such parties shall be
entitled to rely upon the advice of counsel with respect to their duties and
responsibilities under the Plan. The entry of the Confirmation Order shall
constitute the determination by the Bankruptcy Court that the Debtor,
Reorganized Paragon and its officers, directors, partners, employees, members or
agents, and each Professional, attorney, financial advisors, accountant, or
other professional employed by any of them and the members of the Creditors'
Committee and the Equity Committee (in their capacity as such), P&G, K-C and
Wellspring, and any Professionals, attorneys, financial advisors, accountants or
other professionals employed by the Creditors' Committee, the Equity Committee
P&G, K-C or Wellspring, shall have acted in good faith and in compliance with
the applicable provisions of the Bankruptcy Code, pursuant to section 1125(e)
and 1129(a)(3) of the Bankruptcy Code, with respect to the foregoing.
Notwithstanding the provisions of Section 13.4 of the Plan, Wellspring shall not
be exonerated or relieved of its obligations under the Wellspring Commitment or
the Wellspring Stock Purchase Agreement or any breach of its obligations
thereunder.
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5. INDEMNIFICATION
In order to facilitate Paragon's expeditious and effective
reorganization, the Debtor and Reorganized Paragon shall indemnify, hold
harmless and reimburse each of the Debtor's respective present and former
officers, directors and employees from and against any and all losses, Claims,
damages, liabilities and actions asserted or filed against such present and
former officers, directors and employees for, by reason of, arising from, in
connection with, involving or relating to services rendered or acts or omissions
to act in those capacities relating to or arising out of the Plan, the P&G
Settlement or the K-C Settlement, or any efforts to defend or protect against,
resolve or settle the Texas Action, the Delaware Action or the facts or Claims
alleged or asserted, or which could have been alleged or asserted, in the
Delaware Action, the Texas Action or the Plan. All rights of the Debtor's
present and former officers, directors and employees with respect to
indemnification and limitation of liability under any provision of law, the
Certificate of Incorporation or Bylaws of the Debtor, or otherwise, from and
against any and all losses, claims, damages, liabilities and actions shall
survive confirmation of the Plan and shall not be discharged pursuant to section
1141 of the Bankruptcy Code. The Debtor and Reorganized Paragon shall pay any
legal or other expenses reasonably incurred by such present or former officers,
directors, or employees in connection with this indemnification or the
enforcement thereof, or in connection with any claim against which such present
or former officer, director, or employee is indemnified or for which liability
is limited. Notwithstanding the foregoing, the Debtor's and Reorganized
Paragon's obligations under Section 13.5 of the Plan for any Prepetition Claims
for indemnity shall be limited to the extent of available insurance coverage.
Reorganized Paragon shall be responsible for paying any deductibles associated
with any such insurance, and Paragon or Reorganized Paragon shall obtain tail
insurance coverage for a period of six years after the Effective Date under
Paragon's existing or a comparable directors and officers insurance policy. On
the Effective Date, the Debtor will be conclusively deemed to release all
directors and officers of the Debtor holding such offices at any time during the
period from and including the Petition Date through and including the
Confirmation Date from all liability based upon any act or omission related to
past service with, for or behalf of the Debtor except for:
(i) any indebtedness of any such
Person to the Debtor for money
borrowed by such Person;
(ii) any setoff or counterclaim the
Debtor has against such Person for
money borrowed by such Person;
(iii) the uncollected amount of any
claim made by the Debtor (whether
in a filed pleading, by letter or
otherwise asserted in writing)
prior to the Effective Date
against such Person which claim
has not been adjudicated to Final
Order, settled or compromised; or
(iv) claims arising from the fraud,
willful misconduct, gross
negligence or willful breach of
fiduciary duty of such Person.
6. RELEASE OF COMMITTEE MEMBERS
On the Confirmation Date, subject to the occurrence of the
Effective Date, the Debtor shall be deemed to have released all causes of action
against the members of the Committees, in their respective capacities as such
(but not in their capacities as holders of Claims against or Interests in the
Debtor).
7. ENFORCEABILITY OF RELEASES
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Notwithstanding anything contained in the Plan to the
contrary, the release provisions discussed above and contained in Article XIII
of the Plan with respect to the release of non-Debtor third parties shall be
enforced only to the extent permitted by applicable bankruptcy and
non-bankruptcy law.
The law on the enforceability of the release of non-debtor
third parties is mixed. Thus, some courts permit such releases under certain
circumstances and other courts do not permit them under any circumstances. The
Debtor, however, is not seeking a determination of the Bankruptcy Court with
respect to the release provisions pertaining to non-Debtor third parties
contained in the Plan. Rather, Section 13.7 of the Plan specifically provides
that such releases shall be enforced only to the extent permitted by applicable
bankruptcy and non-bankruptcy law. Accordingly, when and if a claim (the Debtor
is not aware of any valid claims that may be asserted) is asserted or an action
commenced against a purportedly released non-Debtor third party, the court with
jurisdiction over that claim can make a determination whether or not a release
was permitted under the Plan.
Parties reviewing this Disclosure Statement should be aware
that such provisions may be challenged in connection with confirmation of the
Plan.
8. ADDITIONAL RELEASES
The releases embodied in the Plan are in addition to, and not
in lieu of, any other release separately given, conditionally or
unconditionally, to the Debtor by any other Person or by the Debtor to any other
Person, including, for example, the releases contemplated and provided for in
the P&G Settlement Agreement and the K-C Settlement Agreement.
9. INJUNCTION
The satisfaction, release and discharge pursuant to Article
XIII of the Plan also shall act as an injunction against any Person commencing
or continuing to prosecute or commence any act, action, employment of process,
or act to collect, offset or recover any Claim, Interest or cause of action
satisfied, released or discharged under the Plan to the fullest extent
authorized or provided by the Bankruptcy Code, including, without limitation, to
the extent provided for or authorized by sections 524 and 1141 thereof.
10. TERMS OF INJUNCTIONS OR STAYS
Unless otherwise provided, all injunctions or stays provided
for in the Chapter 11 Case under sections 105 or 362 of the Bankruptcy Code or
otherwise, and in existence on the Confirmation Date, shall remain in full force
and effect until the Effective Date.
I. DISPUTED CLAIMS, DISPUTED INTERESTS, ESTIMATION, RESERVES AND
MISCELLANEOUS DISTRIBUTION PROVISIONS
1. OBJECTIONS TO CLAIMS
Unless otherwise ordered by the Bankruptcy Court, only the
Debtor or Reorganized Paragon shall be empowered to object to the allowance of
Claims or Interests filed or deemed filed with the Bankruptcy Court with respect
to which it disputes liability in whole or in part; provided, however, that the
Litigation Claims Representative may object to the allowance of any claim
arising from or relating to the assertion or prosecution of any Litigation
Claim. All objections shall be litigated to Final Order; provided, however, that
Reorganized Paragon shall have the authority to file, settle, compromise or
withdraw any objections to Claims, without approval of the Bankruptcy Court as
permitted by the Bankruptcy Code and/or Bankruptcy Rules; and provided, further,
however, that the consent of the Creditors' Committee (unless otherwise ordered
by the Bankruptcy Court) shall be required for allowance by settlement of any
Claim in excess
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of $250,000.00. Unless otherwise ordered by the Bankruptcy Court, Reorganized
Paragon shall file and serve all objections to Claims as soon as practicable,
but in no event later than, the Claims Objection Deadline, or such later date
as may be approved by the Bankruptcy Court.
2. ESTIMATED CLAIMS SCHEDULE
At or prior to the commencement of the Confirmation Hearing,
the Debtor shall submit a schedule, as of such date (the "Estimated Claims
Schedule"), reflecting:
a. the estimated aggregate amount, as of such
date, of Allowed Claims or Allowed
Interests in each Class under the Plan;
b. the estimated aggregate amount, as of such
date, of Disputed Claims or Disputed
Interests in each Class under the Plan; and
c. the estimated aggregate amount, as of such
date, of Disputed Claims and Disputed
Interests in each Class under the Plan that
the Debtor believes ultimately may become
Allowed Claims and Allowed Interests.
3. ESTIMATION ORDER
On or before the Effective Date, the Debtor shall seek an
Estimation Order establishing the aggregate amount of all Claims and Interests
that would be allowable in each Class based upon the Estimated Claims Schedule.
Such Estimation Order shall set the maximum allowable aggregate amount of Claims
and Interests in each Class for purposes of Distributions under the Plan.
Notwithstanding anything to the contrary contained under the Plan, such
Estimation Order shall not: (a) fix the amount of ultimately Allowed Claims or
Interests for purposes of Final Distributions under the Plan; (b) result in the
allowance of any individual Claim or Interest; (c) impose any obligation upon
Reorganized Paragon for Distributions in excess of those expressly set forth
herein; or (d) prejudice any creditor's rights under section 502(j) of the
Bankruptcy Code.
4. NO RECOURSE TO REORGANIZED PARAGON
If the allowed amount of any particular Disputed Claim or
Disputed Interest is or may be reconsidered under section 502(j) of the
Bankruptcy Code and Bankruptcy Rule 3008, or any other applicable law, and/or is
or may be ultimately allowed in an amount that is greater than the estimated
amount of such Claim or Interest, or the ultimately allowed amount of all
Disputed Claims or Disputed Interests in a particular Class is or may be greater
than the estimated aggregate amount of such Claims or Interests, no Claim holder
or Interest holder shall have recourse to Reorganized Paragon (or any property
thereof) or any Cash or New Securities previously distributed on account of any
Allowed Claim or Allowed Interest, except that such Claim or Interest holder
shall have recourse only to undistributed Cash and New Securities, as applicable
to its Class, and, in the event that the Wellpring Stock Purchase Agreement is
not consummated, Reorganized Paragon may issue such additional New Common Stock,
up to the total number of shares authorized to be issued as of the Effective
Date.
5. DISPUTED CLAIMS RESERVES
In accordance with Section 12.5 of the Plan and any Estimation
Order entered by the Bankruptcy Court before such date, on the Effective Date,
Reorganized Paragon shall establish a separate Disputed Claims Reserve for each
Class of Claims and Interests. Property reserved under this Section shall be set
aside, segregated and, in the case of Cash, held in an interest bearing account
to be established and maintained by Reorganized Paragon pending resolution of
such Disputed Claims and Disputed Interests. As and to the extent that the
amount of any Disputed Claim (other than a
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Disputed Unsecured Claim) or Disputed Interest (other than a Disputed Old
Common Stock Interest) exceeds the amount of such Claim or such Interest which
ultimately is allowed, any excess Cash, New Securities and/or Warrants in the
applicable Disputed Claims Reserve previously reserved for an account of such
Disputed Claim or Disputed Interest shall be released to Reorganized Paragon.
With respect to Disputed Unsecured Claims in Class 3A and Disputed Interests in
Class 4A, as and to the extent that the amount of any Disputed Unsecured Claim
or Disputed Interest exceeds the amount of such Claim or Interest that is
ultimately allowed, any excess Cash, New Securities and/or Warrants in the
Disputed Claims Reserve for Class 3A or Class 4A, as applicable, shall be made
available for distribution to holders of Allowed Claims in Class 3A or Allowed
Interests in Class 4A, as applicable. Each Disputed Claims Reserve shall be
terminated once all Distributions and other dispositions of all Cash, New
Securities and/or Warrants required hereunder relevant to such Disputed Claims
Reserve have been made in accordance with the terms of the Plan. If a Disputed
Interest Reserve is established hereunder, all references to Disputed Claims
Reserve shall apply to the Disputed Interest Reserve and all references to
Claims, Allowed Claims and Disputed Claims shall apply to Interests, Allowed
Interests, and Disputed Interests as the context requires.
6. FLUCTUATION IN VALUE OF SECURITIES
The value of New Securities and Warrants held in reserve under
Section 12.5 of the Plan is likely to fluctuate. Reorganized Paragon does not,
and shall be deemed not to, represent or warrant that the value of the New
Securities and Warrants will not decline after the Effective Date. Reorganized
Paragon also shall not otherwise assume any liability or risk of loss which the
holder of a Disputed Claim or Disputed Interest which becomes an Allowed Claim
or Allowed Interest, as applicable, after the Effective Date may suffer by
reason of any decline in value of a reserved security pending determination of
the amount of such Disputed Claim or Disputed Interest. The risk or benefit of
any appreciation or depreciation in the value of any reserved securities shall
be borne by the party to whom such security is ultimately distributed.
7. VOTING OF CERTAIN NEW COMMON STOCK
New Common Stock that is Unclaimed Property or held in
Disputed Claims Reserves shall be voted at any meeting of the stockholders of
Reorganized Paragon in proportion to the actual vote of the shares of New Common
Stock that is not held as Unclaimed Property or in Disputed Claims Reserves.
8. RETURNED DISTRIBUTIONS
In the event that any Distribution of property is returned to
Reorganized Paragon due to an incorrect or incomplete address for the holder
entitled thereto, Reorganized Paragon shall use reasonable efforts to obtain an
accurate address for such holder. If reasonable efforts have not yielded an
accurate address for such holder within 180 calendar days after the date the
Distribution of the returned property was made, then the property to be
distributed to such holder shall be deemed to be Unclaimed Property in respect
of such Claim or Interest and shall be treated as provided in Section 11.16 of
the Plan.
9. ESTIMATION OF CLAIMS
The Debtor or Reorganized Paragon, as applicable, may at any
time request that the Bankruptcy Court estimate any contingent, unliquidated or
Disputed Claim pursuant to section 502(c) of the Bankruptcy Code regardless of
whether the Debtor or Reorganized Paragon previously has objected to such Claim
or whether the Bankruptcy Court has ruled on any such objection, and the
Bankruptcy Court will retain jurisdiction to estimate any Claim at any time
during litigation concerning any objection to any Claim, including, without
limitation, during the pendency of any appeal relating to any such objection. In
the event that the Bankruptcy Court estimates any contingent, unliquidated or
Disputed Claim, the amount so estimated shall constitute either an estimated
allowed amount for purposes of Distributions under the Plan
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or an estimation for purposes of allowance, but shall not fix a maximum
limitation on such Claim as an ultimately Allowed Claim, as determined by the
Bankruptcy Court. All of the aforementioned objection, estimation and
resolution procedures are intended to be cumulative and not necessarily
exclusive of one another. Claims may be estimated and subsequently compromised,
settled, withdrawn or resolved by any mechanism approved by the Bankruptcy
Court.
10. AMENDMENTS OF CLAIMS
Except as otherwise provided in the Plan, a Claim may be
amended: (a) no later than ten (10) days prior to the Confirmation Hearing, only
as agreed upon by the Debtor and the holder of such Claim or as otherwise
permitted by the Bankruptcy Court, the Bankruptcy Code, the Bankruptcy Rules, or
applicable law; or (b) after such time, to decrease, but not increase, the face
amount of such Claim. Any Claim (other than Claims timely filed based upon the
rejection of any executory contract or unexpired lease) filed after the
Confirmation Date shall be deemed Disallowed and expunged without further action
by the Debtor or the Bankruptcy Court unless the claimant obtained prior
Bankruptcy Court approval to file such claim.
11. AVOIDANCE ACTIONS/CLAIMS
Subject to the occurrence of the Effective Date, neither the
Debtor, the Creditors' Committee, the Equity Committee nor any other party in
interest shall assert any right, claim or cause of action (other than a
Litigation Claim) not asserted by the Debtor prior to the Effective Date and
belonging to the Debtor or its Estate against any Person to avoid a transfer
under section 544, 547, 548, or 553(b) of the Bankruptcy Code, provided,
however; that nothing herein shall prohibit the Debtor, the Creditors' Committee
or the Equity Committee from challenging the validity, priority, perfection or
extent of any lien, mortgage or security agreement. All such rights, claims and
causes of action shall be released and waived by the Debtor and its Estate under
the Plan on the Effective Date. Notwithstanding anything to the contrary
contained in the Plan, nothing in the Plan shall prejudice any rights or
defenses the Debtor may have under section 502(d) of the Bankruptcy Code.
12. COMPROMISE OF CONTROVERSIES
Pursuant to Bankruptcy Rule 9019, and in consideration for the
classification, distribution and other benefits provided under the Plan, the
provisions of the Plan shall constitute a good faith compromise and settlement
of all Claims, Interests and controversies resolved pursuant to the Plan,
including the claims and controversies settled and resolved pursuant to the K-C
Settlement Agreement and the P&G Settlement Agreement. To the extent not
previously accomplished by the K-C Settlement Order or the P&G Settlement Order,
the entry of the Confirmation Order shall constitute the Bankruptcy Court's
approval of each of the foregoing compromises and settlements, and all other
compromises and settlements provided for in the Plan, and such order shall
constitute the Bankruptcy Court's determination that such compromises and
settlements are in the best interests of the Debtor, Reorganized Paragon, the
Estate, and any Person holding Claims and/or Interests against the Debtor, and
are fair, equitable and within the range of reasonableness required by the
Bankruptcy Code and/or Bankruptcy Rules.
In addition, notwithstanding anything contained in the Plan to
the contrary, if the Wellspring Stock Purchase Agreement is consummated, the
Allowed Prepetition Claims of Paragon Mabesa International, S.A. de C.V. ("PMI")
shall be treated as Allowed Unsecured Claims under the Plan; provided, however,
that the New Notes that are to be distributed on account of such Allowed
Unsecured Claims shall be deemed to have been issued and cancelled as an offset
against the Prepetition principal and/or accrued interest owed by PMI to the
Debtor under certain advances to PMI and certain promissory notes issued
pursuant to (i) the Joint Venture Agreement dated January 26, 1996 between
Paragon, Mr. Gilberto Marin Quintero ("Marin") and PTB International, Inc.
("PTBI"); (ii) the Facility Financing Side Letter dated January 26, 1996 between
Paragon, Marin and PTBI; and (iii) additional financings as approved by
Paragon's Board of Directors at a meeting held on December 16, 1997. Any New
Notes that would have been distributed to PMI on account
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of such Allowed Unsecured Claims in the absence of the foregoing provision
shall be deemed to have been issued as part of the New Notes Amount.
Notwithstanding the foregoing, if PMI does not vote to accept the Plan, then
any Allowed Claims held by PMI shall be classified and treated in accordance
with the priority and classification of any such Allowed Claims, subject to any
rights of setoff that the Debtor or Reorganized Paragon may have under
applicable law.
The Plan also incorporates and embodies the compromise and
settlement of the Equity Committee's objections to, and appeals of the
Bankruptcy Court's approval of, (a) the K-C Settlement Agreement, (b) the P&G
Settlement Agreement, and (c) the bidding procedures and protections concerning
the Wellspring Stock Purchase Agreement and related transactions. Within five
(5) Business Days after the Effective Date, the Equity Committee shall (x)
dismiss with prejudice (i) the Equity Committee's appeal of the K-C Settlement
Order (No. 99-13877-B), (ii) the Equity Committee's appeal of the P&G Settlement
Order, and (iii) the Equity Committee's appeals of the Bankruptcy Court's orders
dated July 13, 1999 and August 20, 1999 (Case No. 1-99-CV-2590-JEC), concerning
the establishment of certain bidding procedures and protections in the Chapter
11 Case (collectively, the "Appeals"), and (y) if not already withdrawn,
withdraw with prejudice the Equity Committee's objections to the Debtor's
settlement agreement dated August 9, 1999, with Rhonda Tracy.
J. POST-EFFECTIVE DATE MANAGEMENT AND OPERATION OF REORGANIZED
PARAGON
1. PROVISIONS FOR MANAGEMENT
A. DIRECTORS.
(i) Directors if the Wellspring Stock Purchase
Agreement is Consummated: If the Wellspring Stock Purchase Agreement is
consummated, as of the Effective Date, the members of the New Board of
Reorganized Paragon shall consist of not less than seven (7) and no more than
ten (10) directors designated by Wellspring, (x) at least two (2) but no more
than four (4) of whom shall be independent directors (the selection of whom
shall be made with the consent of the Creditors' Committee, after consultation
with P&G, K-C and the Equity Committee), (y) at least one (1) of whom shall be
a member of Paragon's senior management, and (z) at least three (3) of whom
shall be affiliated with Wellspring.
(ii) Directors if the Wellspring Stock Purchase
Agreement is Not Consummated: If the Wellspring Stock Purchase Agreement is not
consummated, as of the Effective Date, the members of the New Board of
Reorganized Paragon shall consist of seven (7) directors, five (5) of whom
shall be independent directors and shall be designated by the Creditors'
Committee and two (2) of whom shall be designated by the Debtor. The members of
the New Board must be reasonably satisfactory to P&G, K-C and the Equity
Committee.
b. Officers. The officers of the Debtor on the
Effective Date shall continue to serve as officers of Reorganized Paragon, as
the case may be, after the Effective Date and until such time as they may
resign, be removed or be replaced or their employment contracts, if any, may
expire. If the Wellspring Stock Purchase Agreement is consummated, Reorganized
Paragon shall adopt a management equity incentive plan on terms that are
mutually acceptable to Wellspring and Plan in substantially the form set forth
on Appendix 2 to the Wellspring Stock Purchase Agreement.
Consistent with section 1129(a)(5) of the Bankruptcy
Code, the Proponents will disclose at or before the Confirmation Hearing the
identity of individuals proposed to serve, after confirmation of the Plan, as
directors and officers of Reorganized Paragon. The Debtor also will disclose at
or before the Confirmation Hearing the identity of any insider that will be
employed or retained by Reorganized Paragon, and the nature of any compensation
of such insider. It is currently contemplated under the Plan that the officers
of the Debtor on the Effective Date shall, whether or not the Wellspring Stock
Purchase Agreement is consummated, continue to serve as officers of Reorganized
Paragon.
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The Debtor believes that the appointment and continuance in office of such
individuals is consistent with the interest of creditors and equity security
holders and with public policy because, among other reasons, Wellspring has
indicated that it desires such individuals to continue in Reorganized Paragon's
employ following the Effective Date. In addition, whether or not the Wellspring
Stock Purchase Agreement is consummated, the Debtor believes, based on these
individuals' years of experience and service with the Debtor, that such
individuals are capable management. Compensation terms have not yet been agreed
to with respect to such individuals. Accordingly, the nature of any
compensation ultimately agreed to by the Debtor and/or Reorganized Paragon and
such individuals will be disclosed at or before the Confirmation Hearing.
Wellspring has requested that Mr. Bobby Abraham, the
Debtor's Chairman of the Board and Chief Executive Officer, invest in and
purchase from Reorganized Paragon certain of the New Common Stock that will be
issued on the Effective Date. To date, although negotiations are continuing, no
agreement has been reached between Wellspring and Mr. Abraham regarding the
terms of any such co-investment. Further, Wellspring has informed the Debtor
that Wellspring also will provide other members of the Debtor's senior
management with the opportunity to co-invest with Wellspring. To date,
Wellspring has not engaged in negotiations with such other members of the
Debtor's senior management regarding the terms of any such co-investment. To
the extent that Wellspring reaches agreement with other Mr. Abraham or any
other member of the Debtor's senior management prior to the Confirmation
Hearing, the Debtor will disclose the terms of such agreement at or before the
Confirmation Hearing.
c. Employment Contracts. Subject to the
following sentence, all employment contracts entered into by the Debtor
following the Petition Date and not terminated or expired prior to the
Effective Date shall remain in effect and be binding on Reorganized Paragon
after the Effective Date. After the Effective Date, Reorganized Paragon may
enter into (i) amendments to any existing employment contracts, or (ii) new
employment contracts, with such of its officers, agents or employees as may be
mutually acceptable to the New Board and such officers, agents or employees.
d. TEEP Retention Plan. On the Effective Date,
Reorganized Paragon shall pay to the employees eligible to receive such payment
the $2 million Cash component of the Earned Confirmation Bonus (as defined in
the TEEP Retention Plan) under the TEEP Retention Plan. In accordance with the
TEEP Retention Plan, shares of New Common Stock having a value as of the
Effective Date equal to $164,925 (before the impact, if any, of the Warrants to
be issued under the Plan) shall be issued and held in escrow to fund the
payment of the Earned Confirmation Bonus exceeding $2 million, which New Common
Stock shall be distributed within three (3) Business Days of the Effective
Date, unless the New Board determines, in its sole discretion and in accordance
with the TEEP Retention Plan, that it is fair and prudent to pay such excess in
Cash and elects to pay such excess in Cash, in which event sufficient Cash in
the amount of $164,925 shall be paid by Reorganized Paragon to the employees
eligible to receive such payment to fund any such excess. Upon and after the
occurrence of the Effective Date, Reorganized Paragon shall be authorized and
directed to otherwise carry out and implement the terms of the TEEP Retention
Plan in accordance with its terms. Pursuant to the TEEP, Confirmation bonuses
will be payable to the following individuals as indicated (assuming each such
individual's entitlement thereto does not change between the date hereof and
the Effective Date): (a) Mr. Abraham, $1,061,000; (b) Mr. Cyron, $435,375; (c)
Mr. McClain, $406,350; and (d) Ms. Hasbrouck, $262,200.
2. CORPORATE ACTION
On and after the Effective Date, Reorganized Paragon may
operate its business and may use, acquire and dispose of assets and compromise
or settle any claims against Reorganized Paragon free of any restrictions of the
Bankruptcy Code and the Bankruptcy Rules, other than those restrictions
expressly imposed by the Plan, the Confirmation Order or any agreement entered
into in connection therewith. Without limiting the foregoing, Reorganized
Paragon may pay the fees and charges that it incurs on or after the Effective
Date for fees of professionals, disbursements, expenses or support services
relating to the Chapter 11 Cases without application to the Bankruptcy Court.
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K. CONDITIONS TO CONFIRMATION AND CONSUMMATION
1. CONDITIONS PRECEDENT TO CONFIRMATION
Section 14.1 of the Plan provides that, at or prior to
Confirmation, the following conditions must occur and be satisfied:
a. Disclosure Statement Order. An order
finding that the Disclosure Statement contains adequate information pursuant to
section 1125 of the Bankruptcy Code shall have been entered;
b. The P&G Settlement Agreement. The P&G
Settlement Order shall not have been reversed, stayed, modified or amended in
any manner not acceptable to the Proponents and P&G, and the P&G Settlement
Agreement (and licenses annexed thereto) shall not have been terminated by P&G
or deemed terminated in accordance with their respective terms;
c. The K-C Settlement Agreement. The K-C
Settlement Order shall not have been reversed, stayed, modified or amended in
any manner not acceptable to the Proponents and K-C, and the K-C Settlement
Agreement (and licenses annexed thereto) shall not have been terminated by K-C
or deemed terminated in accordance with their respective terms;
d. Estimation Order. All Disputed Claims or
Interests that are contingent or unliquidated shall have been estimated or
otherwise fixed (either individually or in the aggregate) by one or more
Estimation Orders; and
e. Exit Facility Commitment. The Debtor shall
have received a commitment for the New Credit Agreement from a creditworthy
financial institution.
2. CONDITIONS PRECEDENT TO CONSUMMATION
Section 14.2 of the Plan provides that, before the Effective
Date occurs, the following conditions must occur and be satisfied:
a. Entry of Confirmation Order; No Stay. The
Confirmation Order shall have been entered, and no order of any court shall
have been entered and shall remain in effect (i) reversing, staying, remanding
or otherwise hindering the effectiveness of the Confirmation Order, the P&G
Settlement Order or the K-C Settlement Order or (ii) enjoining or restraining
the Debtor from consummating the Plan, the P&G Settlement Agreement, or the K-C
Settlement Agreement;
b. Exit Financing. All conditions precedent to
closing the New Credit Agreement (other than the occurrence of the Effective
Date) shall have been satisfied or waived and the New Credit Agreement shall
have been consummated;
c. Documents Executed. All other documents
required to be delivered under the Plan shall have been executed and delivered
by the parties thereto, unless such execution or delivery has been waived by
the parties benefited by such documents; and
d. Cash for Closing. Reorganized Paragon shall
have sufficient Cash on hand or availability under the New Credit Agreement to
make timely Distributions of Cash required hereunder.
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Section 14.3 of the Plan provides that, in the event
that the Wellspring Stock Purchase Agreement has been executed and has not been
terminated, before the Effective Date occurs, the following additional
conditions must occur and be satisfied:
a. Confirmation Date. The Confirmation Date
shall have occurred no later than January 15, 2000 or such later date as may be
determined by the Proponents and Wellspring, with the consent of P&G and K-C,
such consent not to be unreasonably withheld;
b. Consummation of the Wellspring Stock
Purchase Agreement. All conditions precedent to consummation of the Wellspring
Stock Purchase Agreement other than the occurrence of the Effective Date shall
have been satisfied or waived as set forth therein;
c. Trust Indenture Act. The New Notes shall
qualify under the Trust Indenture Act of 1939, as amended; and
d. Effective Date. The Effective Date shall
have occurred on or before February 15, 2000.
3. WAIVER OF CONDITIONS
Section 14.4 of the Plan provides that, notwithstanding
anything to the contrary contained in the Plan, the Proponents may waive, with
the consent of P&G and K-C (which consent shall not be unreasonably withheld),
any of the conditions precedent to (a) Confirmation set forth in Sections
14.1(b) through 14.1(e) of the Plan, and (b) the Effective Date set forth in
Sections 14.2(d) and, with the consent of Wellspring, Section 14.3 of the Plan.
4. MOOTNESS
Section 14.4 of the Plan provides that the Proponents shall
enjoy the benefit of the mootness doctrine with respect to any conditions waived
by the Proponents.
5. WITHDRAWAL OF THE PLAN
Pursuant to Section 15.3 of the Plan, the Proponents, acting
jointly and unanimously, reserve the right, at any time prior to the
Confirmation Date, to revoke or withdraw the Plan. Withdrawal of one Proponent
as a proponent of the Plan shall not constitute a withdrawal of the Plan, and
the remaining Proponent may seek confirmation of the Plan and, upon such
occurrence, the term "Proponents" as used in this Plan shall refer solely to the
remaining Proponent for all purposes.. If the Proponents revoke or withdraw the
Plan or if the Confirmation Date does not occur, then the Plan shall be deemed
null and void and of no force and effect
L. RETENTION OF JURISDICTION
Pursuant to Article XVI of the Plan, the Bankruptcy Court
shall retain and have exclusive jurisdiction over the Chapter 11 Case for, inter
alia, the following purposes:
a. Claims. To determine the amount,
allowability, classification, or priority of Claims against or Interests in the
Debtor and to allow, disallow, estimate, liquidate or determine any Claim or
Interest and to enter or enforce any order requiring the filing of any Claim or
Interest before a particular date;
b. Injunction etc. To issue injunctions or
take such other actions or make such other orders as may be necessary or
appropriate to restrain interference with the Plan or its execution or
implementation by any Person, to construe and to take any other action to
enforce and execute the Plan, the Confirmation Order, or any other
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order of the Bankruptcy Court, to issue such orders as may be necessary for the
implementation, execution, performance and consummation of the Plan and all
matters referred to herein, and to determine all matters that may be pending
before the Bankruptcy Court in the Chapter 11 Case on or before the Effective
Date with respect to any Person;
c. Vesting. To protect the property of the
Estate revesting in Reorganized Paragon from claims against, or interference,
with such property, including actions to quiet or otherwise clear title to such
property, to determine ownership of claims and causes of action retained under
the Plan or to resolve any dispute concerning liens, security interest or
encumbrances on any property of Reorganized Paragon;
d. Priority Claims. To determine any Priority
Tax Claims, Priority Non-Tax Claims, Administrative Claims, Fee Claims, DIP
Claims, or any other request for payment of Claims or fees or expenses;
e. Dispute Resolution. To resolve any and all
disputes concerning, arising under or related to the Plan, the P&G Settlement
Agreement and P&G Settlement Order, the K-C Settlement Agreement and K-C
Settlement Order, and the making of distributions hereunder and thereunder
(provided, however, that the Bankruptcy Court shall not retain jurisdiction
with respect to disputes arising under or related to the licenses granted in
connection with the P&G Settlement Agreement and the K-C Settlement Agreement);
f. Leases and Executory Contracts. To
determine any and all matters relating to the rejection, assumption, or
assignment of executory contracts or unexpired leases of the Debtor, or to
determine any motion to reject an executory contract or unexpired lease of the
Debtor, where (a) the parties cannot resolve the cure amount therefor, or (b)
the Debtor mistakenly had determined that any such agreement was not an
executory contract or unexpired lease, and to determine the allowance of any
Claims resulting from the rejection of executory contracts and unexpired
leases;
g. Wellspring Stock Purchase Agreement. To
hear and determine any and all matters, claims or disputes arising from or
relating to the Wellspring Stock Purchase Agreement or any other document
between the Debtor and Wellspring that was executed in connection with the
Plan;
h. Actions. To determine all applications,
motions, adversary proceedings, contested matters, actions, and any other
litigated matters instituted prior to the closing of the Chapter 11 Case,
including any remands;
i. General Matters. To determine such other
matters, and for such other purposes, as may be provided in the Confirmation
Order or as may be authorized under provisions of the Bankruptcy Code;
j. Plan Modification. To modify the Plan under
section 1127 of the Bankruptcy Code, and/or remedy any defect, cure any
omission, or reconcile any inconsistency in the Plan or the Confirmation Order
so as to carry out its intent and purposes;
k. Aid Consummation. To issue such orders in
aid of consummation of the Plan and the Confirmation Order notwithstanding any
otherwise applicable non-bankruptcy law, with respect to any Person, to the
full extent authorized by the Bankruptcy Code;
l. Litigation. To enable the Litigation Claims
Representative to prosecute any Litigation Claims to Final Order and to enable
the Debtor to prosecute any and all proceedings which have been brought to set
aside liens or encumbrances and, if commenced prior to the Effective Date, to
recover any transfers, assets, properties or damages to which the Debtor may be
entitled under applicable provisions of the Bankruptcy Code or any other
federal, state or local laws except as may be waived pursuant to the Plan;
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m. Implementation of Confirmation Order. To
enter and implement such orders as may be appropriate in the event the
Confirmation Order is for any reason stayed, revoked, modified or vacated;
n. Resolve Disputes. To resolve any disputes
concerning whether a Person had sufficient notice of the Chapter 11 Case, an
Applicable Bar Date, the hearing to consider approval of the Disclosure
Statement, the Confirmation Hearing, and for the purpose of determining whether
a Claim or Interest is discharged hereunder or for any other purpose;
o. Orders. To enter such orders as may be
necessary or appropriate to implement or consummate the provisions of the Plan
and all contracts, instruments, releases, or other agreements or documents
created in connection with the Chapter 11 Case or the Plan and to resolve any
dispute or matter arising under or in connection with any order of the
Bankruptcy Court entered in the Chapter 11 Case;
p. Controversies. To resolve controversies and
disputes regarding interpretation, implementation, enforcement and consummation
of the Plan, the K-C Settlement Agreement, the P&G Settlement Agreement, or any
other exhibit to the Plan or related document (provided, however, that the
Bankruptcy Court shall not retain jurisdiction with respect to disputes arising
under or relating to the licenses granted in connection with the P&G Settlement
Agreement and the K-C Settlement Agreement);
q. Determine Tax Liability. To determine any
tax liability pursuant to sections 346, 505 and/or 1146 of the Bankruptcy Code;
r. Reserves. To resolve disputes concerning
any reserves with respect to Disputed Claims or the administration thereof;
s. Validity. To hear and resolve claims or
actions challenging the validity or enforceability of any provision of the
Plan; and
t. Final Decree. To enter a final decree
closing the Chapter 11 Case.
M. ADDITIONAL PROVISIONS
1. SEVERABILITY
If any provision of the Plan is determined to be
unenforceable, such determination shall not limit or affect the enforceability
and operative effect of any other provisions of the Plan. Subject to the last
sentence of Section 15.4 of the Plan, to the extent any provision of the Plan
would, by its inclusion in the Plan, prevent or preclude the Bankruptcy Court
from entering the Confirmation Order, the Bankruptcy Court, on the request of
the Proponents, may modify or amend such provision, in whole or in part, as
necessary to cure any defect or remove any impediment to the confirmation of the
Plan existing by reason of such provision. A holder of a Claim or Interest that
has accepted the Plan shall be deemed to have accepted the Plan as it may be
modified in accordance with this Section if the proposed modification does not
materially and adversely change the treatment of the Claim or Interest of such
holder.
2. CONFIRMATION ORDER
The Confirmation Order shall ratify all transactions effected
by the Debtor during the period commencing on the Petition Date and ending on
the Confirmation Date.
3. INTERPRETATION, RULES OF CONSTRUCTION, COMPUTATION
OF TIME, AND CHOICE OF LAW
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The Plan contains a number of provisions respecting its
construction and its interpretation which should be read carefully by each
holder. See Section 15.8 of the Plan. In addition to these provisions, each
holder is advised that the provisions of the Plan shall control over any
descriptions thereof contained in this Disclosure Statement.
4. NO ADMISSIONS
Notwithstanding anything to the contrary, nothing contained in
the Plan or the Disclosure Statement shall be deemed as an admission by the
Debtor with respect to any matter set forth therein, including, without
limitation, any liability on or treatment of any Claim or Interest, or the
propriety of the classification of any Claim or Interest.
N. INVESTIGATION, PROSECUTION AND/OR SETTLEMENT OF LITIGATION
CLAIMS
As of the Effective Date, the Litigation Claims shall remain
vested in the Estate and the Estate shall retain the right to investigate,
prosecute and/or settle such claims in accordance with the provisions of Section
9.21 of the Plan. Pursuant to section 1123(b)(3)(B) of the Bankruptcy Code, the
Litigation Claims Representative shall be the sole representative of the Estate
for the limited purpose of investigating, prosecuting and/or settling the
Litigations Claims, and delivering any Litigation Proceeds to Reorganized
Paragon pursuant to the terms of the Plan. All Litigation Proceeds, if any,
shall be delivered by the Litigation Claims Representative to Reorganized
Paragon for distribution in accordance with Sections 6.3 and 6.5 the Plan, and
subject to the other applicable distribution provisions of the Plan, including
Sections 9.21 (q) and 9.21 (s), to the holders of Allowed Unsecured Claims and
Allowed Old Common Stock Interests. The Litigation Claims Representative shall
be appointed by the Equity Committee. Such appointment shall be announced and
included in the Confirmation Order. In order to permit the Litigation Claims
Representative to perform all its duties and responsibilities under the Plan,
Reorganized Paragon shall transfer Cash in the amount of $1,094,500.00 (the
"Litigation Fund") into an interest-bearing segregated account for use by the
Litigation Claims Representative in carrying out its rights and obligations
hereunder; provided, however, that, if the Wellspring Stock Purchase Agreement
is not consummated, Reorganized Paragon shall only be required to transfer Cash
in the amount of $500,000.00 into the Litigation Fund; provided, however, that
the Equity Committee shall have the right to designate a portion of the Interest
Holders' New Common Stock Amount to be deposited in the Litigation Fund. Neither
Reorganized Paragon nor Wellspring shall have any further obligation to fund any
amounts into the Litigation Fund and shall bear no further financial
responsibility for the resolution of Litigation Claims; provided, however, that,
pursuant to Section 9.21(r) of the Plan, Reorganized Paragon shall provide
reasonable assistance to the Litigation Claims Representative with respect to
the assertion and prosecution of Litigation Claims (to the extent such
assistance does not require the expenditure of funds).
1. USE OF THE LITIGATION FUND
The Litigation Claims Representative may use the Litigation
Fund to (i) satisfy the costs and expenses (including, but not limited to,
counsel and expert witness fees) of investigating, prosecuting and/or settling
the Litigation Claims, (ii) preserve, protect and prosecute the Litigation
Claims, and (iii) satisfy liabilities incurred or related to the Litigation
Claims; provided, however, that if the funds constituting the Litigation Fund
have been used for such purposes and exhausted, the Litigation Claims
Representative may, consistent with its fiduciary duties as a representative of
the Estate, and provided the first $500,000.00 in proceeds, if any, received on
account of the Litigation Claims are delivered by the Litigation Claims
Representative to Reorganized Paragon in accordance with the proviso contained
in Section 1.68 of the Plan, use any Litigation Proceeds for such purposes;
provided, further, however, that the use of Litigation Proceeds for such
purposes shall not exceed 50% of the recoveries received on account of any
Litigation Claim, and provided that the total amount of Litigation Proceeds used
for such purposes shall not exceed $1 million.
2. APPOINTMENT OF THE LITIGATION CLAIMS REPRESENTATIVE
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The Equity Committee shall appoint the Litigation Claims
Representative as of the Effective Date to investigate, prosecute and/or settle
the Litigation Claims. On and after the Effective Date, the Debtor and
Reorganized Paragon, as the case may be, shall execute and deliver or cause to
be executed and delivered to the Litigation Claims Representative all such
documents, in recordable form where necessary or appropriate, to confirm to the
Litigation Claims Representative the right to hold, investigate, prosecute
and/or settle each of the Litigation Claims.
3. ACCEPTANCE OF DUTIES
The Litigation Claims Representative shall be required to
confirm in writing its appointment and its acceptance of its rights and
obligations hereunder. The Litigation Claims Representative shall agree to
receive, hold, investigate, prosecute and/or settle the Litigation Claims and to
administer and transfer the Litigation Proceeds and the income derived therefrom
pursuant to the terms of the Plan and the Confirmation Order; provided, however,
that if the Litigation Claims do not or will not, in the judgment of the
Litigation Claims Representative, result in sufficient Litigation Proceeds to
warrant the further investigation, prosecution and/or settlement of the
Litigation Claims, the Litigation Claims Representative shall be empowered to
determine not to so investigate, prosecute and/or settle such claims, but
instead to return any remaining amount of the Litigation Fund to Reorganized
Paragon for distribution in accordance with the Plan. The Litigation Claims
Representative shall not be required to post any bond or other security for
performance.
4. ONE LITIGATION CLAIMS REPRESENTATIVE
There shall be no more than one Litigation Claims
Representative at any time.
5. TERM
The Litigation Claims Representative shall serve until (a) the
final resolution or abandonment of the Litigation Claims, or (b) the Litigation
Claims Representative's death, resignation, or removal.
6. ACTIVITIES
The Litigation Claims Representative shall be entitled to
engage in such activities as it deems appropriate which are not in conflict with
the Plan. The Litigation Claims Representative shall devote such time as is
necessary to fulfill all of its duties as Litigation Claims Representative.
7. RESIGNATION OF THE LITIGATION CLAIMS REPRESENTATIVE
The Litigation Claims Representative may resign at any time
upon 30 days' written notice, in accordance with the notice provisions of the
Plan, to the Bankruptcy Court, and counsel for the Equity Committee. Such
resignation may become effective prior to the expiration of such 30 day notice
period upon the appointment of a permanent or interim successor Litigation
Claims Representative.
8. REMOVAL OF THE LITIGATION CLAIMS REPRESENTATIVE
The Litigation Claims Representative may be removed by an
order of the Bankruptcy Court only for bad faith, gross negligence, willful
misconduct, material violation of the provisions of the Plan or a gross
disregard of its duties hereunder ("For Cause") and upon notice and a hearing.
Any holder or Allowed Unsecured Claim or Allowed Old Common Stock Interest or
other party in interest has standing to request the Bankruptcy Court to remove
the Litigation Claims Representative For Cause.
9. SUCCESSOR LITIGATION CLAIMS REPRESENTATIVE
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In the event of the resignation, removal, death or incapacity
of the Litigation Claims Representative (or if for any other reason there is a
vacancy in the position of Litigation Claims Representative), the Bankruptcy
Court may appoint a new Litigation Claims Representative, upon motion of any
party in interest, from a list of candidates submitted in connection with any
such motion, subject to the consent of the Equity Committee or a majority vote
of former members of the Equity Committee. Every successor Litigation Claims
Representative appointed pursuant hereto shall execute, acknowledge and deliver
to the Bankruptcy Court an instrument in writing accepting such appointment
hereunder, and thereupon such successor Litigation Claims Representative,
without any further act, shall become fully vested with all of the rights,
powers, duties and obligations of its predecessor without any further act. Any
predecessor Litigation Claims Representative shall execute and deliver to the
successor Litigation Claims Representative any instruments reasonably requested
by the successor Litigation Claims Representative to effectuate the termination
of the predecessor Litigation Claims Representative and to aid in the
investigation, prosecution and/or settlement of the Litigation Claims. All fees
and expenses of a Litigation Claims Representative prior to the death,
resignation or removal of such Litigation Trustee shall be paid out of the
Litigation Fund unless disputed by the successor Litigation Claims
Representative, in which case such dispute shall be subject to resolution by the
Bankruptcy Court.
10. REIMBURSEMENT
The Litigation Claims Representative shall be entitled to
receive compensation, from the Litigation Fund, in an amount to be negotiated by
the Equity Committee, disclosed to and approved by the Bankruptcy Court and
contained in the Confirmation Order, plus reimbursement of reasonable
out-of-pocket expenses (all such reasonable and necessary costs and expenses
incurred by the Litigation Claims Representative in connection with the
performance of its duties hereunder to be reimbursed to the Litigation Claims
Representative from the Litigation Fund); provided, however, that compensation
and/or expenses payable pursuant to an incentive contingent compensation
arrangement between the Litigation Claims Representative and himself or herself,
or between him/her and an attorney or other professionals retained to prosecute
a Litigation Claim must be approved by the Bankruptcy Court and shall be paid
only from the Litigation Proceeds, if any, of such Litigation Claim.
11. RETENTION OF PROFESSIONALS
The Litigation Claims Representative may, but shall not be
required to, consult with attorneys, accountants, appraisers or other parties
deemed by the Litigation Claims Representative to have qualifications necessary
to assist it in the proper performance of its duties, including the employment
of attorneys on a full or partial contingent fee basis to prosecute Litigation
Claims. The Litigation Claims Representative may pay the salaries, fees and
expenses of such persons out of the Litigation Fund; provided, however, that
compensation and/or expenses payable pursuant to a contingent compensation
arrangement between the Litigation Claims Representative and an attorney or
other professionals retained to prosecute a Litigation Claim must be approved by
the Bankruptcy Court and shall be paid only from the Litigation Proceeds, if
any, of such Litigation Claim. The Litigation Claims Representative shall not be
liable for any loss to the Estate caused by any action of any person employed by
the Litigation Claims Representative by reason of any mistake or default of such
person if the selection, engagement and/or supervision of such person was made
or taken in good faith and without willful misconduct or gross negligence.
12. POWERS OF LITIGATION CLAIMS REPRESENTATIVE
The Litigation Claims Representative shall have all of the
rights, powers and privileges specified in the Plan unless specifically limited
by other provisions of the Plan or the Confirmation Order. The Litigation Claims
Representative shall have the power to take all such actions as in its judgment
are necessary and appropriate to effectuate the purposes of this Section of the
Plan, including but not limited to each power expressly granted in the
subsections below and any power reasonably incidental thereto. The Litigation
Claims Representative shall have the power to:
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(i) Investigate, prosecute, settle
and/or abandon Litigation Claims
and exercise, participate in or
initiate any proceeding before the
Bankruptcy Court or any other
court of appropriate jurisdiction
in connection with any proceeding
relating to the Litigation Claims,
including any administrative,
arbitrative or other nonjudicial
proceeding; provided, however,
that the Litigation Claims
Representative shall seek
Bankruptcy Court approval before
entering on a final basis into any
settlement of a Litigation Claim.
(ii) Invest the Litigation Fund in
accordance with section 345 of the
Bankruptcy Code or as otherwise
permitted by a Final Order of the
Bankruptcy Court and as deemed
appropriate by the Litigation
Claims Representative; provided,
that the Litigation Claims
Representative may invest such
funds in Cash Equivalents;
(iii) Enter into any agreement or
execute any document required by
or consistent with the Plan,
perform all of the Litigation
Claims Representative's
obligations hereunder and
thereunder and take all other
actions necessary to effectuate
the foregoing to the extent such
actions are not inconsistent with
the Plan;
(iv) Select and employ such
professionals (which may include
the Equity Committee's current
professionals), agents or
employees as it deems necessary to
assist in the administration of
the Litigation Claims and
compensate such persons from the
Litigation Fund without
application to the Bankruptcy
Court;
(v) Voluntarily engage in arbitration
or mediation with regard to any
Litigation Claim;
(vi) Consult with former members of and
counsel to the Equity Creditor and
the Creditors' Committee, as well
as with any creditor or counsel to
such creditor in connection with
the prosecution of Litigation
Claims; and
(vii) Exercise such other powers and
duties as are necessary or
appropriate in its discretion to
accomplish the purposes of this
Section 9.21 of the Plan.
13. LIMITATION OF RIGHTS
Notwithstanding anything in this Agreement to the contrary
contained herein, the Litigation Claims Representative shall not do or undertake
any of the following:
(i) Take any action in contravention
of the Plan;
(ii) Grant liens on any of the
Litigation Claims or the
Litigation Proceeds, if any;
provided, however, that contingent
fee arrangements shall not be
considered a lien for purposes of
this section;
(iii) Attempt to modify or amend the
Plan;
(iv) Guarantee any debt;
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(v) Loan any portion of the Litigation
Fund or Litigation Proceeds, if
any, to the Litigation Claims
Representative or any other
Person; or
(vi) Transfer any Litigation Claim.
14. LIMITATION ON LIABILITY
Except in the case of willful misconduct or gross negligence,
the Litigation Claims Representative and any professionals it employs shall not
be liable for any loss or damage by reason of any action taken or omitted by the
Litigation Claims Representative and any professionals it employs pursuant to
the discretion, power and authority conferred on the Litigation Claims
Representative by the Plan. No successor Litigation Claims Representative shall
be in any way liable for the acts or omissions of any predecessor Litigation
Claims Representative unless a successor Litigation Claims Representative
expressly assumes such responsibility. The Litigation Claims Representative may
rely, and shall be protected from liability for acting, upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order or other paper or document reasonably believed by the Litigation Claims
Representative to be genuine and to have been presented by an authorized party.
Also, the Litigation Claims Representative shall not be liable if it acts in
good faith based on a mistake of fact before having actual knowledge of an
event. The Litigation Claims Representative shall not be liable for any action
taken or suffered by the Litigation Claims Representative in reasonably relying
upon the advice of counsel or other professionals engaged by the Litigation
Claims Representative in accordance with the Plan. Persons dealing with the
Litigation Claims Representative in matters relating to the Litigation Claims
shall have recourse only against the Litigation Claims and the Litigation
Proceeds, if any, subject to the rights of holders of Allowed Unsecured Claims
and Allowed Old Common Stock Interests to receive such assets in accordance with
the terms of the Plan, to satisfy any liability incurred by the Litigation
Claims Representative to such person in carrying out the terms of this Section,
and the Litigation Claims Representative shall have no personal or individual
obligation to satisfy such liability. The Litigation Claims Representative and
its employees and agents shall not be liable because of any action taken by the
Litigation Claims Representative pursuant to discretionary powers and authority
conferred upon the Litigation Claims Representative or its employees except for
its or their own gross negligence or willful misconduct.
15. FINAL ACCOUNTING
The Litigation Claims Representative shall, within ninety (90)
days after the completion of its duties or its resignation, removal or death (in
which case, the Litigation Claims Representative's estate shall), render a final
accounting containing at least the following information:
(i) A description of the Litigation
Claims;
(ii) A summarized accounting in
sufficient detail of all gains,
losses, receipts, disbursements
and other transactions in
connection with the Litigation
Fund and the Litigation Claims
during the Litigation Claims
Representative's term of service,
including their source and nature;
(iii) All receipts of principal and
income must be shown separately;
(iv) The ending balance of the
Litigation Fund and all Litigation
Proceeds as of the date of the
Litigation Claims Representative's
accounting, including the cash
balance on hand and the name and
location of the depository where
it is kept; and
(v) All known liabilities owed by the
Litigation Claims Representative.
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16. DISTRIBUTION OF PROCEEDS
Subject to the provisions of Section 9.21(a) of the Plan, all
Litigation Proceeds, if any, received by the Litigation Claims Representative on
behalf of the Estate shall be delivered to Reorganized Paragon for distribution
in accordance with the applicable provisions of the Plan.
17. WITHHOLDING TAXES
Any federal, state or local withholding taxes or other amounts
required to be withheld under applicable law shall be deducted by, as required,
Reorganized Paragon or the Litigation Claims Representative, as applicable, from
the Litigation Proceeds, if any, delivered to Reorganized Paragon for
distribution under the Plan. All Persons entitled to receive distributions under
the Plan of any Litigation Proceeds received shall be required to provide any
information necessary to effect the withholding of such taxes.
18. FURTHER ASSURANCES
Reorganized Paragon shall not take any action to release,
impair or settle the Litigation Claims, and shall not, except as may be required
by law, take any position contrary to the Litigation Claims Representative in
any documents, agreements or public filings. Reorganized Paragon shall
reasonably cooperate with the Litigation Claims Representative, and shall
provide the Litigation Claims Representative with reasonable access to
Reorganized Paragon's books and records (including, after execution of an
acceptable common-interest agreement, privileged documents related to the
Litigation Claims) and personnel with knowledge of the Litigation Claims to the
extent necessary to allow the Litigation Claims Representative to properly
perform its duties hereunder. Upon the request of the Creditors' Committee, P&G
or K-C, the Litigation Claims Representative shall provide reasonable reports
regarding the status of the Litigation Claims and the Litigation Proceeds, if
any.
19. Federal Tax Treatment
For federal income tax purposes, it is intended that the
Estate will be treated as a liquidating trust, as defined in Treasury Regulation
ss. 301.7701-4(d), that comes into existence as of the Effective Date. The
primary purpose of the liquidating trust will be to prosecute the Litigation
Claims, and it will not continue or engage in the conduct of a trade or business
except to the extent reasonably necessary to, and consistent with, the
liquidating purpose of the trust. The trust may not receive or retain Cash or
Cash Equivalents in excess of a reasonable amount to prosecute the Litigation
Claims. The investment powers of the Litigation Claims Representative are
limited to powers to invest in Cash and Cash Equivalents. The trust is required
to distribute at least annually to the Beneficiaries the net income of the trust
in excess of amounts reasonably necessary to prosecute the Litigation Claims. In
the event the Estate receives Litigation Proceeds, the Litigation Claims
Representative shall, in lieu of immediately distributing all such amounts,
retain as a reserve an amount sufficient to pay the tax liability that would
result from the receipt of such amounts if they were deemed received by
Reorganized Paragon or the Estate did not qualify as a liquidating trust. The
Litigation Claims Representative thereafter shall promptly apply for a ruling
from the Internal Revenue Service that the Estate will qualify as a liquidating
trust and that the receipt of Litigation Proceeds by the Estate will not result
in the recognition of taxable income by Reorganized Paragon or the Estate. If
such ruling is secured, the reserved amounts shall be promptly distributed. If
such ruling is not secured, the Litigation Claims Representative shall use its
reasonable best efforts to secure from counsel experienced in such matters an
opinion reasonably satisfactory to Reorganized Paragon and the Litigation Claims
Representative that (i) the Estate will qualify as a liquidating trust or (ii)
the receipt of Litigation Proceeds by the Estate will not generate taxable
income for Reorganized Paragon or the Estate. If neither the ruling nor the
opinion can be secured, Reorganized Paragon shall be entitled to receive or, if
applicable, the Estate shall retain, such amounts as are necessary to pay the
tax liability associated with the Litigation Claims; and any excess amounts
shall be distributed to the Beneficiaries as promptly as is reasonable under the
circumstances. It is intended that Reorganized Paragon will be
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treated for tax purposes as transferring the Litigation Claims to holders of
Allowed Unsecured Claims and Old Common Stock Interests ("Beneficiaries"),
followed by a deemed transfer by the Beneficiaries to the liquidating trust.
The Beneficiaries will be treated as the grantors and deemed owners of the
Estate after the Effective Date and will be taxed on their allocable shares of
the Estate's income and gain in each taxable year, whether or not they receive
any distributions in such year. After the Effective Date, the Litigation Claims
Representative must file tax returns for the Estate as a grantor trust pursuant
to Treasury Regulation ss. 1.671-4(a). The Litigation Claims must be valued
consistently for all federal income tax purposes by the Debtor, the Litigation
Claims Representative, and the Beneficiaries. The Estate will terminate no
later than 5 years after the Effective Date, provided, however, that subject to
the approval of the Bankruptcy Court, the term of the Estate may be extended
for a finite term if such extension is necessary to the liquidating purpose of
the Estate. Each such extension must be approved by the Bankruptcy Court within
6 months of the beginning of the term being extended.
V. CONFIRMATION OF THE PLAN
A. INTRODUCTION
The Bankruptcy Code requires a bankruptcy court to determine
whether a chapter 11 plan of reorganization complies with the technical
requirements of chapter 11 and other applicable provisions of the Bankruptcy
Code. It requires further that a debtor's disclosure concerning such plan has
been adequate and has included information concerning all payments made or
promised by the debtor in connection with the plan.
To confirm the Plan, the Bankruptcy Court must find that all
of these and other requirements have been met. Thus, even if the requisite vote
is achieved for each Class of Impaired Claims and Interests, the Bankruptcy
Court must make independent findings respecting the Plan's conformity with the
requirements of the Bankruptcy Code before it may confirm the Plan. Some of
these statutory requirements are discussed below.
B. VOTING PROCEDURES AND STANDARDS
Only Claims and Interests in Classes that are Impaired under
the Plan (but not deemed to reject the Plan by virtue of receiving no
Distributions thereunder) are entitled to receive this Disclosure Statement and
a Ballot for the acceptance or rejection of the Plan. Any Claim or Interest
holder whose legal, contractual or equitable rights with regard to such Claim or
Interest are altered, modified or changed by the proposed treatment under the
Plan or whose treatment under the Plan is not provided for in section 1124 of
the Bankruptcy Code is considered Impaired.
On November 18, 1999, the Bankruptcy Court issued the Voting
Procedures Order. The procedures for establishing the number, amount and
classification of Claims and Interests that will be used to tabulate acceptances
and rejection of the Plan are set forth in the Voting Procedures Order, which is
annexed hereto as Exhibit "D."
IF A BALLOT IS DAMAGED OR LOST OR IF YOU HAVE ANY QUESTIONS
CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE DEBTOR'S BALLOTING AGENT:
If sent by regular mail, to: If sent by overnight mail, to:
Bankruptcy Services LLC Bankruptcy Services LLC (Paragon Plan
Paragon Plan Voting Center Voting Center)
P.O. Box 5159 70 East 55th Street
FDR Station 6th Floor
New York, NY 10150-5159 New York, New York 10022
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A VOTE MAY BE DISREGARDED IF THE COURT DETERMINES, AFTER
NOTICE AND A HEARING, THAT SUCH ACCEPTANCE OR REJECTION WAS NOT MADE OR
SOLICITED IN GOOD FAITH OR IN ACCORDANCE WITH APPLICABLE PROVISIONS OF THE
BANKRUPTCY CODE.
C. ACCEPTANCE
Acceptance of the Plan need only be solicited from holders of
Impaired Claims or Interests not deemed to reject the Plan by virtue of
receiving no Distributions thereunder. Except in the context of a "cram down,"
as a condition to confirmation of the Plan, the Bankruptcy Code requires that,
with certain exceptions, each Class of Impaired Claims and Interests accepts the
Plan. Pursuant to the Bankruptcy Code, in order for the Plan to be "accepted,"
the requisite vote is required for each Class of Impaired Claims or Interests.
Any Class of Impaired Claims or Interests that fails to achieve the requisite
vote will be deemed to have rejected the Plan. The Proponents intend to seek
acceptances of the Plan from holders of Claims and Interests in Voting Classes,
and to "cram down" the Plan on certain holders of Interests that are deemed to
reject the Plan by virtue of receiving no Distributions thereunder.
The Bankruptcy Code defines acceptance of a plan by an
impaired class of claims as acceptance by holders of at least two-thirds in
dollar amount, and more than one-half in number, of allowed claims of that class
that actually vote. The Bankruptcy Code further defines acceptance by an
impaired class of interests as acceptance by holders of at least two-thirds in
amount of allowed interests of that class that actually vote. Pursuant to the
Bankruptcy Code, in order for the Plan to be "accepted," the requisite vote is
required for each Class of Impaired Claims and Interests entitled to vote on the
Plan. Any Voting Class that fails to achieve the requisite vote will be deemed
to have rejected the Plan.
In the event the requisite vote is not obtained, the
Proponents have the right, assuming that at least one Class of Impaired Claims
or Interests has accepted the Plan, to request confirmation of the Plan pursuant
to section 1129(b) of the Bankruptcy Code. Section 1129(b) permits confirmation
of a plan notwithstanding rejection by one or more classes of impaired claims or
interests if the bankruptcy court finds that the plan does not discriminate
unfairly and is "fair and equitable" with respect to the rejecting class or
classes. This procedure is commonly referred to as a "cram down." For a more
detailed description of the requirements for acceptance of the Plan and of the
criteria for confirmation of the Plan notwithstanding rejection by certain
Impaired Classes, see Sections V.D. and V.D.4. ("Confirmation and Consummation"
and "Cram Down"), below. The Plan is predicated on holders of Claims and
Interests in all Voting Classes voting to accept the Plan. However, if holders
of Claims or Interests in any Voting Classes vote to reject the Plan, the
Proponents intend to request a cram down of such Classes at the Confirmation
Hearing.
D. CONFIRMATION AND CONSUMMATION
At the Confirmation Hearing, the Bankruptcy Court will
determine whether the requirements of section 1129(a) of the Bankruptcy Code
have been satisfied with respect to the Plan. Section 1129(a) of the Bankruptcy
Code requires that, among other things, for a plan to be confirmed:
- The plan satisfies the applicable provisions of the
Bankruptcy Code.
- The proponents of the plan has complied with the applicable
provisions of the Bankruptcy Code.
- The plan has been proposed in good faith and not by any means
forbidden by law.
- Any payment made or to be made by the proponent, by the
debtor, or by a person issuing securities or acquiring
property under the plan, for services or for costs and
expenses in or in connection with the bankruptcy case, or in
connection with the plan and incident to the bankruptcy case,
has been approved by, or is subject to the approval of, the
bankruptcy court as reasonable.
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- The plan proponents have disclosed the identity and
affiliations of any individual proposed to serve, after
confirmation of the plan, as a director, officer, or voting
trustee of the debtor, an affiliate of the debtor
participating in the plan with the debtor, or a successor to
the debtor under the plan. The appointment to, or continuance
in, such office of such individual is consistent with the
interests of creditors and equity security holders and with
public policy and the proponents have disclosed the identity
of any insider that the reorganized debtor will employ or
retain and the nature of any compensation for such insider.
- With respect to each class of impaired claims or interests,
either each holder of a claim or interest in such class has
accepted the plan, or will receive or retain under the plan
on account of such claim or interest, property of a value, as
of the effective date of the plan, that is not less than the
amount that such holder would receive or retain if the debtor
were liquidated on such date under chapter 7 of the
Bankruptcy Code.
- Each class of claims or interests has either accepted the
plan or is not impaired under the plan.
- Except to the extent that the holder of a particular claim
has agreed to a different treatment of such claim, the plan
provides that allowed administrative expenses and priority
claims (other than priority tax claims) will be paid in full
on the effective date and that holders of priority tax claims
will be paid in full in cash on the effective date or receive
on account of such claims deferred cash payments, over a
period not exceeding six (6) years after the date of
assessment of such claims, of a value, as of the effective
date, equal to the allowed amount of such claims.
- If a class of claims is impaired, at least one (1) impaired
class of claims has accepted the plan, determined without
including any acceptance of the plan by any insider holding a
claim in such class.
- Confirmation of the plan is not likely to be followed by the
liquidation, or the need for further financial
reorganization, of the debtor or any successor to the debtor
under the plan, unless such liquidation or reorganization is
proposed in the plan.
Subject to receiving the requisite votes in accordance with
section 1129(a)(8) of the Bankruptcy Code, the Proponents believe that (i) the
Plan satisfies all of the statutory requirements of chapter 11 of the Bankruptcy
Code, (ii) the Debtor has complied or will have complied with all of the
requirements of chapter 11, and (iii) the Plan has been proposed in good faith.
Set forth below is a more detailed summary of the relevant
statutory confirmation requirements.
1. BEST INTERESTS OF HOLDERS OF CLAIMS AND INTERESTS
The "best interests" test requires that a bankruptcy court
find either that all members of each impaired class have accepted the plan or
that each holder of an allowed claim or interest of each impaired class of
claims or interests will receive or retain under the plan on account of such
claim or interest property of a value, as of the effective date of the plan,
that is not less than the amount that such holder would so receive or retain if
the debtor were liquidated under chapter 7 of the Bankruptcy Code on such date.
See the liquidation analysis prepared by the Debtor which is annexed hereto as
Exhibit E and demonstrates that the Plan satisfies the "best interests" test.
To calculate what holders of Claims and Interests would
receive if the Debtor were hypothetically liquidated under chapter 7 of the
Bankruptcy Code, the Bankruptcy Court must first determine the dollar amount
that would be realized from the liquidation (the "Liquidation Fund") of the
Debtor. The Liquidation Fund would consist of the net proceeds from the
disposition of the Debtor's assets (after satisfaction of all valid liens)
augmented by the Cash held
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by the Debtor and recoveries on actions against third parties, if any. The
Liquidation Fund would then be reduced by the costs of the liquidation. The
costs of liquidation under chapter 7 would include the fees and expenses of a
trustee, as well as those of counsel and other professionals that might be
retained by the trustee, selling expenses, any unpaid expenses incurred by the
Debtor during the Chapter 11 Case (such as fees for attorneys, financial
advisors and accountants) which are allowed in the chapter 7 proceeding,
interest expense on any secured debt and Claims incurred by the Debtor during
the pendency of the Chapter 11 Case. These Claims would be paid in full out of
the Liquidation Fund before the balance of the Liquidation Fund would be made
available to holders of unsecured Claims. In addition, other Claims which would
arise upon conversion to a chapter 7 case (e.g., damage Claims for termination
of contracts, including real property leases and executory contracts and the
costs of lengthy litigation related to certain of these Claims) would dilute
the balance of the Liquidation Fund available to holders of unsecured Claims.
Moreover, additional Claims against the Debtor's estate would arise as the
result of the establishment of a new bar date for the Filing of Claims in a
chapter 7 case for the Debtor. In addition, the sale of assets in a chapter 7
liquidation might yield smaller returns than could be realized through the sale
of some of the Debtor's assets and operations on a going-concern basis through
the chapter 11 process. The present value of the distributions out of the
Liquidation Fund (after deducting the amounts described above) are then
compared with the present value of the property offered to each of the Classes
of Claims and Interests under the Plan to determine if the Plan is in the best
interests of each holder of a Claim or Interest.
The Debtor believes that a chapter 7 liquidation of the
Debtor's remaining assets would result in diminution in the value to be realized
under the Plan by holders of Claims and Interests. That belief is based upon,
among other factors: (a) the additional administrative expenses involved in the
appointment of a trustee, attorneys, accountants, and other chapter 7
professionals; (b) the substantial time which would elapse before creditors and
interest holders would receive any distribution in respect of their Claims or
Interests due to a trustee's need to become familiar with the Chapter 11 Case
and the Debtor's books and records, and the duty to conduct his/her own
investigation; (c) the erosion of value of assets that would result in the
context of the expeditious liquidation required under chapter 7 and the "forced
sale" atmosphere that would prevail; and (d) the additional unsecured Claims
that may be asserted against the Debtor as a result of the conversion to a
chapter 7 case.
2. FINANCIAL FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires that
confirmation should not be likely to be followed by the liquidation, or the need
for further financial reorganization, of the Debtor or any successor to the
Debtor unless such liquidation or reorganization is proposed in the plan. For
purposes of determining whether the Plan meets this requirement, the Debtor has
analyzed the financial prospects of Reorganized Paragon both assuming the
Wellspring Stock Purchase Agreement has been consummated and assuming the
Wellspring Stock Purchase has not been consummated as of the Effective Date. As
part of such analyses, the Debtor has prepared financial forecasts of
Reorganized Paragon's cash flow, income and balance sheet under both scenarios
for the fiscal years commencing from the Effective Date through December 2003.
These forecasts, and the significant assumptions on which they are based, are
set forth in Exhibits G (which assumes the Wellspring Stock Purchase Agreement
has been consummated) and H (which assumes such agreement is not consummated)
annexed hereto.
The pro forma financial information and the projections are
based on the assumption that the Bankruptcy Court will confirm the Plan and, for
projection purposes, that the Effective Date under the Plan will occur on
December 26, 1999. Although the projections and information are based upon a
December 26, 1999 Effective Date, the Debtor believes that an actual Effective
Date occurring subsequent to December 26, 1999 would not, for a reasonable
period of time, have any material effect on the projections.
The Debtor has prepared these financial projections based upon
certain assumptions that they believe to be reasonable under the circumstances.
Those assumptions considered to be significant are described in the financial
projections annexed hereto as Exhibits G and H. The financial projections have
not been examined or compiled by
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independent accountants. The Debtor makes no representation as to the accuracy
of the projections or their ability to achieve the projected results. Many of
the assumptions on which the projections are based are subject to significant
uncertainties. Inevitably, some assumptions will not materialize and
unanticipated events and circumstances may affect the actual financial results.
Therefore, the actual results achieved throughout the projection period may
vary from the projected results and the variations may be material. All holders
of Claims and Interests that are entitled to vote to accept or reject the Plan
are urged to examine carefully all of the assumptions on which the financial
projections are based in evaluating the Plan.
Based on such forecasts, the Debtor believes that Reorganized
Paragon is not likely to liquidate or need further financial reorganization.
Thus, the Plan satisfies section 1129(a)(11) of the Bankruptcy Code.
3. ACCEPTANCE BY IMPAIRED CLASSES
A class is "impaired" under a plan unless, with respect to
each claim or interest of such class, the plan: (i) leaves unaltered the legal,
equitable and contractual rights to which the claim or interest entitles the
holder of such claim or interest; or (ii) notwithstanding any contractual
provision or applicable law which entitles the holder of such claim or interest
to demand or receive accelerated payment on account of a default, cures any
default, reinstates the original maturity of the obligation, compensates the
holder for any damages incurred as a result of reasonable reliance on such
provision or law and does not otherwise alter the legal, equitable or
contractual rights of such holder based upon such claim or interest. A class
that is not impaired under a plan of reorganization is deemed to have accepted
the plan and, therefore, solicitation of acceptances with respect to such class
is not required.
4. CRAM DOWN
The Bankruptcy Code contains provisions for confirmation of a
plan even if the plan is not accepted by all impaired classes, as long as at
least one impaired class of claims has accepted the plan. The "cram down"
provisions of the Bankruptcy Code are set forth in section 1129(b) of the
Bankruptcy Code. Under the "cram down" provisions, upon the request of a plan
proponent, the bankruptcy court will confirm a plan despite the lack of
acceptance by an impaired class or classes if the bankruptcy court finds that
(i) the plan does not discriminate unfairly with respect to each non-accepting
impaired class, (ii) the plan is fair and equitable with respect to each
non-accepting impaired class, and (iii) at least one impaired class has accepted
the plan. These standards ensure that holders of junior interests, such as
common stockholders, cannot retain any interest in the debtor under a plan of
reorganization that has been rejected by a senior class of impaired claims or
interests unless such impaired claims or interests are paid in full.
As used by the Bankruptcy Code, the phrases "discriminate
unfairly" and "fair and equitable" have narrow and specific meanings unique to
bankruptcy law. A plan does not discriminate unfairly if claims or interests in
different classes but with similar priorities and characteristics receive or
retain property of similar value under a plan. By establishing separate Classes
for the holders of each type of Claim and Interest and by treating each holder
of a Claim or Interest in each Class identically, the Plan has been structured
so as to meet the "unfair discrimination" test of section 1129(b) of the
Bankruptcy Code.
The Bankruptcy Code sets forth different standards for
establishing that a plan is "fair and equitable" with respect to a dissenting
class, depending on whether the class is comprised of secured or unsecured
claims or interests. In general, section 1129(b) of the Bankruptcy Code permits
confirmation notwithstanding non-acceptance by an impaired class if that class
and all junior classes are treated in accordance with the "absolute priority"
rule, which requires that the dissenting class be paid in full before a junior
class may receive anything under the plan. In addition, case law surrounding
section 1129(b) requires that no class senior to a non-accepting impaired class
receives more than payment in full on its claim.
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With respect to a Class of unsecured Claims that does not
accept the Plan, the Proponents must demonstrate to the Bankruptcy Court that
either (i) each holder of an unsecured Claim of the dissenting Class receives or
retains under such Plan property of a value equal to the allowed amount of its
unsecured Claim, or (ii) the holders of Claims or holders of Interests that are
junior to the Claims of the holders of such unsecured Claims will not receive or
retain any property under the Plan. Additionally, the Proponents must
demonstrate that the holders of Claims that are senior to the Claims of the
dissenting Class of unsecured Claims receive no more than payment in full on
their Claims under the Plan.
With respect to any holder of a secured Claim that does not
accept the Plan, the Proponents must demonstrate to the Bankruptcy Court that
one of the following conditions is satisfied: (i) such holder retains the lien
securing such secured Claim to the extent of the allowed amount of such secured
Claim, and that such holder receives on account of such secured Claim Cash
having a present value as of the Effective Date of the Plan, equal to the value
of such holder's interest in the Estate's interest in the property subject to
such lien; (ii) the Plan provides for the sale, subject to section 363(k) of the
Bankruptcy Code, of the assets subject to the lien securing such holder's Claim,
free and clear of such liens, with such liens to attach to the proceeds of such
sale; or (iii) the Plan provides for the realization by such holder of the
indubitable equivalent of such secured Claim.
If all the applicable requirements for confirmation of the
Plan are met as set forth in sections 1129(a)(1) through (13) of the Bankruptcy
Code, except that one or more of Classes of Impaired Claims or Interests have
failed to accept the Plan pursuant to section 1129(a)(8) of the Bankruptcy Code,
the Proponents reserve the right to request that the Bankruptcy Court confirm
the Plan in accordance with section 1129(b) of the Bankruptcy Code. The
Proponents believe that the Plan satisfies the "cram down" requirements of the
Bankruptcy Code. The Proponents may seek confirmation of the Plan over the
objection of dissenting Classes, as well as over the objection of individual
holders of Claims who are members of an accepting Class. In addition, the
Proponents intend to seek "cram down" on Classes deemed to reject the Plan
pursuant to section 1126(g) of the Bankruptcy Code by virtue of receiving no
Distributions under the Plan. However, there can be no assurance that the
Bankruptcy Court will determine that the Plan meets the requirements of section
1129(b) of the Bankruptcy Code.
5. CLASSIFICATION OF CLAIMS AND INTERESTS
The Proponents believe that the Plan meets the classification
requirements of the Bankruptcy Code which require that a plan of reorganization
place each claim or interest into a class with other claims or interests which
are "substantially similar."
VI. CONTINUED EXISTENCE OF THE DEBTOR
A. REORGANIZED PARAGON
Paragon will continue to exist as Reorganized Paragon after
the Effective Date, with all the powers of the corporation under applicable law.
The certificate of incorporation and by-laws of Reorganized Paragon will
prohibit the issuance of non-voting stock to the extent required by section
1123(a) of the Bankruptcy Code. After the Effective Date, Reorganized Paragon
may amend or modify its certificate of incorporation and by-laws in any manner
consistent with the Plan, as permitted under applicable law and/or such
certificate of incorporation and by-laws.
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B. VALUE OF REORGANIZED PARAGON, AND THE NEW COMMON STOCK, NEW
NOTES AND WARRANTS TO BE ISSUED UNDER THE PLAN
Pursuant to the Plan, in the event the Wellspring Stock
Purchase Agreement is consummated, Reorganized Paragon will issue a single class
of 11,891,000 shares of New Common Stock, the New Notes and the Warrants, to be
distributed as prescribed by the Plan. The form of New Common Stock, the form of
New Note and the form of Warrant will be filed with the Bankruptcy Court at
least ten (10) calendar days before the Confirmation Hearing. In connection with
the Plan, Rights to participate in the Wellspring Rights Offering will also be
available to holders of Allowed Unsecured Claims and, potentially, Allowed Old
Common Stock Interests. If the Wellspring Stock Purchase Agreement is not
consummated, Reorganized Paragon will issue a single class of 13,566,574 shares
of New Common Stock and the Warrants.
Blackstone's estimate (assuming the Wellspring Stock Purchase
Agreement is consummated) of the enterprise value of Reorganized Paragon is
included in Exhibit G annexed hereto. Blackstone's estimate (assuming the
Wellspring Stock Purchase Agreement is not consummated) of the enterprise value
of Reorganized Paragon is included in Exhibit H annexed hereto.
ESTIMATES OF VALUE DO NOT PURPORT TO BE APPRAISALS NOR DO THEY
NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED IF ASSETS ARE SOLD. THE
ESTIMATES OF VALUE REPRESENT HYPOTHETICAL ENTERPRISE VALUES ASSUMING THE
OCCURRENCE OF THE EFFECTIVE DATE AND IMPLEMENTATION OF MANAGEMENT'S BUSINESS
PLAN AS WELL AS OTHER SIGNIFICANT ASSUMPTIONS, INCLUDING ASSUMPTIONS REGARDING
THE ECONOMIC OUTLOOK OF THE VARIOUS DOMESTIC AND INTERNATIONAL MARKETS IN WHICH
THE COMPANY OPERATES. SUCH ASSUMPTIONS WERE DEVELOPED SOLELY FOR PURPOSE OF
FORMULATING AND NEGOTIATING A PLAN OF REORGANIZATION AND ANALYZING THE PROJECTED
RECOVERIES THEREUNDER. THE VALUATIONS SET FORTH HEREIN REPRESENT ESTIMATED
REORGANIZATION VALUES AND DO NOT NECESSARILY REFLECT VALUES THAT COULD BE
ATTAINABLE IN PUBLIC OR PRIVATE MARKETS. THE EQUITY AND REORGANIZATION DEBT
VALUES ASCRIBED IN THE ANALYSIS DO NOT PURPORT TO BE AN ESTIMATE OF THE
POST-REORGANIZATION MARKET VALUE. SUCH TRADING VALUES, IF ANY, MAY BE MATERIALLY
DIFFERENT FROM THE VALUE RANGES ASSOCIATED WITH THE VALUATION ANALYSIS.
VII. CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTOR SHOULD
READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER
INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED
TOGETHER HEREWITH AND/OR INCORPORATED HEREIN BY REFERENCE), PRIOR TO VOTING TO
ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED
AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS
IMPLEMENTATION.
A. THE WELLSPRING STOCK PURCHASE AGREEMENT
There can be no assurance that the Wellspring Stock Purchase
Agreement will be consummated. The Wellspring Stock Purchase Agreement will
contain specified conditions to closing on the part of both the Debtor and
Wellspring and there can be no assurance that the parties will be able to
satisfy such conditions. In the event that the Wellspring Stock Purchase
Agreement is not consummated, holders of Allowed Claims and Allowed Interests
still will be
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entitled to receive the Distributions provided for under the Plan in such
circumstance, provided the conditions to the Effective Date set forth in the
Plan are satisfied or waived.
B. INDUSTRY CONDITIONS AND FINANCIAL CONDITION OF REORGANIZED
PARAGON
There can be no assurance that the industry conditions under
which Reorganized Paragon will operate will enable it to achieve the sales
revenues or the operating cash flows which the Debtor has relied upon to project
Reorganized Paragon's future business prospects.
If the Wellspring Stock Purchase Agreement is consummated, on
or about the Effective Date, Reorganized Paragon will issue New Notes with a
principal amount equal to the New Notes Amount. In such event, there can be no
assurance that the operating cash flow of Reorganized Paragon, after giving
effect to operating requirements, will be adequate to fully fund the payment of
interest under its post-confirmation indebtedness, beyond the expiration of the
two year period during which Paragon has the ability to pay interest in kind if
Paragon does not meet its projected levels of cash flow, when due as well as all
capital expenditures contemplated in the Debtor's cash-flow projections.
As part of the license agreements entered into in connection
with Paragon's settlements with P&G and K-C, Paragon has incurred and will incur
significant added costs in the form of running royalties payable to both parties
for sales of licensed diaper and training pant products. Although Paragon
believes the royalty rates being charged by P&G and K-C pursuant to their
respective license agreements are approximately the same royalties that will be
paid by Paragon's major store-brand competitors for similar rights, these
royalties have had, and will continue to have, a material adverse impact on
Paragon's future financial condition and results of operations. Although these
royalty costs are expected to be partially offset by raw materials cost savings
related to the conversion to a dual-cuff design, overall raw materials costs are
expected to increase. Paragon's gross margins, and consequently its operating
results, are significantly impacted by product design changes and raw material
prices, especially the price of fluff pulp, which can fluctuate dramatically.
In addition, as part of the K-C Settlement Agreement, as
discussed in Section III.I, above, Paragon has experienced certain product
performance issues that Paragon believes may have impacted volume for the first
half of 1999. Paragon also is encountering increased product costs due to
product design costs associated with Paragon's hook and loop closure product and
the increased price and usage of the new SAP discussed in Section III.I above.
While Paragon is working diligently with its SAP supplier to develop a more
cost-effective alternative, Paragon cannot predict at this time whether or when
the added costs, as well as increased promotional and marketing spending, will
be fully offset. Paragon expects that these increased costs will have a material
adverse impact on its financial condition and results of operations for at least
fiscal year 1999 and possibly beyond.
Paragon announced in the fourth quarter of 1998 that it would
implement a price increase of 5 percent. Paragon has achieved only a portion of
this increase due to continued competitive pressures. A significant part of this
price increase is required to offset the increased costs of certain of Paragon's
infant care product designs. Additional price increases are needed to fully
offset the added royalty cost to be incurred by Paragon pursuant to the P&G and
K-C settlements described above. Should Paragon not be able to realize these
price increases, its margins are expected to continue to be negatively impacted.
Given the slow start up of the feminine care and adult
incontinence business, which was exacerbated by Paragon's chapter 11 filing, and
given the resulting feminine care and adult incontinence losses, Paragon's
ability to recover its investment in such business is highly uncertain.
Paragon's ability to recover its investment is dependent upon a prompt emergence
from chapter 11 and the successful execution of Paragon's current feminine care
and adult incontinence business plan.
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There can be no assurance that the financial resources
available under the Plan will be sufficient to fund the capital expenditures
which management believes are necessary to keep Reorganized Paragon competitive
and enable it to be sufficiently profitable to service its debt and achieve its
financial projections.
The pendency of the Chapter 11 Case has negatively affected
the operations of the Debtor and its results of operations, and adverse effects
of the Chapter 11 Case may affect future periods as well.
The Debtor expects that any post-confirmation working capital
facility will be secured by all or substantially all the assets of Reorganized
Paragon and will contain restrictive financial and operating covenants and
prohibitions, including provisions which will limit Reorganized Paragon's
ability to make capital expenditures, international investments and pay cash
dividends and make other distributions to holders of New Common Stock.
Restrictions on capital investment are expected to be more restrictive if
Reorganized Paragon's cash flow and profitability are lower than projected and
less restrictive if they are higher than projected. There may be further capital
expenditure restrictions if certain agreed-upon financial tests are not met.
There can be no assurance that Reorganized Paragon will be
able to achieve or maintain the financial projections set forth in the Revised
Business Plan or any financial performance tests expected to be contained in any
post-confirmation working capital facility. Failure to meet such financial tests
or other covenants would result in a default thereunder. If any such default
were not remedied within the applicable grace period, if any, the lenders under
a working capital facility might be entitled to declare the amounts outstanding
thereunder due and payable, accelerate the payment of all such amounts and
foreclose upon all of the tangible and intangible assets of Reorganized Paragon
in which they have a security interest.
Paragon's gross margins are significantly impacted by product
designs, machine conversions and raw material prices, especially the price of
fluff pulp which can fluctuate dramatically. Paragon's operating results
benefited from favorable fluff pulp market prices in 1998 and may be adversely
affected by increases in raw material prices, primarily fluff pulp, in 1999.
There can be no assurance that Reorganized Paragon's
performance and its ability to satisfy its debt service obligations will not be
adversely affected by one or a combination of the above or other factors.
C. COMPETITION
The Debtor's industry is highly competitive. The Debtor
competes with a number of national and regional distributors, particularly P&G
and K-C. The Debtor also competes with smaller manufacturers of diapers and
similar products. Many of the Debtor's major competitors, in particular P&G and
K-C, have greater financial resources than the Debtor and have used those
resources to take steps which have already adversely affected and could in the
future adversely affect the Debtor's competitive position and financial
performance. In recent years, pricing pressure has been created by (i) price
decreases by the national brands, (ii) the introduction of new store brand
competitors, and (iii) a shift of sales volume in the diaper industry to mass
merchants which sell diapers in multi-packs containing as many as four times the
amount of diapers contained in, and are priced at ten to fifteen percent below
the per diaper prices of, standard convenience packaging. This trend may lead to
continued price competition between store brand manufacturers such as Paragon
and national branded manufacturers such as P&G and K-C. Because of the emphasis
on product innovations in the infant care and feminine care and adult
incontinence markets, patents and other intellectual property rights are an
important competitive factor. The national branded manufacturers have vigorously
sought to enforce their patent rights. Patents held by P&G and K-C could
severely limit Paragon's ability to keep up with innovations introduced by P&G
and K-C by prohibiting Paragon from introducing products with comparable
features. While in recent years Paragon has been able to introduce product
enhancements comparable to those introduced by the national branded
manufacturers, there can be no assurance that Paragon will be able to continue
to introduce such product innovations at the pace required to remain
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competitive with the national branded manufacturers. Producing comparable
products could adversely affect Paragon's gross margins, particularly in light
of the significant royalty costs Paragon must pay under the P&G and K-C
licenses described herein. To the extent that Paragon is unable to introduce
comparable products due to patent issues, it could experience a decline in net
sales and net earnings.
Customer service is another area where the national brands are
able to compete. Paragon believes that each of the national branded
manufacturers has an order-delivery cycle that may be somewhat shorter than
Paragon's order-delivery cycle. In addition, the national branded manufacturers
devote substantially greater financial resources than Paragon to providing trade
customers with category expertise, customized promotional campaigns and market
support. The national branded manufacturers have sophisticated electronic data
interchange systems that interface directly with their customers' product
information systems. In 1998, Paragon successfully implemented a process
improvement and information technology upgrading project to further enhance its
customer service capabilities.
In addition, if the Wellspring Stock Purchase Agreement is not
consummated, under the Plan, unless P&G and K-C sell their claims or
distributions under the Plan, P&G and K-C will receive approximately 66% of the
New Common Stock of Reorganized Paragon. It is not possible to predict how P&G
and/or K-C would vote those shares, nor how their ownership of such shares will
affect the ability of the other holders of New Common Stock to buy and sell
shares of New Common Stock. Moreover, if the Wellspring Stock Purchase Agreement
is consummated, Wellspring will receive between 65-98.5% of the New Common
Stock. It is not possible to predict how Wellspring would vote those shares, nor
how its ownership of such shares will affect the ability of any holders of New
Common Stock that received such shares under the Wellspring Rights Offering to
buy and sell shares of New Common Stock.
D. BANKRUPTCY RISKS
1. OBJECTION TO CLASSIFICATIONS
Section 1122 of the Bankruptcy Code provides that a plan may
place a claim or an interest in a particular class only if such claim or
interest is substantially similar to the other claims or interests of such
class. The Proponents believe that the classification of Claims and Interests
under the Plan complies with the requirements set forth in the Bankruptcy Code.
However, there can be no assurance that the Bankruptcy Court would reach the
same conclusion.
2. RISK OF NONCONFIRMATION OF THE PLAN
Even if all Voting Classes accept the Plan, the Plan might not
be confirmed by the Bankruptcy Court. Section 1129 of the Bankruptcy Code sets
forth the requirements for confirmation and requires, among other things, that
the confirmation of a plan of reorganization is not likely to be followed by the
liquidation or the need for further financial reorganization of the debtor, and
that the value of distributions to dissenting creditors and equity security
holders not be less than the value of distributions such creditors and equity
security holders would receive if the debtor were liquidated under chapter 7 of
the Bankruptcy Code. The Proponents believe that the Plan satisfies all the
requirements for confirmation of a plan of reorganization under the Bankruptcy
Code. There can be no assurance, however, that the Court would also conclude
that the requirements for confirmation of the Plan have been satisfied. See
Article V ("Confirmation of the Plan"), above.
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3. POTENTIAL EFFECT OF BANKRUPTCY ON CERTAIN
RELATIONSHIPS
The effect, if any, which the Chapter 11 Case may have upon
the operations of Reorganized Paragon cannot be accurately predicted or
quantified. The Debtor believes the Chapter 11 Case and consummation of the Plan
will have a minimal future effect on relationships with its customers, employees
and suppliers. If confirmation and consummation of the Plan do not occur
expeditiously, the Chapter 11 Case could adversely affect the Debtor's
relationships with its customers, suppliers and employees, resulting in a
material adverse impact on the operations of the Debtor and Reorganized Paragon.
Moreover, even an expedited Chapter 11 Case could have a detrimental impact on
future sales and patronage due to the possibility that the Chapter 11 Case may
have created a negative image of the Debtor in the eyes of its customers.
E. NO ASSURANCE THAT A PUBLIC MARKET FOR THE SECURITIES WILL
DEVELOP
There currently is no public market for the New Common Stock,
the New Notes, the Rights or the Warrants, and the Debtor cannot predict the
extent to which investor interest in Reorganized Paragon will lead to the
development of a trading market for the New Common Stock, the New Notes, the
Rights or the Warrants or how liquid that market might become. The Rights will
not be listed on any stock exchange, Nasdaq or other public trading market, and
Paragon cannot predict whether the New Common Stock, the New Notes or the
Warrants will be so listed or, if listed, whether Reorganized Paragon will be
able to satisfy the applicable listing criteria to remain listed on an ongoing
basis in the future. Paragon therefore can give no assurance as to the liquidity
of any market that may develop for the New Common Stock, the New Notes, the
Rights or the Warrants.
F. UNCERTAINTY OF AND FLUCTUATIONS IN TRADING PRICES
Because there currently is no public market for the New Common
Stock, the New Notes, the Rights or the Warrants, the prices at which these
securities trade in any public market that may develop cannot be predicted and
will not necessarily be related to Reorganized Paragon's book value, net worth
or any other established criteria of value. Furthermore, Reorganized Paragon's
financial results and the trading prices of the New Common Stock, the New Notes,
the Rights and the Warrants may fluctuate substantially in the future. These
fluctuations may be caused by several factors, including pricing competition for
Reorganized Paragon's products and Reorganized Paragon's ability to make sales.
Other factors which may cause significant price fluctuations include Reorganized
Paragon's actual or anticipated operating results and growth rates, changes in
analysts' estimates, competitors' announcements, regulatory actions,
availability for future sale of significant amounts of Reorganized Paragon's
securities, industry conditions and general economic conditions. Further, the
stock market has experienced extreme price and volume volatility that have often
been unrelated or disproportionate to the operating performance of particular
companies. Events such as those described above can lead to significant
fluctuations in the trading prices of the New Common Stock, the Notes, the
Rights and the Warrants, and the trading prices may from time to time be below
investors' expectations.
G. LIQUIDITY RISKS -- RESTRICTIONS ON TRANSFER
Holders of New Common Stock, New Notes, and/or Warrants who
are deemed to be "underwriters" as defined in subsection 1145(b) of the
Bankruptcy Code, or who are otherwise deemed to be "affiliates" of Reorganized
Paragon within the meaning of Rule 144 of the Securities and Exchange Commission
will be unable to offer or sell their New Common Stock, New Notes and/or
Warrants after the Effective Date, except pursuant to an available exemption
from registration under the Securities Act and under equivalent state securities
or "blue sky" laws.
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H. RISK THAT DISTRIBUTIONS WILL BE LESS THAN ESTIMATED BY THE
DEBTOR
To the extent that Administrative Claims, Secured Claims,
Priority Non-Tax Claims, Priority Tax Claims, Fee Claims or other Claims
entitled to be paid in Cash in full under the Plan materially exceed the
Debtor's estimates, this would have a negative impact on (a) in the event that
the Wellspring Stock Purchase Agreement is consummated, the principal amount of
the New Notes to be issued under the Plan, and (b) in the event that the
Wellspring Stock Purchase Agreement is not consummated, the value of the New
Common Stock, and thereby adversely impact creditors' recoveries. In addition,
the principal amount of the New Notes to be issued in the event that the
Wellspring Stock Purchase Agreement is consummated also may be impacted if the
Debtor performs below projections between the date hereof and the Effective
Date.
The Debtor reserves the right to object to the amount or
classification of any Claim or Interest. Thus, the estimates set forth in this
Disclosure Statement cannot be relied upon by any creditor whose Claim or
Interest is subject to a successful objection. Any holder of such a Claim or
Interest may not receive the estimated Distributions set forth herein.
A SUBSTANTIAL AMOUNT OF TIME MAY ELAPSE BETWEEN THE EFFECTIVE
DATE AND THE RECEIPT OF A FINAL DISTRIBUTION UNDER THE PLAN, BECAUSE: (I) THE
VARIOUS CLASSES OF CLAIMS, AS WELL AS THE CATEGORIES OF ADMINISTRATIVE AND
PRIORITY TAX CLAIMS, MAY HAVE SUBSTANTIAL AND/OR COMPLICATED DISPUTED CLAIMS;
AND (II) THE DEBTOR'S ESTIMATE OF ALLOWABLE CLAIMS COULD BE CONTESTED AT AN
ESTIMATION HEARING. FURTHER, ANY DISTRIBUTION MADE IN RESPECT OF ALLOWED CLAIMS
IN CLASS 3A ON THE INITIAL DISTRIBUTION DATE MAY BE SIGNIFICANTLY LESS THAN THE
ULTIMATE DISTRIBUTION TO BE RECEIVED BY THE HOLDER OF SUCH CLAIM OVER TIME ON
PERIODIC DISTRIBUTION DATES AND THE FINAL DISTRIBUTION DATE.
On or before the Confirmation Date, the Debtor will seek one
or more Estimation Orders establishing the aggregate amount of Claims and
Interests that would be allowable in each Class, based on the Estimated Claims
Schedule. Such Estimation Order(s) will set the maximum allowable aggregate
amount of Claims and Interests in each Class for purposes of Distributions under
the Plan. There can be no assurance that the estimates in the Estimated Claims
Schedule will prove accurate. In addition, if and to the extent the Debtor has
underestimated the amount of Allowed Claims or Disputed Claims reserves for
Administrative, Priority Non-Tax Claims or Priority Tax Claims, Reorganized
Paragon could be required to redirect assets to such disputed claims reserves
from other reserves, resulting in a potential dilution of assets available for
other Distributions. Moreover, Distributions could vary significantly and
materially, depending on the ultimate amount of Allowed Claims made under the
Plan.
I. LITIGATION RISKS
The Debtor does not believe there are any litigation risks
which would significantly or materially impact upon the Plan other than with
respect to the allowance or disallowance of Claims and Interests.
J. ENVIRONMENTAL REGULATION ISSUES
Paragon is subject to federal, state, local and foreign laws,
regulations and ordinances that (i) govern activities or operations that may
have adverse environmental effects, such as discharges to air and water as well
as handling and disposal practices for solid and hazardous wastes or (ii) impose
liability for the costs of cleaning up, and certain damages resulting from sites
of past spills and disposals or other releases of hazardous substances
(together, "Environmental Laws").
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Paragon uses certain substances and generates certain wastes
that are regulated by or may be deemed hazardous under applicable Environmental
Laws. Paragon believes that it currently conducts its operations, and in the
past has conducted its operations, in substantial compliance with applicable
Environmental Laws. From time to time, however, Paragon's operations have
resulted or may result in certain noncompliance with applicable requirements.
Paragon believes, however, that it will not incur compliance or cleanup costs
pursuant to applicable Environmental Laws that would have a material effect on
Paragon's results of operations or financial condition.
Paragon monitors Environmental Laws and regulations, as well
as pending legislation, in each of the markets in which its products are sold. A
number of states have passed or are considering legislation intended to
discourage the use of disposable products, including disposable diapers, or to
encourage the use of nondisposable or recyclable products. Paragon does not
believe that any such laws currently in effect will have a material adverse
effect on its results of operations or financial condition.
VIII. SECURITIES LAW MATTERS
THE ISSUANCE OF NEW COMMON STOCK, NEW NOTES, RIGHTS AND
WARRANTS IN CONNECTION WITH THE PLAN RAISES CERTAIN SECURITIES LAW ISSUES UNDER
THE BANKRUPTCY CODE AND FEDERAL AND STATE SECURITIES LAWS WHICH ARE DISCUSSED IN
THIS SECTION. THE INFORMATION CONTAINED IN THIS SECTION SHOULD NOT BE CONSIDERED
APPLICABLE TO ALL SITUATIONS OR ALL CREDITORS OR INTEREST HOLDERS RECEIVING NEW
COMMON STOCK, NEW NOTES, RIGHTS OR WARRANTS, AS THE CASE MAY BE, UNDER THE PLAN.
CREDITORS AND INTEREST HOLDERS SHOULD CONSULT THEIR OWN LEGAL COUNSEL CONCERNING
THE FACTS AND CIRCUMSTANCES WITH RESPECT TO THE TRANSFER OF NEW COMMON STOCK,
NEW NOTES, RIGHTS AND WARRANTS IN EACH PARTICULAR CASE.
A. INITIAL ISSUANCE OF NEW COMMON STOCK, NEW NOTES, RIGHTS AND
WARRANTS UNDER THE PLAN
Section 1145 of the Bankruptcy Code provides that the
securities registration requirements of federal and state securities laws do not
apply to the offer or sale of stock, warrants or other securities by a debtor if
the offer or sale occurs under a plan of reorganization and the securities are
transferred in exchange (or principally in exchange) for a claim against or
interest in a debtor. The Debtor believes that the initial issuance of New
Common Stock, New Notes, and Warrants to creditors and Interest holders will be
exempt from the registration requirements of federal and state securities laws
under section 1145 of the Bankruptcy Code. Wellspring has acknowledged that the
issuance of New Common Stock to Wellspring under the Plan is not exempt from
registration requirements under section 1145 of the Bankruptcy Code.
The Debtor also believes that the distribution of the Rights
under the Plan to holders of Class 3A Claims in accordance with the Wellspring
Rights Offering Procedures satisfies the requirements of section 1145 of the
Bankruptcy Code for an exemption from registration. The Securities and Exchange
Commission has provided "no action" relief with respect to the "principally in
exchange" requirement of section 1145 when the value of the claims being
surrendered by the creditor exceeded the amount of cash or other property being
contributed by the creditor in exchange for securities. The Debtor believes that
the section 1145 exemption applies in part because (a) the relative value of the
claims is greater than the cash required to be tendered for purchase of the New
Common Stock included in the Rights, and (b) the Rights are part of a
distribution package consisting of Cash, New Notes, and the Rights (i.e., the
right to receive New Common Stock in lieu of a portion of the Cash that
otherwise would be distributed to holders of Allowed Class 3A Claims) being
issued in exchange for Allowed Class 3A Claims, and therefore are not being used
as a means to avoid securities registration requirements applicable when raising
new capital (indeed, the capital is committed already by Wellspring, and,
assuming they are exercised, the Rights merely replace the source of the
committed capital).
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With respect to the distribution of Rights to holders of Old
Common Stock Interests, to the extent not exercised by the holders of Class 3A
Claims in accordance with the Wellspring Rights Offering Procedures, the Debtor
has been informed by the Equity Committee that the Equity Committee believes
that such offer and sale of the Rights to holders of Old Common Stock Interests
(the "Shareholder Rights") also satisfies the requirements of section 1145 of
the Bankruptcy Code and therefore are exempt from registration. The Equity
Committee believes that the requirements of section 1145 of the Bankruptcy Code
are satisfied because the holders of Old Common Stock Interests will be
exchanging their Interests for an aggregate distribution under the Plan that
includes their Pro Rata Share of the Interest Holders' New Common Stock Amount,
the Warrants, the Shareholder Rights and any Litigation Proceeds allocable to
them under the Plan. Further, the purpose of the Shareholder Rights is not to
avoid registration requirements in raising new capital (indeed, the capital is
committed already by Wellspring, and, assuming they are exercised, the
Shareholder Rights merely replace the source of the committed capital).
Notwithstanding the foregoing, the Equity Committee has agreed and informed the
Debtor that, to the extent that the Bankruptcy Court determines at the
Confirmation Hearing that the Shareholder Rights are not exempt from
registration under section 1145 of the Bankruptcy Code, the offering with
respect to the Shareholder Rights shall be automatically rescinded, the
Shareholder Rights shall be deemed canceled and of no further force or effect,
and any monies received by the Debtor in connection with the offering shall be
promptly returned to the holders of Old Common Stock Interests that exercised
the Shareholder Rights.
B. RESALE OF SECURITIES
Any creditor or Interest holder who is not an "underwriter"
under section 1145 of the Bankruptcy Code and is not an "affiliate" of
Reorganized Paragon under Rule 144 of the Securities and Exchange Commission may
resell New Common Stock or New Notes or Warrants received under the Plan without
registering such sale under the Securities Act of 1933, as amended (the
"Securities Act"). Such Persons also may resell Rights received under the Plan
without registering such sale, provided the Rights may only be sold to
"qualified institutional buyers" as such term is defined in Rule 144A of the
Securities and Exchange Commission.
To the extent that creditors and Interest holders who are
deemed "underwriters" or "affiliates" receive securities pursuant to the Plan,
resale by such persons would not be exempted by section 1145 of the Bankruptcy
Code from the registration requirements of the Securities Act. Given the
complex, subjective nature of the question of whether a particular holder may be
an "underwriter" or an "affiliate," the Debtor makes no representations
concerning the right of any person to trade in New Common Stock or New Notes or
Warrants. THE DEBTOR RECOMMENDS THAT POTENTIAL RECIPIENTS OF NEW COMMON STOCK,
NEW NOTES, RIGHTS AND/OR WARRANTS CONSULT THEIR OWN COUNSEL CONCERNING WHETHER
THEY MAY FREELY TRADE SUCH SECURITIES.
The term "underwriter," as used in section 1145 of the
Bankruptcy Code, includes four categories of persons: "issuers,"
"accumulators," "distributors" and "syndicators."
Issuers. The term "issuer" for purposes of section 1145 of the
Bankruptcy Code includes any person directly or indirectly controlling or
controlled by the debtor, as the case may be, or any person under direct or
indirect common control with the debtor. Whether a person is an "issuer," and
therefore an "underwriter," for purposes of section 1145(b) of the Bankruptcy
Code, depends on a number of factors. These include: (i) the person's equity
interest in a reorganized debtor; (ii) the distribution and concentration of
other equity interests in a reorganized debtor; (iii) whether the person, either
alone or acting in concert with others, has a contractual or other relationship
giving that person power over management policies and decisions of a reorganized
debtor; and (iv) whether the person actually has such power notwithstanding the
absence of formal indicia of control. The legislative history of section 1145 of
the Bankruptcy Code suggests that a creditor with at least 20% of the securities
of a company could be deemed a controlling person.
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Accumulators and Distributors. "Accumulators" are persons who
purchase claims against a debtor with a view to distribution of any securities
to be received under a plan in exchange for such claims. "Distributors" are
persons who offer to sell securities issued under a plan for the holders of such
securities. In prior bankruptcy cases, the staff of the Securities and Exchange
Commission has taken the position that resales by accumulators and distributors
of securities distributed under a plan are exempt from the registration
requirements of the Securities Act if made in "ordinary trading transactions."
Syndicators. "Syndicators" are persons who offer to buy
securities for distribution, under an agreement made in connection with the
plan, with consummation of the plan or in connection with the offer or sale of
such securities under the plan.
An "affiliate," as used in SEC Rule 144, is a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, an issuer. Factors which
determine whether a person is an "affiliate" under Rule 144 are similar to those
factors discussed above which determine whether a person is an "underwriter" for
purposes of section 1145(b) of the Bankruptcy Code. Affiliates may resell
securities only in accordance with the current public information, volume,
manner of sale and other applicable conditions of Rule 144.
Section 4(3) of the Securities Act may exempt transactions in
New Common Stock or New Notes or Warrants issued to creditors or Interest
holders under the Plan by "dealers" taking place more than 40 days after the
Effective Date. "Dealers" are persons who engage either for all or part of their
time, directly or indirectly, as agents, brokers or principals, in the business
of offering, buying, selling or otherwise dealing or trading in securities.
Within the 40 day period after the Effective Date, transactions by dealers who
are stockbrokers may be exempt from the Securities Act pursuant to section
1145(a)(4) of the Bankruptcy Code, as long as the stockbrokers deliver a copy of
this Disclosure Statement (and supplements hereto, if any, as ordered by the
Court) at or before the time of the transactions.
IX. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
consequences of the Plan to Paragon and to holders of Impaired Claims and
Interests. The analysis contained herein is based upon the Internal Revenue Code
of 1986, as amended ("Tax Code"), the regulations of the Department of the
Treasury ("Treasury Regulations") promulgated and proposed thereunder, judicial
decisions, and published administrative rulings and pronouncements of the
Internal Revenue Service ("IRS") as in effect on the date hereof. Legislative,
judicial, or administrative changes or interpretations hereafter enacted or
promulgated could alter the analysis and conclusions set forth below. Any such
changes or interpretations may be retroactive and could affect significantly the
federal income tax consequences discussed below. This summary does not address
foreign, state or local or other tax law, or any estate or gift tax consequences
of the Plan, nor does it purport to address the federal income tax consequences
of the Plan to special classes of taxpayers (such as taxpayers who are not U.S.
domestic corporations or citizens or residents of the United States, S
corporations, banks, mutual funds, insurance companies, financial institutions,
regulated investment companies, broker-dealers and tax-exempt organizations).
THE TAX CONSEQUENCES TO HOLDERS OF CLAIMS AND INTERESTS MAY
VARY BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH HOLDER. MOREOVER, THE TAX
CONSEQUENCES OF CERTAIN ASPECTS OF THE PLAN ARE UNCERTAIN DUE TO THE LACK OF
APPLICABLE LEGAL PRECEDENT AND THE POSSIBILITY OF CHANGES IN THE APPLICABLE TAX
LAW. NO RULING HAS BEEN APPLIED FOR OR OBTAINED FROM THE IRS WITH RESPECT TO ANY
OF THE TAX ASPECTS OF THE PLAN AND NO OPINION OF COUNSEL HAS BEEN REQUESTED,
OBTAINED BY OR DELIVERED WITH RESPECT THERETO. THIS DISCUSSION DOES NOT
CONSTITUTE TAX ADVICE OR AN OPINION (TAX OR OTHERWISE) CONCERNING THE MATTERS
DESCRIBED. THERE CAN BE NO ASSURANCE THAT THE IRS WILL NOT CHALLENGE ANY OR ALL
OF THE TAX CONSEQUENCES DESCRIBED HEREIN, OR THAT SUCH
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A CHALLENGE, IF ASSERTED, WOULD NOT BE SUSTAINED. ACCORDINGLY, EACH HOLDER OF A
CLAIM OR INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF THE
PLAN.
A. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTOR
Cancellation of Indebtedness Income. When a debtor exchanges
property for its own debt obligation, and the fair market value of such property
is less than the amount of the debt, the debtor recognizes cancellation of
indebtedness ("COI") income in the amount by which the amount of the debt
exceeds the value of such property.
Holders of certain Claims may under the Plan receive from the
Debtor in exchange for their Claims property worth less than the value of such
Claims. In that event, the Debtor would have COI income in an amount equal to
the amount by which the amount of the debt exceeds the value of such property.
However, no COI income is realized from the discharge of
indebtedness the payment of which would have given rise to a deduction. A
material amount of the debt of Paragon that will be canceled pursuant to the
Plan is debt owed to K-C and P&G, the payment of which would give rise to a
deduction. Thus, the debt owed to K-C and P&G that will be canceled pursuant to
the Plan should not give rise to COI income. It is possible that the IRS will
view the creation of the debt owed to K-C and P&G and its subsequent
cancellation as an integrated transaction, not creating a genuine indebtedness
to K-C and P&G other than an indebtedness for the amounts actually distributed
to them under the Plan. Under this alternative theory the effect to Paragon is
the same: no COI income and a deduction equal to the amount for which K-C and
P&G exchange their shares.
Any COI income that may arise as a result of the Plan will,
however, be excluded from the Debtor's gross income under the bankruptcy
exception to the COI income rules. Under the bankruptcy exception, all COI
income that arises while the Debtor is in bankruptcy will be excluded from gross
income.
To the extent COI income is excluded from gross income under
the bankruptcy exception, the Debtor must reduce certain "tax attributes." Given
the Debtor's tax attributes, the ordering rules contained in the Tax Code for
reducing tax attributes would require that the Debtor reduce its basis in its
property by the amount of such excluded COI income.
Deduction of Original Issue Discount. It is possible that the
New Notes will be issued with Original Issue Discount ("OID"). See Original
Issue Discount, below. If so, such Original Issue Discount will generally be
deductible to the Debtor.
B. FEDERAL INCOME TAX TREATMENT OF THE POST REORGANIZATION ESTATE
Pursuant to the Plan, the Estate would continue to exist
following consummation of the Plan (the "post-Reorganization Estate") and would
retain the right to prosecute certain claims. For federal income tax purposes,
the Debtor would take the position that the continuation of the Estate amounts
to the creation of a liquidating trust, as defined in Treasury Regulation ss.
301.7701-4(d), and the deemed transfer to such liquidating trust of certain
claims. The Debtor intends to treat the claims retained by the
post-Reorganization Estate as if such claims were transferred to the Allowed
Unsecured Creditors and the holders of Old Common Stock Interests
("Beneficiaries"), who are the beneficiaries of the post-Reorganization Estate,
followed by a deemed transfer by the Beneficiaries to the post-Reorganization
Estate. Except as provided hereto, the post-Reorganization Estate would turn
over any Litigation Proceeds to Reorganized Paragon, which will distribute them
in accordance with the Plan. The Debtor believes that the post-Reorganization
Estate would qualify as a liquidating trust, as defined in Treasury Regulation
section 301.7701-4(d), and would therefore be taxed as a grantor trust, of which
the Beneficiaries would be treated as the grantors and deemed owners of the
post-Reorganization
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Estate. The Debtor intends to so treat the post-Reorganization Estate. Thus, no
tax would be imposed on the post-Reorganization Estate itself on the income
earned or gained recognized by the post-Reorganization Estate. Instead, the
Beneficiaries would be taxed on their allocable shares of such income and gain
in each taxable year, whether or not they received any distributions from the
post-Reorganization Estate in such taxable year. The Beneficiaries, the Debtor,
and any person controlling the post-Reorganization Estate will consistently
value for all federal income tax purposes all property deemed transferred to the
post-Reorganization Estate.
It is possible, however, that the IRS could require a
different characterization of the post-Reorganization Estate and/or the
Beneficiaries. For example, the IRS may attempt to recharacterize the
post-Reorganization Estate as a complex trust under Tax Code section 641. A
complex trust generally is subject to tax on income received, less deductions
allowed for its expenses and for distributions that it makes to
creditor-beneficiaries up to the amount of its distributable net income ("DNI"),
as defined in Tax Code section 643(a). The post-Reorganization Estate would be
taxed on any current DNI not distributed to the Beneficiaries, and such holders
would be taxed on income currently distributed to them by the
post-Reorganization Estate (up to the amount of their proportionate share of the
post-Reorganization Estate's DNI for that year).
Alternatively, the IRS may attempt to characterize the
post-Reorganization Estate as a Qualified Settlement Fund ("QSF") pursuant to
Treasury Regulations under Tax Code section 468B(g) (the "QSF Regulations"). The
QSF Regulations generally do not apply to trusts that are established to satisfy
claims of general trade creditors and debt holders in a bankruptcy case. The QSF
Regulations, however, do apply to a trust which is established to satisfy
liabilities which arise out of a tort, breach of contract, or violation of law
or are otherwise designated by the IRS. Thus, if the IRS asserted that Allowed
Unsecured Claims arose from such causes (e.g., the fraudulent sale of securities
or other obligations), the post-Reorganization Estate could be treated as a QSF.
If the post-Reorganization Estate were treated as a QSF, it would be treated as
a separate taxable entity subject to federal income tax at the maximum tax rate
applicable to trusts (currently 39.6%). Amounts transferred to the QSF to
resolve or satisfy a liability for which the QSF was established are not
included in gross income of the QSF. Pursuant to the foregoing, if the
post-Reorganization Estate were treated as a QSF, the beneficiaries could
receive decreased distributions.
Alternatively, the IRS might attempt to treat the claims
retained by the post-Reorganization Estate as retained by Reorganized Paragon,
in which event recoveries, through settlement or otherwise, might be taxed to
the Reorganized Paragon. Even were the IRS to prevail with this argument, it is
possible that, given the nature of the particular claims, recoveries might be
excludable from the income of the Reorganized Paragon.
If the IRS successfully asserts one of these alternative
treatments, the taxation of the post-Reorganization Estate and the transfer of
assets by the Debtor to the post-Reorganization Estate could be materially
different than that described in the first paragraph hereof. This could have a
material adverse effect on the Beneficiaries.
In the event the post-Reorganization Estate receives
Litigation Proceeds, the Litigation Claims Representative shall, in lieu of
immediately distributing all such amounts, retain as a reserve an amount
sufficient to pay the tax liability that would result from the receipt of such
amounts if they were deemed received by Reorganized Paragon or the
post-Reorganization Estate did not qualify as a liquidating trust. The
Litigation Claims Representative thereafter shall promptly apply for a ruling
from the Internal Revenue Service that the Estate will qualify as a liquidating
trust and that the receipt of Litigation Proceeds by the Estate will not result
in the recognition of taxable income by Reorganized Paragon or the Estate. If
such ruling is secured, the reserved amounts shall be promptly distributed. If
such ruling is not secured, the Litigation Claims Representative shall use its
reasonable best efforts to secure from counsel experienced in such matters an
opinion reasonably satisfactory to Reorganized Paragon and the Litigation Claims
Representative that (i) the post-Reorganization Estate will qualify as a
liquidating trust or (ii) the receipt of Litigation Proceeds by the
post-Reorganization Estate will not generate taxable income for Reorganized
Paragon or the post-Reorganization Estate. If neither the ruling nor the opinion
can be secured, Reorganized Paragon shall be entitled to receive or, if
applicable, the
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post-Reorganization Estate shall retain, such amounts as are necessary to pay
the tax liability associated with the Litigation Claims; and any excess amounts
shall be distributed to the Beneficiaries as promptly as is reasonable under
the circumstances.
C. FEDERAL INCOME TAX CONSEQUENCES TO CLAIMS AND INTEREST HOLDERS
1. GENERALLY
The federal income tax consequences of the Plan to a holder of
a Claim will depend upon several factors, including but not limited to: (i)
whether the Claim (or portion thereof) constitutes a Claim for principal or
interest; (ii) the type of consideration received by the holder in exchange for
the Claim; (iii) whether the holder is a resident of the United States for tax
purposes (or falls into any of the special classes of taxpayers excluded from
this discussion as noted above); (iv) whether the holder has taken a bad debt
deduction or worthless security deduction with respect to his/her Claim, and (v)
whether the holder receives distributions under the Plan in more than one
taxable year. CREDITORS ARE STRONGLY ADVISED TO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE TAX TREATMENT UNDER THE PLAN OF THEIR PARTICULAR CLAIMS.
2. CLAIMS HOLDERS RECEIVING ONLY CASH OR CERTAIN OTHER
PROPERTY
Holders that receive solely Cash or property other than New
Common Stock or New Notes or Warrants in exchange for their Claims will
generally recognize taxable gain or loss in an amount equal to the difference
between the amount realized and each such holder's adjusted tax basis in its
Claim. The amount realized will equal the amount of Cash and fair market value
of such other property received, to the extent that such consideration is not
allocable to any portion of the Claim representing accrued and unpaid interest.
See "Receipt of Interest," below.
The character of any recognized gain or loss (i.e., ordinary
income, or short-term or long-term capital gain or loss) will depend upon the
status of the holder, the nature of the Claim in the holder's hands, the purpose
and circumstances of its acquisition, the holder's holding period in the Claim,
and the extent to which the holder previously claimed a deduction for the
worthlessness of all or a portion of the Claim.
A loss generally is treated as sustained in the taxable year
for which there has been a closed and completed transaction, and no portion of a
loss with respect to which there is a reasonable prospect of reimbursement may
be deducted until it can be ascertained with reasonable certainty whether such
reimbursement will be recovered.
Holders should consult with their own tax advisors as to the
matters discussed in this section concerning, inter alia, character and timing
of recognition of gain or loss. Because a loss will be allowed as a deduction
only for the taxable year in which the loss was sustained, a holder that claims
a loss in the wrong taxable year risks denial of such loss entirely. In the case
of certain categories of Claims, consideration should be given to the possible
availability of a bad debt deduction under section 166 of the Tax Code for a
period prior to the Effective Date. In addition, a portion of any distributions
received after the Effective Date may be taxed as ordinary income under the
imputed interest rules.
3. CLAIMS HOLDERS RECEIVING CASH AND NEW NOTES
If the Wellspring Stock Purchase Agreement is consummated and
holders of Allowed Unsecured Claims therefore receive Cash and New Notes, their
federal income tax consequences will depend in large part on whether the
exchange of their Claims for such consideration will be treated, in part, as a
"recapitalization" within the meaning of section 368(a)(1)(E) of the Tax Code.
In any event, however, a holder of an Allowed Unsecured Claim should be treated
as receiving a distribution, and therefore having income, for its proportionate
share of the fair market value of the assets that, for federal income tax
purposes, are deemed contributed at the Effective Date from the Debtor to the
post-
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Reorganized Estate. Such holder should also recognize its proportionate
share of the income and deductions of the post-Reorganization Estate.
If the exchanges contemplated by the Plan are made pursuant to
a recapitalization, then an exchanging holder generally will not recognize any
gain or loss for federal income tax purposes (except to the extent of "boot" and
any consideration attributable to accrued but unpaid interest). See "Receipt of
Interest," below. If the exchange is not made pursuant to a recapitalization,
then an exchanging holder will recognize gain or loss in full on such exchange.
This discussion assumes that each such holder holds its Claim, and will hold any
New Notes received under the Plan, as "capital assets" within the meaning of
section 1221 of the Tax Code.
In order for an exchange contemplated by the Plan to
constitute a tax-free recapitalization, the Claim exchanged must qualify as a
"security" for federal income tax purposes, and the holder must receive
securities in the exchange. The term "security" is not defined in the Tax Code
or the regulations issued thereunder, and has not been clearly defined by court
decisions. In general, a debt instrument constitutes a "security" if it
represents a participating, continuing interest in the issuer, rather than
merely the right to a cash payment. Thus, the term of the debt instrument is
usually regarded as a significant factor in determining whether it is a
security. The IRS has ruled that a debt instrument with a maturity of ten years
or more is treated as a security. However, under the case law, debt instruments
with maturities ranging between five and ten years are often held to be
securities. Instruments with a term of five-years or less rarely qualify as tax
securities. Further, claims arising out of the extension of trade credit or
litigation generally will not constitute tax securities. Nevertheless, because
individual circumstances may differ significantly, holders should consult their
own tax advisors.
If an exchange of an Allowed Unsecured Claim is treated as a
recapitalization within the meaning of section 368(a)(1)(E) of the Tax Code, the
federal income tax consequences to a holder of such a Claim would be as follows:
i. Subject to the discussion below with respect to
accrued but unpaid interest, a holder would not recognize
loss on the exchange, but would recognize gain to the extent
of the lesser of (a) the amount of gain realized in the
exchange and (b) the amount of Cash received. The amount of
gain realized, if any, would be equal to the excess of (a)
the sum of the fair market value of the property received
over (b) the holder's adjusted tax basis in its Claim.
ii. Any such gain recognized on the exchange would
constitute capital gain, and such capital gain would qualify
as long-term capital gain if such holder held the Claim for
more than one year as of the Effective Date.
iii. Except for the consideration treated as
received in exchange for accrued but unpaid interest: (A) a
holder should have an aggregate tax basis in the New Notes
equal to such holder's adjusted tax basis in the Claims
exchanged therefor, reduced by the amount of any cash
received and increased by any gain recognized on the
exchange, and (B) the holding period in the New Notes should
include the holding period in the Claims exchanged therefor.
iv. A Creditor receiving Cash in lieu of fractional
shares will be treated as having received New Common Stock
and having exchanged it for Cash in a transaction which would
be a transaction subject to section 302 of the Tax Code and
related provisions. Any such exchange should generally result
in capital gain or loss measured by the difference between
the cash received for the fractional or de minimis interest
and the holder's adjusted tax basis for such interest.
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Alternatively, if the exchange by a holder of an Allowed
Unsecured Claim constitutes a taxable exchange under section 1001 of the Tax
Code, then the federal income tax consequences to the holder of such a Claim
would be as follows:
i. Subject to the discussion below as to accrued but
unpaid interest, a holder would recognize gain or loss on the
exchange in an amount equal to the difference between (A) the
sum of the issue price of the New Notes and the amount of the
Cash received as of the Effective Date and (B) such holder's
adjusted tax basis in its Claim.
ii. Any such gain or loss should constitute capital
gain or loss, and such capital gain or loss should qualify as
long-term capital gain or loss if such holder held its Claim
for more than one year as of the Effective Date.
A holder's tax basis in the New Notes would be equal to the
issue price of the New Notes as of the Effective Date. The holding period of the
New Common Stock would begin on the day immediately following the Effective
Date.
The maximum regular individual United States federal income
tax rate on capital gains is 20% for property held for more than one year.
Capital gains on the sale of property held for one year or less are subject to
United States federal income tax at ordinary income rates.
Original Issue Discount In New Notes. A New Note will be
considered for federal income tax purposes to be issued with original issue
discount ("OID") if its "stated redemption price at maturity" exceeds its "issue
price" by more than a de minimis amount (.25% of the stated redemption price at
maturity multiplied by the number of complete years from the issue date to the
maturity date). The stated redemption price at maturity is the aggregate of all
payments due under the note at or before the note's maturity date, other than
"qualified stated interest." Qualified stated interest is interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at fixed intervals of one year or less during the entire term of the
note at certain specified rates.
The "issue price" of the New Notes depends in part on whether
the New Notes are "publicly-traded." The New Notes will be treated as
publicly-traded if, at any time during the 60-day period ending 30 days after
the issue date, a substantial amount of the notes are traded on an established
market, as defined in the Treasury Regulations. If a substantial amount of the
New Notes are so traded on an established market, the issue price of a New Note
will be the fair market value of such notes as of the issue date.
If a substantial amount of the New Notes are not traded on an
established market, the issue price for each New Note will be its stated
principal amount if the New Notes provide for adequate stated interest;
otherwise it will be its imputed principal amount. The New Notes will generally
have adequate stated interest if the interest is payable at a rate at least
equal to the appropriate applicable federal rate, published by the IRS. The
imputed principal amount is also determined based on the applicable federal
rate. Therefore, we cannot predict with certainty whether there will be adequate
stated interest (although there would be adequate stated interest if the
applicable federal rate in effect today were used) and what the imputed
principal amount would be.
If the New Notes are issued with OID, holders of the notes
will be required to accrue interest income on the notes. The amount of OID
income allocable to an accrual period will be an amount equal to the excess, if
any, of (a) the product of the New Note's "adjusted issue price" at the
beginning of such accrual period and its yield-to-maturity over (b) the sum of
any qualified stated interest on the New Note allocable to the accrual period.
The "adjusted issue price" of the New Notes at the start of any accrual period
will equal its issue price increased by the accrued OID for each prior accrual
period and reduced by any prior payments with respect to such notes that were
not qualified interest payments.
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Amortizable Bond Premium. If your adjusted tax basis in a New
Note exceeds the note's stated redemption price at maturity, then such note will
not be treated as issued with OID and such excess will be "amortizable bond
premium." If you make (or have made) a timely election under section 171 of the
Tax Code, you may amortize the bond premium on a constant yield basis by off
setting the interest income from the note. Your adjusted tax basis must be
reduced by the amount of the amortization deductions allocable to the bond
premium. An election under section 171 of the Tax Code applies to all debt
instruments held or subsequently acquired by you and may not be revoked without
the permission of the IRS.
Bad Debt Deduction. If you receive property in the exchanges
in exchange for a note with respect to which you have claimed a bad debt
deduction, any gain that you recognize on the subsequent disposition of the
property will be treated as ordinary income to the extent of any such bad debt
deduction. Gain in excess of the amount so treated as ordinary income will be
capital gain if the property received in the exchanges is a capital asset in
your hands.
4. CLAIMS HOLDERS RECEIVING STOCK AND CASH
If the Wellspring Stock Purchase Agreement is not consummated
and the holders of Allowed Unsecured Claims therefore receive New Common Stock
and possibly cash, their federal income tax consequences will depend in large
part on whether the exchange of their Claims for such consideration will be
treated, in part, as a "recapitalization" within the meaning of section
368(a)(1)(E) of the Tax Code. In any event, however, a holder of an Allowed
Unsecured Claim should be treated as receiving a distribution, and therefore
having income, for its proportionate share of the fair market value of the
assets that, for federal income tax purposes, are deemed contributed at the
Effective Date from the Debtor to the post-Reorganized Estate. Such holder
should also recognize its proportionate share of the income and deductions of
the post-Reorganization Estate.
If the exchanges contemplated by the Plan are made pursuant to
a recapitalization, then an exchanging holder generally will not recognize any
gain or loss for federal income tax purposes (except to the extent of "boot" and
any consideration attributable to accrued but unpaid interest). See "Receipt of
Interest," below. If the exchange is not made pursuant to a recapitalization,
then an exchanging holder will recognize gain or loss on such exchange. This
discussion assumes that each such holder holds its Claim, and will hold any New
Common Stock received under the Plan, as "capital assets" within the meaning of
section 1221 of the Tax Code.
In order for an exchange contemplated by the Plan to
constitute a tax-free recapitalization, the Claim exchanged must qualify as a
"security" for federal income tax purposes, and the holder must receive stock or
securities in the exchange. The term "security" is not defined in the Tax Code
or the regulations issued thereunder, and has not been clearly defined by court
decisions. In general, a debt instrument constitutes a "security" if it
represents a participating, continuing interest in the issuer, rather than
merely the right to a cash payment. Thus, the term of the debt instrument is
usually regarded as a significant factor in determining whether it is a
security. The IRS has ruled that a debt instrument with a maturity of ten years
or more is treated as a security. However, under the case law, debt instruments
with maturities ranging between five and ten years are often held to be
securities. Instruments with a term of five-years or less rarely qualify as tax
securities. Further, claims arising out of the extension of trade credit or
litigation generally will not constitute tax securities. Nevertheless, because
individual circumstances may differ significantly, holders should consult their
own tax advisors.
If an exchange of an Allowed Unsecured Claim is treated as a
recapitalization within the meaning of section 368(a)(1)(E) of the Tax Code, the
federal income tax consequences to a holder of such a Claim would be as follows:
i. Subject to the discussion below with respect to
accrued but unpaid interest, a holder would not recognize
loss on the exchange, but would recognize gain to the extent
of the lesser of (a) the
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amount of gain realized in the exchange and (b) the fair
market value of the Cash received. The amount of gain
realized, if any, would be equal to the excess of (a) the sum
of the fair market value of the property received over (b)
the holder's adjusted tax basis in its Claim.
ii. Any such gain recognized on the exchange would
constitute capital gain, and such capital gain would qualify
as long-term capital gain if the holder held the Claim for
more than one year as of the Effective Date.
iii. Except for the consideration treated as
received in exchange for accrued but unpaid interest: (A) a
holder should have an aggregate tax basis in the New Common
Stock equal to such holder's adjusted tax basis in the Claims
exchanged therefor, reduced by the amount of any boot
received and increased by any gain recognized on the
exchange, and (B) the holding period in the New Common Stock
should include the holding period in the Claims exchanged
therefor.
iv. A Creditor receiving Cash in lieu of fractional
shares or de minimis interest will be treated as having
received New Common Stock and having exchanged it for Cash in
a transaction which would be a transaction subject to section
302 of the Tax Code and related provisions. Any such exchange
should generally result in capital gain or loss measured by
the difference between the cash received for the fractional
or de minimis interest and the holder's adjusted tax basis
for such interest.
v. Alternatively, if the exchange by a holder of
an Allowed Unsecured Claim constitutes a taxable exchange
under section 1001 of the Tax Code, then the federal income
tax consequences to the holder of such a Claim would be as
follows:
vi. Subject to the discussion below as to accrued
but unpaid interest, a holder would recognize gain or loss on
the exchange in an amount equal to the difference between (A)
the sum of the fair market value of the New Common Stock and
boot as of the Effective Date and (B) such holder's adjusted
tax basis in its Claim.
vii. Any such gain or loss should constitute capital
gain or loss, and such capital gain or loss should qualify as
long-term capital gain or loss if such holder held its Claim
for more than one year as of the Effective Date.
viii. A holder's tax basis in the New Common Stock
would be equal to the fair market value of the New Common
Stock as of the Effective Date. The holding period of the New
Common Stock would begin on the day immediately following the
Effective Date.
The maximum regular individual United States federal income
tax rate on capital gains is 20% for property held for more than one year.
Capital gains on the sale of property held for one year or less are subject to
United States federal income tax at ordinary income rates.
5. INTEREST HOLDERS RECEIVING WARRANTS AND CASH
The holders of Old Common Stock, who will receive New Common
Stock and Warrants and who may receive Cash, will be treated as exchanging their
interests in a "recapitalization" within the meaning of section 368(a)(1)(E) of
the Tax Code.
Generally, such a holder will not recognize any gain or loss
for federal income tax purposes except to the extent of the Cash received
pursuant to the Plan. Such holder's aggregate tax basis in the New Common Stock
and Warrants will equal such holder's adjusted tax basis in the Old Common Stock
exchanged therefor, reduced by the
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amount of any boot received and increased by any gain recognized on the
exchange. Such holder's holding period of the New Common Stock and Warrants
should include the holding period of the Old Common Stock exchanged therefor.
A holder receiving Cash in lieu of fractional shares or de
minimis interest will be treated as having received New Common Stock and
Warrants and having exchanged it for Cash in a transaction which would be a
transaction subject to section 302 of the Tax Code and related provisions. Any
such exchange should generally result in capital gain or loss measured by the
difference between the Cash received for the fractional or de minimis interest
and the holder's adjusted tax basis for such interest.
The maximum regular individual United States federal income
tax rate on capital gains is 20% for property held for more than one year.
Capital gains on the sale of property held for one year or less are subject to
United States federal income tax at ordinary income rates.
A holder of an Old Common Stock Interest should be treated as
receiving a distribution, and therefore having income, for its proportionate
share of the fair market value of the assets that, for federal income tax
purposes, are deemed contributed at the Effective Date from the Debtor to the
post-Reorganized Estate. Such holder should also recognize its proportionate
share of income and deductions of the post-Reorganization Estate.
6. WELLSPRING RIGHTS OFFERING
In the event a holder of a Claim elects to purchase New Common
Stock pursuant to the Wellspring Rights Offering, and such holder uses cash to
which it is entitled under the Plan to finance such purchase, such holder will
be treated for U.S. federal income tax purposes as if it had first received such
cash and then used such cash to purchase such New Common Stock.
7. RECEIPT OF INTEREST
The amount of a holder's Claim is the sum of the holder's
Claim for principal and prepetition interest. The Plan does not distinguish
between a holder's Claim for principal and for prepetition interest. Paragon
intends to take the position that, for federal income tax purposes, a ratable
portion of the consideration given to any holder is for accrued prepetition
interest. Accordingly, a portion of the consideration received by a holder in
satisfaction of a Claim may be allocated to the portion of such Claim (if any)
that represents accrued but unpaid interest. Any portion of the distribution
allocated to accrued interest would be taxable to the creditor as interest
income, except to the extent the creditor has previously reported such interest
as income.
In the event that a creditor has previously reported the
interest income, only the balance of the distribution after the allocation of
proceeds to accrued interest would be considered received by the creditor in
respect of the principal amount of the Claim. Such an allocation would reduce
the amount of the gain, or increase the amount of loss, realized by the creditor
with respect to the Claim. If such loss were a capital loss, it would not offset
any amount of the distribution that was treated as ordinary interest income
(except, in the case of individuals, to the limited extent that capital losses
may be deducted against ordinary income).
To the extent that any portion of the distribution is treated
as interest, creditors may be required to provide certain tax information in
order to avoid the withholding of taxes. CLAIMS HOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX TREATMENT OF CONSIDERATION
RECEIVED IN SATISFACTION OF THEIR CLAIMS.
THIS ARTICLE IX IS INTENDED TO BE ONLY A SUMMARY OF CERTAIN OF
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN, AND IS NOT A SUBSTITUTE
FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE FEDERAL INCOME TAX
CONSEQUENCES OF
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THE PLAN WHICH ARE DESCRIBED HEREIN AND THE STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PLAN WHICH ARE NOT ADDRESSED HEREIN, ARE COMPLEX AND, IN
SOME CASES, UNCERTAIN. SUCH CONSEQUENCES MAY ALSO VARY BASED ON THE INDIVIDUAL
CIRCUMSTANCES OF EACH HOLDER. ACCORDINGLY, EACH HOLDER IS STRONGLY URGED TO
CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE PLAN.
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X. CONCLUSION
The Debtor urges holders of Impaired Claims and Interests in
Voting Classes to vote to accept the Plan and to evidence such acceptance by
returning their Ballots by the specified deadline.
Dated: Norcross, Georgia
November 15, 1999
PARAGON TRADE BRANDS, INC.
By: /s/ Alan J. Cyron
---------------------------------------
Name: Alan J. Cyron
Title: Chief Financial Officer
<PAGE> 102
EXHIBIT B
CURRENT MEMBERS OF THE
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
PNC BANK, NA
Thomas McCool
WACHOVIA BANK OF GEORGIA
John T. Seeds, Chairman of the Creditors' Committee
William Darby
Charles Battle
Brantley Echols
THE CHASE MANHATTAN BANK, N.A.
Craig Moore
Kevin Kelley
BANK OF NOVA SCOTIA
Alex Clarke
Norm Gillespie
WEYERHAEUSER COMPANY
Steve Jack
INTERNATIONAL PAPER COMPANY
Jim Walczak
POLYMER GROUP
Phillip Bryson
<PAGE> 103
EXHIBIT C
CURRENT MEMBERS OF THE
OFFICIAL COMMITTEE OF EQUITY SECURITY HOLDERS
LONESTAR PARTNERS, L.P.
Jerome Simon
ROBIN E. WINSLOW AND ALISON L. WINSLOW, JT. TEN.
Robin Winslow, Chairman of the Equity Committee
YOUSSEF TISHBI
Youssef Tishbi
MATTHEW S. METCALFE
Matthew S. Metcalfe
FRANK E. WILLIAMS, JR.
Frank E. Williams, Jr.
<PAGE> 104
EXHIBIT D
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Debtor. ) JUDGE MURPHY
)
- -----------------------------------------------------
ORDER ESTABLISHING VOTING PROCEDURES, APPROVING FORMS
OF BALLOTS, APPROVING RETENTION OF BALLOTING AGENT AND
ESTABLISHING AND APPROVING CERTAIN RIGHTS OFFERING
PROCEDURES, NOTICES AND FORMS
Upon the joint motion, dated October 28, 1999 (the "Motion"), of the
above-captioned debtor and debtor in possession ("Paragon" or the "Debtor") and
the Official Committee of Unsecured Creditors (the "Creditors' Committee")
appointed in this case, for an order pursuant to Sections 105, 363, 1125 and
1126 of Title 11 of the United States Code (the "Bankruptcy Code"), as
supplemented by Rules 3017, 3018 and 3020 of the Federal Rules of Bankruptcy
Procedure (the "Bankruptcy Rules"), among other things: (a) establishing rules
and standards for tabulating votes for and against the "First Amended Plan of
Reorganization," dated October 15, 1999 (as may be further amended and restated
from time to time, the "Plan"); (b) approving the forms of ballots related
thereto; (c) approving the employment and retention of Bankruptcy Services LLC
("BSI") as balloting agent in this case; and (d) establishing and approving
certain rights offering procedures, notices and forms; and upon the affidavit of
service filed in connection with the Motion; and no objections to the Motion
having been filed; and after consideration of the Motion, the record of the
hearing on the Motion held on November 18, 1999 (the "Hearing"), and the full
record of this case; and after due deliberation and sufficient cause appearing
therefor, it is hereby
FOUND THAT:
a. Due and sufficient notice of the Motion has been provided; and
b. The relief requested in the Motion is in the best interests of
Paragon's estate, creditors and other parties in interests; and it is therefore
ORDERED, ADJUDGED AND DECREED THAT:
1. The Motion is granted.
2. For purposes of voting, the amount and classification of a
claim that will be used to tabulate acceptances and rejections of the Plan shall
be exclusively as follows:
<PAGE> 105
A. If a proof of claim has not been timely filed (i.e., was not
filed by the deadline set by the Court for the filing of a
claim of that type), the amount of a claim shall be equal to
the amount listed, if any, in respect of such claim in
Paragon's Schedules of Assets and Liabilities filed with the
Court on or about March 3, 1998 and amended March 30, 1998 and
April 17, 1998 (as such schedules have been or may be amended
from time to time, the "Schedules"), to the extent such claim
is not listed as contingent, unliquidated, undetermined or
disputed (subject to any applicable limitations set forth
below). Such claim shall be placed in the appropriate Plan
class based upon Paragon's records and the classification
scheme set forth in the Plan.
B. If a proof of claim has been timely filed for a liquidated,
non-contingent claim, and has not been objected to at least
five days prior to the end of the voting period with respect
to the Plan, the amount and classification shall be that
specified in such proof of claim as reflected in the records
of the Clerk of the Court (the "Clerk"), subject to any
applicable limitations set forth below.
C. A claim recorded in the Schedules or in the Clerk's records as
disputed or which, according to the Clerk's records, was not
timely filed (i.e., was filed after the deadline set by the
Court for the filing of a claim of that type) and is not
subject to the provisions of Paragraph (A) above, shall be
provisionally disallowed for voting purposes.
D. A claim which is the subject of an objection filed at least
five days prior to the end of the voting period with respect
to the Plan shall be provisionally disallowed for voting
purposes, except to the extent and in the manner that: (i)
Paragon indicates the claim should be allowed in Paragon's
objection to such claim; (ii) such claim may be temporarily
allowed for voting purposes in accordance with Bankruptcy Rule
3018; or (iii) the Court otherwise orders.
E. If a claim has been estimated or otherwise allowed for voting
purposes by order of the Court, the amount and classification
shall be that set by the Court.
F. A claim recorded in the Schedules or in the Clerk's records as
wholly unliquidated, contingent and/or undetermined shall be
accorded one vote and valued at one dollar for purposes of
Section 1126(c) of the Bankruptcy Code, unless: (i) the claim
is disputed as set forth in subparagraph (D) above, in which
case such claim shall be provisionally disallowed for voting
purposes subject to the provisions set forth in subparagraph
(D) above; or (ii) the holder of such claim files with the
Court and serves a request for temporary allowance of such
claim in a greater amount for voting purposes,
-2-
<PAGE> 106
in which case the provisions set forth in paragraphs 3 through
9 of this Order shall apply.
G. If a claim is recorded in the Schedules or in the Clerk's
records as unliquidated, contingent and/or undetermined in
part, the holder of the claim shall be entitled to vote that
portion of the claim that is liquidated, non-contingent and
undisputed in the liquidated, non-contingent and undisputed
amount, subject to any limitations set forth herein and unless
otherwise ordered by this Court.
H. Where a claim is proposed to be settled or allowed by
operation of the Plan, the amount of the claim for voting
purposes shall be equal to the proposed allowed amount. If the
proposed settlement or allowance is not approved, the holder
of such claim shall be deemed to have rejected the Plan
(unless such holder elects otherwise) and such claim shall be
counted for voting purposes in an amount to be determined by
the Court.
I. Creditors shall not be entitled to vote claims to the extent
such claims duplicate or have been superseded by other claims
filed by or on behalf of such creditors.
J. If the relevant proof of claim does not indicate the
appropriate classification of a claim, and such classification
cannot be determined from the Schedules, such claim shall be
treated as a general unsecured claim.
K. In counting interests voted for acceptance or rejection of the
Plan, pursuant to Section 1126(d) of the Bankruptcy Code, a
class of interests shall be deemed to have accepted the Plan
if the Plan has been accepted by holders of such interests
that hold at least two-thirds in amount of allowed interests
of such class held by holders of such interests, other than
any entity designated under Section 1126(e) of the Bankruptcy
Code, that have accepted or rejected the Plan. The record date
for determining the holders of record for interests entitled
to vote on the Plan shall be November 1, 1999.
3. The Proponents or their authorized agent shall serve holders
of claims recorded as wholly unliquidated, contingent and/or undetermined with a
notice substantially in the form of the notice annexed to the Motion as Exhibit
F setting forth the procedures and deadlines specific to their claims, by first
class mail, no later than November 24, 1999.
4. Any holder of a wholly unliquidated, contingent or
undetermined claim wishing to have its claim allowed for voting purposes in an
amount greater than one dollar must file a motion (a "Claimant's Voting Motion")
for a hearing on the estimation of such claim with this Court within ten days of
service of the notice described above.
-3-
<PAGE> 107
5. Each Claimant's Voting Motion must: (a) set forth with
particularity the amount and classification at which such claimant believes its
claim should be allowed for voting purposes, and the evidence in support of that
belief; and (b) be served on: (i) Willkie Farr & Gallagher, special
reorganization counsel for Paragon, 787 Seventh Avenue, New York, New York
10019, Attention: Myron Trepper, Esq. and Paul Shalhoub, Esq., and (ii) counsel
to the Official Committee of Paragon's Unsecured Creditors, O'Melveny & Myers
LLP, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
Attention: Joel Zweibel, Esq. and Adam Harris, Esq. (collectively, the "Notice
Entities"), so as to be received by those parties on or before the date of the
filing of such motion.
6. In the event the Proponents subsequently file a motion
objecting to such claim for voting purposes, the Claimant's Voting Motion shall
be consolidated with the Proponents' motion.
7. January 5, 2000 at 10:00 a.m., shall be set as the date and
time for a hearing on any estimation motion that is timely filed and served
pursuant to paragraphs 4 and 5 of this Order (the "Estimation Hearing Date").
8. With respect to any such motions, if this Court has not
temporarily or otherwise allowed all or a portion of a claim that is otherwise
provisionally disallowed for voting purposes, pursuant to Bankruptcy Rule
3018(a), on or before the Estimation Hearing Date, that claim shall not be
counted for voting purposes.
9. In the event that a claimant reaches an agreement with the
Proponents as to the treatment of its claim, a stipulation setting forth that
agreement may be presented to the Court for approval by notice of proposed
stipulation and order, with presentment upon three (3) business days' notice to
the Notice Entities.
10. The following rules and standards shall apply to all ballots:
A. For the purpose of voting on the Plan, BSI, as balloting
agent, shall be deemed to be in constructive receipt of any
ballot timely delivered to any address that BSI (or its
authorized agent) designates for receipt of ballots cast in
connection with the Plan;
B. Any ballot postmarked prior to the deadline for submission of
ballots but received afterward shall not be counted, unless
(a) such ballot was faxed to BSI prior to the deadline for
submission of ballots and the original of such ballot (along
with confirmation of timely facsimile transmission) is
received by BSI within three (3) calendar days of the
balloting deadline, or (b) otherwise ordered by the Court;
C. Pursuant to Bankruptcy Rule 3018(a), whenever a holder of a
claim or interest submits more than one ballot voting the same
claim prior to the deadline for submission of ballots, the
last such ballot sent by the holder, to the extent received
prior to the voting deadline, shall be deemed to reflect
-4-
<PAGE> 108
the voter's intent and thus to supersede any prior ballots,
except as otherwise directed by the Court. This Court hereby
adopts a rebuttable presumption that any party that submits a
superseding ballot has sufficient cause, within the meaning of
Bankruptcy Rule 3018(a), to do so.
D. The authority of the signatory of each ballot to complete and
execute the ballot shall be presumed, but each such signatory
shall certify on the ballot that he or she has such authority.
E. A holder of a claim against or interest in Paragon must vote
all of its claims within a particular class under the Plan
either to accept or reject the Plan and may not split its
vote. Accordingly, a ballot (or multiple ballots with respect
to separate claims or interests within a single class) that
partially rejects and partially accepts the Plan, or that
indicates both a vote for and against the Plan, shall be
counted as a vote for the Plan. This provision shall not apply
to summary ballots, completed by intermediaries acting on
behalf of groups of claim or interest holders pursuant to an
Order of this Court, that reflect the votes of beneficial
holders of such claims or interests.
F. Any ballot that does not indicate whether the holder of the
relevant claim or interest is voting for or against the Plan
shall be counted as a vote for the Plan.
G. Any ballot that does not contain an original signature shall
not be counted.
H. Except as provided in paragraph 10(B) above, no ballot sent by
facsimile shall be counted.
I. Provided that at least one class of claims or interests has
actually voted to accept the Plan, if a class eligible under
the Plan to vote consists of a claim or claims held by a
single creditor and such creditor fails to vote, such creditor
shall be deemed to have accepted the Plan.
11. The forms of ballots annexed to the Motion as Exhibits B
through E are approved by this Court, and the Proponents, BSI or any other
authorized agent for the Proponents shall have the right to prepare and
distribute other or modified forms of ballots, substantially in conformance with
such ballots and Official Form No. 14, as the Proponents find necessary.
12. The Proponents shall be entitled to send ballots to record
holders of Paragon's common stock, transfer agents, registrars, servicing
agents, or other intermediaries holding interests for or acting on behalf of
record holders or interests (collectively, the "Intermediaries"), and each
Intermediary shall be entitled to receive, upon timely request of Paragon,
reasonably sufficient copies of ballots to distribute to the beneficial owners
of interests for which it is an Intermediary, and Paragon shall be responsible
for and pay each such Intermediary's reasonable costs and expenses associated
-5-
<PAGE> 109
with the distribution of copies of ballots to the beneficial owners of such
interests and the tabulation of the ballots.
13. Each Intermediary shall receive returned ballots and tabulate
and return the results to BSI in a summary ballot by the applicable voting
deadline, indicating the number of shares voting on the Plan, and Intermediaries
must certify that each beneficial holder has not cast more than one vote for any
purpose, even if such holder holds securities of the same type in more than one
account.
14. This Order shall be without prejudice to the Proponents' right
to seek a determination that one or more of the classes in the Plan designated
as impaired, including the classes that will be receiving ballots pursuant to
this Order, are unimpaired and that such class or classes are therefore deemed
to have accepted the Plan without regard to how such class or classes actually
voted.
15. This Order shall be without prejudice to the Proponents' right
to request additional rules and guidelines with respect to voting procedures.
16. The requirements of BLR 3018-1 are modified to the extent
provided herein; Paragon's employment and retention of BSI as balloting agent is
hereby authorized and approved, as of October 28, 1999; Paragon's agreement with
BSI, annexed to the Motion as Exhibit G is hereby approved; and BSI is
authorized to perform and/or coordinate all services relating to the
solicitation of votes respecting the Plan (the "Balloting Services"), including,
without limitation:
A. coordinating printing and mailing the notice of hearing to
consider confirmation of the Plan;
B. coordinating the design and printing of ballots;
C. identifying voting and non-voting creditors and equity
security holders;
D. preparing voting reports by Plan class and voting amount and
maintaining all such information in a BSI database;
E. printing ballots specific to each creditor, indicating voting
class under the Plan, voting amount of claim and other
relevant information;
F. coordinating the mailing of ballots and providing an affidavit
verifying the mailing of ballots;
G. receiving ballots and tabulating and certifying the votes on
the Plan;
H. filing a balloting certification, as required by, and in
compliance with, BLR 3018-1(b) and (c), at least two (2)
business days prior to the date of the hearing to consider
confirmation of the Plan, and serving a copy of such
certification upon those parties designated in BLR 3018-1(c)
at least two (2)
-6-
<PAGE> 110
business days prior to the date of the hearing to consider
confirmation of the Plan.
I. providing any other balloting-related services as the
Proponents may from time to time request, including, without
limitation, providing testimony at the confirmation hearing
with respect to the Balloting Services and the results of the
vote on the Plan.
17. The fees and expenses of BSI incurred in the performance of
the Balloting Services are to be treated as administrative expenses of Paragon's
Chapter 11 estate and shall be paid by Paragon in the ordinary course of
business.
18. The Proponents shall be authorized to conduct the Wellspring
Rights Offering on substantially the same terms and conditions set forth in the
Wellspring Rights Offering Procedures annexed to the Plan as Exhibit D. The
Wellspring Rights Offering Procedures are hereby approved, and the forms of the
Exercise Notice and the Exercise Instructions described therein (as filed with
the Court on November 15, 1999 and modified on the record of the Hearing) are
approved.
19. Service of notice substantially in the form annexed to the
Motion as Exhibit I on holders of claims that are unimpaired under the Plan, and
the service on holders of impaired claims and interests of copies of the Plan,
the Disclosure Statement and all exhibits thereto, the Order approving the
Disclosure Statement and, if applicable, the relevant ballots, constitutes due
and sufficient notice pursuant to Bankruptcy Rule 3017(d).
20. The form of notice annexed to the Motion as Exhibit J, for
service on holders of impaired interests in Paragon that are deemed to reject
the Plan by virtue of receiving no distributions thereunder, is approved.
21. This Court shall retain jurisdiction to hear all such matters
as may be related to, or arise from, the Motion and this Order.
SO ORDERED this 18th day of November, 1999.
/s/ Margaret H. Murphy
------------------------------------
Margaret H. Murphy
United States Bankruptcy Judge
PREPARED AND PRESENTED BY:
ALSTON & BIRD LLP
/s/ Matthew W. Levin
By:----------------------------
DENNIS J. CONNOLLY
Georgia Bar No. 182275
MATTHEW W. LEVIN
Georgia Bar No. 448270
-7-
<PAGE> 111
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
(404) 881-7000
and
WILLKIE FARR & GALLAGHER
Myron Trepper, Esq.
Paul V. Shalhoub, Esq.
787 Seventh Avenue
New York, New York 10019-6099
(212) 728-8000
Attorneys for Paragon Trade Brands, Inc.
and
O'MELVENY & MYERS LLP
By: /s/ Adam C. Harris
--------------------------
JOEL B. ZWEIBEL
ADAM C. HARRIS
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 326-2000
and
PARKER, HUDSON, RANIER & DOBBS
Rufus Dorsey, Esq.
Suite 1500
285 Peachtree Center Avenue
Atlanta, Georgia
(404) 523-5300
Attorneys for the Official Committee
of Unsecured Creditors
-8-
<PAGE> 112
EXHIBIT E
LIQUIDATION ANALYSIS
The Bankruptcy Code requires that each holder of an impaired Claim or Old
Common Stock Interest either (a) accepts the Plan or (b) receives or retains
under the Plan property of a value, as of the Effective Date, that is not less
than the value such holder would receive or retain if Paragon were liquidated
under Chapter 7 of the Bankruptcy Code on the Effective Date. The first step in
meeting this test is to determine the dollar amount that would be generated
from the liquidation of Paragon's assets and properties in the context of a
Chapter 7 liquidation case. The gross amount of cash available would be the sum
of the proceeds from the disposition of Paragon's assets and the cash held by
Paragon at the time of the commencement of the Chapter 7 case. Such amount is
reduced by the amount of any Claims secured by such assets, the costs and
expenses of the liquidation, and such additional administrative expenses and
priority claims that may result from the termination of Paragon's business and
the use of Chapter 7 for the purposes of liquidation. Any remaining net cash
would be allocated to creditors and shareholders in strict priority in
accordance with section 726 of the Bankruptcy Code.
A general summary of the assumptions used by management in preparing the
liquidation analysis follows. The more specific assumptions are discussed
below.
Estimate of Net Proceeds
Estimates were made of the cash proceeds, which might be realized, from the
liquidation of Paragon's assets. The Chapter 7 liquidation period is assumed to
commence on December 26, 1999 and to average six months following the
appointment of a Chapter 7 trustee. While some assets may be liquidated in less
than six months, other assets may be more difficult to collect or sell,
requiring a liquidation period substantially longer than six months; this time
would allow for the collection of receivables, sale of assets and wind down of
daily operations.
Estimate of Costs
Paragon's costs of liquidation under Chapter 7 would include the fees payable
to a Chapter 7 trustee, as well as those which might be payable to attorneys
and other professionals that such a trustee may engage. Liquidation costs would
also include expenses incurred in the process of terminating businesses and
closing headquarters and manufacturing facilities, such as, among other things,
severance costs. Further, costs of liquidation would include any obligations
and unpaid expenses incurred by Paragon during the Chapter 11 case and allowed
in the Chapter 7 case, such as trade obligations, compensation for attorneys,
financial advisors, appraisers, accountants and other professionals, and costs
and expenses of members of any statutory committee of unsecured creditors
appointed by the United States Trustee pursuant to section 1102 of the
Bankruptcy Code and any other committee so appointed. Moreover, additional
claims would arise by reason of the breach or rejection of obligations incurred
and executory contracts or leases entered into by Paragon both prior to, and
during the pendency of, the Chapter 11 cases.
Distribution of Net Proceeds under Absolute Priority
The foregoing types of claims, costs, expenses, fees and such other claims that
may arise in a liquidation case would be paid in full from the liquidation
proceeds before the balance of those proceeds would be made available to pay
pre-Chapter 11 priority and unsecured claims. Under the absolute priority rule,
no junior creditor would receive any distribution until all senior creditors
are paid in full, and no equity holder would receive any distribution until all
creditors are paid in full.
After consideration of the effects that a Chapter 7 liquidation would have on
the ultimate proceeds available for distribution to creditors in a Chapter 11
case, including (i) the increased costs and expenses of a liquidation under
Chapter 7 arising from fees payable to a trustee in bankruptcy and
<PAGE> 113
professional advisors to such trustee, (ii) the erosion in value of assets in a
Chapter 7 case in the context of the expeditious liquidation required under
Chapter 7 and the "forced sale" atmosphere that would prevail, and (iii)
substantial increases in claims which would be satisfied on a priority basis,
PARAGON HAS DETERMINED, AS SUMMARIZED ON THE FOLLOWING CHART, THAT CONFIRMATION
OF EITHER THE PLAN ASSUMING CONSUMMATION OF THE WELLSPRING STOCK PURCHASE
AGREEMENT (the "Wellspring Plan") OR THE PLAN ASSUMING THE WELLSPRING STOCK
PURCHASE AGREEMENT IS NOT CONSUMMATED (the "Standalone Plan") WILL PROVIDE EACH
HOLDER OF AN ALLOWED CLAIM AND OLD COMMON STOCK INTEREST WITH A RECOVERY THAT
IS NOT LESS THAN IT WOULD RECEIVE PURSUANT TO A LIQUIDATION OF PARAGON UNDER
CHAPTER 7 OF THE BANKRUPTCY CODE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
($ in 000's) SUMMARY OF RECOVERIES
-----------------------------------------------------
UNDER THE UNDER THE
WELLSPRING STANDALONE
DESCRIPTION CLASS PLAN PLAN CHAPTER 7
- ---------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Allowed Administrative Claims N/A 100% 100% 100%
Allowed DIP Claims N/A 100% 100% 100%
Allowed Fee Claims N/A 100% 100% 100%
Allowed Priority Tax Claims N/A 100% 100% 100%
Secured Claims 1 100% 100% 100%
Priority Non-Tax Claims 2 100% 100% 100%
Unsecured Claims 3A 67% 67% 18%
Convenience Claims 3B 50% 50% 18%
Old Common Stock Interests 4A $ 4,618 $ 4,618 $ 0
Old Stock Option Interests 4B $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Moreover, Paragon believes that the value of any distributions from the
liquidation proceeds to each class of Allowed Claims in a Chapter 7 case
would be less than the value of distributions under the Plan because such
distributions in a Chapter 7 case may not occur for a substantial period of
time. In this regard, it is possible that distribution of the proceeds of
the liquidation could be delayed for a year or more after the completion of
such liquidation in order to resolve the Claims and prepare for
distributions. In the event litigation were necessary to resolve Claims
asserted in the Chapter 7 case, the delay could be further prolonged and
administrative expenses further increased. The effects of this delay on the
value of distributions under the hypothetical liquidation has not been
considered.
PARAGON'S LIQUIDATION ANALYSIS IS AN ESTIMATE OF THE PROCEEDS THAT MAY BE
GENERATED AS A RESULT OF A HYPOTHETICAL CHAPTER 7 LIQUIDATION OF THE ASSETS
OF PARAGON. Underlying the liquidation analysis are a number of estimates and
assumptions that are inherently subject to significant economic, competitive
and business uncertainties and contingencies beyond the control of Paragon or
a Chapter 7 trustee. Additionally, various liquidation decisions upon which
certain assumptions are based are subject to change. Therefore, there can be
no assurance that the assumptions and estimates employed in determining the
liquidation values of Paragon's assets will result in an accurate estimate of
the proceeds which would be realized were Paragon to undergo an actual
liquidation. The actual amounts of claims against the estate could vary
significantly from Paragon's estimate, depending on the claims asserted
during the pendency of the Chapter 7 case. This liquidation analysis does not
include liabilities that may arise as a result of litigation, certain new tax
assessments or other potential claims. This analysis also does not include
potential recoveries from avoidance actions or other litigation, including
actions against Weyerhaeuser as described in section 9.21 of the Plan.
Paragon does not believe that any such recoveries would have a material
impact on the comparison of recoveries summarized on the above chart. No
value was assigned to additional proceeds, which might result from the sale
of certain items with intangible value.
<PAGE> 114
Therefore, the actual liquidation value of Paragon could vary materially
from the estimates provided herein.
The liquidation analysis set forth below was based on the estimated values of
Paragon's assets immediately prior to the Effective Date. To the extent
operations through such date are different than estimated, the asset values
may change. These values have not been subject to any review, compilation or
audit by any independent accounting firm.
<PAGE> 115
PARAGON TRADE BRANDS
LIQUIDATION ANALYSIS
(In millions)
<TABLE>
<CAPTION>
DECEMBER 26, 1999 ESTIMATED
ESTIMATED BALANCE LIQUIDATION ESTIMATED
PROCEEDS FROM LIQUIDATION (before fresh start) PROCEEDS RECOVERY
-------------------- ----------- ----------
<S> <C> <C> <C>
Cash $ 11.5 $ 11.5 100.0%
Accounts Receivable 62.0 30.8 49.7%
Inventory 56.7 27.3 48.2%
Prepaid Expenses 4.1 -- 0.0%
Property and Equipment 131.5 67.1 51.0%
Assets Held for Sale 1.5 1.5 100.0%
Investment in Unconsolidated Subsidiaries 51.9 57.8 111.4%
Notes Receivable from Unconsolidated Subsidiaries 38.7 15.0 38.8%
Other Assets 12.0 1.1 9.2%
------- ------- -----
GROSS ASSETS AVAILABLE FOR DISTRIBUTION $ 369.8 $ 212.1 57.4%
======= ======= =====
<CAPTION>
ESTIMATED ESTIMATED %
ALLOCATIONS OF PROCEEDS CLAIM RECOVERY RECOVERY
--------- --------- --------
<S> <C> <C> <C>
CHAPTER 7 LIQUIDATION COSTS
Corporate Wind-down Costs $ 36.4 $ 36.4 100.0%
Trustee/Professional Fees 12.3 12.3 100.0%
------- ------- ------
TOTAL CHAPTER 7 LIQUIDATION COSTS $ 48.7 $ 48.7 100.0%
======= ======= ======
- -------------------------------------------------------------------------------------------------------------
Proceeds available for payment of administrative and priority claims 163.4
- -------------------------------------------------------------------------------------------------------------
CHAPTER 11 ADMINISTRATIVE AND PRIORITY CLAIMS
Administrative Claims $ 22.8 $ 22.8 100.0%
Weyerhaeuser and Other Litigation Claims -- -- --
Trade Accounts Payable 42.8 42.8 100.0%
Employee Claims and Other Accruals 20.3 20.3 100.0%
------- ------- -----
TOTAL ADMINISTRATIVE AND PRIORITY CLAIMS 85.8 85.8 100.0%
- -------------------------------------------------------------------------------------------------------------
Proceeds available for payment of unsecured claims $ 77.6
- -------------------------------------------------------------------------------------------------------------
UNSECURED CLAIMS CLASS
-----
Procter & Gamble 3a 158.5 30.1 19.0%
Kimberly-Clark 3a 110.0 20.9 19.0%
General Unsecured Creditors 3a 140.3 26.6 19.0%
------- ------- -----
TOTAL UNSECURED CLAIMS $ 408.8 $ 77.6 19.0%
======= ======= ====
- -------------------------------------------------------------------------------------------------------------
Proceeds available for equity holders $ 0.0
- ------------------------------------------------------------------------------------------------------=======
</TABLE>
<PAGE> 116
FOOTNOTES TO LIQUIDATION ANALYSIS
Cash and short-term investments
Cash consists of all cash in banks or operating accounts. Short-term
investments with original maturities of 90 days or less are considered cash
equivalents. Short-term investments are stated at cost, which approximates
fair value.
Accounts receivable
Accounts receivable primarily consists of customer trade receivables, and are
recorded by Paragon net of any reserves. The recovery of accounts receivable
is based on management's estimate of collection, given such factors as the
aging and historical collection patterns of the receivables, advance rates in
accordance with the borrowing base under Paragon's DIP Facility and the
anticipated effect of the Chapter 7 on the collectibility of such amounts.
The recovery also considered the set-off of any vendor receivables against
amounts payable to such vendors.
Inventory
Inventories are comprised of work-in-process (WIP) and raw materials,
materials and supplies, and finished goods related to the manufacture of
diaper, training pant, feminine care and adult incontinence products. The
overall inventory recovery considers, among other things, reference to
advance rates in accordance with the borrowing base under Paragon's DIP
Facility and the costs incurred to complete the manufacturing of inventory in
order to maximize the net value of such WIP and raw materials.
Prepaid expenses
Prepaid expenses consist primarily of miscellaneous items such as rent,
insurance, taxes, and deposits. Prepaid expenses are assumed to have no
estimated liquidation value.
Property and Equipment
Property and equipment includes owned land, buildings and improvements, and
machinery and equipment located at Paragon's Norcross, GA headquarters and at
its five manufacturing plants, including the previously closed Canadian
facility. The value of land and buildings was based upon management's
assessment of the value of each property considering both recent appraisals
undertaken as part of the Company's ongoing obligation under the DIP Facility
and the effects of the Chapter 7 environment. Machinery and equipment
includes machines used to manufacture Paragon's various products, as well as
furniture and fixtures. The value of machinery and equipment was based upon
management's review of these assets, recent appraisals undertaken as part of
the Company's ongoing obligation under the DIP Facility and the effects of
the Chapter 7 environment. The costs to be incurred in maintaining such
facilities during the liquidation period have been included in corporate
wind-down costs.
Assets Held for Sale
Assets held for sale include equipment previously designated for disposal
during the Chapter 11. The liquidation value of these assets is based upon
management estimates given recent experience in selling such assets during
the Chapter 11 case considered the impact on value given the assumed
availability of the entirety of Paragon's diaper manufacturing equipment as a
result of the Chapter 7.
Other Assets
The primary component of Other Assets is capitalized software and development
costs which are assumed to have no value in liquidation. The $1.1 million of
estimated liquidation value represents management's estimate of the value of
miscellaneous assets.
<PAGE> 117
Investment in Unconsolidated Subsidiaries
Paragon owns partial interest in foreign joint ventures in Mexico, Argentina,
Brazil and China. The majority owner possesses the right to purchase
Paragon's portion of the joint ventures upon liquidation. The liquidation
value of the investment in subsidiaries is based on estimated cash proceeds
resulting from the joint venture partner's purchase of the Paragon's
interests pursuant to such agreements and considers the leverage Paragon's
joint venture partner would have in such a transaction.
Notes Receivable
The PMI note receivable is assumed to have liquidation value based upon the
estimated proceeds from liquidation of PMI.
Corporate Wind-Down Costs
Wind-down costs consist of corporate overhead, legal fees and severance costs
and expenses to be incurred during the Chapter 7 liquidation period.
Management assumes that the liquidation would occur over a six-month period
and that such expenses, costs and overhead would decrease over time during
this period.
Trustee and Professional Fees
Trustee fees are estimated at 3.0% of gross proceeds. Professional fees
represent the costs of a Chapter 7 case related to attorneys, accountants,
appraisers and other professionals retained by the trustee. Fees are based on
management's review of the nature of these costs and have been estimated at
$1.0 million per month.
Chapter 11 Administrative Claims
Chapter 11 Administrative Claims include the aggregate administrative claims
of P&G and K-C of $10.0 million, unpaid Chapter 11 professional fees of $5.0
million, miscellaneous priority and administrative claims of $1.3 million,
reclamation claims of $1.3 million, other administrative claims of $3.6
million, secured claims of $0.5 million and the Wellspring expense
reimbursement of $1.0 million.
Weyerhaeuser and Other Litigation
Paragon believes that it may possess claims and/or causes of action against
certain parties that may be prosecuted during a Chapter 7 liquidation or
following the Effective Date of a Chapter 11 plan of reorganization. The
value of these claims, which are more fully described in section III.L.4. and
section III.L.5. of this Disclosure Statement, have been assigned no value in
the liquidation analysis.
Trade Accounts Payable
Trade accounts payable represent post-petition trade credit provided by
Paragon's trade vendors during the Chapter 11 period and are assumed to have
administrative status. The amount of trade account payable considers the set
off, if appropriate, of any amounts owed by such trade creditors to the
Debtor.
Employee Claims
Employee claims entitled to priority, including wage, vacation and other
related compensation, have been estimated based on applicable law.
Accrued Liabilities
Accrued liabilities incurred during the Chapter 11 are assumed to have
administrative status.
<PAGE> 118
EXHIBIT F
ORDINARY COURSE PROFESSIONALS
<TABLE>
<CAPTION>
Law Firms: Foreign Associates:
- ---------- -------------------
<S> <C>
Baker & Botts, LLP
Davis Wright Tremaine LLP Anderson Mori
Haynsworth, Baldwin, Johnson & Greaves, LLP Becerril, Coca & Becerril, S.C.
Hunton & Williams Betata, Hoet & Associates
Kramer & Associates, P.C. Blake, Cassells & Graydon
Macey Wilensky Cohen Wittner & Kessler Bufete Candanedo
Paul Weiss Rifkind Wharton & Garrison CCPit Patent & Trademark Office
Ritch Heather & Mueller Cabinet Loyer
Smith, Currie & Hancock LLP Clarke, Modet & Cia. (Argentina) SA
Tozzini Freire Teixeira e Silva Daniel & CIA
Danneman, Siemsen, Bigler & Ipanema Moreira
Dennemeyer & Associates
Other: Denton Hall
- ------ Estudio Colmenares S.R.L.
Forrester & Boehmert
PricewaterhouseCoopers L.L.P. Forrester & Ketley & Co.
(formerly Coopers & Lybrand L.L.P.) Funer Ebbinghaus Finck
KP Ross, Inc. Goodrich, Riquelme & Asociados
Hepworth Lawrence Bryer & Bizley
Henry Hughes
Intels
Johansson & Langlois
Marusyk Bourassa Miller & Swain
Marval & O'Farrell
Messrs. Donaldson & Burkinshaw
Oei Tat Hway
Olivares & Cia, S.C.
Oyen, Wiggs, Green & Mutala
Ram Rais & Partners
Russell & DuMoulin
Saint Island
Santamarina & Steta
Sim & McBurney
Tan, Manzano & Valez
Troncoso & Caceres
Tsar & Tsai
Viering, Jentschura & Partner
Wenping & Co.
Withers & Rogers
Yuasa and Hara
</TABLE>
<PAGE> 119
EXHIBIT G
PROJECTION
(assuming consummation of the Wellspring Stock Purchase Agreement with
New Note interest rate of 11.25%)
i) Responsibility for and Purpose of the Projection
As a condition to confirmation of a plan, the Bankruptcy Code requires, among
other things, that the Bankruptcy Court determine that confirmation is not
likely to be followed by the liquidation or the need for further financial
reorganization of the debtor. In connection with the development of the Plan,
and for purposes of determining whether the Plan satisfies this feasibility
standard, Paragon's management has, through the development of a financial
projection (the "Projection"), analyzed the ability of Paragon to meet its
obligations under the Plan to maintain sufficient liquidity and capital
resources to conduct its business. The Projection was also prepared to assist
each holder of Allowed Claims or Old Common Stock Interests in 3A, 3B and 4A in
determining whether to accept or reject the Plan.
The Projection should be read in conjunction with the assumptions,
qualifications and footnotes to tables containing the Projection set forth
herein, the historical consolidated financial information (including the notes
and schedules thereto) and the other information set forth in Paragon's Annual
Report on Form 10-K for the fiscal year ended December 27, 1998, Paragon's
Quarterly Report on Form 10-Q for the period ended March 28, 1999, Paragon's
Quarterly Report on Form 10-Q for the period ended June 27, 1999, and Paragon's
Quarterly Report on Form 10-Q for the period ended September 26, 1999,
respectively, the full texts of which are incorporated herein by reference and
copies of which are publicly available or can be provided by Paragon upon
written request. The Projection was prepared in good faith based upon
assumptions believed to be reasonable at the time and applied in a manner
consistent with past practice. Most of the assumptions utilized in the
Projection concerning the operations of the business both before and after the
assumed Effective Date were prepared in August 1999. Such assumptions were
based, in part, on economic, competitive, and general business conditions
prevailing at the time in the various domestic and international markets in
which the Company operates. While as of the date of this Disclosure Statement
such economic, competitive and general business conditions have not materially
changed from those in effect on the date in which the Projection was developed,
any future changes in these conditions may materially impact the ability of
Paragon to achieve the Projection.
THE PROJECTION WAS NOT PREPARED WITH A VIEW TOWARDS COMPLYING WITH THE
GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. PARAGON'S INDEPENDENT ACCOUNTANT,
ARTHUR ANDERSEN LLP, HAS NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING
PROSPECTIVE FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND,
ACCORDINGLY, HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH
RESPECT THERETO.
PARAGON DOES NOT, AS A MATTER OF COURSE, PUBLISH A PROJECTION OF ITS
ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS.
ACCORDINGLY, PARAGON DOES NOT INTEND TO, AND DISCLAIMS ANY OBLIGATION TO (A)
FURNISH AN UPDATED PROJECTION TO HOLDERS OF CLAIMS OR OLD COMMON STOCK
INTERESTS PRIOR TO THE EFFECTIVE DATE OR TO HOLDERS OF NEW SECURITIES OR ANY
OTHER PARTY AFTER THE EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN
ANY DOCUMENTS THAT MAY BE REQUIRED TO BE FILED WITH THE SEC, OR (C) OTHERWISE
MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
THE PROJECTION PROVIDED IN THE DISCLOSURE STATEMENT HAS BEEN PREPARED
EXCLUSIVELY BY PARAGON'S MANAGEMENT. THE PROJECTION, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, IS NECESSARILY BASED ON A VARIETY OF ESTIMATES AND
ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT AT THE TIME
<PAGE> 120
PREPARED, MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT
ECONOMIC, COMPETITIVE AND GENERAL BUSINESS UNCERTAINTIES AND CONTINGENCIES,
MANY OF WHICH ARE BEYOND PARAGON'S CONTROL. PARAGON CAUTIONS THAT NO
REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THE PROJECTION OR TO
REORGANIZED PARAGON'S ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME
ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES
OCCURRING SUBSEQUENT TO THE DATE ON WHICH THE PROJECTION WAS PREPARED MAY BE
DIFFERENT FROM THOSE ASSUMED OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED,
AND THUS THE OCCURRENCE OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A
MATERIAL AND POSSIBLY ADVERSE MANNER. THE PROJECTION, THEREFORE, MAY NOT BE
RELIED UPON AS A GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL
OCCUR.
FINALLY, THE FOLLOWING PROJECTION INCLUDES THE ENTERPRISE VALUE OF REORGANIZED
PARAGON BASED UPON THE WELLSPRING INVESTMENT PRICE IN THE WELLSPRING STOCK
PURCHASE AGREEMENT, AND ESTIMATIONS AS TO THE FAIR VALUE OF ITS ASSETS AND ITS
ACTUAL LIABILITIES AS OF THE EFFECTIVE DATE. REORGANIZED PARAGON WILL BE
REQUIRED TO MAKE SUCH ESTIMATIONS AS OF THE EFFECTIVE DATE. SUCH DETERMINATION
WILL BE BASED UPON THE FAIR VALUES AS OF THAT DATE, WHICH COULD BE MATERIALLY
GREATER OR LOWER THAN THE VALUES ASSUMED IN THE FOREGOING ESTIMATES.
2
<PAGE> 121
ii) Summary of Significant Assumptions
Paragon has developed the Projection (summarized below) to assist both
creditors and shareholders in their evaluation of the Plan and to analyze its
feasibility. THE PROJECTION IS BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS
DESCRIBED BELOW. ACTUAL OPERATING RESULTS AND VALUES MAY AND WILL VARY FROM
THOSE PROJECTED.
a. Fiscal Years. Paragon's fiscal year ends on the last Sunday of each
calendar year. Any reference to "Fiscal" immediately followed by a specific
year means the 52 or 53 week period ending on the Sunday preceding December 31
of such year. The fiscal year ending December 31, 2000 (Fiscal 2000) will be a
53-week year. The Projection assumes that all fiscal years contain 52 weeks of
projected results of operations since the difference between 52 weeks and 53
weeks of results in 2000 is not material to the financial condition of Paragon
or the results of operations.
b. Plan Terms and Consummation. The Projection assumes an Effective
Date of December 26, 1999 based upon the consummation of the Wellspring Stock
Purchase Agreement with Allowed Claims and Old Common Stock Interests treated
in accordance with the Plan with respect to such Allowed Claims and Interests.
If consummation of the Plan does not occur on or around December 26, 1999,
there is no guarantee that, among other things, customers will continue to
support the Company such that the Company could achieve the projected levels of
volume and revenues, and that trade creditors will support Paragon as
projected. Further, additional bankruptcy expenses will be incurred until such
time as a plan of reorganization is confirmed.
c. Assumptions Preceding the Effective Date. As a basis for the
Projection, management has included actual results through the second fiscal
quarter ended June 27, 1999, and has estimated the operating results for the
remainder of the fiscal year ended December 26, 1999, the assumed Effective
Date. Specifically, it has been assumed, among other things, that customers and
trade vendors will continue to support the Company, that the product licenses
entered into with P&G and K-C remain available to the Company and that the
product performance issues identified during the first half of the current
fiscal year have been substantially resolved.
d. General Economic Conditions. The Projection was prepared assuming
that economic conditions in the markets served by Paragon do not differ
significantly over the next five years from current economic conditions.
e. Net Sales. Net sales, which are projected to be $504.7 million in
1999, are projected to increase by approximately 9.1%, 10.3%, 7.4% and 3.7% in
fiscal years 2000, 2001, 2002, and 2003, respectively. Infant Care is expected
to account for 94.3%, 92.5%, 90.1% and 89.2% of net sales, and Feminine Care
and Adult Incontinence is expected to account for 5.7%, 7.5%, 9.9% and 10.8% of
net sales in fiscal 2000, 2001, 2002 and 2003, respectively.
Infant Care. The company experienced a significant decline in customer volume
during the first half of the fiscal 1999. Management believes that this
decrease in sales was due to a number of reasons including (i) product
performance issues, (ii) the continued impact of the discontinuation of
shipments to a major customer since mid-1998 due to product design issues,
(iii) increased consumer preference for premium priced products, (iv) increased
consumer preference for the mechanical closure system offered by one of the
national brand competitors, (v) continued pricing and promotional pressures by
branded and value segment competitors and (vi) the uncertainties related to the
Company's Chapter 11 proceedings.
The Company took significant actions during the first six months of fiscal 1999
that are expected to improve sales during the second half of the fiscal year
and into fiscal 2000. Specifically, the Company believes that certain product
performance issues it experienced in the first half of 1999 have been
addressed. Shipments to the major customer that had been suspended in mid-1998
have resumed and are anticipated to build to more normal levels during the
second half of 1999. Further, the roll-out of an improved Ultra diaper which
incorporates stretch tabs and a new hook and loop closure system, the
introduction of a new training pant product and the launch of certain
destination store brand product and marketing programs are expected to increase
volume during
3
<PAGE> 122
the second half of 1999. However, infant care volume and sales prices are
expected to remain under pressure due to the carryover effects of design and
product performance issues and the continued competitive initiatives from both
national brand and store brand competitors. Based upon the above, the projected
sales growth in 2000 assumes customer volume and net sales will be stimulated
by (i) the continued effect of the improvement in product performance, (ii) new
premium programs implemented with customers during the third quarter of 1999
and in 2000, (iii) an increase in the Company's promotional and marketing
activity and (iv) the continued transition of its diaper product line to an
improved Ultra diaper which incorporates stretch tabs and a new hook and loop
closure system, the benefits of which will be offset by the continuing impact
of competitive initiatives. Volume beyond 2000 is expected to increase modestly
due to the continued participation of mass merchant trade customers in
destination store brand programs, the benefits of which will continue to be
offset by competitive initiatives.
Feminine Care and Adult Incontinence. The uncertainty caused by the Company's
chapter 11 filing has significantly impacted the ability to attract additional
customers and sales volume. The Company expects this condition to persist until
emergence from Chapter 11. The Projection assumes accelerated customer
penetration and associated increases in sales coincident with the Company's
emergence from Chapter 11.
f. Gross Margin (revenues less cost of sales). Gross margin, which was
24.8% in 1997, 25.6% in 1998 and is expected to decline to 19.2% in 1999 is
projected to increase to 21.4% in Fiscal 2000 and then grow to 22.2% in Fiscal
2003. Management believes that the decrease in gross margin in 1999 is due to
manufacturing inefficiencies resulting from lower volume and start-up costs
associated with new product initiatives, increased raw material costs
associated with new products and higher royalties as a result of the settlement
and licensing agreements reached in the first quarter of 1999 with P&G and K-C.
More specifically, product costs have increased significantly in 1999 due to
the payment of royalties to P&G and K-C, increased price and usage of a new SAP
in order to address the product performance issues discussed above and
increased product and manufacturing costs associated with the continuing
roll-out of the improved Ultra diaper. Gross margins in 2000 and beyond are
projected to increase gradually due to (i) the realization of anticipated
manufacturing efficiencies (primarily through a reduction in conversion labor
and waste costs) resulting from increased diaper volume and improvement in
feminine care and adult incontinence sales volume and (ii) the anticipated
benefit of continuing management cost reduction initiatives.
g. Selling, General and Administrative Expenses. Selling, general and
administrative expenses, which are projected to be 15% of revenues in 1999, are
projected to decline significantly in 2000 to 13% of revenues due to lower
costs in packaging design and artwork and reduced promotional spending,
information technology expenses, and sales and marketing expenditures. Selling,
general and administrative expenses are projected to continue to decline by
approximately 1.1% of revenues from Fiscal 2000 to Fiscal 2003 due primarily to
operating efficiencies resulting from increased sales of Feminine Care and
Adult Incontinence products.
h. Income Taxes. The Projection assumes that, upon consummation,
Reorganized Paragon will be able to utilize net operating loss carryforwards on
a limited basis in accordance with Section 382 L(6) of the Internal Revenue
Code. Deferred tax assets created by the existence of the loss carryforwards
have been partially reserved. The combined federal, state and local income tax
rate, before the benefit from the utilization of tax loss carryforwards, is
estimated at 38%.
i. Capital Expenditures. Capital expenditures consist primarily of
investment in existing machines and equipment, and plant upgrades. Management
believes that the ongoing upkeep and replacement of the existing manufacturing
base is necessary to achieve the level of operating profit contained in the
Projection. The Projection assumes a level of capital expenditures which,
consistent with management's business plan, can be supported by the capital
structure and projected operating results of Reorganized Paragon.
j. EBITDA. EBITDA is defined for purposes of the Projection as
earnings before interest expense, interest income, income tax provision,
depreciation and amortization, earnings in unconsolidated subsidiaries, unusual
items, reorganization items, and extraordinary items.
4
<PAGE> 123
k. Equity in Earnings of Unconsolidated Subsidiaries. The Projection
contains financial information regarding earnings in unconsolidated
subsidiaries which have been prepared in the local currencies by Paragon's
foreign joint venture partners and converted to U.S. dollars at exchange rates
in effect on the date the forecasts were prepared. The forecasts are based on
the then current market conditions in the respective countries which conditions
are assumed to remain stable. Foreign exchange rates are assumed to remain
constant during the Projection period as changes in such rates are assumed to
be offset by inflationary differences between the U.S. and the local economies.
Neither Paragon nor its foreign joint venture partners can predict whether such
market conditions will change dramatically in the future years.
Grupo P.I. Mabe, S.A. Paragon owns a 15% interest in Grupo P.I. Mabe,
S.A. de C.V. ("Mabesa"), plus an option to purchase an additional 34%
interest in Mabesa at a contractually determined price. At its current
15% ownership interest, Paragon records income from Mabesa based upon
the dividend income it receives. The Projection does not assume that
Paragon exercises its option to purchase any additional interest in
Mabesa. The joint venture agreements allow for the ability to dissolve
the joint venture if Paragon's ownership in Mabesa does not equal or
exceed 30% by January 2002. Pursuant to the Wellspring Stock Purchase
Agreement, Wellspring has the ability to fund the cost of the exercise
of the option with an additional equity contribution of up to $25
million, subject to preemptive rights of holders of the New Common
Stock.
Paragon-Mabesa International. Paragon owns a 49% interest in
Paragon-Mabesa International, S.A. de C.V. ("PMI"), a joint venture
that developed a diaper manufacturing facility in Tijuana, Mexico.
Under a Product Supply Agreement with PMI, the Company purchases
substantially all of PMI's production for sale to U.S. and European
retail customers. Paragon accounts for earnings from PMI using the
equity method of accounting.
Stronger Corporation. Paragon owns a 49% interest in Stronger
Corporation, S.A. ("Stronger"), which, in turn, owns 70% of
Argentina-based Serenity S.A. ("Serenity") and approximately 100% of
Brazil-based MPC Productos para Higience Ltda. ("MPC"). Paragon
accounts for earnings from Stronger using the equity method of
accounting. Commencing in July 2000 through July 2004, Stronger has
the option to acquire the remaining 30% of Serenity held by minority
shareholders at a predetermined price. Further, commencing on July
2001 though July 2002, the minority shareholders of Serenity have the
right to put to Stronger and Stronger has the obligation to purchase
from the minority shareholders the remaining 30% of the shares held by
the minority shareholders at a predetermined price.
Goodbaby Paragon Hygienic Products. Paragon owns a 40% interest in
Goodbaby Paragon Hygienic Products Co. Ltd. ("Goodbaby"), a
manufacturing and marketing joint venture in China. Paragon accounts
for the earnings from Goodbaby using the equity method of accounting.
l. Notes Receivable from Unconsolidated Subsidiaries. As part of
Paragon's acquisition of the 49% interest in PMI, the Company assisted in the
financing of equipment, building construction, and the start-up of PMI's
manufacturing facility in Tijuana, Mexico. Interest and principal on the note
receivable due to Paragon is payable from PMI's free cash flow on various
dates.
m. Interest Expense. Interest expense primarily reflects interest on
the $155.0 million of New Notes, on borrowings under the Facility, as defined
below, and on other miscellaneous indebtedness. The principal amount of the New
Notes is subject to final adjustment at closing based on the Wellspring Stock
Purchase Agreement. The New Notes will bear interest at a fixed rate of 11.25%.
Interest expense on the New Notes is assumed to pay cash interest during the
entire projection period. The first four semi-annual interest payments on the
New Notes are payable in kind if Paragon does not achieve certain cash flow
thresholds. See Section IV.E.1 for discussion of Reorganized Paragon New Notes.
5
<PAGE> 124
n. Fresh Start Accounting. The Projection has been prepared using the
basic principles of "fresh start" accounting for periods after December 26,
1999. These principles are contained in the American Institute of Certified
Public Accountants Statement of Position 90-7 "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code." Under "fresh start" accounting
principles, Paragon will determine the reorganization value of the reorganized
company at the Effective Date. This value will be allocated, based on estimated
fair market values, to specific tangible or identifiable intangible assets, and
Paragon will record an intangible asset equal to the reorganization value in
excess of or less than amounts allocable to identifiable assets. Based on the
Wellspring Stock Purchase Agreement, the Projection assumes that no
reorganization value in excess of amounts allocable to identifiable assets
exists. Paragon is in the process of evaluating further how the reorganization
value will be allocated to its various assets including its foreign joint
venture assets. It is possible that the final allocation will differ from the
amounts presented herein.
o. Reorganization Value. For purposes of this Disclosure Statement and
in order to prepare the Projection, management has, based on the Wellspring
Stock Purchase Agreement, estimated the enterprise value of Reorganized Paragon
as of December 26, 1999 to be approximately $290 million, including
approximately $15.8 million in anticipated borrowings under the Facility, as
defined below, on the Effective Date. See "Valuation" discussion for further
detail.
p. Working Capital. Components of working capital are projected
primarily on the basis of historic patterns applied to projected levels of
operation. Vendor trade terms have not been materially disrupted during the
Chapter 11 proceeding, and are not expected to change materially in the
post-Effective Date period.
q. New Secured Credit Facility. The Projection assumes Paragon obtains
a revolving credit facility in an aggregate principal amount of $75.0 million
(the "Facility"). Paragon has obtained a commitment from Citicorp U.S.A. for
such a facility. Based on the Citicorp commitment, the Company's maximum
borrowing under the Facility is assumed to be limited to the lesser of $75.0
million or an available amount as determined by a borrowing base formula. The
borrowing base formula is assumed to be of certain specified percentages of
eligible accounts receivable, eligible inventory, equipment and personal and
real property of the Company. Obligations under the Facility are assumed
secured by the security interest in, pledge and lien on substantially all of
the Company's assets and properties and the proceeds thereof. Borrowings under
the Facility may be used to fund working capital and for other general
corporate purposes.
r. New Notes. The Plan assumes creditors will receive, among other
consideration, $155.0 million in New Notes, subject to final adjustments at
closing based on the Wellspring Stock Purchase Agreement. The New Notes will
mature five (5) years from the Effective Date and will bear interest at a fixed
rate of 11.25%. The New Notes will be unsecured and are assumed to pay cash
interest. However, in the event the Company does not meet certain semi-annual
cash flow thresholds during the first two years after issue, each of the first
four semi-annual interest payments due under the New Notes can be paid-in-kind.
iii) Special Note Regarding Forward-Looking Statements
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including the Annual Report on Form 10-K) and the
Bankruptcy Court (including this Disclosure Statement and the Projection) may
include statements that are not historical facts, so-called "forward-looking
statements." The words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in the Company's
forward-looking statements. Factors which could affect the Company's financial
results, including but not limited to: the Company's Chapter 11 filing;
increased raw material prices and product costs; new product and packaging
introductions by competitors; increased price and promotion pressure from
competitors; year 2000 compliance issues; and patent litigation, are described
herein. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date hereof, and which
are made by management
6
<PAGE> 125
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. The Company undertakes no obligation to publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. For additional information about Paragon
and relevant risk factors, see Section IX, Certain Risk Factors To Be
Considered.
iv) Projection
The Projection prepared by management is summarized in the following tables.
Specifically, the attached tables include:
a. Pro-forma Reorganized Paragon balance sheet at December 26,
1999, including all reorganization and fresh-start
adjustments.
b. Projected balance sheets for the fiscal years ending in,
2000, 2001, 2002, and 2003.
c. Projected income statements for the fiscal years ending in
2000, 2001, 2002, and 2003.
d. Projected statements of cash flow for the fiscal years ending
in 2000, 2001, 2002, and 2003.
All captions in the attached Projection do not correspond exactly to Paragon's
historical external reporting; some captions have been combined or expanded for
presentation purposes.
7
<PAGE> 126
PARAGON TRADE BRANDS, INC.
PRO-FORMA REORGANIZED BALANCE SHEET
DECEMBER 26, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FRESH START
ESTIMATED BALANCE SHEET
DECEMBER 26, REORGANIZATION FRESH START(6) DECEMBER 26,
ASSETS 1999 ADJUSTMENTS ADJUSTMENTS 1999
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash and short-term investments $ 11,486 $ (10,486) $ -- $ 1,000
Receivables 62,010 -- -- 62,010
Income Tax Receivable -- -- -- --
Inventories 56,717 -- -- 56,717
Current portion of deferred income taxes 2,737 -- (274) 2,463
Prepaid expenses 4,123 -- -- 4,123
---------- ---------- ---------- ----------
Total current assets 137,073 (10,486) (274) 126,313
---------- ---------- ---------- ----------
Property and equipment, at cost 346,392 -- (44,618) 301,773
Allowance for depreciation (217,292) -- -- (217,292)
---------- ---------- ---------- ----------
Property and equipment, net 129,099 -- (44,618) 84,481
---------- ---------- ---------- ----------
Assets held for sale 1,463 -- -- 1,463
Investment in unconsolidated subsidiaries, at cost 22,929 -- -- 22,929
Investment and advances to unconsolidated
subsidiaries, at equity 67,652 -- 11,577 79,229
Goodwill 30,897 -- (30,897) --
Deferred income taxes -- -- 28,932 28,932
Other assets 11,984 2,000 (1,416) 12,568
---------- ---------- ---------- ----------
Total other assets 134,925 2,000 8,196 145,121
---------- ---------- ---------- ----------
TOTAL ASSETS $ 401,098 $ (8,486) $ (36,697) $ 355,914
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Short-term borrowings $ -- $ 15,769 (1) $ -- $ 15,769
Accounts payable 42,737 (5,000)(2) -- 37,737
Accrued liabilities 37,853 (6,225)(3) (3,800) 27,828
---------- ---------- ---------- ----------
Total current liabilities 80,590 4,544 (3,800) 81,334
Liabilities subject to compromise 406,423 (14,995)(4) -- --
(500)
(390,928)(5)
Long-term debt -- 155,458 -- 155,458
Deferred compensation 216 -- -- 216
Deferred income taxes 4,666 -- (4,666) --
---------- ---------- ---------- ----------
Total liabilities 491,895 (246,421) (8,466) 237,008
---------- ---------- ---------- ----------
Total shareholders' equity (deficit) (90,798) 237,935 (28,231) 118,906
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) $ 401,097 $ (8,486) $ (36,697) $ 355,914
========== ========== ========== ==========
</TABLE>
Numbers may not total due to rounding.
8
<PAGE> 127
NOTES TO PRO-FORMA REORGANIZED BALANCE SHEET
(1) Anticipated borrowings under the Facility needed to pay certain
administration claims and pre-petition liabilities consistent with the
treatment of these liabilities in the Plan.
(2) Comprised of $5.0 mm accrued and unpaid Chapter 11 professional fees.
(3) Includes payment of management and employee confirmation bonuses ($3.2
million) and other administrative claims ($3.0 million).
(4) Includes payment of P&G and K-C administrative claims ($10.0 million),
administrative and priority claims, including any remaining unpaid
reclamation claims ($3.1 million), the satisfaction of convenience
claims ($1.8 million) and DIP facility claims ($0.08 million).
(5) The Plan provides for, among other things, the de-leveraging of
Paragon through an exchange of all of the Company's pre-petition
unsecured indebtedness for $115.0 million in cash and $155.0 million
of New Notes. This amount represents primarily the face amount of such
indebtedness converted into the New Notes and into the shares of the
New Common Stock. Holders of Old Common Stock Interests will receive
178,359 shares of New Common Stock (representing 1.5% of the primary
shares of the Company) and 625,821 New Warrants (representing 5% of
the fully diluted shares of the Company). Further, $1.1 million of
cash will be set aside to fund the pursuit of litigation described in
section 9.21 of the Plan.
(6) Paragon proposes to account for the reorganization and the related
transactions using the principles of "fresh start" accounting as
required by Statement of Position 90-7 ("SOP 90-7") issued by the
American Institute of Certified Public Accountants (the "AICPA"). The
Company has estimated a reorganization value of $290 million based on
the Wellspring Stock Purchase Agreement, inclusive of approximately
$15.8 million in anticipated borrowings under the Facility on the
Effective Date. In accordance with SOP 90-7, the reorganization value
has been allocated to specific tangible and identifiable intangible
assets and liabilities. For the purposes of this presentation, book
values have been assumed to equal fair values except for specific
items in which quantifiable data is currently available. The amount of
shareholders' equity in the fresh start balance sheet is not an
estimate of the trading value of the New Common Stock and the New
Warrants after confirmation of the Plan, which value is subject to
many uncertainties and cannot be reasonable estimated at this time.
Paragon does not make any representation as to the trading value of
the New Notes, the New Common Stock and the New Warrants to be issued
pursuant to the Plan.
9
<PAGE> 128
REORGANIZED PARAGON TRADE BRANDS
PROJECTED BALANCE SHEETS
FISCAL YEARS ENDING 1999 THROUGH 2003
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------------------------------
DECEMBER 26, DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 28,
ASSETS 1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash and short-term investments $ 1,000 $ 1,000 $ 2,960 $ 22,865 $ 55,867
Receivables 62,010 58,562 65,261 70,174 72,933
Income Tax Receivable -- -- -- -- --
Inventories 56,717 58,137 63,882 67,825 68,758
Current portion of deferred income taxes 2,463 2,463 2,463 2,463 2,463
Prepaid expenses 4,123 4,123 4,123 4,123 4,123
--------- --------- --------- --------- ---------
Total current assets 126,313 124,285 138,689 167,450 204,144
--------- --------- --------- --------- ---------
Property and equipment, at cost 301,773 331,773 361,773 395,773 427,773
Allowance for depreciation (217,292) (241,170) (265,806) (294,242) (324,985)
--------- --------- --------- --------- ---------
Property and equipment, net 84,481 90,603 95,967 101,531 102,788
--------- --------- --------- --------- ---------
Assets held for sale 1,463 1,463 1,463 1,463 1,463
Investment in unconsolidated subsidiaries, at cost 22,929 25,429 28,429 28,429 28,429
Investment and advances to unconsolidated
subsidiaries, at equity 79,229 79,812 80,364 80,637 79,948
Goodwill -- -- -- -- --
Deferred income taxes 28,932 23,697 18,263 11,467 4,072
Other assets 12,568 11,397 10,226 9,993 8,822
--------- --------- --------- --------- ---------
Total other assets 145,121 141,798 138,745 131,989 122,734
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 355,914 $ 356,685 $ 373,401 $ 400,970 $ 429,666
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Short-term borrowings $ 15,769 $ 7,471 $ -- $ -- $ --
Accounts payable 37,737 36,734 40,586 43,626 45,226
Accrued liabilities 27,828 28,788 30,781 32,353 33,206
--------- --------- --------- --------- ---------
Total current liabilities 81,334 72,993 71,367 75,978 78,433
Liabilities subject to compromise -- -- -- -- --
Long-term debt 155,458 155,458 155,458 155,458 155,458
Deferred compensation 216 216 216 216 216
Deferred income taxes -- -- -- -- --
--------- --------- --------- --------- ---------
Total liabilities 237,008 228,668 227,041 231,653 234,107
--------- --------- --------- --------- ---------
Total shareholders' equity (deficit) 118,906 128,017 146,360 169,317 195,559
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) $ 355,914 $ 356,685 $ 373,401 $ 400,970 $ 429,666
========= ========= ========= ========= =========
</TABLE>
Numbers may not total due to rounding.
10
<PAGE> 129
REORGANIZED PARAGON TRADE BRANDS
PROJECTED INCOME STATEMENTS
Fiscal Years 2000 through 2003
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 28,
2000 2001 2002 2003
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales, net of discounts and allowances $ 550,618 $ 607,559 $ 652,482 $ 676,870
Cost of sales 454,557 498,586 535,757 554,492
---------- ---------- ---------- ----------
Gross profit 96,061 108,972 116,725 122,378
Selling, general and administrative 70,024 73,130 76,463 79,234
Research and development expense 4,274 4,583 4,807 5,031
Asset impairments -- -- -- --
Settlement contingencies -- -- -- --
---------- ---------- ---------- ----------
Operating profit (loss) 21,763 31,260 35,455 38,112
Equity in earning of unconsolidated subsidiaries 5,657 8,367 9,789 10,391
Dividend income from unconsolidated subsidiary 1,482 1,811 2,203 2,671
Interest expense 19,028 18,488 18,190 18,190
Other income, net 1,154 1,027 930 1,717
---------- ---------- ---------- ----------
Earnings (loss) before income taxes 11,028 23,977 30,187 34,702
Bankruptcy costs -- -- -- --
Provision for income taxes 1,916 5,634 7,230 8,460
---------- ---------- ---------- ----------
Net earnings (loss) $ 9,112 $ 18,343 $ 22,957 $ 26,242
========== ========== ========== ==========
Basic earnings (loss) per common share $ 0.77 $ 1.54 $ 1.93 $ 2.21
========== ========== ========== ==========
</TABLE>
Numbers may not total due to rounding.
11
<PAGE> 130
REORGANIZED PARAGON TRADE BRANDS
STATEMENT OF CASH FLOWS
FISCAL YEARS 2000 THROUGH 2003
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 28,
2000 2001 2002 2003
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 9,112 $ 18,343 $ 22,957 $ 26,242
Non-cash charges to earnings:
Depreciation and amortization 24,736 25,494 29,294 31,602
Deferred income taxes 5,235 5,434 6,796 7,395
Equity in (earnings) loss of (5,657) (8,098) (8,021) (7,890)
unconsolidated subsidiaries
Write-down of assets -- -- -- --
Changes in working capital:
Accounts receivable 3,448 (6,699) (4,913) (2,759)
Inventories and prepaid expenses (1,420) (5,746) (3,943) (933)
Accounts payable (1,003) 3,852 3,040 1,601
Accrued liabilities and loss contingency 960 1,993 1,572 854
Prepetition reclamation payment -- -- -- --
authorized by court
Other 312 312 (625) 312
---------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,722 34,887 46,157 56,424
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (30,000) (30,000) (34,000) (32,000)
Proceeds from sale of property and equipment -- -- -- --
Investment in Grupo P.I. Mabe, S.A. de C.V (2,500) (3,000) -- --
Investment in and advances to unconsolidated 5,075 7,545 7,748 8,578
subsidiaries, at equity
Other -- -- -- --
---------- ---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (27,425) (25,455) (26,252) (23,422)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (8,297) (7,471) -- --
Prepetition debt payment authorized by court -- -- -- --
Net increase (decrease) in long-term borrowings -- -- -- --
---------- ---------- ---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (8,297) (7,471) -- --
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH $ 0 $ 1,961 $ 19,905 $ 33,003
CASH AT BEGINNING OF PERIOD $ 1,000 $ 1,000 $ 2,960 $ 22,865
---------- ---------- ---------- ----------
CASH AT END OF PERIOD $ 1,000 $ 2,961 $ 22,865 $ 55,868
========== ========== ========== ==========
</TABLE>
Numbers may not total due to rounding.
12
<PAGE> 131
VALUATION
The $290 million enterprise value of Reorganized Paragon was based upon the
Wellspring Investment Price under the Wellspring Stock Purchase Agreement,
including approximately $15.8 million in anticipated borrowings under the
Facility on the Effective Date. The Wellspring Investment Price for Paragon
does not purport to be equivalent to the appraisals of the assets.
Based upon the above and after deducting the estimated indebtedness of
Reorganized Paragon of approximately $155.0 million at the Effective Date,
the estimated total equity value is $119 million. Therefore, assuming
11,890,600 shares of New Common Stock will be outstanding on the Effective
Date, the value of New Common Stock is estimated to be $10.00 per share,
before adjustments for the value of the warrants issued to Class 4A.
THE VALUATIONS SET FORTH HEREIN REPRESENT ESTIMATED REORGANIZATION VALUES
BASED ON THE WELLSPRING INVESTMENT PRICE AND DO NOT NECESSARILY REFLECT
VALUES THAT COULD BE ATTAINABLE IN PUBLIC MARKETS. THE EQUITY VALUE AND/OR
THE FACE VALUE OF THE NEW NOTES ASCRIBED IN THE ANALYSIS DOES NOT PURPORT TO
BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET VALUE. SUCH TRADING VALUE,
IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE REORGANIZATION VALUE.
13
<PAGE> 132
EXHIBIT H
PROJECTION
(assuming the Wellspring Stock Purchase Agreement is not consummated)
i) Responsibility for and Purpose of the Projection
As a condition to confirmation of a plan, the Bankruptcy Code requires, among
other things, that the Bankruptcy Court determine that confirmation is not
likely to be followed by the liquidation or the need for further financial
reorganization of the debtor. In connection with the development of the Plan,
and for purposes of determining whether the Plan satisfies this feasibility
standard, Paragon's management has, through the development of a financial
projection (the "Projection"), analyzed the ability of Paragon to meet its
obligations under the Plan to maintain sufficient liquidity and capital
resources to conduct its business. The Projection was also prepared to assist
each holder of Allowed Claims or Old Common Stock Interests in 3A, 3B and 4A in
determining whether to accept or reject the Plan.
The Projection should be read in conjunction with the assumptions,
qualifications and footnotes to tables containing the Projection set forth
herein, the historical consolidated financial information (including the notes
and schedules thereto) and the other information set forth in Paragon's Annual
Report on Form 10-K for the fiscal year ended December 27, 1998, Paragon's
Quarterly Report on Form 10-Q for the period ended March 28, 1999, Paragon's
Quarterly Report on Form 10-Q for the period ended June 27, 1999, and Paragon's
Quarterly Report on Form 10-Q for the period ended September 26, 1999,
respectively, the full texts of which are incorporated herein by reference and
copies of which are publicly available or can be provided by Paragon upon
written request. The Projection was prepared in good faith based upon
assumptions believed to be reasonable at the time and applied in a manner
consistent with past practice. Most of the assumptions utilized in the
Projection concerning the operations of the business both before and after the
assumed Effective Date were prepared in August 1999. Such assumptions were
based, in part, on economic, competitive, and general business conditions
prevailing at the time in the various domestic and international markets in
which the Company operates. While as of the date of this Disclosure Statement
such economic, competitive and general business conditions have not materially
changed from those in effect on the date in which the Projection was developed,
any future changes in these conditions may materially impact the ability of
Paragon to achieve the Projection.
THE PROJECTION WAS NOT PREPARED WITH A VIEW TOWARDS COMPLYING WITH THE
GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. PARAGON'S INDEPENDENT ACCOUNTANT,
ARTHUR ANDERSEN LLP, HAS NEITHER COMPILED NOR EXAMINED THE ACCOMPANYING
PROSPECTIVE FINANCIAL INFORMATION TO DETERMINE THE REASONABLENESS THEREOF AND,
ACCORDINGLY, HAS NOT EXPRESSED AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH
RESPECT THERETO.
PARAGON DOES NOT, AS A MATTER OF COURSE, PUBLISH A PROJECTION OF ITS
ANTICIPATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS.
ACCORDINGLY, PARAGON DOES NOT INTEND TO, AND DISCLAIMS ANY OBLIGATION TO (A)
FURNISH AN UPDATED PROJECTION TO HOLDERS OF CLAIMS OR OLD COMMON STOCK
INTERESTS PRIOR TO THE EFFECTIVE DATE OR TO HOLDERS OF NEW SECURITIES OR ANY
OTHER PARTY AFTER THE EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN
ANY DOCUMENTS THAT MAY BE REQUIRED TO BE FILED WITH THE SEC, OR (C) OTHERWISE
MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
<PAGE> 133
THE PROJECTION PROVIDED IN THE DISCLOSURE STATEMENT HAS BEEN PREPARED
EXCLUSIVELY BY PARAGON'S MANAGEMENT. THE PROJECTION, WHILE PRESENTED WITH
NUMERICAL SPECIFICITY, IS NECESSARILY BASED ON A VARIETY OF ESTIMATES AND
ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT AT THE TIME
PREPARED, MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT
ECONOMIC, COMPETITIVE AND GENERAL BUSINESS UNCERTAINTIES AND CONTINGENCIES,
MANY OF WHICH ARE BEYOND PARAGON'S CONTROL. PARAGON CAUTIONS THAT NO
REPRESENTATIONS CAN BE MADE AS TO THE ACCURACY OF THE PROJECTION OR TO
REORGANIZED PARAGON'S ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME
ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES
OCCURRING SUBSEQUENT TO THE DATE ON WHICH THE PROJECTION WAS PREPARED MAY BE
DIFFERENT FROM THOSE ASSUMED OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED,
AND THUS THE OCCURRENCE OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A
MATERIAL AND POSSIBLY ADVERSE MANNER. THE PROJECTION, THEREFORE, MAY NOT BE
RELIED UPON AS A GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL
OCCUR.
FINALLY, THE FOLLOWING PROJECTION INCLUDES ASSUMPTIONS AS TO THE ENTERPRISE
VALUE OF REORGANIZED PARAGON, AND ESTIMATIONS AS TO THE FAIR VALUE OF ITS
ASSETS AND ITS ACTUAL LIABILITIES AS OF THE EFFECTIVE DATE. REORGANIZED PARAGON
WILL BE REQUIRED TO MAKE SUCH ESTIMATIONS AS OF THE EFFECTIVE DATE. SUCH
DETERMINATION WILL BE BASED UPON THE FAIR VALUES AS OF THAT DATE, WHICH COULD
BE MATERIALLY GREATER OR LOWER THAN THE VALUES ASSUMED IN THE FOREGOING
ESTIMATES.
2
<PAGE> 134
ii) Summary of Significant Assumptions
Paragon has developed the Projection (summarized below) to assist both
creditors and shareholders in their evaluation of the Plan and to analyze its
feasibility. THE PROJECTION IS BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS
DESCRIBED BELOW. ACTUAL OPERATING RESULTS AND VALUES MAY AND WILL VARY FROM
THOSE PROJECTED.
a. Fiscal Years. Paragon's fiscal year ends on the last Sunday of each
calendar year. Any reference to "Fiscal" immediately followed by a specific
year means the 52 or 53 week period ending on the Sunday preceding December 31
of such year. The fiscal year ending December 31, 2000 (Fiscal 2000) will be a
53-week year. The Projection assumes that all fiscal years contain 52 weeks of
projected results of operations since the difference between 52 weeks and 53
weeks of results in 2000 is not material to the financial condition of Paragon
or the results of operations.
b. Plan Terms and Consummation. The Projection assumes an Effective
Date of December 26, 1999, based upon the Wellspring Commitment not being
consummated, with Allowed Claims and Old Common Stock Interests treated in
accordance with the Plan with respect to such Allowed Claims and Interests. If
consummation of the Plan does not occur on or around December 26, 1999, there
is no guarantee that, among other things, customers will continue to support
the Company such that the Company could achieve the projected levels of volume
and revenues, and that trade creditors will support Paragon as projected.
Further, additional bankruptcy expenses will be incurred until such time as a
plan of reorganization is confirmed.
c. Assumptions Preceding the Effective Date. As a basis for the
Projection, management has included actual results through the second fiscal
quarter ended June 27, 1999, and has estimated the operating results for the
remainder of the fiscal year ended December 26, 1999, the assumed Effective
Date. Specifically, it has been assumed, among other things, that customers and
trade vendors will continue to support the Company, that the product licenses
entered into with P&G and K-C remain available to the Company and that the
product performance issues identified during the first half of the current
fiscal year have been substantially resolved.
d. General Economic Conditions. The Projection was prepared assuming
that economic conditions in the markets served by Paragon do not differ
significantly over the next five years from current economic conditions.
e. Net Sales. Net sales, which are projected to be $504.7 million in
1999, are projected to increase by approximately 9.1%, 10.3%, 7.4% and 3.7% in
fiscal years 2000, 2001, 2002, and 2003, respectively. Infant Care is expected
to account for 94.3%, 92.5%, 90.1% and 89.2% of net sales, and Feminine Care
and Adult Incontinence is expected to account for 5.7%, 7.5%, 9.9% and 10.8% of
net sales in fiscal 2000, 2001, 2002 and 2003, respectively.
Infant Care. The company experienced a significant decline in customer volume
during the first half of the fiscal 1999. Management believes that this
decrease in sales was due to a number of reasons including (i) product
performance issues, (ii) the continued impact of the discontinuation of
shipments to a major customer since mid-1998 due to product design issues,
(iii) increased consumer preference for premium priced products, (iv) increased
consumer preference for the mechanical closure system offered by one of the
national brand competitors, (v) continued pricing and promotional pressures by
branded and value segment competitors and (vi) the uncertainties related to the
Company's Chapter 11 proceedings.
The Company took significant actions during the first six months of fiscal 1999
that are expected to improve sales during the second half of the fiscal year
and into fiscal 2000. Specifically, the Company believes that certain product
performance issues it experienced in the first half of 1999 have been
3
<PAGE> 135
addressed. Shipments to the major customer that had been suspended in mid-1998
have resumed and are anticipated to build to more normal levels during the
second half of 1999. Further, the roll-out of an improved Ultra diaper which
incorporates stretch tabs and a new hook and loop closure system, the
introduction of a new training pant product and the launch of certain
destination store brand product and marketing programs are expected to increase
volume during the second half of 1999. However, infant care volume and sales
prices are expected to remain under pressure due to the carryover effects of
design and product performance issues and the continued competitive initiatives
from both national brand and store brand competitors. Based upon the above, the
projected sales growth in 2000 assumes customer volume and net sales will be
stimulated by (i) the continued effect of the improvement in product
performance, (ii) new premium programs implemented with customers during the
third quarter of 1999 and in 2000, (iii) an increase in the Company's
promotional and marketing activity and (iv) the continued transition of its
diaper product line to an improved Ultra diaper which incorporates stretch tabs
and a new hook and loop closure system, the benefits of which will be offset by
the continuing impact of competitive initiatives. Volume beyond 2000 is
expected to increase modestly due to the continued participation of mass
merchant trade customers in destination store brand programs, the benefits of
which will continue to be offset by competitive initiatives.
Feminine Care and Adult Incontinence. The uncertainty caused by the Company's
chapter 11 filing has significantly impacted the ability to attract additional
customers and sales volume. The Company expects this condition to persist until
emergence from Chapter 11. The Projection assumes accelerated customer
penetration and associated increases in sales coincident with the Company's
emergence from Chapter 11.
f. Gross Margin (revenues less cost of sales). Gross margin, which was
24.8% in 1997, 25.6% in 1998 and is expected to decline to 19.2% in 1999 is
projected to increase to 21.4% in Fiscal 2000 and then grow to 22.2% in Fiscal
2003. Management believes that the decrease in gross margin in 1999 is due to
manufacturing inefficiencies resulting from lower volume and start-up costs
associated with new product initiatives, increased raw material costs
associated with new products and higher royalties as a result of the settlement
and licensing agreements reached in the first quarter of 1999 with P&G and K-C.
More specifically, product costs have increased significantly in 1999 due to
the payment of royalties to P&G and K-C, increased price and usage of a new SAP
in order to address the product performance issues discussed above and
increased product and manufacturing costs associated with the continuing
roll-out of the improved Ultra diaper. Gross margins in 2000 and beyond are
projected to increase gradually due to (i) the realization of anticipated
manufacturing efficiencies (primarily through a reduction in conversion labor
and waste costs) resulting from increased diaper volume and improvement in
feminine care and adult incontinence sales volume and (ii) the anticipated
benefit of continuing management cost reduction initiatives.
g. Selling, General and Administrative Expenses. Selling, general and
administrative expenses, which are projected to be 15% of revenues in 1999, are
projected to decline significantly in 2000 to 13% of revenues due to lower
costs in packaging design and artwork and reduced promotional spending,
information technology expenses, and sales and marketing expenditures. Selling,
general and administrative expenses are projected to continue to decline by
approximately 1.1% of revenues from Fiscal 2000 to Fiscal 2003 due primarily to
operating efficiencies resulting from increased sales of Feminine Care and
Adult Incontinence products.
h. Income Taxes. The Projection assumes that, upon consummation,
Reorganized Paragon will be able to utilize net operating loss carryforwards on
a limited basis in accordance with Section 382 L(6) of the Internal Revenue
Code. Deferred tax assets created by the existence of the loss carryforwards
have been partially reserved. The combined federal, state and local income tax
rate, before the benefit from the utilization of tax loss carryforwards, is
estimated at 38%.
4
<PAGE> 136
i. Capital Expenditures. Capital expenditures consist primarily of
investment in existing machines and equipment, and plant upgrades. Management
believes that the ongoing upkeep and replacement of the existing manufacturing
base is necessary to achieve the level of operating profit contained in the
Projection. The Projection assumes a level of capital expenditures which,
consistent with management's business plan, can be supported by the capital
structure and projected operating results of Reorganized Paragon.
j. EBITDA. EBITDA is defined for purposes of the Projection as
earnings before interest expense, interest income, income tax provision,
depreciation and amortization, unusual items, reorganization items, and
extraordinary items.
k. Equity in Earnings of Unconsolidated Subsidiaries. The Projection
contains financial information regarding earnings in unconsolidated
subsidiaries which have been prepared in the local currencies by Paragon's
foreign joint venture partners and converted to U.S. dollars at exchange rates
in effect on the date the forecasts were prepared. The forecasts are based on
the then current market conditions in the respective countries which conditions
are assumed to remain stable. Foreign exchange rates are assumed to remain
constant during the Projection period as changes in such rates are assumed to
be offset by inflationary differences between the U.S. and the local economies.
Neither Paragon nor its foreign joint venture partners can predict whether such
market conditions will change dramatically in the future years.
Grupo P.I. Mabe, S.A. Paragon owns a 15% interest in Grupo P.I. Mabe,
S.A. de C.V. ("Mabesa"), plus an option to purchase an additional 34%
interest in Mabesa at a contractually determined price. At its current
15% ownership interest, Paragon records income from Mabesa based upon
the dividend income it receives. The Projection does not assume that
Paragon exercises its option to purchase any additional interest in
Mabesa. The joint venture agreements allow for the ability to dissolve
the joint venture if Paragon's ownership in Mabesa does not equal or
exceed 30% by January 2002.
Paragon-Mabesa International. Paragon owns a 49% interest in
Paragon-Mabesa International, S.A. de C.V. ("PMI"), a joint venture
that developed a diaper manufacturing facility in Tijuana, Mexico.
Under a Product Supply Agreement with PMI, the Company purchases
substantially all of PMI's production for sale to U.S. and European
retail customers. Paragon accounts for earnings from PMI using the
equity method of accounting.
Stronger Corporation. Paragon owns a 49% interest in Stronger
Corporation, S.A. ("Stronger"), which, in turn, owns 70% of
Argentina-based Serenity S.A. ("Serenity") and approximately 100% of
Brazil-based MPC Productos para Higience Ltda. ("MPC"). Paragon
accounts for earnings from Stronger using the equity method of
accounting. Commencing in July 2000 through July 2004, Stronger has
the option to acquire the remaining 30% of Serenity held by minority
shareholders at a predetermined price. Further, the minority
shareholders of Serenity have the right to put to Stronger and
Stronger has the obligation to purchase from the minority shareholders
the remaining 30% of the shares held by the minority shareholders
commencing on July 2001 though July 2002 at a predetermined price.
Goodbaby Paragon Hygienic Products. Paragon owns a 40% interest in
Goodbaby Paragon Hygienic Products Co. Ltd. ("Goodbaby"), a
manufacturing and marketing joint venture in China. Paragon accounts
for the earnings from Goodbaby using the equity method of accounting.
5
<PAGE> 137
l. Notes Receivable from Unconsolidated Subsidiaries. As part of
Paragon's acquisition of the 49% interest in PMI, the Company assisted in the
financing of equipment, building construction, and the start-up of PMI's
manufacturing facility in Tijuana, Mexico. Interest and principal on the note
receivable due to Paragon is payable from PMI's free cash flow on various
dates.
m. Interest Expense. Interest expense reflects interest on borrowings
under a senior credit facility and other miscellaneous indebtedness.
n. Fresh Start Accounting. The Projection has been prepared using the
basic principles of "fresh start" accounting for periods after December 26,
1999. These principles are contained in the American Institute of Certified
Public Accountants Statement of Position 90-7 "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code." Under "fresh start" accounting
principles, Paragon will determine the reorganization value of the reorganized
company at the Effective Date. This value will be allocated, based on estimated
fair market values, to specific tangible or identifiable intangible assets, and
Paragon will record an intangible asset equal to the reorganization value in
excess of or less than amounts allocable to identifiable assets. Based on the
Company's reorganization value, the Projection assumes that no reorganization
value in excess of amounts allocable to identifiable assets exists. Paragon is
in the process of evaluating further how the reorganization value will be
allocated to its various assets including its foreign joint venture assets. It
is possible that the final allocation will differ from the amounts presented
herein.
o. Reorganization Value. For purposes of this Disclosure Statement and
in order to prepare the Projection, management has estimated the enterprise
value of Reorganized Paragon as of December 26, 1999 to be approximately $290.0
million, including $18.2 million of anticipated borrowings under the Facility
(as defined below) on the Effective Date. See "Valuation" discussion for
further detail.
p. Working Capital. Components of working capital are projected
primarily on the basis of historic patterns applied to projected levels of
operation. Vendor trade terms have not been materially disrupted during the
Chapter 11 proceeding, and are not expected to change materially in the
post-Effective Date period.
q. New Secured Credit Facility. The Projection assumes Paragon obtains
a revolving credit facility in an aggregate principal amount of $75.0 million
(the "Facility"). Paragon has obtained a commitment from Citicorp U.S.A. for
such a facility. Based on the Citicorp commitment, the Company's maximum
borrowing under the Facility is assumed to be limited to the lesser of $75.0
million or an available amount as determined by a borrowing base formula. The
borrowing base formula is assumed to be of certain specified percentages of
eligible accounts receivable, eligible inventory, equipment and personal and
real property of the Company. Obligations under the Facility are assumed
secured by the security interest in, pledge and lien on substantially all of
the Company's assets and properties and the proceeds thereof. Borrowings under
the Facility may be used to fund working capital and for other general
corporate purposes.
iii) Special Note Regarding Forward-Looking Statements
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including the Annual Report on Form 10-K) and the
Bankruptcy Court (including this Disclosure Statement and the Projection) may
include statements that are not historical facts, so-called "forward-looking
statements." The words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in the Company's
forward-looking statements. Factors
6
<PAGE> 138
which could affect the Company's financial results, including but not limited
to: the Company's Chapter 11 filing; increased raw material prices and product
costs; new product and packaging introductions by competitors; increased price
and promotion pressure from competitors; year 2000 compliance issues; and
patent litigation, are described herein. Readers are cautioned not to place
undue reliance on the forward-looking statements, which speak only as of the
date hereof, and which are made by management pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. For additional information about Paragon and relevant
risk factors, see Section IX, Certain Risk Factors To Be Considered.
iv) Projection
The Projection prepared by management is summarized in the following tables.
Specifically, the attached tables include:
a. Pro-forma Reorganized Paragon balance sheet at December 26,
1999, including all reorganization and fresh-start
adjustments.
b. Projected balance sheets for the fiscal years ending in 2000,
2001, 2002, and 2003.
c. Projected income statements for the fiscal years ending in
2000, 2001, 2002, and 2003.
d. Projected statements of cash flow for the fiscal years ending
in 2000, 2001, 2002, and 2003.
All captions in the attached Projection do not correspond exactly to Paragon's
historical external reporting; some captions have been combined or expanded for
presentation purposes.
7
<PAGE> 139
PARAGON TRADE BRANDS, INC.
PRO-FORMA REORGANIZED BALANCE SHEET
DECEMBER 26, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FRESH START
ESTIMATED BALANCE SHEET
DECEMBER 26, REORGANIZATION FRESH START(6) DECEMBER 26,
ASSETS 1999 ADJUSTMENTS ADJUSTMENTS 1999
------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
Cash and short-term investments $ 11,486 $ (10,486) $ -- $ 1,000
Receivables 62,010 -- -- 62,010
Income Tax Receivable -- -- -- --
Inventories 56,717 -- -- 56,717
Current portion of deferred income taxes 2,737 -- 2,882 5,619
Prepaid expenses 4,123 -- -- 4,123
---------- ---------- ---------- ----------
Total current assets 137,073 (10,486) 2,882 129,469
---------- ---------- ---------- ----------
Property and equipment, at cost 346,392 -- (50,608) 295,783
Allowance for depreciation (217,292) -- -- (217,292)
---------- ---------- ---------- ----------
Property and equipment, net 129,099 -- (50,608) 78,491
---------- ---------- ---------- ----------
Assets held for sale 1,463 -- -- 1,463
Investment in unconsolidated subsidiaries, at cost 22,929 -- -- 22,929
Investment and advances to unconsolidated --
subsidiaries, at equity 67,652 -- 4,334 71,986
Goodwill 30,897 -- (30,897) --
Deferred income taxes -- -- 39,766 39,766
Other assets 11,984 2,000 (2,307) 11,677
---------- ---------- ---------- ----------
Total other assets 134,925 2,000 10,896 147,821
---------- ---------- ---------- ----------
TOTAL ASSETS $ 401,098 $ (8,486) $ (36,830) $ 355,781
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Short-term borrowings $ -- $ 18,169 (1) $ -- $ 18,169
Accounts payable 42,737 (5,000)(2) -- 37,737
Accrued liabilities 38,853 (7,225)(3) (3,800) 27,828
---------- ---------- ---------- ----------
Total current liabilities 81,590 5,944 (3,800) 83,734
Liabilities subject to compromise 406,423 (14,995)(4) -- --
(500)
(390,928)(5)
Long-term debt -- 500 -- 500
Deferred compensation 216 -- -- 216
Deferred income taxes 4,666 -- (4,666) --
---------- ---------- ---------- ----------
Total liabilities 492,895 (399,979) (8,466) 84,450
---------- ---------- ---------- ----------
Total shareholders' equity (deficit) (91,798) 391,493 (28,364) 271,331
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) $ 401,097 $ (8,486) $ (36,830) $ 355,781
========== ========== ========== ==========
</TABLE>
Numbers may not total due to rounding.
8
<PAGE> 140
NOTES TO PRO-FORMA REORGANIZED BALANCE SHEET
(1) Anticipated borrowings under the Facility needed to pay certain
administration claims and pre-petition liabilities consistent with the
treatment of these liabilities in the Plan.
(2) Comprised of $5.0 mm accrued and unpaid Chapter 11 professional fees.
(3) Includes payment of management and employee confirmation bonuses ($3.2
million) and other administrative claims ($4.0 million).
(4) Includes payment of P&G and K-C administrative claims ($10.0 million),
administrative and priority claims, including any remaining unpaid
reclamation claims ($3.1 million), the satisfaction of convenience
claims ($1.8 million) and the DIP facility claim ($0.08 million).
(5) The Plan provides for, among other things, the de-leveraging of
Paragon through an exchange of all of the Company's pre-petition
unsecured indebtedness into 13,566,574 shares of New Common Stock.
This amount represents primarily the face amount of such indebtedness
converted into shares of New Common Stock. Further, holders of Old
Common Stock Interests will receive 118,149 shares of New Common Stock
(representing 0.9% of the primary shares of the Company) and 243,248
New Warrants (representing 1.8% of the fully diluted shares of the
Company). Further, $0.5 million of cash will be set aside to fund the
pursuit of litigation described in section 9.21 of the Plan.
(6) Paragon proposes to account for the reorganization and the related
transactions using the principles of "fresh start" accounting as
required by Statement of Position 90-7 ("SOP 90-7") issued by the
American Institute of Certified Public Accountants (the "AICPA"). The
Company has estimated a range of reorganization value, between $280.0
million and $300.0 million, inclusive of approximately $18.2 million
in anticipated borrowings under the Facility on the Effective Date.
For purposes of determining reorganization value, Paragon used the
mid-point of that range, $290.0 million. In accordance with SOP 90-7,
the reorganization value has been allocated to specific tangible and
identifiable intangible assets and liabilities. For the purposes of
this presentation, book values have been assumed to equal fair values
except for specific items in which quantifiable data is currently
available. The amount of shareholders' equity in the fresh start
balance sheet is not an estimate of the trading value of the New
Common Stock and the New Warrants after confirmation of the Plan,
which value is subject to many uncertainties and cannot be reasonable
estimated at this time. Paragon does not make any representation as to
the trading value of the New Common Stock and the New Warrants to be
issued pursuant to the Plan.
9
<PAGE> 141
REORGANIZED PARAGON TRADE BRANDS
PROJECTED BALANCE SHEETS
FISCAL YEARS ENDING 1999 THROUGH 2003
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
AS OF FISCAL YEAR ENDING
----------------------------------------------------------------------------
DECEMBER 26, DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 28,
ASSETS 1999 2000 2001 2002 2003
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and short-term investments $ 1,000 $ 4,892 $ 31,890 $ 65,504 $ 112,061
Receivables 62,010 58,562 65,261 70,174 72,933
Inventories 56,717 58,137 63,882 67,825 68,758
Current portion of deferred income taxes 5,619 5,619 5,619 5,619 5,619
Prepaid expenses 4,123 4,123 4,123 4,123 4,123
--------- --------- --------- --------- ---------
Total current assets 129,469 131,333 170,776 213,246 263,494
--------- --------- --------- --------- ---------
Property and equipment, at cost 295,783 325,783 355,783 389,783 421,783
Allowance for depreciation (217,292) (240,315) (264,095) (291,675) (321,563)
--------- --------- --------- --------- ---------
Property and equipment, net 78,491 85,469 91,688 98,109 100,221
--------- --------- --------- --------- ---------
Assets held for sale 1,463 1,463 1,463 1,463 1,463
Investment in unconsolidated subsidiaries, at cost 22,929 25,429 28,429 28,429 28,429
Investment and advances to unconsolidated 71,986 72,807 73,599 74,111 73,661
subsidiaries, at equity
Goodwill -- -- -- -- --
Deferred income taxes 39,766 31,218 18,973 9,813 635
Other assets 11,677 10,595 9,513 9,369 8,287
--------- --------- --------- --------- ---------
Total other assets 147,821 141,513 131,977 123,184 112,475
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 355,781 $ 358,315 $ 394,441 $ 434,539 $ 476,190
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Short-term borrowings $ 18,169 $ -- $ -- $ -- $ --
Accounts payable 37,737 36,734 40,586 43,626 45,226
Accrued liabilities 27,828 28,788 30,781 32,353 33,206
--------- --------- --------- --------- ---------
Total current liabilities 83,734 65,522 71,367 75,978 78,433
Liabilities subject to compromise -- -- -- -- --
Long-term debt 500 500 500 500 500
Deferred compensation 216 216 216 216 216
Deferred income taxes -- -- -- -- --
--------- --------- --------- --------- ---------
Total liabilities 84,450 66,238 72,083 76,694 79,149
--------- --------- --------- --------- ---------
Total shareholders' equity (deficit) 271,331 292,076 322,358 357,844 397,041
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) $ 355,781 $ 358,314 $ 394,440 $ 434,539 $ 476,190
========= ========= ========= ========= =========
</TABLE>
Numbers may not total due to rounding.
10
<PAGE> 142
REORGANIZED PARAGON TRADE BRANDS
PROJECTED INCOME STATEMENTS
FISCAL YEARS 2000 THROUGH 2003
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
---------------------------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 28,
2000 2001 2002 2003
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales, net of discounts and allowances $ 550,618 $ 607,559 $ 652,482 $ 676,870
Cost of sales 453,720 497,750 534,921 553,655
---------- ---------- ---------- ----------
Gross profit 96,898 109,809 117,561 123,214
Selling, general and administrative 69,916 73,022 76,355 79,126
Research and development expense 4,274 4,583 4,807 5,031
---------- ---------- ---------- ----------
Operating profit (loss) 22,707 32,205 36,400 39,057
Equity in earning of unconsolidated subsidiaries 5,896 8,606 10,028 10,630
Dividend income from unconsolidated subsidiary 1,482 1,811 2,203 2,671
Interest expense 1,594 757 758 758
Other income, net 1,154 1,222 2,376 3,849
---------- ---------- ---------- ----------
Earnings (loss) before income taxes 29,646 43,086 50,250 55,451
Bankruptcy costs -- -- -- --
Provision for income taxes 8,900 12,804 14,763 16,254
---------- ---------- ---------- ----------
Net earnings (loss) $ 20,745 $ 30,282 $ 35,487 $ 39,197
========== ========== ========== ==========
Basic earnings (loss) per common share $ 1.53 $ 2.23 $ 2.62 $ 2.89
========== ========== ========== ==========
</TABLE>
Numbers may not total due to rounding.
11
<PAGE> 143
REORGANIZED PARAGON TRADE BRANDS
STATEMENT OF CASH FLOWS
FISCAL YEARS 2000 THROUGH 2003
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
---------------------------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 28,
2000 2001 2002 2003
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 20,745 $ 30,282 $ 35,487 $ 39,197
Non-cash charges to earnings:
Depreciation and amortization 23,792 24,550 28,349 30,657
Deferred income taxes 8,548 12,246 9,160 9,178
Equity in (earnings) loss of (5,896) (8,337) (8,260) (8,129)
unconsolidated subsidiaries
Write-down of assets -- -- -- --
Changes in working capital:
Accounts receivable 3,448 (6,699) (4,913) (2,759)
Inventories and prepaid expenses (1,420) (5,746) (3,943) (933)
Accounts payable (1,003) 3,852 3,040 1,601
Accrued liabilities and loss contingency 960 1,993 1,572 854
Prepetition reclamation payment -- -- -- --
authorized by court
Other 313 313 (625) 313
---------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 49,486 52,453 59,867 69,978
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (30,000) (30,000) (34,000) (32,000)
Proceeds from sale of property and equipment -- -- -- --
Investment in Grupo P.I. Mabe, S.A. de C.V (2,500) (3,000) -- --
Investment in and advances to unconsolidated 5,075 7,545 7,748 8,578
subsidiaries, at equity
Other -- -- -- --
---------- ---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (27,425) (25,455) (26,252) (23,422)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (18,169) -- -- --
Prepetition debt payment authorized by court -- -- -- --
Net increase (decrease) in long-term borrowings -- -- -- --
---------- ---------- ---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (18,169) -- -- --
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 3,892 26,999 33,615 46,557
CASH AT BEGINNING OF PERIOD 1,000 4,892 31,890 65,504
---------- ---------- ---------- ----------
CASH AT END OF PERIOD $ 4,892 $ 31,890 $ 65,505 $ 112,061
========== ========== ========== ==========
</TABLE>
Numbers may not total due to rounding.
12
<PAGE> 144
VALUATION
Three methodologies were used to derive the enterprise value of Reorganized
Paragon based on the Projection: (i) a comparison of the Company and its
projected performance to how the market trades or values comparable
companies, (ii) a calculation of the present value of the free cash flows
under the Projection, including an assumption for a terminal value, and (iii)
reference to the bids as indications of interest received during the
marketing of the Debtor's businesses.
The market-based approach involves identifying a group of publicly traded
companies whose businesses or product lines are comparable to those of
Paragon as a whole or significant portions of the Company's operations, and
then calculating ratios of various financial results to the public market
values of these companies. The historical trading levels of Paragon on the
public markets were also examined. The ranges of ratios derived are then
applied to Paragon's projected financial results to derive a range of implied
values. The discounted cash flow approach involves deriving the unlevered
free cash flows that Reorganized Paragon would generate assuming the
Projection was realized. These cash flows, and an estimated value of the
Company at the end of the projected period (the "Terminal Value"), are
discounted to the present at Paragon's estimated post-restructuring weighted
average cost of capital to determine the Company's enterprise value.
ESTIMATES OF VALUE DO NOT PURPORT TO BE APPRAISALS NOR DO THEY NECESSARILY
REFLECT THE VALUES WHICH MAY BE REALIZED IF ASSETS ARE SOLD. THE ESTIMATES OF
VALUE REPRESENT HYPOTHETICAL REORGANIZED ENTERPRISE VALUES ASSUMING THE
IMPLEMENTATION OF MANAGEMENT'S BUSINESS PLAN AS WELL AS OTHER SIGNIFICANT
ASSUMPTIONS. SUCH ESTIMATES WERE DEVELOPED SOLELY FOR PURPOSES OF FORMULATING
AND NEGOTIATING A PLAN OF REORGANIZATION AND ANALYZING THE PROJECTED
RECOVERIES THEREUNDER.
Based upon the methods described above, the estimated enterprise value for
Reorganized Paragon is between $280.0 million and $300.0 million, with a
mid-point value of $290.0 million, inclusive of approximately $18.2 million
in anticipated borrowings under the Facility on the Effective Date. After
deducting the assumed miscellaneous indebtedness of approximately $0.5
million at the Effective Date, the total equity value of Reorganized Paragon
is estimated between $261.3 million and $281.3 million, with a mid-point
value of $271.3 million. Therefore, assuming 13,566,574 shares of New Common
Stock will be outstanding on the Effective Date, the value of New Common
Stock is estimated to be $20.00 per share, before adjustment for the value of
the warrants issued to Class 4A.
THE ESTIMATED ENTERPRISE VALUE IS HIGHLY DEPENDENT UPON ACHIEVING THE FUTURE
FINANCIAL RESULTS SET FORTH IN THE PROJECTION AS WELL AS THE REALIZATION OF
CERTAIN OTHER ASSUMPTIONS THAT ARE NOT GUARANTEED.
THE VALUATIONS SET FORTH HEREIN REPRESENT ESTIMATED REORGANIZATION VALUES AND
DO NOT NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN PUBLIC OR
PRIVATE MARKETS. THE EQUITY VALUE ASCRIBED IN THE ANALYSIS DOES NOT PURPORT
TO BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET VALUE. SUCH TRADING
VALUE, IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE REORGANIZATION EQUITY
VALUE RANGES ASSOCIATED WITH THE VALUATION ANALYSIS.
13
<PAGE> 1
EXHIBIT T3E.3
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
)
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. )
)
)
- -----------------------------------------x
ORDER: (A) APPROVING DISCLOSURE STATEMENT; AND (B)
ESTABLISHING SOLICITATION AND CONFIRMATION PROCESS PROCEDURES
Paragon Trade Brands, Inc., the above-captioned debtor and
debtor in possession ("Paragon" or the "Debtor"), and the Official Committee of
Unsecured Creditors appointed in Paragon's chapter 11 case (the "Creditors'
Committee" and together with the Debtor, the "Proponents") having jointly
proposed and filed with the Clerk of this Court, on October 15, 1999, the First
Amended Plan of Reorganization, dated October 15, 1999 (the "First Amended Plan"
and as further amended and restated from time to time, including before, at or
immediately after the Hearing, as that term is defined below, the "Plan"); and
the Debtor having filed with the Clerk of this Court, on October 15, 1999, the
related Disclosure Statement for First Amended Plan of Reorganization, dated
October 15, 1999, including all exhibits filed therewith (as amended and
restated from time to time, including before, at or immediately after the
Hearing, the "Disclosure Statement" and together with the First Amended Plan,
the "First Amended Plan and Disclosure Statement"); and the First Amended Plan
and the Disclosure Statement having amended the Plan of Reorganization and the
related disclosure statement (together, the "Original Plan and Disclosure
Statement") previously proposed by the Debtor, which documents were filed with
this Court on August 24, 1999; and, by order dated October 15, 1999 (the
"Scheduling Order"), this Court having (a) scheduled a hearing to be held on
November 17, 1999 or as soon thereafter as counsel may be heard (the "Hearing"),
to consider, among other things, in accordance with section 1125 of title 11 of
the United States Code (the "Bankruptcy Code") and Rules 2002 and 3017 of the
Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), the adequacy of
the information contained in the Disclosure Statement, and (b) prescribed the
form and scope of notice with respect to the Hearing; and, in accordance with
the Scheduling Order: (A) notice of the Hearing having been given by first class
mail, on or before October 16, 1999, to (i)
<PAGE> 2
holders of claims against and interests in the Debtor in amounts greater than
zero dollars, as they appear on the Debtor's schedules of assets and
liabilities, as amended (the "Schedules"), (ii) holders of contingent,
unliquidated, disputed and/or undetermined claims against and interests in the
Debtor, in whatever dollar amount, as they appear on the Schedules, (iii) unless
already identified in clauses (i) and (ii) above, holders of claims against and
interests in the Debtor that have filed proofs of claim or proofs of interest,
as they appear and at the addresses set forth in such proofs of claim or proofs
of interest (or in the case of proofs of claim or proofs of interest that have
been amended, on the last filed amended proof of claim or proof of interest),
(iv) record holders of the Debtor's common stock as of October 1, 1999, and (v)
all entities that had filed and served, pursuant to Bankruptcy Rule 2002, a
notice of appearance in the Debtor's chapter 11 case as of October 15, 1999 (the
"Claim and Interest Notice Parties"); and (B) a copy of the Scheduling Order,
the Proponents' motion requesting entry of same, and the First Amended Plan and
the Disclosure Statement having been sent by first class mail, on or before
October 16, 1999, to (i) each member of the Creditors' Committee and its
counsel, (ii) each member of the Official Committee of Equity Security Holders
(the "Equity Committee") and its counsel, (iii) counsel to The Procter & Gamble
Company, (iv) counsel to Kimberly-Clark Corporation, (v) the United States
Trustee for the Northern District of Georgia, (vi) the Securities and Exchange
Commission, (vii) the Internal Revenue Service, and (viii) the United States
Attorney's office (the "Additional Notice Parties" and collectively with the
Claim and Interest Notice Parties, the "Notice Parties"); and, in accordance
with the Scheduling Order, notice of the Hearing having been published once each
in (a) the national editions of The Wall Street Journal and The New York Times
and (b) The Macon Telegraph & News, The Pittsburgh Post-Gazette, The Atlanta
Journal Constitution, The Waco Tribune Herald, The Seattle Times, The Los
Angeles Times and The Gaffney Ledger no later than October 29, 1999; and the
Proponents having jointly filed with the Clerk of the Court on November 15,
1999, the Second Amended Plan of Reorganization and the Disclosure Statement for
the Second Amended Plan of Reorganization each dated November 15, 1999 (together
with all exhibits filed therewith, the "Second Amended Plan and Disclosure
Statement"); and unexecuted copies of the Second Amended Plan and Disclosure
Statement, marked to show changes from the First Amended Plan and Disclosure
Statement, having been served by overnight mail on November 13, 1999 upon (i)
counsel to the Creditors' Committee, (ii) counsel to the Equity Committee, (iii)
counsel to P&G, (iv) counsel to K-C, and (v) counsel to Debt Acquisition Company
of America IV, Inc.; and filed copies of the Second Amended Plan and Disclosure
Statement having been provided by hand to the Securities and Exchange Commission
on November 16 1999; and further revised copies of the Second Amended Plan and
Disclosure Statement, marked to show changes from the copies filed with the
Clerk of the Court on November 15, 1999, having been made available to creditors
and other parties in interest at the Hearing; and amendments to the Disclosure
Statement, the Plan and the other forms of documents and instruments annexed to
the Disclosure Statement as exhibits having been filed with the Court and/or
presented to the Court at or prior to the Hearing; and (x) a formal objection to
the adequacy of the information contained in the Disclosure Statement having
been filed by Debt Acquisition Company of America IV, Inc., and (y) an informal
comment letter regarding the Disclosure Statement having been received from the
Securities and Exchange Commission (collectively, the "Objections"); and the
Hearing having been commenced on November 17, 1999 and concluded on November 18,
2
<PAGE> 3
1999; and upon the Proponents' motion, dated October 28, 1999 (the "Voting
Procedures Motion"), for entry of an order establishing, among other things,
voting procedures with respect to the Plan and approving forms of ballots; and
the Court having considered the Disclosure Statement, all amendments and
modifications thereto and the other forms of documents and instruments annexed
thereto, as amended; and upon the Objections, the record of the Hearing, and all
prior proceedings in this case; and after due deliberation and sufficient cause
appearing therefor, it is:
FOUND, THAT:
1. Notice of the Hearing, in the form, within the time and in
accordance with the procedures approved and prescribed by this Court in the
Scheduling Order, has been given as evidenced by affidavits of service and
affidavits or certificates of publication filed with this Court.
2. Notice of the Hearing, as given and as approved and
prescribed by this Court in the Scheduling Order, is adequate and sufficient
pursuant to the Bankruptcy Code, the Bankruptcy Rules and other applicable law.
3. The Creditors' Committee, the Equity Committee, P&G and K-C
support approval of the Disclosure Statement.
4. The Objections to the adequacy of the information contained
in the Disclosure Statement were considered and overruled by the Court unless
otherwise resolved or withdrawn at or prior to the Hearing, as set forth on the
record of the Hearing.
5. The Disclosure Statement, as amended, modified or
supplemented by the record of the Hearing and revisions made or to be made as a
result thereof, contains "adequate information," as that term is defined in
section 1125 of the Bankruptcy Code, with respect to the Plan.
6. The claims in Classes 1 and 2, as designated and defined in
the Plan (collectively, the "Unimpaired Claims"), are designated under the Plan
as unimpaired within the meaning of section 1124 of the Bankruptcy Code and,
therefore, the holders thereof are conclusively presumed to have accepted the
Plan and are not entitled to vote on the Plan under section 1126(f) of the
Bankruptcy Code.
7. The claims in Classes 3A and 3B, as designated and defined
in the Plan (collectively, the "Voting Impaired Claims"), are designated under
the Plan as impaired within the meaning of section 1124 of the Bankruptcy Code
and, pursuant to section 1126 of the Bankruptcy Code, the holders of such claims
are entitled to vote to accept or reject the Plan.
8. The interests in Class 4A, as designated and defined in the
Plan (the "Voting Impaired Interests"), are designated under the Plan as
impaired within the meaning of section 1124 of the Bankruptcy Code and pursuant
to section 1126 of the Bankruptcy Code, the holders of such interests are
entitled to vote to accept or reject the Plan.
3
<PAGE> 4
9. The interests in Class 4B, as designated and defined in the
Plan (the "Nonvoting Impaired Interests"), are designated under the Plan as
impaired within the meaning of section 1124 of the Bankruptcy Code, will receive
no distributions under the Plan, and, therefore, are deemed to have rejected the
Plan and are not entitled to vote on the Plan pursuant to section 1126(g) of the
Bankruptcy Code.
10. Except as set forth herein, voting and balloting
procedures concerning the Plan shall be governed by this Court's Order
Establishing Voting Procedures, Approving Forms of Ballots, approving Retention
of Balloting Agent and Establishing Certain Rights Offering Procedures, dated
November 18, 1999 (the "Voting Procedures Order").
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED THAT:
A. The Disclosure Statement, as amended, modified or
supplemented by the record of the Hearing and the revisions made or to be made
as a result thereof, is hereby approved as containing "adequate information"
within the meaning of section 1125 of the Bankruptcy Code with respect to the
Plan, and any Objections which have not been withdrawn or resolved hereby are
overruled.
B. The Proponents are authorized and empowered to solicit
acceptances of the Plan in accordance with this Order and the Voting Procedures
Order. The Equity Committee shall be authorized to send a letter, substantially
in the form of letter described on the record of the Hearing, soliciting
acceptances of the Plan.
C. In accordance with Bankruptcy Rules 2002(b) and 3017(d),
the Proponents and/or the Debtor's balloting agent (and/or their agents) hereby
are authorized and empowered to transmit on or before November 24, 1999:
(i) to the holders of the Unimpaired Claims, (a) the Notice of
Non-Voting Status substantially in the form annexed to the Voting
Procedures Motion as Exhibit I, (b) notice of the hearing (the
"Confirmation Hearing") to consider confirmation of the Plan,
substantially in the form annexed hereto as Exhibit A (the "Notice")
and (c) this Order;
(ii) to the holders of the Voting Impaired Claims, the
following documents (collectively, the "Solicitation Package"): (a) the
Disclosure Statement (including the Plan as annexed thereto as Exhibit
A), (b) this Order, (c) the Notice, (d) a ballot or ballots, if
applicable and (e) the Voting Procedures Order (excluding exhibits
thereto);
(iii) to the holders of Nonvoting Impaired Interests, (a) the
Disclosure Statement (including the Plan as annexed thereto as Exhibit
A), (b) the Notice, (c) this Order and (d) the Notice of Deemed
Rejection substantially in the form annexed to the Voting Procedures
Motion as Exhibit J;
(iv) to parties to executory contracts, unexpired leases,
licenses and/or permits of the Debtor to be assumed or retained,
assumed and assigned or rejected, (a) the
4
<PAGE> 5
Disclosure Statement (including the Plan as annexed thereto as Exhibit
A), (b) this Order and (c) the Notice; and
(v) to the extent not otherwise mentioned in this decretal
paragraph, to the Notice Parties, (a) this Order and (b) the Notice.
With respect to any such notices or Solicitation Packages that
the Debtor, the Proponents or their agents mail to the required address that are
returned as undeliverable, no efforts need be taken to re-mail such materials.
D. The form of Notice is approved.
E. Any person or entity that seeks to solicit rejections of
the Plan shall seek an order of this Court, by motion on notice to the
Proponents, for approval of any solicitation materials as containing "adequate
information" based on the same standard of review that is applicable to the
Disclosure Statement.
F. The filing of a motion seeking approval of any solicitation
materials seeking rejection of the Plan shall not affect the approval of the
Disclosure Statement herein or the dates set forth herein or in the Voting
Procedures Order relating to the solicitation of votes, tabulation of ballots or
the hearing to consider confirmation of the Plan (the "Confirmation Hearing").
G. The Record Date (as defined in the Plan) for determining
which holders of claims against and interests in the Debtor are entitled to vote
on the Plan, including holders of record of Old Common Stock Interests, shall be
5:00 p.m. (Atlanta, Georgia time) on November 1, 1999. Neither the Debtors nor
Reorganized Paragon (as defined in the Plan) shall recognize transfers of Claims
or Interests which occur after 5:00 p.m. (Atlanta, Georgia time) on November 1,
1999 for purposes of voting on the Plan.
H. The deadline for the Debtor's balloting agent, Bankruptcy
Services, LLC, to receive ballots in respect of the Plan, and to receive summary
ballots from Intermediaries (as defined in the Disclosure Statement) with
respect to Old Common Stock Interests, shall be January 7, 2000 at 5:00 p.m.
(Atlanta, Georgia time).
I. The holders of Unimpaired Claims are not entitled to vote
to accept or reject the Plan and are conclusively presumed to have accepted the
Plan pursuant to Section 1126(f) of the Bankruptcy Code.
J. The holders of Voting Impaired Claims and Voting Impaired
Interests are entitled to vote to accept or reject the Plan pursuant to Section
1126 of the Bankruptcy Code.
K. The holders of Nonvoting Impaired Interests are deemed not
to have accepted the Plan pursuant to Section 1126(g) of the Bankruptcy Code.
5
<PAGE> 6
L. The Confirmation Hearing shall be held at the United States
Bankruptcy Court, U.S. Courthouse, Richard B. Russell Federal Building, 75
Spring Street, S.W., Atlanta, Georgia 30303, in Courtroom 1204 on January 13,
2000 at 10:00 a.m. (Atlanta, Georgia time), or as soon thereafter as counsel can
be heard, and may be adjourned from time to time without further notice (other
than by announcement by the Proponents of the adjourned date or dates at such
hearing).
M. In accordance with Bankruptcy Rules 2002(b), (d), (f), (i),
(j), (k) and (1), 3017 and 3018, notice of the Confirmation Hearing shall be
deemed adequate and sufficient if, (i) on or before November 24, 1999, the
Debtor serves by first class mail the Notice (a) as described in paragraph C
hereof, on the Notice Parties and such other parties described in such paragraph
C (excluding parties who have filed proofs of claim which have previously been
disallowed in full and expunged), and (b) upon all parties listed on the
Schedules as holding Claims in the amount of $0, which amount is not contingent,
unliquidated or undetermined, and (ii) on or before December 10, 1999, the
Debtor publishes the Notice once each in (a) the national editions of The Wall
Street Journal and The New York Times and (b) The Macon Telegraph & News, The
Pittsburgh Post-Gazette, The Atlanta Journal Constitution, The Waco Tribune
Herald, The Seattle Times, The Los Angeles Times and The Gaffney Ledger.
N. At least twenty (20) calendar days before the Confirmation
Hearing, the Debtor shall file and serve the "Schedule of Executory Contracts
and Unexpired Leases to be Rejected" (as identified in Section 8.1 of the Plan),
which schedule shall identify the executory contracts and unexpired leases to be
rejected by the Debtor as of the Confirmation Date of the Plan but subject to
the occurrence of the Effective Date. ANY PARTY TO AN EXECUTORY CONTRACT OR
UNEXPIRED LEASE TO BE ASSUMED BY THE DEBTOR BY OPERATION OF ARTICLE VIII OF THE
PLAN MUST ASSERT ALL AMOUNTS THAT SUCH PARTY BELIEVES MUST BE PAID OR CURED BY
THE DEBTOR PURSUANT TO SECTION 365 OF THE BANKRUPTCY CODE IN A WRITING (A "CURE
STATEMENT") FILED WITH THE COURT AND SERVED ON THE DEBTOR'S COUNSEL SO THAT IT
IS RECEIVED ON OR BEFORE 4:45 P.M. (ATLANTA, GEORGIA TIME), ON JANUARY 6, 2000.
FAILURE TO FILE AND SERVE A CURE STATEMENT STRICTLY IN ACCORDANCE WITH THE
FOREGOING SHALL, UNLESS THE DEBTOR OR REORGANIZED PARAGON OTHERWISE AGREES IN
WRITING, RESULT IN THE WAIVER AND RELEASE OF ANY AND ALL CLAIMS AND AMOUNTS THAT
OTHERWISE MAY HAVE BEEN DUE TO SUCH PARTY UPON THE DEBTOR'S ASSUMPTION OF THE
RESPECTIVE EXECUTORY CONTRACT OR UNEXPIRED LEASE IN EXCESS OF THE RESPECTIVE
CURE AMOUNT REFLECTED IN THE DEBTOR'S BOOKS AND RECORDS.
O. If a party to an unexpired lease, executory contract,
license or permit disagrees with any term or provision of Article VIII of the
Plan concerning the Debtor's assumption or retention of an executory contract,
unexpired lease, license or permit, including but not limited to Section 8.6 of
the Plan, such party must file an objection in writing with the
6
<PAGE> 7
Court and serve such objection on Debtor's counsel on or before 4:45 p.m.
(Atlanta, Georgia time) on January 6, 2000. All such objections shall be
determined at the Confirmation Hearing or on such other date designated by the
Bankruptcy Court. THE FAILURE TO TIMELY FILE AND SERVE SUCH AN OBJECTION, OR, IF
ANY SUCH OBJECTION IS TIMELY FILED AND SERVED, THE FAILURE TO APPEAR AND
ADVOCATE SUCH OBJECTION AT THE CONFIRMATION HEARING OR ON SUCH OTHER DATE AS
DESIGNATED BY THE BANKRUPTCY COURT, SHALL CONSTITUTE A WAIVER OF ANY OBJECTION
TO SUCH ASSUMPTION OR RETENTION, INCLUDING THAT ANY CONSENT IS REQUIRED FOR SUCH
ASSUMPTION OR REJECTION, AND THE WAIVING PARTY, ITS SUCCESSORS AND ASSIGNS SHALL
BE FOREVER BARRED FROM CONTESTING SUCH ASSUMPTION OR RETENTION.
P. All objections to the confirmation of the Plan must be in
writing, filed with this Court and served in a manner so as to be received on or
before January 7, 2000 at 12:00 noon (Atlanta, Georgia time) by: (a) Willkie
Farr & Gallagher, special reorganization counsel for the Debtor, 787 Seventh
Avenue, New York, New York 10019, Attention: Myron Trepper, Esq. and Paul V.
Shalhoub, Esq., and (b) counsel to the Official Committee of the Debtor's
Unsecured Creditors, O'Melveny & Myers, 153 East 53rd Street, New York, New York
10022, Attention: Joel Zweibel, Esq. and Adam Harris, Esq.
Q. ANY OBJECTIONS TO CONFIRMATION OF THE PLAN MUST (A) BE IN
WRITING, (B) STATE WITH PARTICULARITY THE GROUND FOR THE OBJECTION AND IDENTIFY
THE SECTION OR SECTIONS OF THE PLAN TO WHICH SUCH OBJECTION RELATES, (C) INCLUDE
PROPOSED LANGUAGE FOR AMENDING THE PLAN TO RESOLVE THE OBJECTION, IF
APPROPRIATE, AND (D) BE FILED AND STRICTLY SERVED AS PRESCRIBED HEREIN OR THE
OBJECTING PARTY SHALL BE BARRED FROM OBJECTING TO CONFIRMATION OF THE PLAN AND
SHALL NOT BE HEARD AT THE CONFIRMATION HEARING. ANY PARTY THAT TIMELY FILES AND
SERVES AN OBJECTION BUT FAILS TO APPEAR AT THE CONFIRMATION HEARING AND ADVOCATE
SAME SHALL BE DEEMED TO HAVE WAIVED SUCH OBJECTION.
R. The Proponents are authorized to make non-substantive
changes to the Disclosure Statement, the Plan and related documents without
further Order of this Court, including, without limitation, changes to correct
typographical and grammatical errors and to make conforming changes among the
Disclosure Statement, the Plan, exhibits to the Disclosure Statement, and other
material in the Solicitation Package prior to mailing of the Solicitation
Package.
S. This Order is without prejudice to: (a) the rights of any
party to seek to shorten the period provided under section 1121(c)(3) of the
Bankruptcy Code, as previously extended through January 31, 2000 by this Court,
during which only the Debtor shall have the exclusive right to solicit
acceptances to a plan of reorganization in this case; and (b) the right of the
Debtor to seek to further extend such period.
7
<PAGE> 8
T. The Proponents are hereby authorized and empowered to take
such steps and incur and pay such costs and expenses and to do such things as
may be reasonably necessary to implement the provisions of this Order.
U. This Court shall retain jurisdiction to hear all such
matters as may be related to, or arise from, this Order and/or the Solicitation
Package.
IT IS SO ORDERED this the 18th day of November, 1999.
/s/ Margaret H. Murphy
------------------------------
MARGARET H. MURPHY
UNITED STATES BANKRUPTCY JUDGE
Prepared and Presented By
ATTORNEYS FOR PARAGON TRADE BRANDS, INC.:
ALSTON & BIRD LLP
Dennis J. Connolly, Ga. Bar No. 182275
Matthew W. Levin, Ga. Bar No. 448270
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
(404) 881-7000
WILLKIE FARR & GALLAGHER
Myron Trepper
Paul V. Shalhoub
787 Seventh Avenue
New York, New York 10019-6099
(212) 728-8000
8
<PAGE> 9
EXHIBIT A
<PAGE> 10
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
)
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. )
)
)
- ---------------------------------------------x
ORDER AND NOTICE OF HEARING
TO CONSIDER CONFIRMATION OF THE
SECOND AMENDED PLAN OF REORGANIZATION AND
FIXING TIME FOR FILING ACCEPTANCES OR REJECTIONS THERETO
TO: ALL HOLDERS OF CLAIMS AGAINST OR INTERESTS IN THE ABOVE-CAPTIONED
DEBTORS
PLEASE TAKE NOTICE that the United States Bankruptcy Court for
the Northern District of Georgia (the "Court") has entered an order dated
November 18, 1999 (the "Order") approving the Disclosure Statement for Second
Amended Plan of Reorganization, dated November 15, 1999 (as modified, amended or
supplemented from time to time, the "Disclosure Statement"), with respect to the
above-captioned debtor and debtor in possession (collectively, the "Debtor") as
containing, pursuant to section 1125 of title 11 of the United States Code (the
"Bankruptcy Code"), adequate information to enable those creditors and interest
holders of the Debtor entitled to vote to make an informed judgment about the
Second Amended Plan of Reorganization, dated November 15, 1999 (as modified,
amended or supplemented from time to time, the "Plan"), filed jointly by the
Debtor and the Official Committee of Unsecured Creditors appointed in the
Debtor's chapter 11 case.
PLEASE TAKE FURTHER NOTICE that a hearing (the "Confirmation
Hearing") will be held before the Honorable Margaret H. Murphy, United States
Bankruptcy Judge, at the United States Bankruptcy Court, 1204 U.S. Courthouse,
Richard B. Russell Federal Building, 75 Spring Street, Atlanta, Georgia, on
January 13, 2000 at 10:00 a.m., or as soon thereafter as counsel can be heard,
to confirm the Plan. Such hearing may be adjourned from time to time without
further notice to any party other than by announcement of such adjournment in
the Court on the scheduled date of the Confirmation Hearing.
<PAGE> 11
PLEASE TAKE FURTHER NOTICE that all responses and objections,
if any, to the confirmation of the Plan must be in writing, state with
particularity the grounds for objection, identify the section or sections of the
Plan to which such objection relates, include proposed language for amending the
Plan to resolve the objection, if appropriate, and be filed with the Clerk of
Court, United States Bankruptcy Court, 1340 U.S. Courthouse, Richard B. Russell
Federal Building, 75 Spring Street, S.W., Atlanta, Georgia 30303, and served
upon: (a) Willkie Farr & Gallagher, special reorganization counsel for the
Debtor, 787 Seventh Avenue, New York, New York 10019, Attention: Myron Trepper,
Esq. and Paul V. Shalhoub, Esq., and (b) counsel to the Official Committee of
the Debtor's Unsecured Creditors, O'Melveny & Myers, 153 East 53rd Street, New
York, New York 10022, Attention: Joel Zweibel, Esq. and Adam Harris, Esq., so
that such responses or objections are filed and received on or before 12:00 noon
(Atlanta, Georgia time) on January 7, 2000.
PLEASE TAKE FURTHER NOTICE THAT IF ANY OBJECTION TO
CONFIRMATION OF THE PLAN IS NOT FILED AND SERVED STRICTLY AS PRESCRIBED HEREIN,
THE OBJECTING PARTY SHALL BE BARRED FROM OBJECTING TO CONFIRMATION OF THE PLAN
AND SHALL NOT BE HEARD AT THE CONFIRMATION HEARING.
PLEASE TAKE FURTHER NOTICE THAT IF ANY PARTY WHO TIMELY FILES
AND SERVES AN OBJECTION BUT FAILS TO APPEAR AT THE CONFIRMATION HEARING AND
ADVOCATE SAME, SHALL BE DEEMED TO HAVE WAIVED SUCH OBJECTION.
PLEASE TAKE FURTHER NOTICE THAT UNDER THE PLAN ALL
ADMINISTRATIVE CLAIMS AGAINST THE DEBTOR, WITH THE EXCEPTION OF CLAIMS ARISING
IN THE ORDINARY COURSE OF THE DEBTOR'S BUSINESS, SHALL BE SATISFIED BY THE
DEBTOR'S ESTATE WITHOUT RECOURSE TO REORGANIZED PARAGON.
PLEASE TAKE FURTHER NOTICE that the Plan and Disclosure
Statement are on file with the Clerk of the Court (the "Clerk") and may be
examined by interested parties at the office of the Clerk at the United States
Bankruptcy Court, 1340 U.S. Courthouse, Richard B. Russell Federal Building, 75
Spring Street, S.W., Atlanta, Georgia 30303, during regular business hours (8:00
a.m. to 4:45 p.m., Atlanta, Georgia time).
PLEASE TAKE FURTHER NOTICE that November 1, 1999 at 5:00 p.m.
(Atlanta, Georgia time) is the "record date" for determining which holders of
claims against and interests in the Debtor, including holders of record of Old
Common Stock Interests (as defined in the Plan), are entitled to vote to accept
or reject the Plan. For purposes of voting on the Plan, neither the Debtor nor
Reorganized Paragon shall recognize transfers of claims or interests which occur
after 5:00 p.m. (Atlanta, Georgia time) on November 1, 1999.
PLEASE TAKE FURTHER NOTICE that Exhibits to the Plan which
have not been filed to date will be filed with the Clerk of the Court and
available for examination within the time and manner prescribed by the Plan.
2
<PAGE> 12
PLEASE TAKE FURTHER NOTICE THAT JANUARY 7, 2000 AT 5:00 P.M.
(ATLANTA, GEORGIA TIME) IS FIXED AS THE DEADLINE FOR VOTING AND FOR BALLOTS TO
BE RECEIVED FOR ACCEPTING OR REJECTING THE PLAN. BALLOTS SHALL BE FILED BY THE
HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS WITH THE DEBTORS'
BALLOTING AGENT, BANKRUPTCY SERVICES, LLC, AT THE ADDRESS(ES) LISTED ON THE
RELEVANT BALLOT(S).
PLEASE TAKE FURTHER NOTICE that if you believe you are the
holder of a claim or interest in an impaired class receiving a distribution
under the Plan and entitled to vote to accept or reject the Plan, but did not
receive a ballot, contact Bankruptcy Services, LLC, 70 East 55th Street, New
York, New York 10022 or telephone (212) 376-8485.
IT IS SO ORDERED this the 18th day of November, 1999.
/s/ Margaret H. Murphy
------------------------------
MARGARET H. MURPHY
UNITED STATES BANKRUPTCY JUDGE
Prepared and Presented By:
ATTORNEYS FOR PARAGON TRADE BRANDS, INC.:
ALSTON & BIRD LLP
Dennis J. Connolly, Ga. Bar No. 182275
Matthew W. Levin, Ga. Bar No. 448270
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
(404) 881-7000
WILLKIE FARR & GALLAGHER
Myron Trepper
Paul V. Shalhoub
787 Seventh Avenue
New York, New York 10019-6099
(212) 728-8000
3
<PAGE> 1
EXHIBIT T3E.4
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. ) NOTIFICATION OF NON-VOTING
) STATUS
............................... x For Second Amended Plan of
Reorganization
On November 18, 1999, the United States Bankruptcy Court for the Northern
District of Georgia (the "Court") approved pursuant to section 1125 of title 11
of the United States Code (the "Bankruptcy Code"), the Disclosure Statement
(the "Disclosure Statement") for the Second Amended Plan of Reorganization,
dated November 15, 1999 (as may be amended, the "Plan"), jointly proposed by
the above-captioned debtor and debtor in possession (the "Debtor") and its
Official Committee of Unsecured Creditors (together with the Debtor, the
"Proponents") and authorized the Proponents to solicit votes with regard to the
acceptance or rejection of the Plan.
UNDER THE TERMS OF THE PLAN, AND IN ACCORDANCE WITH SECTION 1126(F) OF THE
BANKRUPTCY CODE, YOUR CLAIM(S) IN CLASS 1 (SECURED CLAIMS) WILL BE SATISFIED IN
FULL OR REINSTATED. AS A RESULT, YOUR CLAIM(S) IN CLASS 1 (SECURED CLAIMS)
IS/ARE NOT IMPAIRED AND YOU ARE NOT ENTITLED TO VOTE ON THE PLAN WITH RESPECT
TO YOUR CLAIM(S) IN SUCH CLASS. THE PLAN AND THE DISCLOSURE STATEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE VOTING AGENT, BANKRUPTCY SERVICES, LLC, 70
EAST 55TH STREET, 6TH FLOOR, NEW YORK, NEW YORK 10022.
<PAGE> 1
EXHIBIT T3E.5
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. ) NOTIFICATION OF NON-VOTING
) STATUS
............................... x For Second Amended Plan of
Reorganization
On November 18, 1999, the United States Bankruptcy Court for the Northern
District of Georgia (the "Court") approved pursuant to section 1125 of title 11
of the United States Code (the "Bankruptcy Code"), the Disclosure Statement
(the "Disclosure Statement") for the Second Amended Plan of Reorganization,
dated November 15, 1999 (as may be amended, the "Plan"), jointly proposed by
the above-captioned debtor and debtor in possession (the "Debtor") and its
Official Committee of Unsecured Creditors (together with the Debtor, the
"Proponents") and authorized the Proponents to solicit votes with regard to the
acceptance or rejection of the Plan.
UNDER THE TERMS OF THE PLAN, AND IN ACCORDANCE WITH SECTION 1126(F) OF THE
BANKRUPTCY CODE, YOUR CLAIM(S) IN CLASS 2 (PRIORITY NON-TAX CLAIMS) WILL BE
SATISFIED IN FULL OR REINSTATED. AS A RESULT, YOUR CLAIM(S) IN CLASS 1
(PRIORITY NON-TAX CLAIMS) IS/ARE NOT IMPAIRED AND YOU ARE NOT ENTITLED TO VOTE
ON THE PLAN WITH RESPECT TO YOUR CLAIM(S) IN SUCH CLASS. THE PLAN AND THE
DISCLOSURE STATEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE VOTING AGENT,
BANKRUPTCY SERVICES, LLC, 70 EAST 55TH STREET, 6TH FLOOR, NEW YORK, NEW YORK
10022.
<PAGE> 1
EXHIBIT T3E.6
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
<TABLE>
<S> <C> <C>
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. ) NOTIFICATION OF DEEMED REJECTION
............................... x For Second Amended Plan of Reorganization
</TABLE>
TO: Holders of Old Stock Option Interests
On November 18, 1999, the United States Bankruptcy Court for the Northern
District of Georgia (the "Court") approved pursuant to section 1125 of title 11
of the United States Code (the "Bankruptcy Code"), the Disclosure Statement
(the "Disclosure Statement") for the Second Amended Plan of Reorganization,
dated November 15, 1999 (as may be amended, the "Plan"), jointly proposed by
the above-captioned debtor and debtor in possession (the "Debtor") and its
Official Committee of Unsecured Creditors (together with the Debtor, the
"Proponents") and authorized the Proponents to solicit votes with regard to the
acceptance or rejection of the Plan.
UNDER THE TERMS OF THE PLAN, AND IN ACCORDANCE WITH SECTION 1126(G) OF THE
BANKRUPTCY CODE, NO DISTRIBUTIONS WILL BE MADE UNDER THE PLAN ON ACCOUNT OF
YOUR INTEREST(S) IN THE CLASS LISTED ABOVE. THEREFORE, YOU ARE DEEMED TO REJECT
THE PLAN. YOU ARE NOT ENTITLED TO VOTE THEREON WITH RESPECT TO SUCH
INTEREST(S).
<PAGE> 1
EXHIBIT T3E.7
To: All Holders of Common Stock Issued by
Paragon Trade Brands, Inc. ("Paragon")
Re: The Second Amended Plan of Reorganization
The undersigned is the Chairman of the Official Committee of
Stockholders of Paragon appointed by the Office of the United States Trustee in
Paragon's Chapter 11 bankruptcy case (the "Equity Committee"). The Equity
Committee was formed in November 1998 to represent the interests of Paragon's
stockholders, and has been active in the bankruptcy case since its was formed.
Shortly after the formation of the Equity Committee, Paragon filed
motions to settle its patent litigation controversies with Proctor & Gamble
Company ("P&G") and Kimberly-Clark Corporation ("K-C"). The Equity Committee
vigorously opposed both of the settlements, but is objections were overruled and
these settlements were approved by orders of the Bankruptcy Court entered on
August 6, 1999. The Equity Committee thereafter prosecuted appeals of the orders
approving both the patent settlements, which have not been decided as of this
date.
As part of its statutory duties under the Bankruptcy Code the Equity
Committee also investigated potential causes of action by which Paragon could
recover the amounts it was required to pay to P&G and K-C under the two
settlements. The Equity Committee was subsequently authorized by the Bankruptcy
Court to prosecute a claim in the name and right of Paragon against a
substantial defendant, by which the Equity Committee seeks to recover all losses
Paragon has incurred as a result of the patent liabilities.
After hard-fought litigation on several fronts and in several courts,
after extensive negotiations with Paragon and its creditor constituents, and
after careful consideration of the costs, risks, and potential benefits involved
in further litigation, the Equity Committee agreed this month to the terms of
the settlement which is embodied in the accompanying plan. Under the terms of
the settlement present shareholders will receive a distribution of new common
stock and warrants, and a right to participate in a rights offering to purchase
new common stock. Most significantly, the litigation claims identified by the
Equity Committee will continue to be prosecuted post-confirmation under the
direction of Equity Committee designees, with the bulk of the proceeds of the
litigation payable to the current stockholders. While these litigation claims
are certain to be vigorously defended, the Equity Committee believes that these
claims will prove meritorious, and will provide a vehicle to compensate the
shareholders for the substantial losses they have incurred as a result of
Paragon's patent liabilities.
Accordingly, the Equity Committee urges all holders of common stock to
vote to ACCEPT the Second Amended Plan of Reorganization, and to promptly
complete and return your ballot in accordance with the instructions listed on
the ballot.
By: /s/ Robin Winslow
---------------------------
Robin Winslow
Its: Chairman
<PAGE> 1
EXHIBIT T3E.8
FORM OF NOTICE TO HOLDERS OF CLASS 3A CLAIMS
NOTICE OF EXERCISE OF RIGHTS
TO PURCHASE A PORTION OF THE NEW COMMON STOCK
PURSUANT TO THE RIGHTS OFFERING
BEING MADE PURSUANT TO
THE SECOND AMENDED PLAN OF REORGANIZATION
OF
PARAGON TRADE BRANDS, INC.
UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
===============================================================================
THE OPPORTUNITY TO PURCHASE A PORTION OF THE NEW COMMON STOCK PURSUANT TO
THE RIGHTS OFFERING WILL EXPIRE AT 5:00 P.M., ATLANTA, GEORGIA TIME, ON
JANUARY 7, 2000, THE VOTING DEADLINE OF THE SECOND AMENDED PLAN OF
REORGANIZATION.
===============================================================================
The Voting Agent for the Plan is:
BANKRUPTCY SERVICES L.L.C.
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Courier:
BANKRUPTCY SERVICES L.L.C. BANKRUPTCY SERVICES L.L.C.
P.O. Box 5159 70 East 55th Street
FDR Station Sixth Floor
New York, New York 10150-5159 New York, New York 10022
</TABLE>
IN ORDER FOR RIGHTS TO BE VALIDLY EXERCISED, A PROPERLY
COMPLETED AND DULY EXECUTED ORIGINAL OF THIS NOTICE OF EXERCISE OF RIGHTS (OR A
PROPERLY COMPLETED AND DULY EXECUTED PHOTOCOPY HEREOF) MUST BE RECEIVED BY THE
VOTING AGENT AT ONE OF THE ADDRESSES SET FORTH ABOVE PRIOR TO 5:00 P.M.,
ATLANTA, GEORGIA TIME, ON JANUARY 7, 2000, THE LAST DAY FOR VOTING TO ACCEPT OR
REJECT THE DEBTOR'S SECOND AMENDED PLAN OF REORGANIZATION (THE "VOTING
DEADLINE"). THE PLAN HAS BEEN PROPOSED JOINTLY BY THE DEBTOR AND ITS OFFICIAL
COMMITTEE OF UNSECURED CREDITORS (THE "CREDITORS' COMMITTEE"). THE INSTRUCTIONS
ACCOMPANYING THIS NOTICE OF EXERCISE (THE "INSTRUCTIONS") SHOULD BE READ
CAREFULLY AND FOLLOWED PRECISELY. QUESTIONS AND REQUESTS FOR ASSISTANCE SHOULD
BE DIRECTED TO DEBTOR'S COUNSEL AT THE ADDRESS OR TELEPHONE NUMBER SET FORTH IN
THE INSTRUCTIONS.
THE TERMS AND CONDITIONS OF THE RIGHTS ARE SET FORTH IN THE
PLAN AND DISCLOSURE STATEMENT AND ARE INCORPORATED HEREIN BY REFERENCE. THE
DISCLOSURE STATEMENT ALSO CONTAINS IMPORTANT INFORMATION REGARDING THE NEW
COMMON STOCK, INCLUDING CERTAIN MATERIAL RISKS THAT ARE INHERENT IN AN
INVESTMENT IN SUCH SECURITIES. ALL HOLDERS OF ALLOWED CLASS 3A CLAIMS (AS
DEFINED BELOW) ARE ENCOURAGED TO READ AND CONSIDER CAREFULLY THE CONTENTS OF
THE PLAN AND THE DISCLOSURE STATEMENT BEFORE DECIDING WHETHER TO EXERCISE OR
REFRAIN FROM EXERCISING RIGHTS. COPIES OF THE
<PAGE> 2
DISCLOSURE STATEMENT, INCLUDING A COPY OF THE PLAN, ARE BEING MAILED TO THE
HOLDERS OF ALLOWED CLASS 3A CLAIMS CONCURRENTLY HEREWITH, AND ADDITIONAL COPIES
OF SUCH DOCUMENTS ARE AVAILABLE UPON REQUEST FROM THE DEBTOR'S COUNSEL AT THE
ADDRESS AND TELEPHONE NUMBER SET FORTH IN THE INSTRUCTIONS ACCOMPANYING THIS
NOTICE OF EXERCISE. NEITHER THE DEBTOR NOR THE CREDITORS' COMMITTEE MAKES ANY
RECOMMENDATION TO HOLDERS OF ALLOWED CLASS 3A CLAIMS REGARDING THEIR DECISION
TO EXERCISE OR REFRAIN FROM EXERCISING RIGHTS.
The name(s) and address of the Eligible Holder(s) (as defined below)
should be printed below (if it is not already printed below), together with the
name and address of any Permitted Transferee (as described below).
<TABLE>
<S> <C>
===========================================================================================================
Name(s) and Address of the Eligible Holder(s) and its Permitted Aggregate Allowed Class 3A
Transferee (if any). Please identify any Permitted Transferee by Claims Held as of Record on
indicating same next to the name of such entity. November 1, 1999
- -----------------------------------------------------------------------------------------------------------
===========================================================================================================
</TABLE>
-2-
<PAGE> 3
TO HOLDERS OF ALLOWED CLASS 3A CLAIMS
AS OF NOVEMBER 1, 1999:
On November 18, 1999, the United States Bankruptcy Court for
the Northern District of Georgia, in the chapter 11 reorganization case filed
by Paragon Trade Brands, Inc., (the "Debtor"), issued an order approving the
Debtor's Disclosure Statement, dated November 15, 1999 (the "Disclosure
Statement") with respect to the Debtor's Second Amended Plan of Reorganization,
dated November 15, 1999 (the "Plan"), jointly proposed by the Debtor and the
Creditors' Committee (together, the "Proponents"). Copies of the Disclosure
Statement, including a copy of the Plan, are being mailed to the holders of
Allowed Class 3A Claims concurrently herewith. All capitalized terms not
otherwise defined herein have the respective meanings ascribed thereto in the
Plan.
AS DESCRIBED IN THE DISCLOSURE STATEMENT, THE PLAN PROVIDES
THAT EACH PERSON (EACH AN "ELIGIBLE HOLDER") WHO HOLDS A CLASS 3A CLAIM THAT
HAS BEEN ALLOWED FOR PURPOSES OF VOTING ON THE PLAN (AN "ALLOWED CLASS 3A
CLAIM") AS OF THE CLOSE OF BUSINESS ON NOVEMBER 1, 1999 (THE "RECORD DATE") MAY
SUBSCRIBE TO PURCHASE UP TO AN AMOUNT EQUAL TO ITS PRO RATA SHARE (AS DEFINED
BELOW) OF ALL RIGHTS (SUBJECT TO THE EXERCISE LIMITATION DESCRIBED BELOW). As
used herein, "Pro Rata Share" means a fraction, the numerator of which is the
Eligible Holder's Allowed Class 3A Claims, and the denominator of which is all
Allowed Class 3A Claims.
The Rights shall consist of the right to purchase up to 35%
of the issued and outstanding shares of New Common Stock (as of the Effective
Date). Each Right shall represent the right to purchase one share of New Common
Stock for a purchase price equal to $10.00 per share (the "Rights Exercise
Price"). In the aggregate, 4,161,850 shares of New Common Stock will be
available for subscription in connection with the Wellspring Rights Offering.
The Rights will not be evidenced by certificates, but will be
transferable in accordance with the procedures set forth in the Plan and below;
provided, however, that no Person may acquire Rights by transfer such that as
of the Effective Date (after giving effect to the exercise of all Rights
properly subscribed to and acquired by transfer) such Person would hold greater
than ten percent (10%) of the New Common Stock issued and outstanding as of the
Effective Date (the "Exercise Limitation").
The Rights will be exercisable at any time during the period
commencing with the Debtor's mailing of the Disclosure Statement and concluding
at 5:00 p.m., Atlanta, Georgia time, on the Voting Deadline.
The Voting Deadline has been set for January 7, 2000.
IN ORDER FOR AN EXERCISE OF RIGHTS TO BE VALID AND EFFECTIVE,
AN ELIGIBLE HOLDER OR ITS PERMITTED TRANSFEREE (AS DEFINED BELOW) MUST DELIVER
TO THE VOTING AGENT AT ONE OF THE ADDRESSES SET FORTH ABOVE (A) A PROPERLY
COMPLETED AND DULY EXECUTED EXERCISE NOTICE (INCLUDING THE ELECTING HOLDER'S OR
ITS PERMITTED TRANSFEREE'S TAX IDENTIFICATION NUMBER) AND (B) WITH RESPECT TO
PERMITTED TRANSFEREES'S ONLY, THE TRANSFER DOCUMENTS (AS DEFINED BELOW). IN
ADDITION, ALL ELIGIBLE HOLDERS (OTHER THAN ELIGIBLE HOLDERS WHOSE ALLOWED CLASS
3A CLAIMS ALSO CONSTITUTE ALLOWED CLASS 3A CLAIMS FOR DISTRIBUTION PURPOSES
UNDER THE PLAN AS OF THE RECORD DATE OR SUCH LATER DATE AGREED TO BY THE
PROPONENTS PRIOR TO THE VOTING DEADLINE (EACH AN "ALLOWED HOLDER")) AND ALL
PERMITTED TRANSFEREES MUST EITHER (X) DELIVER A CERTIFIED CHECK TO THE VOTING
AGENT AT ONE OF THE ADDRESSES SPECIFIED ABOVE OR (Y) CAUSE A WIRE TRANSFER OF
IMMEDIATELY AVAILABLE FUNDS TO BE MADE TO THE DEBTOR'S ACCOUNT SPECIFIED IN THE
INSTRUCTIONS, IN EACH CASE, IN AN AMOUNT EQUAL TO (X) 10% TIMES (Y) THE RIGHTS
EXERCISE PRICE TIMES THE NUMBER OF THE RIGHTS SUBSCRIBED TO BY SUCH PERSON (THE
"DEPOSIT"). ONLY ALLOWED HOLDERS WILL NOT BE REQUIRED TO DELIVER THE DEPOSIT AS
DESCRIBED IN THE PRECEDING SENTENCE. THE EXERCISE NOTICE, THE TRANSFER
DOCUMENTS (IF ANY) AND THE DEPOSIT (IF APPLICABLE) MUST BE RECEIVED AT THE
SPECIFIED ADDRESS OR ACCOUNT BY NO LATER THAN 5:00 P.M., ATLANTA, GEORGIA TIME,
ON THE VOTING DEADLINE FOR AN EXERCISE OF RIGHTS TO BE VALID AND EFFECTIVE.
AFTER ITS RECEIPT OF THE FOREGOING, THE PROPONENTS IN THEIR REASONABLE
DISCRETION IN ACCORDANCE WITH
-3-
<PAGE> 4
THE PROCEDURES SET FORTH HEREIN AND IN THE PLAN SHALL DETERMINE WHICH PERSONS
ARE ENTITLED TO PARTICIPATE IN THE WELLSPRING RIGHTS OFFERING AND HOW MANY
RIGHTS EACH SUCH PERSON IS ENTITLED TO RECEIVE (COLLECTIVELY, THE "SUBSCRIBED
RIGHTS").
As soon as practicable following the Voting Deadline, the
Debtor shall give written notice to each Person whose Notice of Exercise of
Rights, together with the Deposit and Transfer Documents (if applicable), was
properly completed, duly executed and timely received (inclusive of Permitted
Transferees, each an "Electing Holder") of the Debtor's acceptance of its
Notice of Exercise of Rights, the number of Rights to which such Electing
Holder is entitled to exercise, the Purchase Price (as defined below) with
respect thereto and, other than with respect to Allowed Holders, notice of the
date on which the Balance (as defined below) is required to be received by the
Debtor (such notice, a "Notice of Acceptance").
No fractional Rights can be exercised under the Wellspring
Rights Offering. When any calculation under the Wellspring Rights Offering
would otherwise result in an allocation of Rights that is not a whole number,
the actual allocation of Rights will be rounded as follows: (i) fractions of
1/2 or greater shall be rounded to the next higher whole number; and (ii)
fractions of less than 1/2 shall be rounded to the next lower whole number. The
total Rights allocated to Electing Holders will be adjusted as necessary to
account for rounding.
Each Electing Holder's payment for its share of the
Subscribed Rights shall be in an amount equal to the product of the Rights
Exercise Price and the number of Subscribed Rights indicated in the Notice of
Acceptance for such Electing Holder (the "Purchase Price") less the amount of
such Electing Holder's Deposit, if any, and any interest actually earned
thereon (the "Balance"). Payment by any Allowed Holder of the Purchase Price
shall be made in the form of an offset against any Cash distributions to be
received by such Electing Holder on account of its Allowed Class 3A Claims
under the Plan.
Payment of the Balance shall be due on the date specified in
the Notice of Acceptance (such date, the "Payment Date"), which date shall be
no earlier than the date on which the Confirmation Hearing on the Plan shall be
held. The Confirmation Hearing is currently scheduled for January 13, 2000.
Payment of the Balance must be made by wire transfer of immediately available
funds to the Debtor's account identified in the Notice of Acceptance or by
certified check delivered to the Debtor's address identified in the Notice of
Acceptance, in each case so as to be received by the Debtor no later than 5:00
p.m. Atlanta, Georgia time on the Payment Date. Amounts received by the Debtor
constituting all or a portion of the Purchase Price shall be held in an
interest bearing segregated account until the Effective Date.
In the event that any Electing Holder (other than an Allowed
Holder) shall fail to deliver the Balance to the Debtor on or before the
Payment Date, such Electing Holder (other than an Allowed Holder) shall be
deemed to have waived its right to participate in the Wellspring Rights
Offering and the Debtor's acceptance of its Exercise Notice shall be
automatically rescinded and of no further force and effect without the need for
any further notice, and such Deposit shall be irrevocably retained by
Reorganized Paragon. In the event the Court does not confirm the Plan or the
Effective Date does not occur, the Wellspring Rights Offering shall be
automatically rescinded without notice and of no further force and effect, and
any monies received by the Debtor in connection with the Wellspring Rights
Offering, and any interest actually earned thereon, shall promptly be returned
to the applicable Electing Holders. There will be no further adjustments to the
amounts provided in the Notice of Acceptance.
Subject to the Exercise Limitation, the right of any Eligible
Holder to purchase the Rights can be transferred at any time up to earlier of
(x) the date such Eligible Holder has exercised Rights and (y) the Voting
Deadline upon receipt by the Debtor or Voting Agent, as applicable, on or
before the Voting Deadline at one of the addresses set forth above (i) a duly
executed assignment agreement or any other evidence of the transfer
satisfactory to the Proponents in their sole, but
-4-
<PAGE> 5
reasonable, discretion, TOGETHER WITH A CERTIFICATE EXECUTED BY BOTH THE
TRANSFEREE AND THE TRANSFEROR CERTIFYING THAT THE TRANSFEREE IS A "QUALIFIED
INSTITUTIONAL BUYER" AS SUCH TERM IS DEFINED IN RULE 144A OF THE SECURITIES AND
EXCHANGE COMMISSION (A "PERMITTED TRANSFEREE"), (ii) a duly executed Exercise
Notice and (iii) the Deposit in respect thereof. The documents identified in
clause (i) in the preceding sentence shall be referred to herein as the
"Transfer Documents." Any assignment not in conformity with this paragraph and
the Instructions attached hereto shall be void and of no force and effect.
NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
The undersigned hereby irrevocably elects to exercise the
number of Rights indicated below on the terms and subject to the conditions set
forth in the Plan and the Disclosure Statement.
Upon the Effective Date of the Plan in accordance with the
distribution procedures set forth therein and proper and timely receipt of the
Purchase Price, please issue a certificate representing New Common Stock as
contemplated above in the name(s) of the undersigned and mail the same to the
address of the Eligible Holder(s) or Permitted Transferee(s) appearing above.
The number of Rights that the Eligible Holder(s) or Permitted
Transferee(s) wish(es) to exercise and the Purchase Price payable in respect
thereof must be indicated in the appropriate boxes below.
Number of Rights to be purchased:
---------------------
Purchase Price
(the product of the Number
of Rights to be exercised and $10.00): $
---------------------
Deposit Payable (if any)
(10% of the Purchase Price) $
---------------------
* If the number of Rights to be exercised has not been indicated, or if
the Deposit payment delivered to the Voting Agent is not sufficient for the
number of Rights indicated above, the Eligible Holder(s) or Permitted
Transferee(s) will be deemed to have elected the maximum number of Rights for
which a Deposit was made, or in the case of an Allowed Holder who is not
required to submit a Deposit, such Allowed Holder's Pro Rata Share of the
Rights.
-5-
<PAGE> 6
PLEASE SIGN HERE
(See instructions 4 and 5)
X
-----------------------------------------------------------------------
Signature(s) of Eligible Holder(s) Fed. Tax ID No. Date
or Permitted Transferee(s)
X
-----------------------------------------------------------------------
Signature(s) of Eligible Holder(s) Fed. Tax ID No. Date
or Permitted Transferee(s)
Telephone Number: ( )
----- ---------------------------
If signed by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set
forth the following information.
Name(s):
--------------------------
--------------------------
(Please Type or Print)
Capacity:
-------------------------
Address:
--------------------------
--------------------------
--------------------------
-------------------------- (Include Zip Code)
NOTE: THE FOLLOWING MUST BE COMPLETED AND SIGNED IF THE ELIGIBLE HOLDER IS A
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE HOLDER THAT
HELD ALLOWED CLASS 3A CLAIMS FOR ONE OR MORE BENEFICIAL OWNERS ON THE
RECORD DATE. See Instruction 5.
NOMINEE HOLDER CERTIFICATION
The undersigned is a broker, dealer, commercial bank, trust company or
other nominee which held Allowed Class 3A Claims of record as of the close of
business on November 1, 1999 for the account of one or more beneficial owners
(indicated below by number without identifying any such beneficial owner), and
hereby certifies to the Debtor and the Voting Agent that the undersigned has
exercised, on behalf of the beneficial owners thereof (which may include the
undersigned), the number of Rights specified below:
-6-
<PAGE> 7
ATTACH ADDITIONAL LISTS AS NECESSARY
<TABLE>
<CAPTION>
Beneficial Owner Number of Rights
Number Exercised on Behalf of
Such Beneficial Owner
<S> <C>
1
--------
2
--------
3
--------
4
--------
5
--------
6
--------
7
--------
8
--------
9
--------
10
--------
</TABLE>
PLEASE SIGN AND DATE HERE:
NAME OF NOMINEE HOLDER FED. TAX ID NO. DATED:
---------------------- --------------- -----
By:
-------------------- -------------------- ------
Name:
------------------
Title:
-----------------
-7-
<PAGE> 8
INSTRUCTIONS
1. GENERAL. For the Rights to be validly exercised, a properly
completed and duly executed Notice of Exercise (or a properly completed and
duly executed photocopy thereof) must be received by the Voting Agent prior to
5:00 p.m., Atlanta, Georgia time, on the Voting Deadline at one of the
addresses set forth in Notice of Exercise, together with payment in full of the
Deposit (if applicable) in accordance with paragraph 2 below and receipt of the
Transfer Documents (if any) in accordance with paragraph 8 below. All Rights
that are to be exercised by the Eligible Holder or its Permitted Transferee
named herein must be exercised concurrently pursuant to this Notice of
Exercise. RIGHTS MAY NOT BE EXERCISED BY YOU OR YOUR PERMITTED TRANSFEREE
UNLESS YOU HELD AS OF THE CLOSE OF BUSINESS ON NOVEMBER 1, 1999 (THE "RECORD
DATE") A CLASS 3A CLAIM THAT HAS BEEN ALLOWED FOR PURPOSES OF VOTING ON THE
PLAN. Do not send this Notice of Exercise directly to the Debtor.
2. METHOD OF PAYMENT OF PURCHASE PRICE.
(a) Payment by any Allowed Holder of the Purchase Price shall
be made in the form of an offset against any Cash distributions to be received
by such Allowed Holder on account of its Allowed Class 3A Claims under the
Plan.
(b)Concurrently with the execution and delivery of the Notice
of Exercise, each Electing Holding (other than an Allowed Holder) must pay the
Deposit by either wire transfer of immediately available funds to the Debtor's
account identified below or by certified check payable to the Debtor delivered
to the Voting Agent at one of the addresses set forth in the Notice of
Exercise, in each case so as to be received by no later than 5:00 p.m.,
Atlanta, Georgia time, on the Voting Deadline. The Debtor's account into which
the Deposit may be made is identified as follows:
Paragon Trade Brands Rights Offering Account
Account No. 323871836
The Chase Manhattan Bank, NA
One Chase Manhattan Plaza
New York, NY 10081
ABA No. 021000021
(c) Payment of the Balance by any Electing Holder (other than
an Allowed Holder) shall be due on the date specified in the Notice of
Acceptance (such date, the "Payment Date"), which date shall be no earlier than
the date scheduled for the Confirmation Hearing. Payment of the Balance must be
made by wire transfer of immediately available funds to the Debtor's account
identified in the Acceptance Notice or by certified check delivered to the
Debtor's address identified in the Acceptance Notice, in each case so as to be
received by no later than 5:00 p.m., Atlanta, Georgia time, on the Payment
Date.
3. METHOD OF DELIVERY. The method of delivery of the Notice of
Exercise and payment of the Purchase Price will be at the election and risk of
the Eligible Holder, but if sent by mail, it is recommended that the Notice of
Exercise and the Purchase Price be sent by registered mail, with return receipt
requested, and that a sufficient number of days be allocated to ensure timely
receipt.
4. SIGNATURE(S). Each of the signatures on this Notice of
Exercise must be that of an Eligible Holder or its Permitted Transferee. If any
Allowed Class 3A Claims were held of record as of the close of business on the
Record Date by two or more persons, all such persons must sign this Notice of
Exercise. In all other cases, it will be necessary for each Eligible Holder or
Permitted Transferee to complete, sign and submit a separate Notice of
Exercise. If this Notice of Exercise is signed by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative
-8-
<PAGE> 9
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Debtor of the authority of such person to so act must be
submitted with this Notice of Exercise.
5. ALLOWED CLASS 3A CLAIMS HELD BY NOMINEES. Only holders of
record (or their Permitted Transferees) as of the close of business on the
Record Date of Class 3A Claims that have been Allowed for purposes of voting on
the Plan may exercise the Rights. Therefore, brokers, dealers, commercial
banks, trust companies and other persons that as of the close of business on
the Record Date held Allowed Class 3A Claims for the account of others, should
notify the respective beneficial owners of such Allowed Class 3A Claims as soon
as possible to ascertain such beneficial owners' intentions and to obtain
instructions with respect to the exercise of the Rights. Beneficial owners of
Allowed Class 3A Claims held through such a nominee holder should contact such
nominee holder and request such nominee holder to effect transactions in
accordance with the beneficial owner's instructions. If the beneficial owner so
instructs, such nominee holder should complete a Notice of Exercise and submit
it to the Voting Agent, together with the Deposit and any Transfer Documents,
as appropriate.
Each broker, dealer, commercial bank, trust company or other
nominee holder that held Allowed Class 3A Claims as of the close of business on
the Record Date for one or more beneficial owners must certify to the Debtor
the number of Rights exercised on behalf of each beneficial owner.
6. DETERMINATIONS. All determinations as to proper completion,
due execution, timeliness, eligibility, prorating and other matters affecting
the validity or effectiveness of any attempted exercise of any Rights will be
made by the Proponents in their reasonable discretion in accordance with the
procedures set forth herein and in the Plan, whose determination will be final
and binding. The Proponents, in their sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as they may determine or reject the purported exercise of any Right that
is subject to any such defect or irregularity. Deliveries required to be
received by the Voting Agent and/or Debtor in connection with a purported
exercise of Rights will not be deemed to have been so received or accepted
until actual receipt thereof by the Voting Agent and/or the Debtor, as the case
may be, in accordance with the instructions set forth herein or in the Notice
of Acceptance shall have occurred and any defects or irregularities shall have
been waived or cured within such time as the Proponents may determine in their
sole discretion. Neither the Debtor, Reorganized Paragon, the Proponents nor
any other Person will have any obligation to give notice to any holder of a
Right of any defect or irregularity in connection with any attempted exercise
thereof or incur any liability as a result of any failure to give any such
notice.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance or additional copies of the Plan and Disclosure
Statement and this Notice of Exercise should be directed to Willkie Farr &
Gallagher, counsel to the Debtor, at the address or telephone number set forth
below.
-9-
<PAGE> 10
8. TRANSFERABILITY. Subject to the Exercise Limitation, the
Rights can be transferred by an Eligible Holder at any time up to the earlier
of (x) the date such Eligible Holder has exercised Rights and (y) the Voting
Deadline upon receipt by the Voting Agent on or before 5:00 p.m., Atlanta,
Georgia time, on the Voting Deadline at one of the addresses set forth above of
a duly executed assignment agreement, or any other evidence of the transfer
satisfactory to the Proponents in their sole discretion, TOGETHER WITH A
CERTIFICATE EXECUTED BY BOTH THE TRANSFEREE AND THE TRANSFEROR CERTIFYING THAT
THE TRANSFEREE IS A "QUALIFIED INSTITUTIONAL BUYER" AS SUCH TERM IS DEFINED IN
RULE 144A OF THE SECURITIES AND EXCHANGE COMMISSION. Any assignment not in
conformity herewith shall be void and of no force and effect.
-------------
Any questions or requests for assistance or additional copies
of the Plan and Disclosure Statement and this Notice of Exercise may be
directed to Debtor's counsel at the address or telephone number set forth
below. You may also contact your broker, dealer, commercial bank, trust company
or other nominee for assistance.
WILLKIE FARR & GALLAGHER
787 Seventh Avenue
New York, New York 10019
Attn: Daniel McElhinney, Esq.
(Telephone No. 212-728-8000)
-10-
<PAGE> 1
EXHIBIT T3E.9
FORM OF NOTICE TO HOLDERS OF CLASS 4A INTERESTS
NOTICE OF EXERCISE OF RIGHTS
TO PURCHASE A PORTION OF THE NEW COMMON STOCK
PURSUANT TO THE RIGHTS OFFERING
BEING MADE PURSUANT TO
THE SECOND AMENDED PLAN OF REORGANIZATION
OF
PARAGON TRADE BRANDS, INC.
UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
================================================================================
THE OPPORTUNITY TO PURCHASE A PORTION OF THE NEW COMMON STOCK PURSUANT TO THE
RIGHTS OFFERING WILL EXPIRE AT 5:00 P.M., ATLANTA, GEORGIA TIME, ON JANUARY 7,
2000, THE VOTING DEADLINE OF THE SECOND AMENDED PLAN OF REORGANIZATION
================================================================================
The Voting Agent for the Plan is:
BANKRUPTCY SERVICES L.L.C.
<TABLE>
<CAPTION>
By Mail: By Hand or Overnight Courier:
<S> <C>
BANKRUPTCY SERVICES L.L.C. BANKRUPTCY SERVICES L.L.C.
P.O. Box 5159 70 East 55th Street
FDR Station Sixth Floor
New York, New York New York, New York 10022
</TABLE>
IN ORDER FOR RIGHTS TO BE VALIDLY EXERCISED, A PROPERLY COMPLETED AND
DULY EXECUTED ORIGINAL OF THIS NOTICE OF EXERCISE OF RIGHTS (OR A PROPERLY
COMPLETED AND DULY EXECUTED PHOTOCOPY HEREOF) MUST BE RECEIVED BY THE VOTING
AGENT AT ONE OF THE ADDRESSES SET FORTH ABOVE PRIOR TO 5:00 P.M., ATLANTA,
GEORGIA TIME, ON JANUARY 7, 2000, THE LAST DAY FOR VOTING TO ACCEPT OR REJECT
THE DEBTOR'S SECOND AMENDED PLAN OF REORGANIZATION (THE "VOTING DEADLINE"). THE
PLAN HAS BEEN PROPOSED JOINTLY BY THE DEBTOR AND ITS OFFICIAL COMMITTEE OF
UNSECURED CREDITORS (THE "CREDITORS' COMMITTEE"). THE INSTRUCTIONS ACCOMPANYING
THIS NOTICE OF EXERCISE (THE "INSTRUCTIONS") SHOULD BE READ CAREFULLY AND
FOLLOWED PRECISELY. QUESTIONS AND REQUESTS FOR ASSISTANCE SHOULD BE DIRECTED TO
DEBTOR'S COUNSEL AT THE ADDRESS OR TELEPHONE NUMBER SET FORTH IN THE
INSTRUCTIONS.
THE TERMS AND CONDITIONS OF THE RIGHTS ARE SET FORTH IN THE PLAN AND
DISCLOSURE STATEMENT AND ARE INCORPORATED HEREIN BY REFERENCE. THE DISCLOSURE
STATEMENT ALSO CONTAINS IMPORTANT INFORMATION REGARDING THE NEW COMMON STOCK,
INCLUDING CERTAIN MATERIAL RISKS THAT ARE INHERENT IN AN INVESTMENT IN SUCH
SECURITIES. ALL HOLDERS OF ALLOWED CLASS 4A INTERESTS (AS DEFINED BELOW) ARE
ENCOURAGED TO READ AND CONSIDER CAREFULLY THE CONTENTS OF THE PLAN AND THE
DISCLOSURE STATEMENT BEFORE DECIDING WHETHER TO EXERCISE OR REFRAIN FROM
EXERCISING RIGHTS. COPIES OF THE DISCLOSURE STATEMENT, INCLUDING A COPY OF THE
PLAN, ARE BEING MAILED TO THE HOLDERS OF ALLOWED CLASS 4A INTERESTS CONCURRENTLY
HEREWITH, AND ADDITIONAL COPIES OF SUCH DOCUMENTS ARE AVAILABLE UPON REQUEST
FROM THE DEBTOR'S COUNSEL AT THE ADDRESS AND TELEPHONE NUMBER SET
<PAGE> 2
FORTH IN THE INSTRUCTIONS ACCOMPANYING THIS NOTICE OF EXERCISE. NEITHER THE
DEBTOR NOR THE CREDITORS' COMMITTEE MAKES ANY RECOMMENDATION TO HOLDERS OF
ALLOWED CLASS 4A INTERESTS REGARDING THEIR DECISION TO EXERCISE OR REFRAIN FROM
EXERCISING RIGHTS.
The name(s) and address of the Eligible Holder(s) (as defined below)
should be printed below (if it is not already printed below), together with the
name and address of any Permitted Transferee.
<TABLE>
<CAPTION>
===========================================================================================================
Name(s) and Address of the Eligible Holder(s) and its Permitted Aggregate Allowed Class 4
Transferee (if any). Please identify any Permitted Transferee by Interests Held as of Record on
indicating same next to the name of such entity. November 1, 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C>
===========================================================================================================
</TABLE>
-2-
<PAGE> 3
TO HOLDERS OF ALLOWED CLASS 4A INTERESTS
AS OF NOVEMBER 1, 1999:
On November 18, 1999, the United States Bankruptcy Court for the
Northern District of Georgia, in the chapter 11 reorganization case filed by
Paragon Trade Brands, Inc., (the "Debtor"), issued an order approving the
Debtor's Disclosure Statement, dated November 15, 1999 (the "Disclosure
Statement") with respect to the Second Amended Plan of Reorganization, dated
November 15, 1999 (the "Plan") jointly proposed by the Debtor and the Creditors'
Committee (together, the "Proponents"). Copies of the Disclosure Statement,
including a copy of the Plan, are being mailed to the holders of Allowed Class
4A Interests concurrently herewith. All capitalized terms not otherwise defined
herein have the respective meanings ascribed thereto in the Plan.
AS DESCRIBED IN THE DISCLOSURE STATEMENT, THE PLAN PROVIDES THAT EACH
PERSON (EACH AN "ELIGIBLE HOLDER") WHO HOLDS A CLASS 4A INTEREST THAT HAS BEEN
ALLOWED FOR PURPOSES OF VOTING ON THE PLAN (AN "ALLOWED CLASS 4A INTEREST") AS
OF THE CLOSE OF BUSINESS ON NOVEMBER 1, 1999 (the "RECORD DATE") MAY SUBSCRIBE
TO PURCHASE ALL RIGHTS (SUBJECT TO THE EXERCISE LIMITATION DESCRIBED BELOW) NOT
SUBSCRIBED TO BY THE HOLDERS OF CERTAIN CLASS 3A CLAIMS OR THEIR PERMITTED
TRANSFEREES ("CLASS 3A ELECTING HOLDERS") IN ACCORDANCE WITH THE TERMS OF THE
PLAN.
The Rights shall consist of the right to purchase up to 35% of the
issued and outstanding shares of New Common Stock (as of the Effective Date)
less that number of Rights properly subscribed to by the Class 3A Electing
Holders (unsecured creditors) in accordance with the Plan. Each Right shall
represent the right to purchase one share of New Common Stock for a purchase
price equal to $10.00 per share (the "Rights Exercise Price"). In the aggregate,
4,161,850 shares of New Common Stock will be available for subscription first by
the Class 3A Electing Holders and then by the Eligible Holders in connection
with the Wellspring Rights Offering.
The Rights will not be evidenced by certificates, but will be
transferable in accordance with the procedures contained in the Plan and below;
provided, however, that no Eligible Holder or its Permitted Transferee (as
defined below) may acquire Rights under the Wellspring Rights Offering, whether
by subscription hereunder, by transfer or otherwise, such that as of the
Effective Date (after giving effect to the exercise of all Rights properly
subscribed to and acquired by transfer or otherwise) such Person would hold
greater than ten percent (10%) of the New Common Stock issued and outstanding as
of the Effective Date (the "Exercise Limitation").
The Rights will be exercisable at any time during the period commencing
with the Debtor's mailing of the Disclosure Statement and concluding at 5:00
p.m., Atlanta, Georgia time, on the Voting Deadline. The Voting Deadline has
been set for January 7, 2000.
IN ORDER FOR AN EXERCISE OF RIGHTS TO BE VALID AND EFFECTIVE, AN
ELIGIBLE HOLDER OR ITS PERMITTED TRANSFEREE MUST DELIVER TO THE VOTING AGENT AT
ONE OF THE ADDRESSES SET FORTH ABOVE A PROPERLY COMPLETED AND DULY EXECUTED
EXERCISE NOTICE (INCLUDING THE ELIGIBLE HOLDER'S OR ITS PERMITTED TRANSFEREE'S
TAX IDENTIFICATION NUMBER). IN ADDITION, SUCH ELIGIBLE HOLDER OR ITS PERMITTED
TRANSFEREE MUST EITHER (X) DELIVER A CERTIFIED CHECK TO THE VOTING AGENT AT ONE
OF THE ADDRESSES SPECIFIED ABOVE OR (Y) CAUSE A WIRE TRANSFER OF IMMEDIATELY
AVAILABLE FUNDS TO BE MADE TO THE DEBTOR'S ACCOUNT SPECIFIED IN THE
INSTRUCTIONS, IN EACH CASE, IN AN AMOUNT EQUAL TO (X) 10% TIMES (Y) THE RIGHTS
EXERCISE PRICE TIMES THE NUMBER OF THE RIGHTS SUBSCRIBED TO BY SUCH PERSON (THE
"DEPOSIT"). THE EXERCISE NOTICE AND THE DEPOSIT MUST BE RECEIVED AT THE
SPECIFIED ADDRESS OR ACCOUNT BY NO LATER THAN 5:00 P.M., ATLANTA, GEORGIA TIME,
on the Voting Deadline for an exercise of Rights to be valid and effective.
After ITS RECEIPT OF THE FOREGOING, THE PROPONENTS IN THEIR REASONABLE
DISCRETION IN ACCORDANCE WITH THE PROCEDURES SET FORTH HEREIN AND IN THE PLAN
SHALL DETERMINE WHICH PERSONS ARE ENTITLED TO PARTICIPATE IN THE WELLSPRING
RIGHTS OFFERING AND HOW MANY RIGHTS EACH SUCH PERSON IS ENTITLED TO RECEIVE
(COLLECTIVELY, THE "SUBSCRIBED RIGHTS").
As soon as practicable following the Voting Deadline, the Debtor shall
give written notice to each Person whose Notice of Exercise of Rights, together
with the Deposit and Transfer Documents (if applicable and as defined below),
was properly completed, duly executed and timely received (inclusive of
Permitted Transferees,
-3-
<PAGE> 4
each an "Electing Holder") of the Debtor's acceptance of its Notice of Exercise
of Rights, the number of Rights to which such Electing Holder is entitled to
exercise, the Purchase Price (as defined below) with respect thereto and notice
of the date on which the Balance (as defined below) is required to be received
by the Debtor (such notice, a "Notice of Acceptance").
If the Subscribed Rights exceed the number of Rights available for
subscription by the Electing Holders, then each Electing Holder shall only be
entitled to exercise Subscribed Rights in an amount equal to (x) the amount of
Rights available for subscription by all Eligible Holders times (y) a fraction,
the numerator of which is the number of Subscribed Rights subscribed to by such
Electing Holder and the denominator of which is the number of Subscribed Rights
subscribed to by all Electing Holders.
No fractional Rights can be exercised under the Wellspring Rights
Offering. When any calculation under the Wellspring Rights Offering would
otherwise result in an allocation of Rights that is not a whole number, the
actual allocation of Rights will be rounded as follows: (i) fractions of 1/2 or
greater shall be rounded to the next higher whole number; and (ii) fractions of
less than 1/2 shall be rounded to the next lower whole number. The total number
of Rights allocated to Electing Holders will be adjusted as necessary to account
for rounding.
Each Electing Holder's payment for its share of the Subscribed Rights
shall be in an amount equal to the product of the Rights Exercise Price and the
number of Subscribed Rights indicated in the Notice of Acceptance for such
Electing Holder (the "Purchase Price") less the amount of such Electing Holder's
Deposit and any interest actually earned thereon (the "Balance").
Payment of the Balance shall be due on the date specified in the Notice
of Acceptance (such date, the "Payment Date"), which date shall be no earlier
than the date on which the Confirmation Hearing on the Plan shall be held. The
Confirmation Hearing is currently scheduled for January 13, 2000. Payment of the
Balance must be made by wire transfer of immediately available funds to the
Debtor's account identified in the Acceptance Notice or by certified check
delivered to the Debtor's address identified in the Acceptance Notice, in each
case so as to be received by the Debtor no later than 5:00 p.m., Atlanta,
Georgia time, on the Payment Date. Amounts received by the Debtor constituting
all or a portion of the Purchase Price shall be held in an interest bearing
segregated account until the Effective Date.
In the event that any Electing Holder shall fail to deliver the Balance
to the Debtor on or before the Payment Date, such Electing Holder shall be
deemed to have waived its right to participate in the Wellspring Rights Offering
and the Debtor's acceptance of its Exercise Notice shall be automatically
rescinded and of no further force and effect without the need for any further
notice, and such Deposit shall be irrevocably retained by Reorganized Paragon.
In the event the Court does not confirm the Plan or the Effective Date does not
occur, the Wellspring Rights Offering shall be automatically rescinded without
notice and of no further force and effect, and any monies received by the Debtor
in connection with the Wellspring Rights Offering, and any interest actually
earned thereon, shall promptly be returned to the applicable Electing Holders.
There will be no further adjustments to the amounts provided in the Notice of
Acceptance.
Subject to the Exercise Limitation, the right of an Eligible Holder to
purchase the Rights can be transferred at any time up to the earlier of (x) the
date such Eligible Holder has exercised Rights and (y) the Voting Deadline upon
receipt by the Debtor or the Voting Agent, as applicable, on or before 5:00
p.m., Atlanta, Georgia time on the Voting Deadline at one of the addresses set
forth above (i) a duly executed assignment agreement or any other evidence of
the transfer satisfactory to the Proponents in their sole, but reasonable,
discretion, TOGETHER WITH A CERTIFICATE EXECUTED BY BOTH THE TRANSFEREE AND THE
TRANSFEROR CERTIFYING THAT THE TRANSFEREE IS A "QUALIFIED INSTITUTIONAL BUYER"
AS SUCH TERM IS DEFINED IN RULE 144A OF THE SECURITIES AND EXCHANGE COMMISSION
(A "PERMITTED TRANSFEREE"), (ii) a duly executed Exercise Notice and (iii) the
Deposit in respect thereof. The documents identified in clause (i) in the
preceding sentence shall be referred to herein as the "Transfer Documents." Any
assignment not in conformity with this paragraph and the Instructions attached
hereto shall be void and of no force and effect.
-4-
<PAGE> 5
NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
The undersigned hereby irrevocably elects to exercise the number of
Rights indicated below on the terms and subject to the conditions set forth in
the Plan and the Disclosure Statement.
Upon the Effective Date of the Plan in accordance with the distribution
procedures set forth therein and proper and timely receipt of the Purchase
Price, please issue a certificate representing New Common Stock as contemplated
above in the name(s) of the undersigned and mail the same to the address of the
Eligible Holder(s) or Permitted Transferee(s) appearing below.
The number of Rights that the Eligible Holder(s) or Permitted
Transferee(s) wish( ) to exercise and the Purchase Price payable in respect
thereof must be indicated in the appropriate boxes below.
-5-
<PAGE> 6
<TABLE>
<S> <C>
Number of Rights to be purchased:
--------------------------------
Purchase Price
(the product of the Number
of Rights to be exercised and $10.00): $
----------------------
Deposit Payable
(10% of the Purchase Price) $
----------------------
</TABLE>
* If the number of Rights to be exercised has not been indicated, or if
the Deposit payment delivered to the Voting Agent is not sufficient for the
number of Rights indicated above, the Eligible Holder(s) or Permitted
Transferee(s) will be deemed to have elected the maximum number of Rights for
which a Deposit was made.
PLEASE SIGN HERE
(See instructions 4 and 5)
X
-----------------------------------------------------------------------------
Signature(s) of Eligible Holder(s) Fed. Tax ID No. Date
or Permitted Transferee(s)
X
-----------------------------------------------------------------------------
Signature(s) of Eligible Holder(s) Fed. Tax ID No. Date
or Permitted Transferee(s)
Telephone Number: ( )
----- ----------------------------------------------------
If signed by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set forth
the following information.
Name(s):
-------------------------------------
-------------------------------------
(Please Type or Print)
Capacity:
------------------------------------
Address:
-------------------------------------
-------------------------------------
------------------------------------- (Include Zip Code)
NOTE: THE FOLLOWING MUST BE COMPLETED AND SIGNED IF THE ELIGIBLE HOLDER IS A
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE HOLDER THAT HELD
ALLOWED CLASS 4A INTERESTS FOR ONE OR MORE BENEFICIAL OWNERS ON THE RECORD DATE.
-6-
<PAGE> 7
NOMINEE HOLDER CERTIFICATION
The undersigned is a broker, dealer, commercial bank, trust company or
other nominee which held Allowed Class 4A Interests of record as of the close of
business on November 1, 1999 for the account of one or more beneficial owners
(indicated below by number without identifying any such beneficial owner), and
hereby certifies to the Debtor and the Voting Agent that the undersigned has
exercised, on behalf of the beneficial owners thereof (which may include the
undersigned), the number of Rights specified below:
ATTACH ADDITIONAL LISTS AS NECESSARY
<TABLE>
<CAPTION>
Beneficial Owner Number Number of Rights Exercised on
Behalf of Such Beneficial Owner
<S> <C>
1
------------------------------------
2
------------------------------------
3
------------------------------------
4
------------------------------------
5
------------------------------------
6
------------------------------------
7
------------------------------------
8
------------------------------------
9
------------------------------------
10
------------------------------------
</TABLE>
PLEASE SIGN AND DATE HERE:
<TABLE>
<CAPTION>
NAME OF NOMINEE HOLDER FED. TAX ID NO. DATED:
- ---------------------- --------------- ------
<S> <C> <C>
By:
-------------------------- --------------- ------
Name:
------------------------
Title:
-----------------------
</TABLE>
-7-
<PAGE> 8
INSTRUCTIONS
1. GENERAL. For the Rights to be validly exercised, a properly completed
and duly executed Notice of Exercise (or a properly completed and duly executed
photocopy thereof) must be received by the Voting Agent prior to 5:00 p.m.,
Atlanta, Georgia time, on the Voting Deadline at one of the addresses set forth
in Notice of Exercise, together with payment in full of the Deposit in
accordance with paragraph 2 below and receipt of the Transfer Documents (if any)
in accordance with paragraph 8 below. All Rights that are to be exercised by the
Eligible Holder or its Permitted Transferee named herein must be exercised
concurrently pursuant to this Notice of Exercise. Rights may not be exercised by
you or your Permitted Transferee unless you held as of the close of business on
November 1, 1999 (the "Record Date") a Class 4A Interest that has been Allowed
for purposes of voting on the Plan. Do not send this Notice of Exercise directly
to the Debtor.
2. METHOD OF PAYMENT OF PURCHASE PRICE.
(a) Concurrently with the execution and delivery of the Notice of
Exercise, each Electing Holder must pay the Deposit by either wire transfer of
immediately available funds to the Debtor's account identified below or by
certified check payable to the Debtor delivered to the Voting Agent at one of
the addresses set forth above, in each case so as to be received by no later
than 5:00 p.m., Atlanta, Georgia time, on the Voting Deadline. The Debtor's
account into which the Deposit may be made is identified as follows:
(b) Payment of the Balance shall be due on the date specified in the
Notice of Acceptance (such date, the "Payment Date"), which date shall be no
earlier than the date scheduled for the Confirmation Hearing. Payment of the
Balance must be made by wire transfer of immediately available funds to the
Debtor's account identified in the Acceptance Notice or by certified check
delivered to the Debtor's address identified in the Acceptance Notice, in each
case so as to be received by no later than 5:00 p.m., Atlanta, Georgia time, on
the Payment Date.
Paragon Trade Brands Rights Offering Account
Account No. 323871836
The Chase Manhattan Bank, NA
One Chase Manhattan Plaza
New York, NY 10081
ABA No. 021000021
3. METHOD OF DELIVERY. The method of delivery of the Notice of Exercise
and payment of the Purchase Price will be at the election and risk of the
Eligible Holder, but if sent by mail, it is recommended that the Notice of
Exercise and the Purchase Price be sent by registered mail, with return receipt
requested, and that a sufficient number of days be allocated to ensure timely
receipt.
4. SIGNATURE(S). Each of the signatures on this Notice of Exercise must be
that of an Eligible Holder or its Permitted Transferee. If any Allowed Class 4A
Interests were held of record as of the close of business on the Record Date by
two or more persons, all such persons must sign this Notice of Exercise. In all
other cases, it will be necessary for each Eligible Holder or Permitted
Transferee to complete, sign and submit a separate Notice of Exercise. If this
Notice of Exercise is signed by a trustee, executor, administrator, guardian,
officer or other person acting in a fiduciary or representative capacity, such
person should so indicate when signing, and proper evidence satisfactory to the
Debtor of the authority of such person to so act must be submitted with this
Notice of Exercise.
5. ALLOWED CLASS 4A INTERESTS HELD BY NOMINEES. Only holders of record (or
their Permitted Transferees) as of the close of business on the Record Date of
Class 4A Interests that have been Allowed for purposes of voting on the Plan may
exercise the Rights. Therefore, brokers, dealers, commercial banks, trust
companies and other persons that as of the close of business on the Record Date
held Allowed Class 4A Interests for the account of others, should notify the
respective beneficial owners of such Allowed Class 4A Interests as
-8-
<PAGE> 9
soon as possible to ascertain such beneficial owners' intentions and to obtain
instructions with respect to the exercise of the Rights. Beneficial owners of
Allowed Class 4A Interests held through such a nominee holder should contact
such nominee holder and request such nominee holder to effect transactions in
accordance with the beneficial owner's instructions. If the beneficial owner so
instructs, such nominee holder should complete a Notice of Exercise and submit
it to the Voting Agent, together with the Deposit and any Transfer Documents.
Each broker, dealer, commercial bank, trust company or other nominee
holder that held Allowed Class 4A Interests as of the close of business on the
Record Date for one or more beneficial owners must certify to the Debtor the
number of Rights exercised on behalf of each beneficial owner.
6. DETERMINATIONS. All determinations as to proper completion, due
execution, timeliness, eligibility, prorating and other matters affecting the
validity or effectiveness of any attempted exercise of any Rights will be made
by the Proponents in their reasonable discretion in accordance with the
procedures set forth herein and in the Plan, whose determination will be final
and binding. The Proponents, in their sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine or reject the purported exercise of any Right that is
subject to any such defect or irregularity. Deliveries required to be received
by the Voting Agent and/or Debtor in connection with a purported exercise of
Rights will not be deemed to have been so received or accepted until actual
receipt thereof by the Voting Agent and/or the Debtor, as the case may be, in
accordance with the instructions set forth herein or in the Notice of Acceptance
shall have occurred and any defects or irregularities shall have been waived or
cured within such time as the Proponents may determine in their sole discretion.
Neither the Debtor, Reorganized Paragon, the Proponents nor any other Person
will have any obligation to give notice to any holder of a Right of any defect
or irregularity in connection with any attempted exercise thereof or incur any
liability as a result of any failure to give any such notice.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Plan and Disclosure Statement and
this Notice of Exercise should be directed to Willkie Farr & Gallagher, counsel
to the Debtor, at the address or telephone number set forth below.
8. TRANSFERABILITY. Subject to the Exercise Limitation, the Rights can be
transferred by an Eligible Holder at any time up to the earlier of (x) the date
such Eligible Holder has exercised Rights and (y) the Voting Deadline upon
receipt by the Voting Agent on or before 5:00 p.m., Atlanta, Georgia time, on
the Voting Deadline at one of the addresses set forth above of a duly executed
assignment agreement or any other evidence of the transfer satisfactory to the
Proponents in their sole discretion, TOGETHER WITH A CERTIFICATE EXECUTED BY
BOTH THE TRANSFEREE AND THE TRANSFEROR CERTIFYING THAT THE TRANSFEREE IS A
"QUALIFIED INSTITUTIONAL BUYER" AS SUCH TERM IS DEFINED IN RULE 144A OF THE
SECURITIES AND EXCHANGE COMMISSION. Any assignment not in conformity herewith
shall be void and of no force and effect.
-------------
Any questions or requests for assistance or additional copies of the Plan
and Disclosure Statement and this Notice of Exercise may be directed to Debtor's
counsel at the address or telephone number set forth below. You may also contact
your broker, dealer, commercial bank, trust company or other nominee for
assistance.
WILLKIE FARR & GALLAGHER
787 Seventh Avenue
New York, New York 10019
Attn: Daniel McElhinney, Esq.
(Telephone No. 212-728-8000)
-9-
<PAGE> 1
EXHIBIT T3E.10
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Debtor. ) JUDGE MURPHY
)
- -----------------------------------------------------
NOTICE OF PROCEDURES AND DEADLINES
CONCERNING WHOLLY CONTINGENT, UNLIQUIDATED
AND/OR UNDETERMINED CLAIMS AGAINST THE DEBTOR
TO: HOLDERS OF WHOLLY UNLIQUIDATED, CONTINGENT AND/OR UNDETERMINED CLAIMS
AGAINST THE DEBTOR:
PLEASE TAKE NOTICE that by "Order Establishing Voting Procedures,
Approving Forms of Ballots, Approving Retention of Balloting Agent and
Establishing Certain Rights Offering Procedures," dated November 18, 1999 (the
"Order"), the Honorable Margaret H. Murphy, United States Bankruptcy Judge,
established the following procedures and deadlines governing your claims:
(a) A claim recorded as wholly unliquidated, contingent and/or
undetermined shall be accorded one vote and valued at one
dollar for purposes of voting on the Proponents' Second
Amended Plan of Reorganization for the Debtor (as the same may
be amended, the "Plan"). THIS VALUATION IS FOR VOTING PURPOSES
ONLY, AND IS NOT A DETERMINATION OF THE VALUE OF YOUR CLAIM
FOR DISTRIBUTION PURPOSES, i.e., THE "ONE DOLLAR, ONE VOTE"
VALUATION WILL NOT DICTATE YOUR ENTITLEMENT TO RECEIVE MONEY
OR PROPERTY UNDER THE PLAN. IF THE PROPONENTS SEEK TO HAVE THE
BANKRUPTCY COURT MAKE A FINAL AND SPECIFIC DETERMINATION OF
YOUR CLAIM FOR DISTRIBUTION PURPOSES, YOU WILL RECEIVE
SEPARATE NOTICE OF THE DATE OF THE SCHEDULED HEARING AND THE
PROCEDURES FOR FILING OBJECTIONS.
<PAGE> 2
(b) If you wish to have your claim valued at more than one dollar
for voting purposes, you must file a motion with the United
States Bankruptcy Court, United States Courthouse, 75 Spring
Street, S.W., Atlanta, Georgia 30303, within fourteen days of
the date of this notice. Your motion must also be served, so
as to be received by the parties identified below, on or
before the date the motion is filed. Your motion must be
served upon:
(i) Willkie Farr & Gallagher
787 Seventh Avenue,
New York, New York 10019,
Attention: Myron Trepper, Esq.
and Paul Shalhoub, Esq. and
(ii) O'Melveny & Myers
One Citicorp Center
153 East 53rd
Street New York, New York 10022
Attention: Joel Zweibel, Esq.
and Adam Harris, Esq.
-2-
<PAGE> 3
(c) Your motion for estimation of a claim for voting purposes must
set forth with specificity the amount and classification at
which you believe your claim should be allowed for voting
purposes, and the evidence in support of that belief. The
motion must be served and filed in accordance with this
notice, and any and all applicable provisions of the
Bankruptcy Code, the Bankruptcy Rules and the Local Bankruptcy
Rules of the Northern District of Georgia.
(d) A hearing on any such motion that has been timely filed and
served will be held on January 5, 2000, at 10 a.m. (the
"Estimation Hearing Date").
PLEASE TAKE FURTHER NOTICE that if you reach an agreement with the
Proponents concerning the amount and classification of your claim, a stipulation
setting forth that agreement may be presented to the Bankruptcy Court for
approval, upon three (3) business days' notice to the parties designated in the
Order.
PLEASE TAKE FURTHER NOTICE that in the event your claim is in dispute
and has not been determined by the Bankruptcy Court as of the Estimation Hearing
Date (whether as a result of your motion or the Proponents' motion objecting to
or seeking a final determination of your claim), your claim shall not be counted
for voting purposes and your ballot, if any, shall not be counted, except to the
extent and in the manner indicated in the Debtor's objection.
PLEASE TAKE FURTHER NOTICE that you need not file a motion or otherwise
respond to this notice if you do not object to the "one dollar, one vote"
treatment of your claim for voting purposes established by the Order.
-3-
<PAGE> 4
This 18th day of November, 1999.
ALSTON & BIRD LLP O'MELVENY & MYERS LLP
By: /s/ Matthew W. Levin By: /s/ Adam C. Harris
____________________________ _____________________________
DENNIS J. CONNOLLY JOEL B. ZWEIBEL
Georgia Bar No. 182275 ADAM C. HARRIS
MATTHEW W. LEVIN
Georgia Bar No. 448270
One Citicorp Center
1201 West Peachtree Street 153 East 53rd Street
Atlanta, Georgia 30309-3424 New York, New York 10022
(404) 881-7000 (212) 326-2000
and and
WILLKIE FARR & GALLAGHER PARKER, HUDSON, RANIER & DOBBS
Myron Trepper, Esq. Rufus Dorsey, Esq.
Paul V. Shalhoub, Esq. Suite 1500
787 Seventh Avenue 285 Peachtree Center Avenue
New York, New York 10019-6099 Atlanta, Georgia
(212) 728-8000 (404) 523-5300
Attorneys for Paragon Trade Brands, Inc. Attorneys for the Official
Committee of Unsecured Creditors
-4-
<PAGE> 1
EXHIBIT T3E.11
MUST BE RECEIVED BY 5:00 P.M. ATLANTA, GEORGIA TIME ON JANUARY 7, 2000
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. ) BALLOT
............................... x For Second Amended Plan of
Reorganization
CLASS 3 A
UNSECURED CLAIMS
1. VOTE ON PLAN NOTE:PLEASE CHECK ONLY ONE BOX. IF NO BOXES ARE CHECKED,
OR IF BOTH BOXES ARE CHECKED, THIS BALLOT WILL BE COUNTED AS A VOTE TO
ACCEPT THE PLAN. A BALLOT THAT IS NOT SIGNED WILL NOT COUNT.
ACCEPT PLAN [ ] REJECT PLAN [ ]
----------- -----------
2. CONVENIENCE CLASS ELECTION.
CLAIMS OVER $5,000.00 BUT NOT MORE THAN $10,000.00. Claimant hereby
elects to reduce its claim to $5,000.00 and receive Class 3B
Convenience Claim treatment under the Plan (a cash distribution of 50%
of the allowed amount of the claim as reduced). Election of
Convenience Claim treatment shall be deemed a vote in favor of the
Plan.
YES [ ] NO [ ]
--- --
3. TAX INFORMATION Under penalties of perjury, claimant certifies that:
A. Claimant's correct taxpayer identification number is:
(Social Security Number)_______-____-_______,
(or Employer Identification Number)______-_____________; and
B. Please check the Appropriate Box(es):
Claimant is not subject to backup withholding because:
[ ] (a) Claimant is exempt from backup withholding, or
[ ] (b) Claimant has not been notified by the Internal
Revenue Service ("IRS") that Claimant is subject to
backup withholding as a result of a failure to
report all interest or dividends; or
[ ] (c) The IRS has notified Claimant that Claimant is no
longer subject to backup withholding.
4. SIGNATURE By signing this Ballot the undersigned certifies that it is
either (a) creditor with a claim to which this Ballot pertains that is
designated in the above-referenced class of Unsecured Claims pursuant
to the Plan, or (b) an authorized signatory of such a creditor, and
has full power and authority to vote to accept or reject the Plan. The
undersigned also acknowledges that such vote is subject to all the
terms and conditions set forth in the Disclosure Statement.
Name (Print)
---------------------------------------------------
Signature:
---------------------------------------------------
Title:
---------------------------------------------------
Date Completed:
---------------------------------------------------
PLEASE MAKE SURE YOU HAVE PROVIDED ALL INFORMATION REQUESTED ON THIS BALLOT
<PAGE> 2
INSTRUCTIONS FOR COMPLETING THE BALLOT
On November 18, 1999, the United States Bankruptcy Court for the
Northern District of Georgia (the "Court") approved the Disclosure Statement
for the Second Amended Plan of Reorganization for the Debtor (as may be
amended, the "Disclosure Statement") jointly filed by Paragon Trade Brands,
Inc. ("Paragon" or the "Debtor") and its Official Committee of Unsecured
Creditors (together, the "Proponents") on November 15, 1999 and directed the
Proponents to solicit votes with regard to the approval or rejection of the
Proponents' Second Amended Plan of Reorganization dated November 15, 1999 (as
may be amended, the "Plan") attached as an exhibit thereto.
TO HAVE YOUR VOTE COUNT, YOU MUST COMPLETE, SIGN AND RETURN THIS
BALLOT SO THAT IT IS RECEIVED BY BANKRUPTCY SERVICES, LLC (THE "VOTING AGENT")
NOT LATER THAN 5:00 P.M., ATLANTA, GEORGIA TIME, ON JANUARY 7, 2000 (THE
"VOTING DEADLINE"). FAXED BALLOTS WILL BE COUNTED ONLY IF THE ORIGINAL IS
RECEIVED WITHIN THREE (3) CALENDAR DAYS OF THE VOTING DEADLINE. ONLY ORIGINAL
BALLOTS WITH ORIGINAL SIGNATURES WILL BE COUNTED. BALLOTS SHOULD BE RETURNED TO
THE FOLLOWING ADDRESS:
<TABLE>
<S> <C>
(if mailed) (if sent by Overnight courier)
Bankruptcy Services LLC Bankruptcy Services LLC
Paragon Plan Voting Center 70 East 55th Street
P.O. Box 5159 6th Floor
FDR Station New York, NY 10022
New York, New York 10150-5159
</TABLE>
It is important that you vote. The Plan can be confirmed by the Court
and thereby made binding on you if it is accepted by the holders of at least
2/3 in amount and more than 1/2 in number of claims actually voting in each
voting class of claims, and by the holders of at least 2/3 in amount of
interests actually voting in each voting class of interests. The votes of the
claims actually voted in your class will bind those who do not vote. In the
event that the requisite acceptances are not obtained, the Court may
nevertheless confirm the Plan if at least one impaired class of claims or
interests has accepted the Plan and the Court finds that it accords fair and
equitable treatment to, and does not discriminate unfairly against, the
class(es) rejecting it and otherwise satisfies the requirements of Section
1129(b) of title 11 of the United States Code (the "Bankruptcy Code").
Your signature is required in order for your vote to be counted. If
the claim is held by a partnership, the ballot should be executed in the name
of the partnership by a general partner. If the claim is held by a corporation,
the ballot must be executed by an officer. If you are signing in a
representative capacity, also indicate your title after your signature.
This ballot has been prepared to reflect the class(es) in which you
are eligible to vote. If you have claims or interests in more than these
classes, you may receive more than one ballot. IF YOU RECEIVE MORE THAN ONE
BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM OR AN INTEREST IN A
SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. If you have any
questions, please contact the Voting Agent, Bankruptcy Services, LLC, at (212)
376-8494 (Attn: Bridgette Gallerie).
Ballots are being sent to all holders of impaired Claims or Interests
entitled to vote on the Plan as of the voting record date of November 1, 1999.
Pursuant to Section 502 of the Bankruptcy Code and Federal Rule of Bankruptcy
Procedure 3018, the Court may estimate and temporarily allow a Claim for
purpose of voting on the Plan. The Proponents may seek an order of the Court,
temporarily allowing, for voting purposes only, certain disputed claims. If the
Proponents avail themselves of this right, allowance for voting purposes does
not constitute allowance for purpose of distributions under the Plan.
THIS BALLOT IS FOR VOTING PURPOSES ONLY AND DOES NOT CONSTITUTE AND
SHALL NOT BE DEEMED A PROOF OF CLAIM OR AN ADMISSION BY THE DEBTOR OF THE
VALIDITY OF A CLAIM.
If your ballot is damaged or lost or if you did not receive a ballot
you may request a replacement by addressing a written request to Bankruptcy
Services LLC at the above address or by calling (212) 376-8494 (Attn:
Bridgette Gallerie).
Claimants submitting multiple ballots shall be deemed to have voted in
the manner of the last ballot cast.
If a claim is disputed as of the Voting Deadline, the ballot submitted
with respect to that claim shall not be counted, except to the extent the
Debtor's objection to that claim states otherwise or the Court orders otherwise
upon the timely application of the claim holder in accordance with the Court's
Order Establishing Voting Procedures, Approving Forms of Ballots, Approving
Retention of Balloting Agent, and Establishing and Approving Certain Rights
Offering Procedures, Notices and Forms, dated November 18, 1999.
<PAGE> 3
MUST BE RECEIVED BY 5:00 P.M. ATLANTA, GEORGIA TIME ON JANUARY 7, 2000
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. ) MASTER BALLOT
............................... x For Second Amended Plan of
Reorganization
CLASS 3 B
CONVENIENCE CLAIMS
1. VOTE ON PLAN NOTE: PLEASE CHECK ONLY ONE BOX. IF NO BOXES ARE CHECKED,
OR IF BOTH BOXES ARE CHECKED, THIS BALLOT WILL BE COUNTED AS A VOTE TO
ACCEPT THE PLAN. A BALLOT THAT IS NOT SIGNED WILL NOT COUNT.
ACCEPT PLAN [ ] REJECT PLAN [ ]
----------- -----------
2. TAX INFORMATION Under penalties of perjury, claimant certifies that:
A. Claimant's correct taxpayer identification number is:
(Social Security Number)______-_____-__________,
(or Employer Identification Number)_____-______________; and
B. Please check the Appropriate Box(es):
Claimant is not subject to backup withholding because:
[ ] (a) Claimant is exempt from backup withholding, or
[ ] (b) Claimant has not been notified by the Internal
Revenue Service ("IRS") that Claimant is subject
to backup withholding as a result of a failure to
report all interest or dividends; or
(c) The IRS has notified Claimant that Claimant is no
longer subject to backup withholding.
3. SIGNATURE By signing this Ballot the undersigned certifies that it is
either (a) creditor with a claim to which this Ballot pertains that is
designated in the above-referenced class of Unsecured Claims pursuant
to the Plan, or (b) an authorized signatory of such a creditor, and
has full power and authority to vote to accept or reject the Plan. The
undersigned also acknowledges that such vote is subject to all the
terms and conditions set forth in the Disclosure Statement.
Name (Print)
---------------------------------------------------
Signature:
---------------------------------------------------
Title:
---------------------------------------------------
Date Completed:
---------------------------------------------------
PLEASE MAKE SURE YOU HAVE PROVIDED ALL INFORMATION REQUESTED ON THIS BALLOT
<PAGE> 4
INSTRUCTIONS FOR COMPLETING THE BALLOT
On November 18, 1999, the United States Bankruptcy Court for the
Northern District of Georgia (the "Court") approved the Disclosure Statement
for the Second Amended Plan of Reorganization for the Debtor (as may be
amended, the "Disclosure Statement") jointly filed by Paragon Trade Brands,
Inc. ("Paragon" or the "Debtor") and its Official Committee of Unsecured
Creditors (together, the "Proponents") on November 15, 1999 and directed the
Proponents to solicit votes with regard to the approval or rejection of the
Proponents' Second Amended Plan of Reorganization dated November 15, 1999 (as
may be amended, the "Plan") attached as an exhibit thereto.
TO HAVE YOUR VOTE COUNT, YOU MUST COMPLETE, SIGN AND RETURN THIS
BALLOT SO THAT IT IS RECEIVED BY BANKRUPTCY SERVICES, LLC (THE "VOTING AGENT")
NOT LATER THAN 5:00 P.M., ATLANTA, GEORGIA TIME, ON JANUARY 7, 2000 (THE
"VOTING DEADLINE"). FAXED BALLOTS WILL BE COUNTED ONLY IF THE ORIGINAL IS
RECEIVED WITHIN THREE (3) CALENDAR DAYS OF THE VOTING DEADLINE. ONLY ORIGINAL
BALLOTS WITH ORIGINAL SIGNATURES WILL BE COUNTED. BALLOTS SHOULD BE RETURNED TO
THE FOLLOWING ADDRESS:
<TABLE>
<S> <C>
(if mailed) (if sent by Overnight courier)
Bankruptcy Services LLC Bankruptcy Services LLC
Paragon Plan Voting Center 70 East 55th Street
P.O. Box 5159 6th Floor
FDR Station New York, NY 10022
New York, New York 10150-5159
</TABLE>
It is important that you vote. The Plan can be confirmed by the Court
and thereby made binding on you if it is accepted by the holders of at least
2/3 in amount and more than 1/2 in number of claims actually voting in each
voting class of claims, and by the holders of at least 2/3 in amount of
interests actually voting in each voting class of interests. The votes of the
claims actually voted in your class will bind those who do not vote. In the
event that the requisite acceptances are not obtained, the Court may
nevertheless confirm the Plan if at least one impaired class of claims or
interests has accepted the Plan and the Court finds that it accords fair and
equitable treatment to, and does not discriminate unfairly against, the
class(es) rejecting it and otherwise satisfies the requirements of Section
1129(b) of title 11 of the United States Code (the "Bankruptcy Code").
Your signature is required in order for your vote to be counted. If
the claim is held by a partnership, the ballot should be executed in the name
of the partnership by a general partner. If the claim is held by a corporation,
the ballot must be executed by an officer. If you are signing in a
representative capacity, also indicate your title after your signature.
This ballot has been prepared to reflect the class(es) in which you
are eligible to vote. If you have claims or interests in more than these
classes, you may receive more than one ballot. IF YOU RECEIVE MORE THAN ONE
BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM OR AN INTEREST IN A
SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. If you have any
questions, please contact the Voting Agent, Bankruptcy Services, LLC, at (212)
376-8494 (Attn: Bridgette Gallerie).
Ballots are being sent to all holders of impaired Claims or Interests
entitled to vote on the Plan as of the voting record date of November 1, 1999.
Pursuant to Section 502 of the Bankruptcy Code and Federal Rule of Bankruptcy
Procedure 3018, the Court may estimate and temporarily allow a Claim for
purpose of voting on the Plan. The Proponents may seek an order of the Court,
temporarily allowing, for voting purposes only, certain disputed claims. If the
Proponents avail themselves of this right, allowance for voting purposes does
not constitute allowance for purpose of distributions under the Plan.
THIS BALLOT IS FOR VOTING PURPOSES ONLY AND DOES NOT CONSTITUTE AND
SHALL NOT BE DEEMED A PROOF OF CLAIM OR AN ADMISSION BY THE DEBTOR OF THE
VALIDITY OF A CLAIM.
If your ballot is damaged or lost or if you did not receive a ballot
you may request a replacement by addressing a written request to Bankruptcy
Services LLC at the address set forth above or by calling (212) 376-8494 (Attn:
Bridgette Gallerie).
Claimants submitting multiple ballots shall be deemed to have voted in
the manner of the last ballot cast.
If a claim is disputed as of the Voting Deadline, the ballot submitted
with respect to that claim shall not be counted, except to the extent the
Debtor's objection to that claim states otherwise or the Court orders otherwise
upon the timely application of the claim holder in accordance with the Court's
Order Establishing Voting Procedures, Approving Forms of Ballots, Approving
Retention of Balloting Agent, and Establishing and Approving Certain Rights
Offering Procedures, Notices and Forms, dated November 18, 1999.
<PAGE> 5
MUST BE RECEIVED BY 5:00 P.M. ATLANTA, GEORGIA TIME ON JANUARY 7, 2000
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
<TABLE>
<S> <C> <C>
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. ) BALLOT
............................... x For Second Amended Plan of Reorganization
</TABLE>
CLASS 4A - MASTER BALLOT
OLD COMMON STOCK INTERESTS ("INTERESTS")
I. AGGREGATE PRINCIPAL AMOUNT OF INTERESTS AS TO WHICH VOTES ARE CAST. By
signing this Master Ballot, the undersigned certifies that it is the registered
owner (or agent for such owner or owners) as of November 1, 1999, the record
date, of _________________ aggregate shares of common stock of Paragon Trade
Brands, Inc., for which voting instructions have been received from beneficial
owners (the "Beneficial Owners") as listed in Item III below.
II. VOTE ON PLAN - AGGREGATE SHARE AMOUNT. (NOTE: A BALLOT THAT IS NOT
SIGNED WILL NOT COUNT.)
<TABLE>
<S> <C>
To ACCEPT the Plan
--------------------------------
Aggregate amount of shares
To REJECT the Plan
--------------------------------
Aggregate amount of shares
</TABLE>
III. VOTE ON PLAN - NUMBER OF BENEFICIAL OWNERS.
The undersigned certifies that the following Beneficial Owners of
Interests, as identified by their respective customer account numbers or the
respective sequence numbers set forth below, have delivered to the undersigned
Beneficial Owner Ballots casting votes (indicate the aggregate share amount for
each respective account under the appropriate column. Please use additional
sheets of paper if necessary):
<TABLE>
<CAPTION>
Customer Name and/or Identifying Number for Share Amount
Each Beneficial Owner ACCEPT Plan REJECT Plan
<S> <C> <C> <C>
1.
-------------------------------------------- ------------------------ --------------------
2.
-------------------------------------------- ------------------------ --------------------
3.
-------------------------------------------- ------------------------ --------------------
4.
-------------------------------------------- ------------------------ --------------------
</TABLE>
IV. The undersigned certifies that it has transcribed below the
information, if any, provided in Item III of each Beneficial Owner Ballot
received from a Beneficial Owner (please use additional sheets of paper if
necessary):
Customer Name and/or Account Name of Registered Holder for Each Beneficial
Owner or Nominee of Other Account
<TABLE>
<CAPTION>
Customer Name and/or Account # Name of Registered Holder Amount of Shares Held and Voted
for Each Beneficial Owner or Nominee of Other Account
<S> <C> <C>
1.
-------------------------------------- --------------------------------------- -------------------------------------
2.
-------------------------------------- --------------------------------------- -------------------------------------
3.
-------------------------------------- --------------------------------------- -------------------------------------
4.
-------------------------------------- --------------------------------------- -------------------------------------
</TABLE>
V. SIGNATURE By signing this Master Ballot, the undersigned certifies
that (i) each Beneficial Owner of Interests whose votes are being transmitted
by this Master Ballot has been provided with a copy of the Disclosure
Statement, (ii) each such Beneficial Owner has not cast more than one vote for
any purpose, including share amount, even if such Beneficial Owner holds
securities of the same type in more than one account, and (iii) it is the
registered holder of the Interests to which this ballot pertains and/or has
full power and authority to vote to accept or reject the Plan. The undersigned
also acknowledges that the solicitation of this vote to accept or reject the
Plan is subject to all the terms and conditions set forth in the Disclosure
Statement.
Name (Print)
------------------------------------------------
Signature:
------------------------------------------------
Title:
------------------------------------------------
Date Completed:
------------------------------------------------
<PAGE> 6
PLEASE MAKE SURE YOU HAVE PROVIDED ALL INFORMATION REQUESTED ON THIS BALLOT
INSTRUCTIONS FOR COMPLETING THE BALLOT
Paragon Trade Brands, Inc. ("Paragon" or the "Debtor") is soliciting
votes of your customers or constituents who are beneficial holders of Interests
on the Second Amended Plan of Reorganization for the Debtor, dated November 15,
1999 (as may be amended, the "Plan") referred to in the Disclosure Statement
for the Second Amended Plan of Reorganization, dated as of November 15, 1999
(as may be amended, the "Disclosure Statement'). The capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Plan. This
Master Ballot is to identify the vote of your customers or constituents who own
interests in Class 4A under the Plan ("Interests").
To have the vote of your customers count, you should deliver the
Disclosure Statement, Plan and Beneficial Owner Ballot to each Beneficial Owner
for whom you hold Interests and you must COMPLETE, SIGN AND RETURN THIS MATER
BALLOT SO THAT IT IS RECEIVED BY BANKRUPTCY SERVICES, LLC (THE "VOTING AGENT")
NOT LATER THAN 5:00 P.M. ATLANTA, GEORGIA TIME, ON JANUARY 7, 2000 (THE "VOTING
DEADLINE"). FAXED BALLOTS WILL BE COUNTED ONLY IF THE ORIGINAL IS RECEIVED
WITHIN THREE (3) CALENDAR DAYS OF THE VOTING DEADLINE. ONLY ORIGINAL BALLOTS
WITH ORIGINAL SIGNATURES WILL BE COUNTED. Ballots should be returned to the
following address:
<TABLE>
<S> <C>
(if mailed -) (if sent by overnight courier -)
Bankruptcy Services LLC Bankruptcy Services LLC
Paragon Plan Voting Center 70 East 55th Street
P.O. Box 5159 6th Floor
FDR Station New York, NY 10022
New York, New York 10150-5159
</TABLE>
It is important that you vote. The Plan can be confirmed by the Court
and thereby made binding on creditors and interest holders if it is accepted by
the holders of at least 2/3 in amount and more than 1/2 in number of claims
actually voting in each voting class of claims, and by the holders of at least
2/3 in amount of interests actually voting in each voting class of interests.
The votes of the claims and interests actually voted in each class will bind
those who do not vote. In the event that the requisite acceptances are not
obtained, the Court may nevertheless confirm the Plan if at least one impaired
class of claims or interests has accepted the Plan and the Court finds that it
accords fair and equitable treatment to, and does not discriminate unfairly
against, the class(es) rejecting it and otherwise satisfies the requirements of
Section 1129(b) of title 11 of the United States Code (the "Bankruptcy Code").
Your signature is required in order for your customers' or
constituents' votes to be counted. If you are a partnership, the ballot should
be executed in the name of the partnership by a general partner. If you are a
corporation, the ballot must be executed by an officer. If you are signing in a
representative capacity, also indicate your title after your signature.
This ballot has been prepared to reflect the class(es) in which you
are eligible to vote. If you have claims or interests in more than these
classes, you may receive more than one ballot. IF YOU RECEIVE MORE THAN ONE
BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM OR AN INTEREST IN A
SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. If you have any
questions, please contact the Voting Agent, Bankruptcy Services, LLC, at (212)
376-8494 (Attn: Bridgette Gallerie).
Ballots are being sent to all holders of impaired Claims or Interests
entitled to vote on the Plan as of the voting record date of November 1, 1999.
Pursuant to Section 502 of the Bankruptcy Code and Federal Rule of Bankruptcy
Procedure 3018, the Court may estimate and temporarily allow a Claim for
purpose of voting on the Plan. The Proponents may seek an order of the Court,
temporarily allowing, for voting purposes only, certain disputed claims. If the
Proponents avail themselves of this right, allowance for voting purposes does
not constitute allowance for purpose of distributions under the Plan.
THIS BALLOT IS FOR VOTING PURPOSES ONLY AND DOES NOT CONSTITUTE AND
SHALL NOT BE DEEMED A PROOF OF CLAIM OR INTEREST OR AN ADMISSION BY THE DEBTOR
OF THE VALIDITY OF ANY CLAIMS OR INTERESTS.
If your ballot is damaged or lost or if you did not receive a ballot
you may request a replacement by addressing a written request to Bankruptcy
Services, LLC or by calling (212) 376-8494 (Attn: Bridgette Gallerie).
Claimants and Interest holders submitting multiple ballots shall be
deemed to have voted in the manner of the last ballot cast.
If a claim is disputed as of the Voting Deadline, the ballot submitted
with respect to that claim shall not be counted, except to the extent the
Debtor's objection to that claim states otherwise or the Court orders otherwise
upon the timely application of the claim holder in accordance with the Court's
Order Establishing Voting Procedures, Approving Forms of Ballots and Approving
Retention of Balloting Agent, and Establishing and Approving Certain Rights
Offering Procedures, Notices and Forms, dated November 18, 1999.
<PAGE> 7
MUST BE RECEIVED BY 5:00 P.M. ATLANTA, GEORGIA TIME ON JANUARY 7, 2000
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN RE: ) CASE NO. 98-60390
)
PARAGON TRADE BRANDS, INC., ) CHAPTER 11
)
Federal Tax I.D. No. 91-1554663 ) JUDGE MURPHY
)
Debtor. ) BALLOT
............................... x For Second Amended Plan of
Reorganization
CLASS 4A
OLD COMMON STOCK INTERESTS
BENEFICIAL HOLDERS
1. VOTE ON PLAN NOTE:PLEASE CHECK ONLY ONE BOX. IF NO BOXES ARE CHECKED,
OR IF BOTH BOXES ARE CHECKED, THIS BALLOT WILL BE COUNTED AS A VOTE TO ACCEPT
THE PLAN. A BALLOT THAT IS NOT SIGNED WILL NOT COUNT.
ACCEPT PLAN REJECT PLAN
----------- -----------
[ ] [ ]
2. TAX INFORMATION Under penalties of perjury, Interestholder certifies that:
1. Interestholder's correct taxpayer identification number is:
(Social Security Number)______-____-________,
(or Employer Identification Number)____-_______________; and
2. Please check the Appropriate Box(es):
Interestholder is not subject to backup withholding because:
(a) Interestholder is exempt from backup withholding, or
(b) Interestholder has not been notified by the Internal
Revenue Service ("IRS") that Interestholder is subject to
backup withholding as a result of a failure to report all
interest or dividends; or
(c) The IRS has notified Interestholder that Interestholder
is no longer subject to backup withholding.
3. SIGNATURE By signing this Ballot the undersigned certifies that it is
either (a) an interestholder with an interest to which this Ballot pertains
that is designated in the above-referenced class of Old Common Stock Interests
pursuant to the Plan, or (b) an authorized signatory of such an interestholder,
and has full power and authority to vote to accept or reject the Plan. The
undersigned also acknowledges that such vote is subject to all the terms and
conditions set forth in the Disclosure Statement.
Name (Print)
--------------------------------------
Signature:
--------------------------------------
Title:
--------------------------------------
Date Completed:
--------------------------------------
PLEASE MAKE SURE YOU HAVE PROVIDED ALL INFORMATION REQUESTED ON THIS BALLOT
<PAGE> 8
INSTRUCTIONS FOR COMPLETING THE BALLOT
On November 18, 1999, the United States Bankruptcy Court for the
Northern District of Georgia (the "Court") approved the Disclosure Statement
for the Second Amended Plan of Reorganization (as may be amended, the
"Disclosure Statement") filed by Paragon Trade Brands, Inc. ("Paragon" or the
"Debtor") and its Official Committee of Unsecured Creditors (together with
Paragon, the "Proponents") on November 15, 1999 and directed the Proponents to
solicit votes with regard to the approval or rejection of the Second Amended
Plan of Reorganization dated November 15, 1999 (as may be amended, the "Plan")
attached as an exhibit thereto.
TO HAVE YOUR VOTE COUNT, YOU MUST COMPLETE, SIGN AND RETURN THIS
BALLOT SO THAT IT IS RECEIVED EITHER (i) BY THE BALLOTING AGENT, BANKRUPTCY
SERVICES, LLC, NOT LATER THAN 5:00 P.M., ATLANTA, GEORGIA TIME ON JANUARY 7,
2000 (THE "VOTING DEADLINE") OR (ii) IF YOU ARE NOT ALSO THE RECORD HOLDER OF
THE INTERESTS BEING VOTED HEREIN, BY YOUR BROKER, BANK OR NOMINEE, OR OTHER
INTERMEDIARY IN SUFFICIENT TIME FOR YOUR BROKER, BANK OR NOMINEE OR OTHER
INTERMEDIARY TO TRANSMIT YOUR VOTE TO THE BALLOTING AGENT BY THE VOTING
DEADLINE. FAXED BALLOTS WILL BE COUNTED ONLY IF THE ORIGINAL IS RECEIVED WITHIN
THREE (3) CALENDAR DAYS OF THE VOTING DEADLINE. BALLOTS OF RECORD HOLDERS
SHOULD BE RETURNED TO THE FOLLOWING ADDRESS:
(if mailed) (if sent by overnight courier)
Bankruptcy Services LLC Bankruptcy Services LLC
Paragon Plan Voting Center 70 East 55th Street
P.O. Box 5159 6th Floor
FDR Station New York, NY 10022
New York, New York 10150-5159
It is important that you vote. The Plan can be confirmed by the Court
and thereby made binding on you if it is accepted by the holders of at least
2/3 in amount and more than 1/2 in number of claims actually voting in each
voting class of claims, and by the holders of at least 2/3 in amount of
interests actually voting in each voting class of interests. The votes of the
interests actually voted in your class will bind those who do not vote. In the
event that the requisite acceptances are not obtained, the Court may
nevertheless confirm the Plan if at least one impaired class of claims or
interests has accepted the Plan and the Court finds that it accords fair and
equitable treatment to, and does not discriminate unfairly against, the
class(es) rejecting it and otherwise satisfies the requirements of Section
1129(b) of title 11 of the United States Code (the "Bankruptcy Code").
Your signature is required in order for your vote to be counted. If
the interest is held by a partnership, the ballot should be executed in the
name of the partnership by a general partner. If the interest is held by a
corporation, the ballot must be executed by an officer. If you are signing in a
representative capacity, also indicate your title after your signature.
This ballot has been prepared to reflect the class(es) in which you
are eligible to vote. If you have claims or interests in more than these
classes, you may receive more than one ballot. IF YOU RECEIVE MORE THAN ONE
BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM OR AN INTEREST IN A
SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. If you have any
questions, please contact the Voting Agent, Bankruptcy Services, LLC, at (212)
376-8494 (Attn: Bridgette Gallerie).
Ballots are being sent to all holders of impaired Claims or Interests
entitled to vote on the Plan as of the voting record date November 1, 1999.
Pursuant to Section 502 of the Bankruptcy Code and Federal Rule of Bankruptcy
Procedure 3018, the Court may estimate and temporarily allow a Claim for
purpose of voting on the Plan. The Proponents may seek an order of the Court,
temporarily allowing, for voting purposes only, certain disputed claims. If the
Proponents avail themselves of this right, allowance for voting purposes does
not constitute allowance for purpose of distributions under the Plan.
THIS BALLOT IS FOR VOTING PURPOSES ONLY AND DOES NOT CONSTITUTE AND
SHALL NOT BE DEEMED A PROOF OF CLAIM OR INTEREST OR AN ADMISSION BY THE DEBTOR
OF THE VALIDITY OF A CLAIM OR INTEREST.
If your ballot is damaged or lost or if you did not receive a ballot
you may request a replacement by addressing a written request to Bankruptcy
Services, LLC or by calling (212) 376-8494 (Attn: Bridgette Gallerie).
Claimants or interestholders submitting multiple ballots shall be
deemed to have voted in the manner of the last ballot cast.
If a claim or interest is disputed as of the Voting Deadline, the
ballot submitted with respect to that claim or interest shall not be counted,
except to the extent the Debtor's objection to that claim or interest states
otherwise or the Court orders otherwise upon the timely application of the
claim or interest holder in accordance with the Court's Order Establishing
Voting Procedures, Approving Forms of Ballots, Approving Retention of Balloting
Agent, and Establishing Certain Rights Offering Procedures, Notices and Forms,
dated November 18, 1999.
<PAGE> 1
Exhibit 99.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
__CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO
SECTION 305(b)(2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. National Banking Association 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
PARAGON TRADE BRANDS, INC.
(Exact name of obligor as specified in its charter)
Delaware 91-1554663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 Technology Parkway
Norcross, Georgia 30092
(Address of principal executive offices) (Zip code)
11.25% Senior Subordinated Notes due 2005
(Title of the indenture securities)
================================================================================
<PAGE> 2
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of this
Statement of Eligibility.
Norwest Bank incorporates by reference into this Form
T-1 the exhibits attached hereto.
Exhibit 1. A copy of the Articles of Association of the trustee
now in effect.*
Exhibit 2. a. A copy of the certificate of authority of
the trustee to commence business issued June 28,
1872, by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller
of the Currency dated January 2, 1934, approving the
-2-
<PAGE> 3
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust Company
of Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust Company
of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12, 1943,
as to change of corporate title of Northwestern
National Bank and Trust Company of Minneapolis to
Northwestern National Bank of Minneapolis.*
d. A copy of the letter dated May 12, 1983 from
the Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National Bank
of Minneapolis to Norwest Bank Minneapolis, National
Association.*
e. A copy of the letter dated January 4, 1988
from the Administrator of National Banks for the
Comptroller of the Currency certifying approval of
consolidation and merger effective January 1, 1988 of
Norwest Bank Minneapolis, National Association with
various other banks under the title of "Norwest Bank
Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued January 2,
1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
-3-
<PAGE> 4
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
** Incorporated by reference to exhibit number 25.1 filed with
registration statement number 333-93499
-4-
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 14th day of January 2000.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
-----------------------------------
Jane Y. Schweiger
Corporate Trust Officer
-5-
<PAGE> 6
EXHIBIT 6
January 14, 2000
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
------------------------------------
Jane Y. Schweiger
Corporate Trust Officer
-6-
