SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 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:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
[DRYPERS CORPORATION LOGO]
April 22, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Drypers Corporation to be held at 9:00 AM, CDT, on Friday, May 28, 1999, at the
Hampton Inn by the Galleria, located at 4500 Post Oak Parkway, Houston, Texas
77027.
This year you will be asked to vote in favor of two proposals. The
proposals relate to the election of two directors and the appointment of
independent public accountants for fiscal 1999. 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,
/s/ WALTER V. KLEMP
Walter V. Klemp
Chairman of the Board
and Chief Executive Officer
<PAGE>
DRYPERS CORPORATION
5300 MEMORIAL, SUITE 900
HOUSTON, TEXAS 77007
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Drypers Corporation:
The 1999 Annual Meeting of Stockholders of Drypers Corporation (the
"Company") will be held on May 28, 1999, at 9:00 AM, CDT, at the Hampton Inn by
the Galleria, located at 4500 Post Oak Parkway, 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 ratify the appointment of
Arthur Andersen LLP as the Company's independent public accountants
for the fiscal year ending December 31, 1999; and
3. To transact such other business as may properly come before the
Meeting.
The Board of Directors has fixed the close of business on April 15, 1999,
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 1999 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
/s/ ROBERT F. GRAY, JR.
Robert F. Gray, Jr.
Secretary
April 22, 1999
<PAGE>
DRYPERS CORPORATION
5300 MEMORIAL, SUITE 900
HOUSTON, TEXAS 77007
(713) 869-8693
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1999
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 1999 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 23, 1999 to stockholders of the Company of record on April 15,
1999 (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 proposal to
ratify the appointment of Arthur Andersen LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1999 and (iii) 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 15, 1999, the Record Date for
determining stockholders entitled to vote at the Meeting, the Company had
17,724,804 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.
<PAGE>
MATTERS TO COME B9EFORE 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 2002. 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. 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 IN
--------- --- ------------------ --------- ---------------
<S> <C> <C> <C>
Raymond M. Chambers 43 President and Chief Operating Officer 1995 2002
Gary L. Forbes 55 Director 1996 2002
POSITION WITH THE DIRECTOR TERM
OTHER DIRECTORS AGE COMPANY SINCE EXPIRING IN
--------------- --- ----------------- -------- -----------
Walter V. Klemp 39 Chairman of the Board and Chief 1987 2001
Executive Officer
Nolan Lehmann 54 Director 1991 2001
Terry A. Tognietti 42 Director 1991 2000
Philip A. Tuttle 57 Director 1991 2000
</TABLE>
2
<PAGE>
INFORMATION REGARDING NOMINEES AND DIRECTORS
BACKGROUND OF NOMINEES
Mr. Chambers has served as a director of Drypers since January 1995 and as
President and Chief Operating Officer since August 1998. Prior to August 1998,
he served as Co-Chief Executive Officer and President -- Drypers International
from January 1995 to July 1998. From January 1994 to December 1994, he served as
the Company's Managing Director--International Operations. In June 1992, he
became President of the Company's VMG Division and served in such capacity until
December 1993. From July 1989 until joining the Company in June 1992, Mr.
Chambers served as Chief Executive Officer and President of VMG Enterprises,
Inc. ("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,
located in Houston, Texas, since 1991 and also has served as Vice President 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, LP ("Equus Capital"), one of several funds
formed by Equus Capital Corporation. Equus Capital and its affiliate, Equus, are
principal stockholders of the Company. Mr. Forbes also serves on the board of
directors of Advanced Technical Products, Inc., a manufacturer of 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.
BACKGROUND OF DIRECTORS
Mr. Tognietti has served as a director of Drypers since August 1991 and
has been Vice Chairman of the Board of Directors of the Company since August
1998. From January 1995 until January 1999, he served as Co-Chief Executive
Officer, President of Drypers North America and Secretary. Mr. Tognietti also
served 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. 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, LP (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, LP, 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.
3
<PAGE>
Mr. Klemp has served as the Chairman of the Board of Drypers since January
1995 and has served on its Board of Directors since its formation in February
1987. He has also served as Chief Executive Officer since August 1998. Prior to
August 1998, he served as Co-Chief Executive Officer from January 1995 to July
1998. 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 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 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. 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 Paracelsus Healthcare Corporation, a hospital management company.
Mr. Lehmann is a certified public accountant.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held six meetings during the fiscal year ended
December 31, 1998. 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 1998.
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 and Klemp. The Compensation Committee
met twice in 1998.
PROPOSAL TWO: 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, 1999. 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.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 15, 1999,
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.
BENEFICIAL OWNERSHIP(1)
-----------------------
COMMON
NAME STOCK PERCENT
---- --------- -------
Equus II Incorporated and affiliates(2) 3,904,496 22.1
2929 Allen Parkway, 25th Floor
Houston, Texas 77019
Davis Venture Group and affiliates(3) 1,544,379 8.7
8 Greenway Plaza, Suite 1020
Houston, Texas 77046
Penn Capital Management Co. Inc.(4) 1,063,835 6.0
52 Haddonfield Berlin Road, Suite 1000
Cherry Hill, New Jersey 08034
Walter V. Klemp 750,629(5) 4.1
5300 Memorial, Suite 900
Houston, Texas 77007
Terry A. Tognietti 674,951(6) 3.7
5300 Memorial, Suite 900
Houston, Texas 77007
Raymond M. Chambers 565,898(7) 3.1
5300 Memorial, Suite 900
Houston, Texas 77007
Joe D. Tanner 308,014(8) 1.7
5300 Memorial, Suite 900
Houston, Texas 77007
Jonathan P. Foster 49,949(9) *
5300 Memorial, Suite 900
Houston, Texas 77007
Gary L. Forbes(10) 20,835(10) (10)
Nolan Lehmann(11) 23,015(11) (11)
Philip A. Tuttle(12) 20,001(12) (12)
6 directors and 2 other executive 7,862,167 40.4
officers as a group (8 persons)(13)
- ----------
*Less than 1%
5
<PAGE>
(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 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 the
Schedule 13G dated June 18, 1998 of Penn Capital Management Co. Inc. filed
with the Securities and Exchange Commission with respect to its beneficial
ownership of Common Stock.
(5) Includes 506,416 shares of Common Stock issuable upon exercise of options.
(6) Includes 506,416 shares of Common Stock issuable upon exercise of options.
(7) Includes 481,000 shares of Common Stock issuable upon exercise of options.
(8) Includes 147,167 shares of Common Stock issuable upon exercise of options.
(9) Includes 38,334 shares of Common Stock issuable upon exercise of
options.
(10) Mr. Forbes is Vice President of Equus Capital Management 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. Forbes disclaims such beneficial
ownership. See Note (2) to this table. Includes 10,668 shares of Common
Stock issuable upon exercise of options.
(11) 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 20,001 shares of Common Stock issuable upon
exercise of options.
(12) 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 20,001 shares of Common Stock issuable upon
exercise of options.
(13) See notes (5) through (12) above.
6
<PAGE>
EXECUTIVE OFFICERS AND COMPENSATION
EXECUTIVE OFFICERS
Set forth below, as of April 15, 1999, 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 39 Chairman of the Board, Chief Executive
Officer and Director
Raymond M. Chambers 43 President, Chief Operating Officer and
Director
Joe D. Tanner 52 Executive Vice President and President -
Drypers International
Jonathan P. Foster 35 Executive Vice President and Chief
Financial Officer
For information regarding the background of Messrs. Klemp and Chambers,
see "Proposal One: Election of Directors - Information Regarding Nominees and
Directors".
Mr. Tanner has served as Executive Vice President of Drypers since
February 1996 and as President - Drypers International since October 1998. Prior
to that, he served as 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 of Drypers since July
1996 and as Executive Vice President 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.
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 executive compensation with the Company's
annual and long-term business objectives and performance goals.
7
<PAGE>
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, the Company retained an independent outside consulting
firm in November 1998 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 an incentive upon the
attainment of certain financial and operational 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. 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 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 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 1998 COMPENSATION FOR THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
In considering the compensation for the Chairman and Chief Executive
Officer for fiscal 1998, the Committee reviewed his existing compensation
arrangements and both Company and individual performance. 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 was $300,000 in 1998 and, effective January 1, 1999, was
increased to $330,000, 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 and
the Company's recent performance.
o No bonuses were paid with respect to the full fiscal year 1998.
8
<PAGE>
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 of similar size and complexity as the Company.
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
/s/ GARY L. FORBES
Gary L. Forbes
/s/ NOLAN LEHMANN
Nolan Lehmann
/s/ PHILIP A. TUTTLE
Philip A. Tuttle
9
<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, 1998, exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
------------------------------
COMMON
STOCK
ANNUAL COMPENSATION RESTRICTED UNDERLYING
-------------------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS ($) (SHARES) COMPENSATION ($)(1)
- ------------------------------------ ---- ---------- --------- ---------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Walter V. Klemp 1998 300,000 --(2) -- 61,600 5,093
Chief Executive Officer and 1997 230,192 155,000(3) 207,500(4) 22,500 5,117
Chairman of the Board 1996 210,000 --(2) -- 436,000 4,798
Terry A. Tognietti 1998 300,000 --(2) -- 61,600 8,700
Vice Chairman of the Board(5) 1997 230,192 155,000(3) 207,500(4) 22,500 8,968
1996 210,000 --(2) -- 436,000 4,809
Raymond M. Chambers 1998 300,000 --(2) -- 61,600 14,800
President and 1997 230,192 155,000(3) 207,500(4) 22,500 15,068
Chief Operating Officer 1996 210,000 --(2) -- 411,000 20,959
Joe D. Tanner 1998 195,000 75,000 -- 28,400 4,800
Executive Vice President and 1997 169,231 60,000 21,000(6) 20,000 5,459
President-Drypers International 1996 150,000 25,000 -- 152,500 4,817
Jonathan P. Foster 1998 180,000 35,000 -- 25,600 4,302
Executive Vice President and 1997 147,308 25,000 25,000(6) 15,000 5,072
Chief Financial Officer(7) 1996 59,000 -- -- 50,000 --
</TABLE>
(1) Amounts represent contributions in 1998 by the Company under the Company's
401(k) savings and employee stock purchase plans for Messrs. Klemp,
Tognietti, Chambers, Tanner, and Foster of $5,093, $8,700, $4,800, $4,800,
and $4,302, respectively, and term life insurance premiums paid by the
Company in each year for Mr. Chambers of $10,000.
(2) No bonuses were paid with respect to the full fiscal year 1996 or 1998.
(3) 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 Company's $115,000,000 Senior Notes offering. The
remainder represents performance-based bonuses related to 1997 which were
paid in March 1998.
(4) On August 13, 1997, the Company awarded $157,500 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. The terms of the restricted stock were
amended in December 1998 to allow for the stock to fully vest in December
2000.
(5) Terry A. Tognietti resigned his position of Co-Chief Executive Officer and
President - Drypers North America in January 1999. Mr. Tognietti currently
acts as a consultant for the Company and continues to act as a director of
the Company. See "Executive Officers and Compensation Certain Transactions".
(6) On April 2, 1998, the Company awarded $21,000 in restricted stock (or 3,704
shares of common stock) to its Executive Vice President/President-Drypers
International. On April 9, 1998, the Company awarded $25,000 in restricted
stock (or 3,231 shares of Common Stock) to its Executive Vice
President/Chief Financial Officer. These stock awards related to 1997
performance. All such restricted stock vests over a two-year period.
(7) Jonathan P. Foster became Chief Financial Officer effective July 29, 1996.
10
<PAGE>
The following table sets forth summary information regarding options
granted in the fiscal year ended December 31, 1998 to each of the executive
officers named in the Summary Compensation Table.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED ANNUAL RATES
OF COMMON STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
---------------------------------------------------------------------- --------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(2) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- --------------- ------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Walter V. Klemp 61,600 9.0 $7.50 05/21/08 290,546 736,309
Terry A. Tognietti(3) 61,600 9.0 $7.50 05/21/08 290,546 736,309
Raymond M. Chambers 61,600 9.0 $7.50 05/21/08 290,546 736,309
Joe D. Tanner 28,400 4.1 $7.50 05/21/08 133,955 339,467
Jonathan P. Foster 25,600 3.7 $7.50 05/21/08 120,748 305,999
</TABLE>
(1) Potential values stated are based upon the hypothesis that the Common Stock
will appreciate in value from the date of grant to the end of the option
term at the stated annualized rates. Such assumed rates of appreciation and
potential realizable values are not necessarily indicative of the future
appreciation, if any, which may be realized.
(2) Represents shares issuable pursuant to an incentive stock option plan.
Options vest 33-1/3% beginning in the second year of the option term.
(3) Terry A. Tognietti resigned his position of Co-Chief Executive Officer and
President - Drypers North America in January 1999. Mr. Tognietti currently
acts as a consultant for the Company and continues to act as a director of
the Company. See "Executive Officers and Compensation Certain Transactions".
The following table sets forth summary information regarding the value of
all unexercised options as of December 31, 1998, for each of the executive
officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
-------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1998 (SHARES) DECEMBER 31, 1998 ($)(1)
------------------------------------- ---------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------- ---------------- -------------- ---------------
<S> <C> <C> <C>
Walter V. Klemp 506,416 76,600 124,729 --
Terry A. Tognietti(2) 506,416 76,600 124,729 --
Raymond M. Chambers 481,000 76,600 118,375 --
Joe D. Tanner 147,167 53,733 35,125 3,000
Jonathan P. Foster 38,334 52,267 -- --
</TABLE>
(1) Assumes a fair market value of $3.25 per share of Common Stock as of
December 31, 1998.
(2) Terry A. Tognietti resigned his position of Co-Chief Executive Officer and
President - Drypers North America in January 1999. Mr. Tognietti currently
acts as a consultant for the Company and continues to act as a director of
the Company. See "Executive Officers and Compensation-Certain Transactions".
11
<PAGE>
CERTAIN TRANSACTIONS
On June 30, 1997, the Company extended non-interest bearing loans of
$130,000 to Walter V. Klemp, Raymond M. Chambers and Terry A. Tognietti, then
the Company's three Co-Chief Executive Officers. One-half of the loan balances
were to be forgiven on June 30, 1998 and the remaining balances were to be
forgiven on June 30, 1999, if such individuals remained employed by the Company.
However, in May 1998, the Compensation Committee determined that it was in the
best interests of the Company to extend the period for which these individuals
must be employed before the loans will be forgiven. Therefore, these notes were
exchanged for otherwise identical notes the loan balances of which will be
forgiven on August 31, 2001, if such individuals remain employed by the Company
and no change of control of the Company has occurred. Accordingly, no
compensation was recognized by such individuals in 1998 related to these loans.
Effective January 5, 1999, Terry A. Tognietti resigned his position of
Co-Chief Executive Officer and President - Drypers North America. The Company
has entered into a consulting agreement with Mr. Tognietti which provides for a
fee for service of $300,000 per year, and approximately $90,000 per year for
various expense allowances and the continuation of his employee benefits. This
agreement terminates on November 1, 2002, subject to early termination on
November 1, 2001 based on a specified price of the Company's Common Stock. In
addition, the $130,000 non-interest bearing loan extended to Mr. Tognietti on
June 30, 1997 was forgiven and extinguished.
PERFORMANCE PRESENTATION
The following performance graph compares the performance of the Common Stock
to the Russell 2000 Stock Index, The NASDAQ Stock Market - US Index and a peer
group. The Company has chosen to use the Russell 2000 Stock Index for the broad
equity market index, as it is designed to be a representation of the US
small-cap equities market. The NASDAQ Stock Market - US Index has also been
presented for comparative purposes. Information with respect to the Common
Stock, the Russell 2000 Stock Index, 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, 1998. 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.
12
<PAGE>
COMPARISON OF 58 MONTH CUMULATIVE TOTAL RETURN*
AMONG DRYPERS CORPORATION, THE RUSSELL 200 STOCK INDEX,
THE NASDAQ STOCK MARKET--US INDEX
AND A PEER GROUP
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
MARCH 11,
1994 12/94 12/95 12/96 12/97 12/98
--------- ----- ----- ----- ----- -----
Drypers Corporation.... 100 82 20 25 39 21
Peer Group............. 100 48 60 76 36 8
Russell 2000 Stock Index 100 96 123 143 175 174
The NASDAQ Stock Market--
US Index............. 100 96 136 167 205 288
* $100 INVESTED ON 3/11/94 IN STOCK, NASDAQ AND PEER GROUP OR ON 2/28/94 IN
RUSSELL - INCLUDING REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING
DECEMBER 31.
COMPENSATION OF DIRECTORS
In 1998, 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 $7.44, 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 $7.44, 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.
13
<PAGE>
EMPLOYMENT AGREEMENTS
Each of Messrs. Klemp, Chambers and Tanner (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 $330,000 for Messrs. Klemp
and Chambers, and of $270,000 for Mr. Tanner during the term of the Employment
Agreements. In addition, each of Messrs. Klemp and Chambers may receive an
annual bonus of an amount to be determined by the Board of Directors and Mr.
Tanner may receive an annual bonus of an amount to be determined by Messrs.
Klemp and Chambers. 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, 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.
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, 1998 all officers, directors and greater than 10%
stockholders complied with all filing requirements applicable to them.
OTHER MATTERS
Management does not intend to bring any business before the Meeting other
than the matters 3referred 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.
14
<PAGE>
STOCKHOLDER PROPOSALS
Any proposal by a stockholder to be presented at the Company's 2000 Annual
Meeting of Stockholders must be received by the Company no later than December
23, 1999, to be eligible for inclusion in the Company's Proxy Statement and
proxy used in connection with such meeting. Shareholder proposals submitted
outside the process of Rule 14a-8 promulgated under the Securities Exchange Act
of 1934, as amended, will be considered untimely if received by the Company
after March 8, 2000.
15
<PAGE>
DRYPERS CORPORATION
Notice of 1999 Annual Meeting of Stockholders
and Proxy Statement
Friday, May 28, 1999
9:00 AM
Hampton Inn by the Galleria
4500 Post Oak Parkway
Houston, Texas 77027
<PAGE>
DRYPERS CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1999
The stockholder of Drypers Corporation (the "Company") whose
signature appears on the reverse side of this Proxy hereby appoints
Walter V. Kiemp and Robert F. Gray, Jr., and each of them, attorneys
and proxies of the undersigned, with full power of substitution, to
P vote, as designated below, the number of votes which the undersigned
would be entitled to cast if personally present at the Annual
R Meeting of Stockholders of the Company to be held at the Hampton Inn
by the Galleria, 4500 Post Oak Parkway, Houston, Texas at 9:00 a.m.,
O on Friday, May 28, 1999, and at any adjournment thereof.
X 1. ELECTION OF DIRECTORS-NOMINEES:
Raymond M. Chambers (three-year term) and Gary L. Forbes
Y (three-year term).
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR 1999.
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>
<TABLE>
<CAPTION>
<S> <C> <C>
1. Election of Directors; [ ] FOR all nominees listed, [ ] WITHHOLD authority for
except as indicated to election of all nominees
the contrary below
</TABLE>
Raymond M. Chambers and Gary L. Forbes
(Instruction: to withhold authority to vote for any individual nominee, write
that person's name in the space provided below)
___________________________________________________
2. Ratification of appointment of Arthur Andersen LLP as Independent
Public Accountants for 1999.
[ ] 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, AND FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR 1999 SET FORTH IN ITEM 2.
PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY.
PLEASE NOTE ANY CHANGE OF ADDRESS.
SIGNATURE(S) __________________________________ DATE_________________________
SIGNATURE(S) __________________________________ DATE_________________________
Note: Please sign exactly as nanne appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as it appears hereon.
