<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Drypers Corporation
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies: N/A
2. Aggregate number of securities to which transaction applies: N/A
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
4. Proposed maximum aggregate value of transaction: N/A
5. Total fee paid: N/A
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid: N/A
2. Form, Schedule or Registration Statement No.: N/A
3. Filing Party: N/A
4. Date Filed: N/A
<PAGE>
[DRYPERS LOGO APPEARS HERE]
April 23, 1998
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 Thursday, May 21, 1998,
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 four proposals. The proposals
relate to the election of two directors, the approval of the amendment to the
Amended and Restated 1995 Key Employee Stock Option Plan, an amendment to the
Company's Restated Certificate of Incorporation to increase the number of
authorized shares of Common Stock and the appointment of independent public
accountants for fiscal 1998. 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
5300 MEMORIAL, SUITE 900
HOUSTON, TEXAS 77007
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Drypers Corporation:
The 1998 Annual Meeting of Stockholders of Drypers Corporation (the "Company")
will be held on May 21, 1998, 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 an amendment to the
Drypers Corporation Amended and Restated 1995 Key Employee Stock
Option Plan to increase the aggregate number of shares of the
Company's Common Stock with respect to which options may be granted
under the plan by 1,000,000 to allow for the grant of additional
options under the plan.
3. To consider and vote on a proposal to amend the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 20,000,000 to 30,000,000.
4. 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, 1998; and
5. To transact such other business as may properly come before the
Meeting.
The Board of Directors has fixed the close of business on April 13, 1998, 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 1998 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 23, 1998
<PAGE>
DRYPERS CORPORATION
5300 MEMORIAL, SUITE 900
HOUSTON, TEXAS 77007
(713) 869-8693
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
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"), in connection with the solicitation of
proxies by the Board of Directors of the Company to be voted at the 1998 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 beginning on or about April 27,
1998 to stockholders of the Company of record on April 13, 1998 (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 amendment to the Amended and Restated 1995 Key Employee Stock Option Plan
(the "1995 Plan"), (iii) for the proposal to amend the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 20,000,000 to 30,000,000 shares, (iv) 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, 1998 and (v) 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 13, 1998, the Record Date for determining
stockholders entitled to vote at the Meeting, the Company had 16,818,923 shares
of Common 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. The holders of a majority of the votes of the outstanding
shares of Common 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 2001. It is the intention of the persons named in the proxies 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,
present in person or by proxy at the Meeting and entitled to vote on the
election of directors will be elected director. Abstentions will be counted as
shares entitled to vote on the director nominee, but will not be treated as
either a vote for or against the nominee. Therefore, an abstention will have
the same effect as a vote against the nominee. A broker non-vote will not be
treated as a share entitled to vote on the nominee and will not be considered as
a vote for or against the nominee. Therefore, a broker non-vote will have no
effect on the outcome of the vote on the nominee.
<TABLE>
<CAPTION>
TO BE ELECTED
POSITION WITH THE DIRECTOR FOR A TERM
NOMINEES AGE COMPANY SINCE EXPIRING
-------- --- ---------------- -------- ----------
<S> <C> <C> <C> <C>
Walter V. Klemp 38 Co-Chief Executive Officer 1987 2001
and Chairman of the Board
Nolan Lehmann 53 Director 1991 2001
POSITION WITH THE DIRECTOR TERM
OTHER DIRECTORS AGE COMPANY SINCE EXPIRING IN
--------------- --- ---------------- -------- ------------
Terry A. Tognietti 41 Co-Chief Executive 1991 2000
Officer and President--
Drypers North America
Raymond M. Chambers 42 Co-Chief Executive 1995 1999
Officer and President--
Drypers International
Gary L. Forbes 54 Director 1996 1999
Philip A. Tuttle 56 Director 1991 2000
</TABLE>
3
<PAGE>
INFORMATION REGARDING NOMINEES AND DIRECTORS
Background of Nominees
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 July 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.
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 II Incorporated ("Equus"). Equus 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, are principal stockholders of the Company. Mr. Lehmann also
serves on the board of directors of Allied Waste Industries, Inc., a company
involved in solid waste disposal, American Residential Services, Inc., a
provider of residential services, Brazos Sportswear, Inc., a marketer of casual
sportswear and Garden Ridge Corporation, a specialty retail corporation. Mr.
Lehmann is a certified public accountant.
Background of Directors
Mr. Tognietti participated in the formation of Drypers and has served as Co-
Chief Executive Officer, President of Drypers North America and Secretary 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 Company's 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. 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 the
Company's 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 a director of the Company since May 1996. Mr. Forbes
has served as Vice President of Equus Capital Management Corporation since 1991
and also has served as Vice President of Equus. Mr. Forbes is a director of
Advanced Technical Products, Inc., a manufacturer of
4
<PAGE>
performance composite products, 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. 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, L.P. (collectively, "Davis"). Davis is a
principal stockholder of the Company. Since May 1997, Mr. Tuttle has been a
general partner of Davis, Tuttle Venture Group, the general partner of Davis,
Tuttle Venture Partners, L.P., a private equity partnership. 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.
Meetings and Committees of the Board
The Board of Directors held five meetings during the fiscal year ended
December 31, 1997. 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 1997.
The Compensation Committee is currently comprised of Messrs. Forbes, Lehmann
and Tuttle. The Compensation 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 1997.
5
<PAGE>
PROPOSAL TWO: APPROVAL OF AN AMENDMENT 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 an amendment to the 1995 Plan. Approval of such amendment
requires the affirmative vote of the holders of a majority of the shares of
Common Stock that are present in person or by proxy and entitled to vote at the
Meeting. A summary of the amendment to the 1995 Plan is set forth herein under
"Description of Proposed Amendment to the 1995 Plan". On the recommendation of
the Compensation Committee, the Board of Directors adopted, and is submitting
for stockholder approval, the amendment to the 1995 Plan which increases the
aggregate number of shares of the Common Stock with respect to which options may
be granted under the 1995 Plan by 1,000,000 for a new total of 4,000,000 to
allow for the grant of additional options under the 1995 Plan.
Reasons for the 1995 Plan
The purpose of the 1995 Plan is to help retain and motivate key employees
throughout the Company's organization. The use of stock options is a critical
component of overall compensation and one that appropriately aligns the
interests of key employees with those of the Company's stockholders. To this
end, the Company's Board of Directors has continued to endorse a method of
compensation that depends upon stock options to provide a long term incentive to
the Company's management and other key employees. In so doing, the Company is
able to attract and retain very high quality individuals, in spite of the
limited supply and generally high demand for such people. Approximately 86
employees of the Company and its subsidiaries currently participate in the 1995
Plan.
Since the 1995 Plan options vest to individuals through ongoing service to the
Company and since these options only have value if the Company's share price
increases, loyalty to the Company is rewarded at the same time that management
and other key employees are encouraged to focus on building Company value. An
added advantage to this use of options is that by deferring a component of
compensation, current compensation expense is reduced. The Company's Board of
Directors believes that this approach to compensation enables the Company to
continue to sustain higher growth while minimizing costs.
Given the Company's high growth over the last several years, the number of
shares available under the 1995 Plan has been depleted. As of December 31, 1997,
approximately 269,124 shares of Common Stock remained available under the 1995
Plan. The Company's Board of Directors has determined that, to continue to
provide an adequate level of performance based incentive to the Company's
management and other key employees, it is in the best interest of the Company to
increase the number of shares available for options under the 1995 Plan by
1,000,000 for a new total of 4,000,000. See "Executive Officers and
Compensation--Executive Compensation" and "Description of Proposed Amendment
to the 1995 Plan".
6
<PAGE>
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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1995 PLAN.
Approval of the amendment to the 1995 Plan requires the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock 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.
7
<PAGE>
PROPOSAL THREE: APPROVAL OF AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK FROM 20,000,000 TO 30,000,000 SHARES.
The Board of Directors has recommended the adoption of an amendment to the
Company's Restated Certificate of Incorporation that will increase the number of
authorized shares of Common Stock from 20,000,000 to 30,000,000 shares. The
Board of Directors believes that this increase in the number of authorized
shares of Common Stock is advisable and in the best interest of the Company
because it will provide the Company with greater flexibility in effecting
acquisitions and financings. The Company has in recent years significantly
expanded its business and operations, especially internationally, through
acquisitions and internal growth that have been financed in part with Common
Stock. The Company expects that the future growth of the Company will continue
to require the use of its Common Stock from time to time either as consideration
for acquisitions or as part of a financing for the Company either through the
use of Common Stock or securities convertible into Common Stock. The proposed
amendment would provide the Company with additional flexibility to effect these
acquisitions and financings without the delay and expense associated with
obtaining the approval or consent of stockholders at the same time the shares
are needed. Such shares may be issued in conjunction with either a public
offering or private placement of shares of Common Stock.
As amended, the first paragraph of Article Fourth of the Restated Certificate
of Incorporation would read as follows:
"Fourth: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 35,000,000 of which (i)
30,000,000 shares shall be common stock, $.001 par value per share (the
"Common Stock"), and (ii) 5,000,000 shares shall be Senior Preferred Stock,
$.01 par value per share (the "Preferred Stock").
The Company does not have any current plans, proposals or understandings that
would require the use of the additional shares of Common Stock to be authorized.
The Company, however, anticipates that some portion of the additional shares
would be utilized by the Company in the future for acquisitions as well as for
public offerings of Common Stock or securities convertible or exchangeable into
shares of Common Stock. Such shares would also be used for the Company's stock
based plans. Unless required by law, regulatory authorities or applicable rules
of The Nasdaq Stock Market, it is not anticipated that any future authorization
by a vote of shareholders will be sought for the issuance of any shares of
Common Stock. Shareholders of the Company do not have any preemptive rights to
purchase additional shares of Common Stock, whether now or hereafter authorized.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT TO THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 20,000,000 TO 30,000,000 SHARES.
Approval of this amendment requires the vote of the holders of at least two-
thirds of the shares of Common Stock that are outstanding as of the Record Date
and entitled to vote thereon at the Meeting. If not otherwise provided, proxies
will be voted "FOR" the proposal to approve the amendment to increase the number
of authorized shares of Common Stock. Abstentions and broker non-votes will not
be treated as either a vote for or against the proposal. However, because the
proposal requires the affirmative vote of two-thirds of the outstanding shares
of Common Stock, abstentions and broker non-votes will have the same effect as a
vote against the proposal.
8
<PAGE>
PROPOSAL FOUR: 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, 1998. 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 represented in person or
by proxy at the Meeting. 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.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 15, 1998,
concerning the beneficial ownership of the Common Stock by (i) each person known
by the Company to be the beneficial owner of more than 5% of the Common 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)________
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON
NAME STOCK PERCENT
- ---------------------------------------- -------------- -------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equus II Incorporated and affiliates(2) 3,904,496 23.2
2929 Allen Parkway, 25th Floor
Houston, Texas 77019
- -----------------------------------------------------------------------------------------------------------------------------------
Davis Venture Group and affiliates(3) 1,544,379 9.2
12 Greenway Plaza, Suite 1100
Houston, Texas 77046
- -----------------------------------------------------------------------------------------------------------------------------------
Heartland Advisors, Inc.(4) 1,449,776 8.6
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
- -----------------------------------------------------------------------------------------------------------------------------------
Meridian Fund, Ltd.(5) 936,195 5.6
601 Jefferson, Suite 4000
Houston, Texas 77002
- -----------------------------------------------------------------------------------------------------------------------------------
Walter V. Klemp 791,088(6) 4.5
5300 Memorial, Suite 900
Houston, Texas 77007
- -----------------------------------------------------------------------------------------------------------------------------------
Terry A. Tognietti 673,846(7) 3.9
5300 Memorial, Suite 900
Houston, Texas 77007
- -----------------------------------------------------------------------------------------------------------------------------------
Raymond M. Chambers 596,765(8) 3.4
5300 Memorial, Suite 900
Houston, Texas 77007
- -----------------------------------------------------------------------------------------------------------------------------------
Joe D. Tanner 300,594(9) 1.8
5300 Memorial, Suite 900
Houston, Texas 77007
- -----------------------------------------------------------------------------------------------------------------------------------
Jonathan P. Foster 21,667(10) *
5300 Memorial, Suite 900
Houston, Texas 77007
- -----------------------------------------------------------------------------------------------------------------------------------
Gary L. Forbes(11) 13,834(11) (11)
- -----------------------------------------------------------------------------------------------------------------------------------
Nolan Lehmann(12) 12,348(12) (12)
- -----------------------------------------------------------------------------------------------------------------------------------
Philip A. Tuttle(13) 9,334(13) (13)
- -----------------------------------------------------------------------------------------------------------------------------------
6 directors and 2 other executive officers as a 7,868,351 42.0
group (8 persons)(14)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
*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,
10
<PAGE>
but not deemed outstanding for the purpose of calculating the percentage
owned by any other person. Beneficial ownership includes outstanding shares
of Common Stock and shares of Common Stock that such holder has a right to
acquire within 60 days upon exercise of outstanding options or warrants.
Except as otherwise noted, each stockholder has sole voting and dispositive
power with respect to the shares of Common Stock.
(2) "Equus II Incorporated and affiliates" consists of Equus Capital Management
Corporation, Equus Capital Corporation, Equus and 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 3,677,906 shares of Common
Stock held directly by Equus and the 226,590 shares of Common Stock held
directly by Equus Capital.
(3) "Davis Venture Group and affiliates" comprises Davis Venture Group and
Davis Venture Partners, L.P. Davis Venture Group is the general partner of
Davis Venture Partners, L.P. Because of such relationships Davis Venture
Group may be deemed to be beneficial owner of shares of Common Stock held
of record by Davis Venture Partners, L.P.
(4) The foregoing information is based solely on information contained in
Amendment No. 3 to Schedule 13G dated April 13, 1998 of Heartland Advisors,
Inc. filed with the Securities and Exchange Commission with respect to its
beneficial ownership of Common Stock.
(5) The foregoing information is based solely on information contained in
Schedule 13G dated March 30, 1998 of Meridian Fund, Ltd. filed with the
Securities and Exchange Commission with respect to its beneficial ownership
of Common Stock.
(6) Includes 129,081 and 498,916 shares of Common Stock issuable upon exercise
of warrants and options, respectively.
(7) Includes 17,211 and 498,916 shares of Common Stock issuable upon exercise
of warrants and options, respectively.
(8) Includes 103,265 and 473,500 shares of Common Stock issuable upon exercise
of warrants and options, respectively.
(9) Includes 7,284 and 139,167 shares of Common Stock issuable upon exercise of
warrants and options, respectively.
(10) Includes 21,667 shares of Common Stock issuable upon exercise of options.
(11) 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 beneficially owned
by Equus II Incorporated and affiliates. Mr. Forbes disclaims such
beneficial ownership. See Note (2) to this table. Includes 3,668 shares
of Common Stock issuable upon exercise of options.
(12) 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 beneficially owned by Equus II Incorporated and affiliates.
Mr. Lehmann disclaims such beneficial ownership. See Note (2) to this
table. Includes 9,334 shares of Common Stock issuable upon exercise of
options.
(13) Mr. Tuttle is a general partner of Davis Venture Group. Because of such
relationship, Mr. Tuttle may be deemed to be the beneficial owner of the
shares of Common Stock beneficially owned by Davis Venture Group and
affiliates. Mr. Tuttle disclaims such beneficial ownership. See Note (3)
to this table. Includes 9,334 shares of Common Stock issuable upon exercise
of options.
(14) See notes (6) through (13) above.
11
<PAGE>
EXECUTIVE OFFICERS AND COMPENSATION
EXECUTIVE OFFICERS
Set forth below, as of April 15, 1998, are the names of the executive officers
of the Company, together with their ages and positions with the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- --- -----------------------------------------
<S> <C> <C>
Walter V. Klemp 38 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 42 Co-Chief Executive Officer, President -
Drypers International, Director
Joe D. Tanner 51 Executive Vice President and Chief Operating
Officer - Drypers International
Jonathan P. Foster 34 Executive Vice President and Chief Financial
Officer
</TABLE>
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 the Company's 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 in February 1996, from its inception in February 1992 to February 1995.
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. Mr. Foster is a certified public accountant.
12
<PAGE>
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.
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) integrating 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 financial performance benchmarks. 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 certain financial performance
benchmarks. 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 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 Common 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
13
<PAGE>
options granted to executive officers is based on competitive practices, with
the number of such options being calculated as a percentage of base salary
relative to the exercise price of the stock options.
Discussion of 1997 Compensation for the Chairman and Co-Chief Executive Officer
In considering the compensation for the Chairman and Co-Chief Executive
Officer for fiscal 1997, 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:
. Base salary was increased from $210,000 to $235,000 in 1997, and,
effective January 1, 1998, was increased to $300,000, as was authorized
in his employment agreement. The Committee determined that Mr. Klemp's
base salary is now set at the desired level relative to companies of
similar size and complexity.
. Bonuses of $155,000 have been paid with respect to the full fiscal year
1997.
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
14
<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, 1997, exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSTION AWARDS
- ---------------------------------------------------------------------------------------------------------------------------
COMMON
STOCK
ANNUAL COMPENSATION RESTRICTED UNDERLYING
------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($) (SHARES) COMPENSATION($)(1)
- --------------------------- ---- -------- ------- ------------- --------- ------------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Walter V. Klemp 1997 230,192 155,000(2) 125,000(3) 22,500 5,117
Co-Chief Executive Officer and 1996 210,000 --(4) -- 436,000 4,798
Chairman of the Board 1995 210,000 70,000(5) -- -- 5,848
Terry A. Tognietti 1997 230,192 155,000(2) 125,000(3) 22,500 8,968
Co-Chief Executive Officer and 1996 210,000 --(4) -- 436,000 4,809
President--Drypers North 1995 210,000 70,000(5) -- -- 5,848
America
Raymond M. Chambers 1997 230,192 155,000(2) 125,000(3) 22,500 15,068
Co-Chief Executive Officer and 1996 210,000 --(4) -- 411,000 20,959
President--Drypers International 1995 210,000 70,000(5) -- -- 14,846
Joe D. Tanner 1997 169,231 60,000 -- 20,000 5,459
Executive Vice President and 1996 150,000 25,000 -- 152,500 4,817
Chief Operating Officer-Drypers 1995 146,250 45,000 -- -- 5,355
International
Jonathan P. Foster 1997 147,308 25,000 -- 15,000 5,072
Executive Vice President and 1996 59,000 -- -- 50,000 --
Chief Financial Officer(6)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts represent contributions in 1997 by the Company under the Company's
401(k) savings and employee stock purchase plans for Messrs. Klemp,
Tognietti, Chambers, Tanner, and Foster of $5,117, $8,968, $5,068, $5,459,
and $5,072, respectively, and term life insurance premiums paid by the
Company in each year for Mr. Chambers of $10,000.
(2) Of the total bonuses paid in 1997 to the three Co-Chief Executive Officers,
$80,000 represents a bonus paid in June 1997 related to the successful
completion of the $115,000,000 Senior Notes offering. The remainder
represents performance-based bonuses related to 1997 which were paid in
March 1998.
(3) On August 13, 1997, the Company awarded $75,000 in restricted stock (or
24,706 shares of Common Stock) to each of its three Co-Chief Executive
Officers. On April 9, 1998, the Company awarded $50,000 in restricted stock
(or 7,692 shares of Common Stock) to each of its three Co-Chief Executive
Officers related to 1997 performance. All such restricted stock vests over
a two year period.
(4) No bonuses were paid with respect to the full fiscal year 1996.
(5) Related to the performance of the Company in 1994, subject to certain
follow-on events in the beginning of 1995. No bonuses were paid with
respect to the full fiscal year 1995.
(6) Jonathan P. Foster became Chief Financial Officer effective July 29, 1996.
15
<PAGE>
The following table sets forth summary information regarding options granted
in the fiscal year ended December 31, 1997 to each of the executive officers
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Option Grants in Fiscal Year Ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES
OF COMMON STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
----------------------------------------------------- -------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (2) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------------------------- -------------- -------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Walter V. Klemp 22,500 5.5 $6.00 05/28/07 219,901 350,155
Terry A. Tognietti 22,500 5.5 $6.00 05/28/07 219,901 350,155
Raymond M. Chambers 22,500 5.5 $6.00 05/28/07 219,901 350,155
Joe D. Tanner 20,000 4.9 $4.25 02/25/07 138,456 220,468
Jonathan P. Foster 15,000 2.4 $4.25 02/25/07 69,228 110,234
</TABLE>
(1) Potential values stated are based upon the hypothesis that the Common Stock
will appreciate in value from the date of grant to the end of the option
term at the stated annualized rates. Such assumed rates of appreciation and
potential realizable values are not necessarily indicative of the future
appreciation, if any, which may be realized.
(2) Represents shares issuable pursuant to an incentive stock option plan.
Options vest 33-1/3% over the first three years of the option term.
The following table sets forth summary information regarding the value of all
unexercised options as of December 31, 1997, for each of the executive officers
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
----------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1997 (SHARES) DECEMBER 31, 1997 ($)(1)
-------------------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ------------------- ------------ --------------
<S> <C> <C> <C> <C>
Walter V. Klemp 498,917 22,500 1,434,386 -
Terry A. Tognietti 498,917 22,500 1,434,386 -
Raymond M. Chambers 473,500 22,500 1,361,313 -
Joe D. Tanner 139,167 33,333 391,771 79,166
Jonathan P. Foster 21,667 43,333 47,708 95,416
</TABLE>
(1) Assumes a fair market value of $5.875 per share of Common Stock as of
December 31, 1997.
16
<PAGE>
CERTAIN TRANSACTIONS
On June 30, 1997, the Company extended non-interest bearing loans of $130,000
to each of its three Co-Chief Executive Officers. One-half of the loan balances
will be forgiven on June 30, 1998 and the remaining balances will be forgiven on
June 30, 1999, if the officers remain employed by the Company. Accordingly, no
compensation was recognized by the Co-Chief Executive Officers in 1997 related
to these loans.
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, to December 31, 1997. 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 46 MONTH CUMULATIVE TOTAL RETURN*
AMONG DRYPERS CORPORATION, THE NASDAQ STOCK MARKET--US INDEX
AND A PEER GROUP
17
<PAGE>
<TABLE>
<CAPTION>
MARCH 11, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Drypers Corporation.......... 100 82 20 25 39
Peer Group................... 100 48 60 75 36
The Nasdaq Stock Market--US
Index....................... 100 96 136 167 205
</TABLE>
COMPENSATION OF DIRECTORS
In 1997, 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
$6.25, the fair market value of the 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 $6.25, the fair market value of the
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") (and
collectively, with the Co-Chief Executive Officers, the "Employees" or,
individually, the "Employee") has entered into an employment agreement
(individually, an "Employment Agreement" and collectively, the "Employment
Agreements") with the Company. The Employment Agreements provide for an annual
salary of $300,000 for each of the Co-Chief Executive Officers and of $200,000
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 for a period ending on the third anniversary of the
receipt by the Employee of written notice of termination by the Company 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 in each Employee's Employment Agreement. 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) of the previous sentence, 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. 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 AMENDMENT 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 AMENDMENT
To date, options to purchase an aggregate of 2,619,528 shares of Common Stock
have been granted under the 1995 Plan and an aggregate of new options to
purchase an additional 1,000,000 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 1,000,000.
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% or greater 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% or greater 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
4,000,000 shares of Common Stock; (ii) grants of incentive stock options and
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) the 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 86 employees of the Company and its subsidiaries
currently participate in the 1995 Plan.
19
<PAGE>
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.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS(1)
DRYPERS CORPORATION AMENDED AND RESTATED
1995 KEY EMPLOYEE STOCK OPTION PLAN
---------------------------------------------------------------------------------------------
DOLLAR NUMBER OF
NAMES AND POSITIONS VALUE $ SHARES
--------------------------------------------- -------------- ---------------
<S> <C> <C>
Walter V. Klemp,
Co-Chief Executive Officer and Chairman of the Board............... (2) 521,416
Terry A. Tognietti
Co-Chief Executive Officer and
President Drypers North America............................... (2) 521,416
Raymond M. Chambers,
Co-Chief Executive Officer and
President Drypers International............................... (2) 496,000
Joe D. Tanner,
Executive Vice President and Chief Operating Officer
Drypers International.......................................... (2) 172,500
Jonathan P. Foster
Executive Vice President and Chief Financial Officer............... (2) 65,000
Executive Officers as a Group (5 persons, including
the executive officers named above)............................... (2) 1,776,332
Non-Executive Director Group....................................... --- ---
Non-Executive Officer Employee Group............................... (2) 843,196
</TABLE>
- -----------------------
(1) Includes benefits granted pursuant to the 1995 Plan.
(2) 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, $4.25, $5.00,
$6.00 and $6.50 per share. The closing price of the Common Stock on the
Record Date was $6.94.
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.
20
<PAGE>
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 shares after holding them for more than two years
after the date the option was granted and more than one year after the transfer
of shares to the optionee. 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 optionee will generally be taxed at an ordinary income rate on
the lesser of (i) the fair market value of those shares on the date the option
was exercised or the amount realized on the sale over (ii) the exercise price
paid for the shares. 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 lesser of (i) the fair market value
of such shares on the date the option was exercised or the amount realized on
the sale 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 Exchange Act 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, 1997, 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 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 1999 Annual
Meeting of Stockholders must be received by the Company no later than December
22, 1998, 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 IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
P
R
O
X
Y
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., on Thursday,
May 21, 1998, and at any adjournment thereof.
1. ELECTION OF DIRECTORS--NOMINEES:
Walter V. Klemp (three-year term) and Nolan Lehmann (three-year term).
2. PROPOSAL TO APPROVE AMENDMENT TO THE DRYPERS CORPORATION AMENDED AND
RESTATED 1995 KEY EMPLOYEE STOCK OPTION PLAN 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 4,000,000 to allow for the grant of additional options
thereunder.
3. PROPOSAL TO APPROVE AMENDMENT TO THE DRYPERS CORPORATION RESTATED CERTIFICATE
OF INCORPORATION to increase the number of authorized shares of Common Stock to
30,000,000.
4. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS FOR 1998. 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
<PAGE>
1. Election of Directors: [ ] FOR all nominees listed, except as indicated to
the contrary below
[ ] WITHHOLD authority for election of all nominees
Walter V. Klemp and Nolan Lehmann
(Instruction: to withhold authority to vote for any individual nominee, write
that person's name in the space provided below)
-----------------------------------------------------------------------------
2. Approval of amendment 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 by 1,000,000 shares to 4,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval to amend the Drypers Corporation Restated Certificate of
Incorporation to increase the number of shares of the Company's
Common Stock, $.001 par value, from 20,000,000 shares to
30,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification of appointment of Arthur Andersen LLP as
Independent Public Accountants for 1998.
[ ] 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 AMENDMENT TO THE DRYPERS CORPORATION AMENDED
AND RESTATED 1995 KEY EMPLOYEE STOCK OPTION PLAN SET FORTH IN ITEM 2, FOR THE
AMENDMENT TO THE DRYPERS CORPORATION RESTATED CERTIFICATE OF INCORPORATION SET
FORTH IN ITEM 3, AND FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS FOR 1998 SET FORTH IN ITEM 4.
PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY
PLEASE NOTE ANY CHANGE OF ADDRESS
SIGNATURE(S) DATE
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SIGNATURE(S) DATE
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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.
