[DRYPERS LOGO]
April 28, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Drypers Corporation to be held at 10:00 a.m., C.D.T., on Wednesday, May 28,
1997, at the Houstonian Hotel and Conference Center, located at 111 Post Oak
Lane, Houston, Texas 77024.
This year you will be asked to vote in favor of three proposals. The
proposals relate to the election of two directors, the approval of amendments to
the Amended and Restated 1995 Key Employee Stock Option Plan and the appointment
of independent public accountants for fiscal 1997. These matters are more fully
explained in the attached proxy statement, which you are encouraged to read.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE THESE PROPOSALS AND
URGES THAT YOU RETURN YOUR SIGNED PROXY CARD AT YOUR EARLIEST CONVENIENCE,
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
Thank you for your cooperation.
Sincerely,
Walter V. Klemp
Co-Chief Executive Officer and
Chairman of the Board
<PAGE>
DRYPERS CORPORATION
1415 WEST LOOP NORTH
HOUSTON, TEXAS 77055
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Drypers Corporation:
The 1997 Annual Meeting of Stockholders of Drypers Corporation (the
"Company") will be held on May 28, 1997, at 10:00 a.m., C.D.T., at the
Houstonian Hotel and Conference Center, located at 111 Post Oak Lane, Houston,
Texas, for the following purposes:
1. To elect two persons to serve as directors of the Company for a
three-year term or until their respective successors are duly
elected and qualified.
2. To consider and vote on a proposal to approve amendments to the
Drypers Corporation Amended and Restated 1995 Key Employee Stock
Option Plan to (i) increase the aggregate number of shares of
the Company's Common Stock with respect to which options may be
granted under the plan by 500,000 to allow for the grant of
additional options under the plan and (ii) make certain other
changes as set forth therein.
3. To consider and vote on a proposal to ratify the appointment of
Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1997; and
4. To transact such other business as may properly come before the
Meeting.
The Board of Directors has fixed the close of business on April 21,
1997, as the record date for determination of stockholders who are entitled to
notice of and to vote either in person or by proxy at the 1997 Annual Meeting of
Stockholders and any adjournment thereof. All Stockholders are cordially invited
to attend the meeting in person. Even if you plan to attend the meeting, YOU ARE
REQUESTED TO SIGN, DATE AND RETURN THE ACCOMPANYING PROXY AS SOON AS POSSIBLE.
By Order of the Board of Directors
Terry A. Tognietti
Secretary
April 28, 1997
<PAGE>
DRYPERS CORPORATION
1415 WEST LOOP NORTH
HOUSTON, TEXAS 77055
(713) 682-6848
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1997
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are furnished to
holders of Common Stock of Drypers Corporation ("Drypers" or the "Company"),
$.001 par value per share (the "Common Stock"), and to holders of the Company's
Senior Convertible Cumulative 7.5% Preferred Stock, $.01 par value per share
(the "7.5% Preferred Stock"), in connection with the solicitation of proxies by
the Board of Directors of the Company to be voted at the 1997 Annual Meeting of
Stockholders (the "Meeting") to be held at the time and place and for the
purposes set forth in the accompanying notice. Such notice, this Proxy Statement
and the form of proxy are being mailed to stockholders beginning on or about
April 30, 1997, to stockholders of record on April 21, 1997 (the "Record Date").
All duly executed proxies received prior to the Meeting will be voted in
accordance with the choices specified thereon, unless revoked in the manner
provided hereinafter. As to any matter for which no choice has been specified in
a proxy, the shares represented thereby will be voted by the persons named in
the proxy (i) for the director nominees listed herein, (ii) for the approval of
the amendments to the Amended and Restated 1995 Key Employee Stock Option Plan
(the "1995 Plan"), (iii) for the proposal to ratify the appointment of Arthur
Andersen LLP as the Company's independent public accountants for the fiscal year
ending December 31, 1997 and (iv) in the discretion of such persons, in
connection with any other business that may properly come before the Meeting.
Stockholders may revoke their proxies at any time prior to the exercise thereof
by written notice to the Secretary of the Company at the above address or by the
execution and delivery of a later dated proxy or by attendance at the meeting
and voting their shares in person.
As of the close of business on April 21, 1997, the Record Date for
determining stockholders entitled to vote at the Meeting, the Company had
8,348,874 shares of Common Stock outstanding and entitled to vote and 90,000
shares of 7.5% Preferred Stock outstanding and entitled to vote, and these
shares are the only outstanding shares of capital stock of the Company entitled
to vote. Each share of Common Stock is entitled to one vote with respect to each
matter to be acted upon at the Meeting and each share of 7.5% Preferred Stock is
entitled to 100 votes with respect to each matter to be acted upon at the
Meeting. The holders of a majority of the votes of the outstanding shares of
Common Stock and 7.5% Preferred Stock as of the Record Date, whether represented
in person or by proxy, voting as a single class, will constitute a quorum for
the transaction of business at the Meeting as to any matter.
2
<PAGE>
MATTERS TO COME BEFORE THE MEETING
PROPOSAL ONE: ELECTION OF DIRECTORS
At the Meeting, two directors are to be elected. The persons listed
below have been nominated for election to fill the two director positions for
terms expiring in 2000. It is the intention of the persons named in the proxies
for the holders of the Common Stock and 7.5% Preferred Stock to vote the proxies
for the election of the nominees named below, unless otherwise specified in any
particular proxy. The management of the Company does not contemplate that any of
the nominees will become unavailable for any reason, but if that should occur
before the Meeting, proxies will be voted for another nominee, or other
nominees, to be selected by the Board of Directors. Any vacancies that may occur
during the year may be filled by an individual appointed by the Board of
Directors to serve for the remainder of the term of such director position. In
accordance with the Company's By-laws, as amended, and Delaware law, a
stockholder entitled to vote for the election of directors may withhold
authority to vote for certain nominees for director or may withhold authority to
vote for all nominees for director. Each director nominee receiving at least the
votes of a majority of the outstanding shares of Common Stock and 7.5% Preferred
Stock, voting as a single class, present in person or by proxy at the Meeting
and entitled to vote on the election of directors will be elected director.
Abstentions and broker non-votes will not be treated as a vote for or against
any particular director nominee, but will have the same effect as a vote against
the nominee.
NOMINEES AGE POSITION WITH THE DIRECTOR TO BE ELECTED
COMPANY SINCE FOR A TERM
EXPIRING IN
-------- --- ----------------- -------- -------------
Terry A. Tognietti 40 Co-Chief Executive 1991 2000
Officer and
President - Drypers
North America
Philip A. Tuttle 55 Director 1991 2000
OTHER DIRECTORS AGE POSITION WITH THE DIRECTOR TERM
COMPANY SINCE EXPIRING IN
--------------- --- ----------------- -------- -------------
Walter V. Klemp 37 Co-Chief Executive 1987 1998
Officer, and
Chairman of the
Board
Raymond M. Chambers 41 Co-Chief Executive 1995 1999
Officer and
President - Drypers
International
Gary L. Forbes 53 Director 1996 1999
Nolan Lehmann 52 Director 1991 1998
3
<PAGE>
INFORMATION REGARDING NOMINEES AND DIRECTORS
BACKGROUND OF NOMINEES
Mr. Tognietti participated in the formation of Drypers and has served as
Co-Chief Executive Officer and President of Drypers North America since January
1995. Mr. Tognietti also has served as a director of Drypers since August 1991,
and as Managing Director of Drypers from its formation to December 1994. From
January 1994 to December 1994, he served as the Managing Director-Domestic
Operations. From June 1992 to December 1993, he served as President of the
Company's Veragon division. From June 1979 to August 1987, Mr. Tognietti was
involved in operations management within the baby diaper division of Procter &
Gamble, serving in various positions, including Pampers operations department
manager, Luvs operations department manager and Luvs manufacturing development
manager.
Mr. Tuttle has served as a director of the Company since 1991. Since May
1989, Mr. Tuttle has been a general partner of Davis Venture Group, the general
partner of Davis Venture Partners I, L.P. and Davis Venture Partners II, L.P.,
each a private equity partnership (collectively referred to in this Proxy
Statement as "Davis"). Davis is a principal stockholder of the Company. See
"Security Ownership of Certain Beneficial Owners and Management". From August
1987 through May 1989, Mr. Tuttle managed private investments and from August
1982 through August 1987, Mr. Tuttle was president of Allied Bancshares Capital
Corporation, a small business investment company. Mr. Tuttle also serves on the
board of directors of Zydeco Energy, Inc., a drilling, exploration and energy
services company. Mr. Tuttle is a certified public accountant and is a fellow of
the Institute of Directors, London, England.
BACKGROUND OF DIRECTORS
Mr. Klemp has served as the Chairman of the Board and Co-Chief Executive
Officer of Drypers since January 1995 and has served on its Board of Directors
since its formation in February 1987. From February 1996 to November 1996, in
addition to his duties as Chairman and Co-Chief Executive Officer, he served as
Acting Chief Financial Officer. He served as the Managing Director-Finance of
Drypers from its formation to December 1994. In 1984, Mr. Klemp participated in
the formation of VMG Enterprises, Inc. ("VMG") and in 1987, the formation of
Drypers. From February 1984 to April 1986, he served as chief financial officer
of VMG. Prior to 1984, Mr. Klemp, a certified public accountant, specialized in
consulting to development stage businesses with the accounting firm of Coopers &
Lybrand in Portland, Oregon. Mr. Klemp also serves on the board of directors of
EqualNet Holding Corp., a publicly traded telecommunications company.
Mr. Chambers has served as Co-Chief Executive Officer, President of
Drypers International and a director of Drypers since January 1995 and served as
a Managing Director of Drypers from June 1992 to December 1994. In June 1992, he
also became President of the Company's VMG division and served in such capacity
until December 1993. From January 1994 to December 1994, he served as Managing
Director-International Operations. From July 1989 until joining the Company in
June 1992, Mr. Chambers served as Chief Executive Officer and President of VMG.
Mr. Chambers also served as Vice President of Manufacturing of VMG from March
1986 to July 1989 and as Operations Manager of VMG from April 1985 to March
1986. From March 1979 to April 1985, Mr. Chambers served in various
manufacturing management positions with Procter & Gamble, including process
engineer with divisional responsibilities for specific Pampers product
improvements.
Mr. Forbes has served as Vice President of Equus Capital Management
Corporation since 1991 and also has served as Vice President of Equus Capital
Corporation since December 1991. Equus Capital Management Corporation and Equus
Capital Corporation are registered investment advisors and serve as the
management company and sub-advisor of Equus. Equus
4
<PAGE>
Capital Management Corporation and Equus Capital Corporation also serve as the
management company and managing general partner of Equus Capital Partners, L.P.
("Equus Capital"), one of several funds formed by Equus Capital Corporation.
Equus Capital and its affiliate, Equus II Incorporated ("Equus"), are principal
stockholders of the Company. See "Security Ownership of Certain Beneficial
Owners and Management". Mr. Forbes is a director of Consolidated Graphics, Inc.,
a company involved in commercial and financial printing, and NCI Building
Systems, Inc., a manufacturer of pre-engineered metal buildings. Mr. Forbes is a
certified public accountant.
Mr. Lehmann has served as a director of the Company since 1991. He has
served as President and a director of Equus Capital Management Corporation,
located in Houston, Texas, since 1983, and is also President and a director of
Equus Capital Corporation. Mr. Lehmann also currently serves as President and a
director of Equus, a business development company listed on the American Stock
Exchange. Equus Capital Management Corporation and Equus Capital Corporation
also serve as the management company and managing general partner of Equus
Capital, one of several funds formed by Equus Capital Corporation. Equus Capital
and its affiliate, Equus, are principal stockholders of the Company. See
"Security Ownership of Certain Beneficial Owners and Management". Mr. Lehmann
also serves on the board of directors of Allied Waste Industries, Inc., a
company involved in solid waste disposal, Garden Ridge Corporation, a specialty
retail corporation, American Residential Services, Inc., a company that provides
plumbing, heating/air conditioning, and electrical services to the residential
community, and Brazos Sportswear, Inc., a licensed sportswear company. Mr.
Lehmann is a certified public accountant.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held three meetings during the fiscal year ended
December 31, 1996. Each director attended at least 75% of the total combined
number of meetings held by the Board and by the committees on which each
director served.
The Board of Directors has an Audit Committee and a Compensation
Committee. The Board of Directors has not established a nominating committee.
The Audit Committee is currently comprised of Messrs. Forbes, Lehmann
and Tuttle and is charged with recommending the appointment of the independent
public accountants, reviewing their fees, ensuring that proper guidelines are
established for the dissemination of financial information, meeting periodically
with the independent public accountants, the Board of Directors and certain
officers of the Company and its subsidiaries to ensure the adequacy of internal
controls and reporting, reviewing consolidated financial statements and
performing any other duties or functions deemed appropriate by the Board of
Directors. The Audit Committee met once in 1996.
5
<PAGE>
The Compensation Committee currently comprises Messrs. Forbes, Lehmann
and Tuttle. This Committee awards options pursuant to the Company's various
stock option plans, determines the terms and conditions of such options,
including (i) the persons to whom such options will be awarded and (ii) the
form, terms and provisions of any agreement pursuant to which such options are
awarded. This Committee is also responsible for consideration of compensation
matters for Messrs. Chambers, Klemp and Tognietti. The Compensation Committee
met twice in 1996.
PROPOSAL TWO: APPROVAL OF AMENDMENTS TO THE DRYPERS CORPORATION AMENDED AND
RESTATED 1995 KEY EMPLOYEE STOCK OPTION PLAN
GENERAL
At the Meeting, the stockholders of the Company will be asked to vote on
a proposal to approve amendments to the 1995 Plan. Approval of such amendments
requires the affirmative vote of the holders of a majority of the shares of
Common Stock and 7.5% Preferred Stock, voting as a single class, that are
present in person or by proxy and entitled to vote at the Meeting. A summary of
the amendments to the 1995 Plan is set forth under "Description of Proposed
Amendments to the 1995 Plan". On the recommendation of the Compensation
Committee, the Board of Directors adopted, and is submitting for stockholder
approval, the amendments to the 1995 Plan which (i) increase the aggregate
number of shares of the Company's Common Stock with respect to which options may
be granted under the 1995 Plan by 500,000 to 3,000,000 to allow for the grant of
additional options under the 1995 Plan and (ii) make certain other changes as
set forth therein.
REASONS FOR THE 1995 PLAN
The purpose of the 1995 Plan is to benefit the Company and its
subsidiary corporations through the maintenance and development of its
management and key employees by offering to such individuals an opportunity to
become owners of the Common Stock and is intended to advance the best interests
of the Company by increasing the proprietary interests of such individuals in
the success of the Company and its subsidiary corporations. The number of shares
available under the 1995 Plan was depleted in 1996 and the Board of Directors of
the Company has determined that, to continue to provide performance based
incentive to the Company's management and key employees, it is in the best
interest of the Company to increase the number of shares of Common Stock
available for the grant of options under the 1995 Plan. The result of the
proposed increase in the number of shares of Common Stock to be available for
the grant of options under the 1995 Plan would be a net increase in shares
available under all Company employee stock options plans of 500,000. See
"Executive Officers and Compensation--Executive Compensation" and "Description
of Proposed Amendments to the 1995 Plan".
CERTAIN CONSIDERATIONS
Stockholders should know that certain disadvantages may result from the
adoption of the amendments to the 1995 Plan, including a reduction in their
interests in the Company with respect to earnings per share, voting, liquidation
value and book and market value per share if options to acquire shares of Common
Stock are granted regardless of whether they are exercised.
6
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1995
PLAN.
Approval of the amendments to the 1995 Plan requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock and
7.5% Preferred Stock, voting as a single class, entitled to vote on the proposal
and present in person or by proxy at the Meeting. If not otherwise provided,
proxies will be voted "FOR" approval of the amendments to the 1995 Plan.
Abstentions will be counted as shares entitled to vote on the proposal, but will
not be treated as either a vote for or against the proposal. Therefore, an
abstention will have the same effect as a vote against the proposal. A broker
non-vote will not be treated as a share entitled to vote on the proposal and
will not be considered as a vote for or against the proposal. Therefore, a
broker non-vote will have no effect on the outcome of the proposal.
PROPOSAL THREE: APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company's Audit Committee has recommended and the Board of Directors
has approved and now recommends the ratification of the appointment of Arthur
Andersen LLP as the Company's independent public accountants for the fiscal year
ending December 31, 1997. Representatives of Arthur Andersen LLP are expected to
attend the Meeting and will be afforded an opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions
by stockholders.
Approval of the ratification will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock and 7.5%
Preferred Stock, voting as a single class, represented in person or by proxy at
the Meeting. Abstentions and broker non-votes will be counted as shares entitled
to vote on the proposal, but will not be treated as either a vote for or against
the proposal. Therefore, an abstention or broker non-vote will have the same
effect as a vote against the proposal.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 15,
1997, concerning the beneficial ownership of the Common Stock and 7.5% Preferred
Stock by (i) each person known by the Company to be the beneficial owner of more
than 5% of either the Common Stock or the 7.5% Preferred Stock, (ii) each
director and named executive officer of the Company, and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-------------------------------
7.5%
COMMON REFERRED
NAME STOCK PERCENT STOCK PERCENT
---- ------------ ------- -------- -------
<S> <C> <C> <C> <C>
Equus II Incorporated and affiliates(2) 3,834,472(3) 35.4 25,000 27.8
2929 Allen Parkway, 25th Floor
Houston, Texas 77019
- -------------------------------------------------------------------------------------------
Heartland SmallCap Contrarian Fund 2,250,000(4) 21.3 22,500 25.0
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202
- -------------------------------------------------------------------------------------------
Davis Venture Group and affiliates(5) 1,514,000(6) 16.1 11,000 12.2
12 Greenway Plaza, Suite 600
Houston, Texas 77046
- -------------------------------------------------------------------------------------------
Meridian Fund, Ltd. 1,050,000(7) 11.2 10,500 11.7
601 Jefferson, Suite 4000
Houston, Texas 77002
- -------------------------------------------------------------------------------------------
Antar & Co. 800,000(8) 8.8 8,000 8.9
600 Jefferson, Suite 350
Houston, Texas 77002
- -------------------------------------------------------------------------------------------
Heartland Limited Partners I 750,000(9) 8.3 7,500 8.3
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202
- -------------------------------------------------------------------------------------------
GT Capital Management, Inc.(10) 478,300 5.8 -- --
50 California, 27th Floor
San Francisco, California 94111
- -------------------------------------------------------------------------------------------
Walter V. Klemp 782,755(11) 8.8 -- --
1415 West Loop North
Houston, Texas 77055
- -------------------------------------------------------------------------------------------
Terry A. Tognietti 665,513(12) 7.6 -- --
1415 West Loop North
Houston, Texas 77055
- -------------------------------------------------------------------------------------------
Raymond M. Chambers 585,515(13) 6.6 -- --
1415 West Loop North
Houston, Texas 77055
- -------------------------------------------------------------------------------------------
Joe D. Tanner 274,284(14) 3.2 1,500 1.7
- -------------------------------------------------------------------------------------------
Gary L. Forbes(15) 10,167(15) (15) (15) (15)
- -------------------------------------------------------------------------------------------
Nolan Lehmann(16) 5,014(16) (16) (16) (16)
- -------------------------------------------------------------------------------------------
Philip A. Tuttle(17) 2,000(17) (17) (17) (17)
- -------------------------------------------------------------------------------------------
6 directors and 2 other executive officers 7,673,720 55.2 37,500 41.7
as a group (8 persons)(18)
- -------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
* Less than 1%
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under Rule 13d-3(d), shares not
outstanding that are subject to options, warrants, rights or conversion
privileges exercisable within 60 days are deemed outstanding for the
purpose of calculating the number and percentage owned by such person,
but not deemed outstanding for the purpose of calculating the percentage
owned by any other person. Beneficial ownership includes both
outstanding shares of Common Stock and 7.5% Preferred Stock and shares
of Common Stock that such holder has a right to acquire within 60 days
upon exercise of outstanding options or warrants or upon conversion of
the 7.5% Preferred Stock. Except as otherwise noted, each stockholder
has sole voting and dispositive power with respect to the shares of
Common Stock or the 7.5% Preferred Stock, as the case may be.
(2) "Equus II Incorporated and affiliates" consists of Equus Capital
Management Corporation, Equus Capital Corporation, Equus II Incorporated
("Equus") and Equus Capital Partners, L.P. ("Equus Capital"). Equus
Capital Management Corporation and Equus Capital Corporation serve as
the management company and sub-advisor of Equus. Equus Capital
Management Corporation and Equus Capital Corporation also serve as the
management company and managing general partner of Equus Capital.
Because of these relationships, each of the entities constituting Equus
II Incorporated and affiliates may be deemed to beneficially own the
1,107,882 shares of Common Stock held directly by Equus, the 2,500,000
shares of Common Stock issuable on the conversion of 25,000 shares of
7.5% Preferred Stock held directly by Equus and the 226,590 shares of
Common Stock held directly by Equus Capital.
(3) Includes 13,236 shares of Common Stock issuable upon exercise of
warrants and 2,500,000 shares of Common Stock issuable on the conversion
of shares of 7.5% Preferred Stock held by such stockholder.
(4) Includes 2,250,000 shares of Common Stock issuable on the conversion of
shares of 7.5% Preferred Stock held by such stockholder.
(5) "Davis Venture Group and affiliates" comprises Davis Venture Group,
Davis Venture Partners, L.P. and Davis Venture Partners II, L.P. Davis
Venture Group is the general partner of each of Davis Venture Partners,
L.P. and Davis Venture Partners II, L.P. Because of such relationships
Davis Venture Group may be deemed to be beneficial owner of shares of
Common Stock and 7.5% Preferred Stock held of record by Davis Venture
Partners, L.P. and Davis Venture Partners II, L.P.
(6) Includes 1,100,000 shares of Common Stock issuable on the conversion of
shares of 7.5% Preferred Stock held by such stockholder.
(7) Includes 1,050,000 shares of Common Stock issuable on the conversion of
shares of 7.5% Preferred Stock held by such stockholder.
(8) Includes 800,000 shares of Common Stock issuable on the conversion of
shares of 7.5% Preferred Stock held by such stockholder.
(9) Includes 750,000 shares of Common Stock issuable on the conversion of
shares of 7.5% Preferred Stock held by such stockholder.
(10) Information with respect to the ownership of GT Capital Management, Inc.
was obtained from its report on Schedule 13G dated February 10, 1995, as
received by the Company.
(11) Includes 129,081 and 490,583 shares of Common Stock issuable upon
exercise of warrants and options, respectively.
(12) Includes 17,211 and 490,583 shares of Common Stock issuable upon
exercise of warrants and options, respectively.
9
<PAGE>
(13) Includes 103,265 and 462,250 shares of Common Stock issuable upon
exercise of warrants and options, respectively.
(14) Includes 7,284, 117,000 and 150,000 shares of Common Stock issuable upon
exercise of warrants and options and upon conversion of the 1,500 shares
of 7.5% Preferred Stock, respectively.
(15) Mr. Forbes is Vice President of Equus Capital Management Corporation and
Equus Capital Corporation. Because of such relationships, he may be
deemed to be the beneficial owner of the shares of Common Stock and 7.5%
Preferred Stock beneficially owned by Equus II Incorporated and
affiliates. Mr. Forbes disclaims such beneficial ownership. See Note (2)
to this table.
(16) Mr. Lehmann is President and a director of each of Equus Capital
Management Corporation, Equus Capital Corporation and Equus. Because of
such relationships, he may be deemed to be the beneficial owner of the
shares of Common Stock and 7.5% Preferred Stock beneficially owned by
Equus II Incorporated and affiliates. Mr. Lehmann disclaims such
beneficial ownership. See Note (2) to this table.
(17) Mr. Tuttle is a general partner of Davis Venture Group, and because of
such relationship, Mr. Tuttle may be deemed the beneficial owner of the
shares of Common Stock and 7.5% Preferred Stock beneficially owned by
Davis Venture Group and affiliates. Mr. Tuttle disclaims such beneficial
ownership. See Note (5) to this table.
(18) See notes (11) through (17) above.
10
<PAGE>
EXECUTIVE OFFICERS AND COMPENSATION
EXECUTIVE OFFICERS
Set forth below, as of April 15, 1997, are the names of the executive
officers of the Company, together with their ages and positions with the
Company:
NAME AGE POSITION
---- --- --------
Walter V. Klemp 37 Chairman of the Board, Co-Chief Executive
Officer, Director
Terry A. Tognietti 40 Co-Chief Executive Officer, President-
Drypers North America, Director
Raymond M. Chambers 41 Co-Chief Executive Officer, President -
Drypers International, Director
Joe D. Tanner 50 Executive Vice President and Chief
Operating Officer - Drypers International
Jonathan P. Foster 33 Executive Vice President and Chief
Financial Officer
For information regarding the background of Messrs. Klemp, Tognietti and
Chambers, see "Proposal One: Election of Directors - Background of Nominees and
Directors".
MR. TANNER has served as Executive Vice President and Chief Operating
Officer--Drypers International since February 1996. From February 1995 until
February 1996 he served as Vice President, Chief Operating Officer--Drypers
International. Mr. Tanner served as President of Hygienic Products
International, Inc., a subsidiary of the Company that was merged into Drypers
Corporation in February 1996, from its inception in February 1992 to February
1995. Prior to February 1992, Mr. Tanner was a partner with the law firm of
Williams, Kastner & Gibbs in Portland, Oregon. Mr. Tanner also served as a state
senator for the State of Washington for two years and as a Washington State
Representative for four years.
MR. FOSTER has served as Chief Financial Officer since July 1996 and as
Executive Vice President of Drypers since November 1996. From September 1995 to
July 1996, Mr. Foster was Chief Financial Officer of Dickson Weatherproof Nail
Company, Inc. based in Chicago, Illinois. From September 1991 to August 1995,
Mr. Foster was with Schlumberger, Ltd. as Controller and Treasurer for Global
Tel*Link, Inc., a telecommunications subsidiary, in Mobile, Alabama and as
Assistant Controller and Controller for Schlumberger's Measurement Division, a
manufacturer and worldwide marketer of industrial flow measurement products,
based in Greenwood, South Carolina. Prior to 1991, Mr. Foster, a certified
public accountant, provided audit, consulting, and tax services to development
stage companies as a Manager in the Middle Market Group of Deloitte & Touche,
LLP in Atlanta, Georgia.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of Drypers
Corporation (the "Committee") is pleased to present the following report on
executive compensation to the stockholders of the Company.
11
<PAGE>
OVERALL OBJECTIVES AND PHILOSOPHY OF EXECUTIVE COMPENSATION PROGRAM
The Committee's philosophy is to ensure that executive compensation is
linked directly to improvements in financial performance and an increase in
stockholder value. To effect this philosophy, the Committee follows the
objectives of (i) providing a competitive total compensation package that allows
the Company to attract, motivate and retain key executives, (ii) providing
compensation opportunities that are linked directly to the financial performance
of the Company and that align executive remuneration with the interest of the
stockholders and (iii) integration of executive compensation with the Company's
annual and long-term business objectives and performance goals.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS
The Committee reviews on a periodic basis the Company's compensation
program to ensure that the pay levels and incentive opportunities reflect the
performance of the Company while providing a compensation package that is
competitive with companies of similar size as the Company. To assist the
Committee in this role, it retained an independent outside consulting firm in
March 1995 to review the Company's executive compensation program and to make
recommendations to the Committee to ensure that its objectives are being met.
BASE SALARY. Base salary levels are largely determined through
comparisons with companies of similar size and complexity as the Company. Actual
salaries are targeted by the Committee to keep each executive slightly below the
midpoint of the market for similarly situated companies, while the Committee
focuses on incentive compensation to maintain competitive total cash pay levels.
ANNUAL INCENTIVE COMPENSATION. The Company's officers are eligible to
participate in an annual incentive compensation plan with awards based primarily
on the attainment of certain pre-tax earnings. The Committee's objective with
respect to this plan is to deliver a targeted annual incentive of 20% of base
salary upon the attainment of a certain threshold level of pre-tax earnings. In
particular, the plan aims to focus corporate behavior on consistent earnings
growth which the committee believes is determinant of share price over time.
Targeted minimum awards for executive officers of the Company under this plan
are also designed to be slightly below targeted awards of companies of similar
size and complexity as the Company; however, the maximum bonus payable to
eligible executives pursuant to such awards is unlimited. Actual awards are
subject to decrease or increase on the basis of the Company's pre-tax earnings
performance and are completely at the discretion of the Committee. The Company
has made awards to the executive officers of the Company named in the
compensation table under this plan during the past three years. Under the plan,
executive officers are entitled to elect to receive a portion of their payment
in either cash or shares of the Company's Common Stock.
STOCK OPTION PROGRAMS. The Committee strongly believes that by providing
those persons who have substantial responsibility for the management and growth
of the Company with an opportunity to increase their ownership of Company stock
that the best interests of stockholders and executives will be closely aligned.
Therefore, executives are eligible to receive stock options from time to time,
giving them the right to purchase shares of Common Stock in the future at a
specified price. The number of stock options granted to executive officers is
based on competitive practices, with the value of such options estimated by
using an option valuation model based
12
<PAGE>
upon assumptions related to increases in the price of the shares of Common Stock
over time discounted to a present value.
DISCUSSION OF 1996 COMPENSATION FOR THE CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER
In considering the compensation for the Chairman and Co-Chief Executive
Officer for fiscal 1996, the Committee reviewed his existing compensation
arrangements and both Company and individual performances. The employment
agreement between the Company and Mr. Klemp was structured to provide him with a
base salary and annual incentive opportunity. See "Executive Officers and
Compensation - Employment Agreements". Because of the nature of these employment
arrangements, the Committee made the following determinations regarding the
compensation of Mr. Klemp:
o Base salary remained at $210,000 for 1996, as was authorized in
his employment agreement, and has remained unchanged since July
1994. The Committee determined that Mr. Klemp's base salary
continues to be at the desired level relative to companies of
similar size and complexity.
o No bonuses will be or have been paid with respect to the full
fiscal year 1996.
As indicated in the discussion above, after its review of all existing
programs, the Committee continues to believe that the total compensation program
for executives of the Company is competitive with the compensation programs
provided by other corporations with which the Company competes. The Committee
believes that any amounts paid under the annual incentive plan will be
appropriately related to corporate and individual performance, yielding awards
that are directly related to the annual financial and operational results of the
Company. The Committee also believes that the Company's stock option plans
provide opportunities to participants that are consistent with the returns that
are generated on behalf of the Company's stockholders.
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
Gary L. Forbes
Nolan Lehmann
Philip A. Tuttle
13
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the five most
highly compensated executive officers of the Company as to whom the total annual
salary and bonus for the year ended December 31, 1996, exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
COMMON
STOCK
UNDERLYING
ANNUAL COMPENSATION OPTIONS ALL OTHER $
NAME AND PRINCIPAL POSITION YEAR SALARY $ BONUS $ (SHARES) (1) COMPENSATION(2)
- --------------------------- ---- -------- ------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Walter V. Klemp 1996 210,000 -- (3) 436,000 4,798
Chairman of the Board, 1995 210,000 70,000(4) -- 5,848
Co-Chief Executive Officer 1994 205,000 25,000 -- 1,940
- --------------------------- ---- -------- ------- ------------- ---------------
Terry A. Tognietti 1996 210,000 -- (3) 436,000 4,809
Co-Chief Executive Officer, 1995 210,000 70,000(4) -- 5,848
President--Drypers North 1994 205,000 25,000 -- 1,540
America
- --------------------------- ---- -------- ------- ------------- ---------------
Raymond M. Chambers 1996 210,000 -- (3) 411,000 20,959
Co-Chief Executive Officer, 1995 210,000 70,000(4) -- 14,846
President--Drypers 1994 205,000 25,000 -- 14,620
International
- --------------------------- ---- -------- ------- ------------- ---------------
Joe D. Tanner 1996 150,000 25,000 152,500 4,817
Executive Vice President 1995 146,250 45,000 -- 5,355
and Chief Operating 1994 135,000 40,000 -- 2,288
Officer-Drypers
International
- --------------------------- ---- -------- ------- ------------- ---------------
T. Jack Gainer 1996 112,500 -- 68,125 1,127
Former Chief Financial 1995 150,000 47,000 -- 4,148
Officer(5) 1994 127,500 30,000 -- 3,750
- --------------------------- ---- -------- ------- ------------- ---------------
</TABLE>
(1) On February 22, 1996, the Compensation Committee authorized the
cancellation of 378,625 of these options and the grant of substitution
options and the issuance of the remaining 1,125,000 options, which were
approved by stockholders on May 28, 1996, each with per share exercise
prices of $3.00, the fair market value of the Common Stock on February
22, 1996.
(2) Amounts represent contributions by the Company under the Company's
401(k) savings plans in 1996 for Messrs. Klemp, Tognietti, Chambers,
Tanner, and Gainer of $4,798, $4,809, $10,959, $4,817, and $1,127,
respectively, and term life insurance premiums paid by the Company in
1996 for Mr. Chambers of $10,000.
(3) No bonuses were paid with respect to the full fiscal year 1996.
(4) Related to the performance of the Company in 1994, subject to certain
follow-on events in the beginning of 1995. No bonuses were paid with
respect to the full fiscal year 1995.
(5) T. Jack Gainer resigned from his position as Chief Financial Officer
effective March 8, 1996.
14
<PAGE>
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
DRYPERS COMMON
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(3)
- ----------------------------------------------------------------------------- -------------------
NAME NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
GRANTED (1)(2) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------ -------------- ------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Walter V. Klemp 436,000 16.4% $3.00 2/22/06 822,594 2,084,615
- ------------------------ -------------- ------------ --------- ---------- ---------- ---------
Terry A. Tognietti 436,000 16.4% $3.00 2/22/06 822,594 2,084,615
- ------------------------ -------------- ------------ --------- ---------- ---------- ---------
Raymond M. Chambers 411,000 15.5% $3.00 2/22/06 775,427 1,965,084
- ------------------------ -------------- ------------ --------- ---------- ---------- ---------
Joe D. Tanner 75,000 2.8% $3.00 2/22/06 141,501 358,592
- ------------------------ -------------- ------------ --------- ---------- ---------- ---------
</TABLE>
(1) T. Jack Gainer received no grants of options during the fiscal year
ended December 31, 1996. T. Jack Gainer resigned from his position as
Chief Financial Officer effective March 8, 1996.
(2) Potential values stated are based upon the hypothesis that the Common
Stock will appreciate in value from the date of grant to the end of the
option term at the stated annualized rates. Such assumed rates of
appreciation and potential realizable values are not necessarily
indicative of the future appreciation, if any, which may be realized.
(3) Represents shares issuable pursuant to a non-qualified stock option.
Options are 100% vested as of the date of grant.
(4) On February 22, 1996, the Compensation Committee authorized the
cancellation of 273,000 of these options and the grant of substitution
options and the issuance of the remaining 1,125,000 options, which were
approved by stockholders on May 28, 1996, each with per share exercise
prices of $3.00, the fair market value of the Common Stock on February
22, 1996.
The following table sets forth summary information regarding the value
of all unexercised options as of December 31, 1996, for each of the executive
officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1996 (SHARES) DECEMBER 31, 1996 ($)(1)
------------------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Walter V. Klemp 490,583 8,334 $367,937 $6,251
Terry A. Tognietti 507,135 8,334 429,345 6,251
Raymond M. Chambers 462,250 11,250 346,688 --
Joe D. Tanner 117,000 35,500 87,750 26,625
T. Jack Gainer(2) 68,125 -- 51,094 --
</TABLE>
- ----------
(1) Assumes a fair market value of $3.75 per share of Common Stock as of
December 31, 1996.
(2) T. Jack Gainer resigned from his position as Chief Financial Officer
effective March 8, 1996.
15
<PAGE>
PERFORMANCE PRESENTATION
The following performance graph compares the performance of the Common
Stock to The Nasdaq Stock Market -- US Index and a peer group. Information with
respect to the Common Stock, The Nasdaq Stock Market -- US Index and the peer
group is from March 11, 1994, the date on which the Common Stock first began
public trading. The graph assumes that the value of the investment in the Common
Stock and each index was $100 at March 11, 1994, and that all dividends were
reinvested.
The peer group is comprised of Paragon Trade Brands, Inc. (NYSE-PTB) and
DSG International Limited (Nasdaq-DSGIF), which are the only two public
companies known to the Company substantially all of whose revenue is derived
from the manufacture and sale of disposable baby diapers. Due to the unique
characteristics of the diaper industry and the unusual competitive activity
present in this category, the Company believes that this is an appropriate peer
group for comparison.
COMPARISON OF 33 MONTH CUMULATIVE TOTAL RETURN*
AMONG DRYPERS CORPORATION, THE NASDAQ STOCK MARKET--US INDEX
AND A PEER GROUP
16
<PAGE>
MARCH 11, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995 1996
--------- ------------ ------------ ------------
Drypers Corporation..... 100 82 20 25
Peer Group.............. 100 48 60 75
The Nasdaq Stock
Market--US Index........ 100 96 136 167
COMPENSATION OF DIRECTORS
In 1996, non-employee members of the Board of Directors of the Company
were compensated for their services as directors under the Drypers Corporation
1994 Non-Employee Director Option Plan. Each non-employee director was granted
an option to purchase 6,000 shares of common stock at a per share exercise price
of $3.75, the fair market value of the Common Stock on the date of grant. Each
eligible non-employee director first elected on the date the plan was approved
received an option to purchase 1,000 shares of common stock at a per share
exercise price of $3.75, the fair market value of Common Stock on the date of
grant. The Company also has adopted the 1996 Non-Employee Director Stock Option
Plan. Each non-employee director was granted an option to purchase 4,000 shares
of common stock at a per share exercise price of $3.75, the fair market value of
the Common Stock on the date of grant. Each eligible non-employee director,
other than those first elected on the date the plan was approved, received an
option to purchase 6,000 shares of common stock at a per share exercise price of
$3.75, the fair market value of Common Stock on the date of grant. All
non-employee directors of the Company are also reimbursed for ordinary and
necessary expenses incurred in attending Board and committee meetings.
EMPLOYMENT AGREEMENTS
Each of Messrs. Klemp, Tognietti and Chambers (collectively, the
"Co-Chief Executive Officers") and Mr. Tanner (the "Executive Vice President")
(collectively, with the Co-Chief Executive Officers, the "Employees" or,
individually, the "Employee") has entered into an employment agreement (each
individually an "Employment Agreement" and collectively the "Employment
Agreements") with the Company. The Employment Agreements provide for an annual
salary of $235,000 for each of the Co-Chief Executive Officers and of $150,000
for the Executive Vice President during the term of the Employment Agreements.
In addition, each of the Co-Chief Executive Officers may receive an annual bonus
of an amount to be determined by the Board of Directors and the Executive Vice
President may receive an annual bonus of an amount to be determined by the
Co-Chief Executive Officers. The Employment Agreements also provide for certain
employee benefits, vacation and reimbursement of expenses. The term of each
employment agreement is a period ending on the third anniversary of the receipt
by the Employee of written notice of termination by the Employer given to the
Employee. Each of the Employment Agreements may be terminated by the Company (i)
for the commission of certain dishonest or fraudulent acts, (ii) upon the death
of the Employee, (iii) upon disability of the Employee, or (iv) if the Employee
resigns at any time other than after a Change in Control without good cause, as
defined below. Each of Messrs. Klemp, Tognietti, Chambers and Tanner has agreed
that for the term of his Employment Agreement and for a period of one year after
termination for any reason described in clauses (i) through (iv) above, he will
not, directly or indirectly, employ any of the Company's employees, induce any
of the Company's employees to leave their employment or in any way interfere
with the employee relations of the Company.
17
<PAGE>
Under the Employment Agreements, good cause means: (i) the assignment by the
Employer to the Employee of duties that are materially inconsistent with the
Employee's office with Employer at the time of such assignment, or the removal
by the Employer from the Employee of a material portion of those duties usually
appertaining to the Employee's office with the Employer at the time of such
removal; (ii) a material change by the Employer, without the Employee's prior
written consent, in the Employee's responsibilities to the Employer, as such
responsibilities are ordinarily and customarily required from time to time of a
chief executive officer, or an executive vice president in the case of Mr.
Tanner, of a corporation engaged in the Employer's business; (iii) any removal
of the Employee from, or any failure to reelect or to reappoint the Employee to
the office of Co-Chief Executive Officer, or Executive Vice President in the
case of Mr. Tanner; (iv) the Employer's direction that the Employee discontinue
service (or not seek reelection or reappointment) as a director, officer or
member of any corporation or association of which the Employee is a director,
officer, or member at the date of this Agreement; (v) a reduction by the
Employer in the amount of the Employee's base salary as determined under this
Agreement (or as subsequently increased), or the failure of the Employer to pay
such base salary to the Employee; (vi) other than with respect to the annual
performance bonus or, as made with the Employee's prior written consent, the
discontinuance (without comparable replacement) or material reduction by the
Employer of the Employee's participation in any bonus or other employee benefit
arrangement (including, without limitation, any profit-sharing, thrift, life
insurance, medical, dental, hospitalization, stock option or retirement plan or
arrangement) in which the Employee is a participant under the terms of this
Agreement, as in effect on the date hereof or as may be improved from time to
time hereafter; (vii) the moving by the Employer of the Employee's principal
office space, related facilities, or support personnel, from the Employer's
principal operating offices, or the Employer's requiring the Employee to perform
a majority of his duties outside the Employer's principal operating offices for
a period of more than 30 consecutive days; (viii) the relocation, without the
Employee's prior written consent, of the Employer's principal operating offices
to a location outside the county in which such offices are located at the time
of the signing of this Agreement; (ix) in the event the Employer requires the
Employee to reside at a location more than 25 miles from the Employer's
principal operating offices, except for occasional travel in connection with the
Employer's business to an extent and in a manner which is substantially
consistent with the Employee's current business travel obligations; (x) in the
event the Employee consents to a relocation of the Employer's principal
operating offices, the failure of the Employer to (A) pay or reimburse the
Employee on an after-tax basis for all reasonable moving expenses incurred by
the Employee in connection with such relocation or (B) indemnify the Employee on
an after-tax basis against any loss realized by the Employee on the sale of his
principal residence in connection with such relocation; (xi) the failure of the
Employer to provide the Employee with the benefits specified in the agreement;
(xii) the failure of the Employer to continue to provide the Employee with
office space, related facilities and support personnel (including, without
limitation, administrative and secretarial assistance) that are commensurate
with the Employee's responsibilities to and position with the Employer; (xiii)
the failure by the Employer to promptly reimburse the Employee for the
reasonable business expenses incurred by the Employee in the performance of his
duties for the Employer. The Employee may be removed as an officer at any time
by the Company without cause but such removal will not affect his right to his
salary or his right to remain covered by the Company's medical insurance
policies. Upon such removal, all other benefits will cease, including any right
to receive any predetermined bonus or variable bonus.
18
<PAGE>
DESCRIPTION OF PROPOSED AMENDMENTS TO THE 1995 PLAN
The following summary does not purport to be a complete summary of the
1995 Plan and is qualified in its entirety by reference to the 1995 Plan.
DESCRIPTION OF AMENDMENTS
To date, options to purchase an aggregate of 2,348,376 shares of Common
Stock have been granted under the 1995 Plan and an aggregate of new options to
purchase an additional 500,000 shares of Common Stock have been authorized,
subject to stockholder approval of the amendments to the 1995 Plan. The result
of the proposed increase in the number of shares of Common Stock to be available
for the grant of options under the 1995 Plan would be a net increase in shares
available under all Company employee stock options plans of 500,000.
1995 PLAN
The Board of Directors adopted and the stockholders of the Company
approved the 1995 Plan in 1995. The 1995 Plan authorizes the Compensation
Committee to issue options intended to qualify as incentive stock options, as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and stock options that are not intended to conform to the requirements
of Section 422 of the Code ("non-qualified options"). Under the terms of the
1995 Plan, the exercise price for each incentive stock option cannot be less
than 100% of the fair market value of the Common Stock at the time of grant,
and, in the case of a grant to a 10% stockholder, the exercise price may not be
less than 110% of the fair market value on the date of grant. The exercise price
of each non-qualified stock option cannot be less than 80% of the fair market
value of the Common Stock at the time of grant. Options granted under the 1995
Plan may not be exercised after the tenth anniversary (or the fifth anniversary
in the case of an option granted to a 10% stockholder) of their grant. Payments
by option holders upon exercise of an option may be made by delivering cash,
shares of stock or a combination of cash and stock. The 1995 Plan, as proposed,
authorizes (i) the grant of options to acquire an aggregate of 3,000,000 shares
of Common Stock; (ii) grants of incentive stock options to eligible employees
and grants of non-qualified options to any key employee with substantial
responsibility for the Company's management and growth, as determined by a
committee of the Board of Directors; (iii) adjustments to the number and class
of shares outstanding pursuant to granted options and reserved under the 1995
Plan in the event of a capital adjustment; (iv) an opportunity for outstanding
options to be exercised subsequent to a merger or disposition of all of the
Company's assets and for the optionee to receive shares to which he would have
been entitled prior to such merger or disposition; and (v) grant of options in
substitution for options held by employees of other corporations who are about
to become Company employees or whose employer is about to become a parent or
subsidiary of the Company. Approximately 65 employees of the Company and its
subsidiaries are eligible to participate in the 1995 Plan.
NEW PLAN BENEFITS
The following table sets forth information concerning the determinable
benefits and amounts that have been received by or allocated to the individuals
and groups identified below under the 1995 Plan.
19
<PAGE>
- --------------------------------------------------------------------------------
NEW PLAN BENEFITS(1)
- --------------------------------------------------------------------------------
NAMES AND POSITION PLAN DOLLAR NUMBER OF
NAME VALUE $ SHARES (2)
- ------------------------------------------------------ ----------- ------------
Walter V. Klemp,
Chairman of the Board and
Co-Chief Executive Officer.................... (3) (4) 498,917
- ------------------------------------------------------ ----------- ------------
Terry A. Tognietti
Co-Chief Executive Officer.................... (3) (4) 498,917
- ------------------------------------------------------ ----------- ------------
Raymond M. Chambers,
Co-Chief Executive Officer.................... (3) (4) 473,500
- ------------------------------------------------------ ----------- ------------
Joe D. Tanner,
Executive Vice President - Chief Operating
Officer of Drypers International.............. (3) (4) 152,500
- ------------------------------------------------------ ----------- ------------
Jonathan P. Foster
Executive Vice President - Chief Financial
Officer....................................... (3) (4) 50,000
- ------------------------------------------------------ ----------- ------------
Executive Officers as a Group (5 persons,
including the executive officers named above). (3) (4) 1,673,834
- ------------------------------------------------------ ----------- ------------
Non-Executive Director Group.................. (3) -- --
- ------------------------------------------------------ ----------- ------------
Non-Executive Officer Employee Group.......... (3) (4) 483,500
- ------------------------------------------------------ ----------- ------------
(1) Includes benefits granted pursuant to the 1995 Plan.
(2) All options granted under the 1995 Plan were granted in substitution for
canceled options or were granted as new options in February 1996.
Substitution non-qualified options for 689,876 shares were granted
subject to stockholder approval of the amendments contained in the 1995
Plan, including options for 273,000 shares granted to the executive
officer group. New non-qualified options for 1,125,000 shares were
granted to the executive officer group.
(3) 1995 Plan.
(4) The actual dollar value, if any, a person may realize will depend on the
excess of the per share price of the Common Stock over the per share
exercise price on the date the option is exercised. Options granted
under the 1995 Plan have an exercise price of $3.00, $3.50, $3.38 and
$5.00 per share. The closing price of the Common Stock on April 21, 1997
was $4.25.
FEDERAL TAX CONSEQUENCES OF THE 1995 PLAN
Options granted under the 1995 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Code or
non-qualified options which are not intended to meet these requirements. The
federal income tax treatment for the two types of options differ as follows.
In general, no tax consequences should result from the grant to or
exercise by an employee of an incentive stock option under the 1995 Plan. The
optionee will, however, recognize taxable income in the year in which the
purchased shares are sold or otherwise made the subject of a disposition.
For federal tax purposes, dispositions are either qualifying or
disqualifying. An optionee makes a qualifying disposition of the purchased
shares if he sells or otherwise disposes of the
20
<PAGE>
shares after holding them for more than two years after the date the option was
granted and more than one year after the exercise date. If the optionee fails to
satisfy either of these two holding periods prior to the sale or other
disposition, a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, the excess of (i) the fair market value of those shares on the
date the option was exercised over (ii) the exercise price paid for the shares
generally will be taxable as ordinary income. Any additional gain recognized
upon the disposition will be a capital gain. If, however, the disqualifying
disposition is a sale or exchange with respect to which a loss (if sustained)
would be recognized, the amount of ordinary income realized by the optionee
cannot exceed the amount realized on the sale or exchange over the exercise
price paid for the shares.
If the optionee makes a disqualifying disposition of the purchased
shares, the Company will be entitled to an income tax deduction for the taxable
year in which the disposition occurs, equal to the excess of (i) the fair market
value of such shares on the date the option was exercised over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
No taxable income is recognized by an optionee upon the grant of a
non-qualified option. The optionee will in general recognize ordinary income in
the year in which the option is exercised, equal to the excess of the fair
market value of the purchased shares on the date of exercise over the exercise
price paid for the shares. The Company is entitled to a deduction in the same
amount as the income recognized by the optionee, provided that the Company
withholds income tax with respect to that amount if the optionee is an employee.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% stockholders are required by the
regulations promulgated under Section 16(a) to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the fiscal year
ended December 31, 1996, all officers, directors and greater than 10%
stockholders complied with all filing requirements applicable to them.
21
<PAGE>
OTHER MATTERS
Management does not intend to bring any business before the Meeting
other than the matters referred to in the accompanying notice and at this date
has not been informed of any matters that may be presented to the Meeting by
others. If, however, any other matters properly come before the Meeting, it is
intended that the persons named in the accompanying proxy will vote, pursuant to
the proxy, in accordance with their best judgment on such matters.
The Company will bear the costs of soliciting proxies in the
accompanying form. In addition to the solicitation made hereby, proxies may also
be solicited by telephone, telegram or personal interview by officers and
regular employees of the Company (who will not receive any additional
compensation for any solicitation of proxies). The Company will reimburse
brokers or other persons holding stock in their names or in the names of their
nominees for their reasonable expenses in forwarding proxy material to
beneficial owners of the Common Stock.
STOCKHOLDER PROPOSALS
Any proposal by a stockholder to be presented at the Company's 1998
Annual Meeting of Stockholders must be received by the Company no later than
December 29, 1997, to be eligible for inclusion in the Company's Proxy Statement
and proxy used in connection with such meeting.
22
<PAGE>
- --------------------------------------------------------------------------------
DRYPERS CORPORATION
THIS PROXY FOR HOLDERS OF SENIOR CONVERTIBLE CUMULATIVE 7.5% PREFERRED STOCK
IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1997
The stockholder of Drypers Corporation (the "Company") whose signature
appears on the reverse side of this Proxy hereby appoints Walter V.
Klemp and Terry A. Tognietti, and each of them, attorneys and proxies of
P the undersigned, with full power of substitution, to vote, as designated
below, the number of votes which the undersigned would be entitled to
cast if personally present at the Annual Meeting of Stockholders of the
Company to be held at The Houstonian Hotel and Conference Center, 111
Post Oak Lane, Houston, Texas at 10:00 a.m., Wednesday, May 28, 1997,
and at any adjournment thereof.
R
1.ELECTION OF DIRECTORS--NOMINEES:
Terry A. Tognietti (three-year term) and Philip A. Tuttle (three-year
term).
O 2.PROPOSAL TO APPROVE AMENDMENTS TO THE DRYPERS CORPORATION AMENDED AND
RESTATED 1995 KEY EMPLOYEE STOCK OPTION PLAN which includes amendments
(i) to increase the aggregate number of shares of the Company's Common
Stock with respect to which options may be granted under the plan to
3,000,000 to allow for the grant of additional options thereunder and
(ii) to make certain other changes.
X
3.PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT AUDITORS FOR 1997.
In their discretion, the above named proxies are authorized to vote on
such other business as may properly come before the meeting or any
Y adjournment thereof and upon matters incident to the conduct of the
meeting.
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
1. Election of Directors:
|_| FOR all nominees listed, except as indicated to the contrary below
|_| WITHHOLD Authority for election of all nominees
Terry A. Tognietti and Philip A. Tuttle
(Instruction: to withhold authority to vote for any individual nominee,
write that person's name in the space provided below)
2. Approval of amendments to the Drypers Corporation Amended and Restated
1995 Key Employee Stock Option Plan to increase the number of shares of
the Company's Common Stock, $.001 par value, that may be subject to
options granted under the existing plan from 2,500,000 shares to
3,000,000 shares and to make certain other changes.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Ratification of Appointment of Arthur Andersen LLP as Independent
Auditors for 1997
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEES
NAMED IN ITEM 1 OR, IF ANY ONE OR MORE OF THE NOMINEES BECOMES UNAVAILABLE, FOR
ANOTHER NOMINEE OR OTHER NOMINEES TO BE SELECTED BY THE BOARD OF DIRECTORS, FOR
APPROVAL OF THE AMENDMENTS TO THE DRYPERS CORPORATION AMENDED AND RESTATED 1995
KEY EMPLOYEE STOCK OPTION PLAN SET FORTH IN ITEM 2, AND FOR RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS FOR 1997 SET FORTH IN
ITEM 3.
PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY.
PLEASE NOTE ANY CHANGE OF ADDRESS.
SIGNATURE(S)__________________________________________ DATE_____________________
SIGNATURE(S)__________________________________________ DATE_____________________
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as it appears hereon.
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<PAGE>
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DRYPERS CORPORATION
THIS PROXY FOR HOLDERS OF COMMON STOCK
IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1997
The stockholder of Drypers Corporation (the
"Company") whose signature appears on the reverse
side of this Proxy hereby appoints Walter V. Klemp
and Terry A. Tognietti, and each of them,
attorneys and proxies of the undersigned, with
full power of substitution, to vote, as designated
below, the number of votes which the undersigned
would be entitled to cast if personally present at
the Annual Meeting of Stockholders of the Company
to be held at The Houstonian Hotel and Conference
Center, 111 Post Oak Lane, Houston, Texas at 10:00
a.m., Wednesday, May 28, 1997, and at any
adjournment thereof.
1. ELECTION OF DIRECTORS--NOMINEES: Terry A.
P Tognietti (three-year term) and Philip A. Tuttle
(three-year term).
R
2. PROPOSAL TO APPROVE AMENDMENTS TO THE DRYPERS
O CORPORATION AMENDED AND RESTATED 1995 KEY EMPLOYEE
STOCK OPTION PLAN which includes amendments (i) to
X increase the aggregate number of shares of the
Company's Common Stock with respect to which
Y options may be granted under the plan to 3,000,000
to allow for the grant of additional options
thereunder and (ii) to make certain other changes.
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS FOR 1997. In
their discretion, the above named proxies are
authorized to vote on such other business as may
properly come before the meeting or any
adjournment thereof and upon matters incident to
the conduct of the meeting.
SEE REVERSE SIDE
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<PAGE>
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1. Election of Directors:
[ ] FOR all nominees listed, except as indicated to the contrary below
[ ] WITHHOLD Authority for election of all nominees
Terry A. Tognietti and Philip A. Tuttle
(Instruction: to withhold authority to vote for any individual nominee, write
that person's name in the space provided below)
2. Approval of amendments to the Drypers Corporation Amended and Restated 1995
Key Employee Stock Option Plan to increase the number of shares of the
Company's Common Stock, $.001 par value, that may be subject to options
granted under the existing plan from 2,500,000 shares to 3,000,000 shares and
to make certain other changes.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of Appointment of Arthur Andersen LLP as Independent Auditors
for 1997
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NOT
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR
NOMINEES NAMED IN ITEM 1 OR, IF ANY ONE OR MORE OF THE NOMINEES BECOMES
UNAVAILABLE, FOR ANOTHER NOMINEE OR OTHER NOMINEES TO BE SELECTED BY THE BOARD
OF DIRECTORS, FOR APPROVAL OF THE AMENDMENTS TO THE DRYPERS CORPORATION AMENDED
AND RESTATED 1995 KEY EMPLOYEE STOCK OPTION PLAN SET FORTH IN ITEM 2, AND FOR
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
FOR 1997 SET FORTH IN ITEM 3. PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY.
PLEASE NOTE ANY CHANGE OF ADDRESS.
SIGNATURE(S) DATE
SIGNATURE(S) DATE
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as it appears hereon.
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