-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RlvJ2Y5zEHSZDhZNPR/mIH5oj23/79yxiWI2gvY9OQQ2PG0VfFvEcPfq7bz0HECR XZb+npvs8qWHg8ntmYDiGw== 0000931763-01-000671.txt : 20010402 0000931763-01-000671.hdr.sgml : 20010402 ACCESSION NUMBER: 0000931763-01-000671 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARAGON TRADE BRANDS INC CENTRAL INDEX KEY: 0000889429 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 911554663 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11368 FILM NUMBER: 1587780 BUSINESS ADDRESS: STREET 1: 180 TECHNOLOGY PARLWAY CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 6789695000 MAIL ADDRESS: STREET 1: 180 TECHNOLOGY PKWY CITY: NORCROSS STATE: GA ZIP: 30092 10-K 1 0001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-11368 PARAGON TRADE BRANDS, INC. (Exact name of registrant as specified in its charter) Delaware 91-1554663 (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 180 Technology Parkway Norcross, Georgia 30092 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (678) 969-5000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class Name of each exchange on which registered --------------------- ----------------------------------------- Common Stock, par value $.01 per share N/A Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ ----- Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] As of February 28, 2001, the aggregate market value of the voting and non-voting common equity held by nonaffiliates of the Registrant was $11,485,689 based on a price of $17.00 per share for our Common Stock and $8.125 per warrant on February 28, 2001. As of February 28, 2001, the Registrant had 11,996,300 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2001 are incorporated by reference in Parts III and IV. PARAGON TRADE BRANDS, INC. TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K
PART I Page ---- Item 1: BUSINESS 1 Item 2: PROPERTIES 6 Item 3: LEGAL PROCEEDINGS 6 Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6 Item X: EXECUTIVE OFFICERS OF THE REGISTRANT 7 PART II Item 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 8 Item 6: SELECTED FINANCIAL DATA 10 Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 19 Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19 Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 52 PART III Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 52 Item 11: EXECUTIVE COMPENSATION 52 Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 52 Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 52 PART IV Item 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 53
Page i PART I ITEM 1: BUSINESS GENERAL Paragon Trade Brands, Inc. is a leading global supplier of infant disposable diapers and other absorbent personal care products. We are the leading manufacturer of store brand infant disposable diapers in North America. We manufacture a line of premium and economy diapers and training pants which are distributed throughout North America, primarily through mass merchandisers, grocery and food stores, warehouse clubs, toy stores and drug stores that market the products under their own store brand names. We have also established international joint ventures in Mexico, Argentina, Brazil, Colombia and China for the manufacture and sale of infant disposable diapers and other absorbent personal care products. Paragon Trade Brands was incorporated in Delaware in June 1992 as a wholly owned subsidiary of Weyerhaeuser Company, which had entered the private label infant disposable diaper market in 1972. Weyerhaeuser sold all of its stock in our company in our initial public offering in January 1993. In January 1994, The Procter & Gamble Company ("P&G") filed a lawsuit alleging that our "Ultra" infant disposable diaper products infringed two of their dual cuff diaper patents, and in October 1995, Kimberly-Clark Corporation ("K-C") filed a lawsuit against us alleging infringement of two of their dual cuff patents. In February 1996, we acquired the disposable diaper business of Pope & Talbot, Inc. for $63.5 million in cash and stock. As a result of a judgment obtained by P&G in its patent infringement lawsuit that it filed in January 1994, our company filed for relief under Chapter 11 of the United States Bankruptcy Code on January 6, 1998. On January 28, 2000, we emerged from Chapter 11 protection as contemplated by a Second Amended Plan of Reorganization and a related Disclosure Statement, the terms of which included an investment by Wellspring Capital Management LLC and withdrawal of appeals of settlements by our company of the patent infringement lawsuits with P&G and K-C. Wellspring Capital Management LLC and its co-investors own over 97% of our outstanding common stock. We have recorded the reorganization and related transactions using "fresh start" accounting as required by Statement of Position 90-7 ("SOP 90-7") issued by the American Institute of Certified Public Accountants. "Fresh start" accounting was required because there was more than a 50 percent change in our ownership and the reorganization value of the assets was less than the post-petition liabilities and allowed claims in the bankruptcy. As of December 31, 2000 there was no current or ongoing financial exposure associated with the bankruptcy proceedings. PRODUCTS We manufacture several diaper product lines: a premium-quality Ultra line, an Economy line and a Supreme line. We also manufacture a line of training pants. Our Ultra diaper combines fluff pulp with superabsorbent polymer ("SAP") in the absorbent inner core. SAP is significantly more absorbent and better able to retain liquids than fluff pulp. To enhance performance and appearance, the Ultra diaper incorporates a number of product features comparable to those introduced by national branded manufacturers. We produce our Ultra diaper in seven different sizes (newborn, size 1-6) which are designed to fit babies better as they grow and develop. In 1999, we introduced an improved Ultra diaper which incorporated stretch tabs and a hook and loop closure system. In 2000, the industry underwent a major count reduction, whereby there are fewer units in a sales pack, lead by the national branded manufacturers. We offer 5 pack sizes (convenience, jumbo, mega, super mega and Club packs). Our Supreme diaper product is similar to the Ultra diaper but is designed to have a more absorbent core for day and overnight protection and includes more premium materials. Supreme is available in convenience and jumbo packs and a full range of sizes. Our Economy diaper is designed to satisfy the needs of the more cost-conscious value segment shopper. Its absorbent pad contains fluff pulp and SAP. Its features include a "tape landing zone" allowing for easy fitting and re-adjustment after fastening. We produce the Economy diaper in three unisex sizes. Page 1 Our training pant is designed for use by children primarily for potty training ages as they transition out of diapers. Our training pant utilizes an absorbent core of fluff pulp and SAP and a cloth-like nonwoven outer cover. We produce the training pant in three gender-specific sizes and unisex sizes. In 1999, we introduced an enhanced training pant product with improved performance and aesthetic appeal which included the use of licensed properties (Jim Henson's Baby Muppets and Bear in the Big Blue House). In 1996, we began manufacturing a line of feminine care products that included ultra thin, maxi and super maxi pads, pantiliners, panty shields and regular and super absorbent tampons. In 1997, we began manufacturing a line of adult incontinence products that includes guards, undergarments and bladder control pads. In 1998, we curtailed our tampon manufacturing operations, but continued to source tampons through a contract manufacturing relationship. In the third quarter of 2000 the feminine care and incontinence segment was discontinued to allow us to concentrate on the core diaper business. PRODUCT DEVELOPMENT To further our objective of providing our trade customers with premium-quality store brand disposable diapers and training pants we devote significant resources to market research and product design and development to enable us to improve product performance and consumer acceptance. We believe that we have the largest product development program of any manufacturer in the U.S. disposable diaper market, other than the national branded manufacturers. We spent approximately $4.4 million, $3.6 million and $4.0 million on research and development in fiscal years 2000, 1999 and 1998, respectively. PATENT RIGHTS Because of the emphasis on product innovations in the disposable diaper and training pant product category, patents and other intellectual property rights are an important competitive factor. The national branded manufacturers have sought to vigorously enforce their patent rights. Patents held by the national branded manufacturers could severely limit our ability to keep up with branded product innovations by prohibiting us from introducing products with comparable features. To protect our competitive position, we have created an intellectual property portfolio through development, acquisition and licensing that includes a significant number of U.S. and foreign patents relating to disposable diaper and training pant features and manufacturing processes. We also subject new product innovations to a patent clearance process. MAJOR CUSTOMERS Net sales to our largest trade customer, Wal-Mart Stores, Inc., and Sam's Club, a division of Wal-Mart Stores, Inc., represented an aggregate of approximately 36 percent, 25 percent and 19 percent of total net sales in fiscal years 2000, 1999 and 1998, respectively. As is customary in the infant disposable diaper market, in most cases we do not have long-term contracts with our trade customers. We estimate that approximately 5, 6, and 7 percent of net sales were to trade customers in Canada, in fiscal years 2000, 1999 and 1998, respectively. FOREIGN OPERATIONS On January 26, 1996, through our wholly owned subsidiary PTB International, Inc. ("PTBI") we completed the purchase of a 15 percent interest in Grupo P.I. Mabe, S.A. de C.V. ("Grupo Mabe"), the second largest manufacturer of infant disposable diapers in Mexico. We also acquired an option to purchase an additional 34 percent interest in Grupo Mabe at a contractually determined price. On January 26, 1996, PTBI acquired a 49 percent interest in Paragon-Mabesa International ("PMI"), a joint venture that developed a diaper manufacturing facility in Tijuana, Mexico. An affiliate of Grupo Mabe owns the remaining 51 percent. We sold certain assets to PMI as part of the development of PMI's manufacturing facility in Tijuana, Mexico. We assisted in financing the equipment, building construction and start-up of the Tijuana, Mexico facility. We have signed a product supply agreement with PMI and purchase substantially all of PMI's production for sale to North American trade customers. PMI manufactures baby diapers for sale by Paragon in the United States and Canada. Page 2 On August 26, 1997, PTBI purchased a 49 percent interest in Stronger Corporation S.A. ("Stronger"), a financial investment corporation incorporated under Uruguayan law. An affiliate of Grupo Mabe owns the remaining 51 percent. Stronger has been used to establish joint ventures in Argentina, Colombia and Brazil and can be used to establish additional Latin American joint ventures. On August 26, 1997, Stronger acquired 70 percent of Serenity S.A., the third largest diaper manufacturer in Argentina. Stronger also acquired an option to purchase the remaining 30 percent interest in Serenity by 2002 at a contractually determined exercise price. Serenity manufactures infant disposable diapers, sanitary napkins and adult incontinence products in two facilities. On November 10, 1997, Stronger acquired 99 percent of the disposable diaper business of MPC Productos para Higiene Ltda. ("MPC") from Cremer S.A., a Brazilian textile manufacturer. MPC is engaged in the manufacture, distribution, and sale of disposable diapers, skin lotions for children and other personal care products In February 2001, Stronger reached agreement with the Drypers Corporation's estate, a global diaper manufacturer which underwent bankruptcy proceedings, to purchase Drypers' Latin American operating companies. In March 2001, through PTBI, we gave effect to a series of transactions with our Mexican joint venture partner. As of a result of these transactions, PTBI: - increased its ownership interest in PMI from 49 percent to 51 percent and the Mexican shareholder reduced his ownership interest accordingly. As a result of this transaction, beginning in the first fiscal quarter of 2001, Paragon will change how it accounts for its indirect investment in PMI from the equity method to the consolidation method; - increased its ownership interest in Grupo Mabe from 15 percent to 20 percent and the Mexican shareholder reduced his ownership interest accordingly. As a result of this transaction, beginning in the first fiscal quarter of 2001, Paragon will change how it accounts for its indirect investment in Grupo Mabe from the cost method to the equity method. In connection with this transaction, PTBI's existing option to purchase an additional 34 percent interest in Grupo Mabe at a contractually determined exercise price was terminated; and - reduced its ownership interest in Stronger from 49 percent to 20 percent and our co-shareholder in Stronger increased its ownership interest accordingly. Paragon will continue to account for its indirect investment in Stronger under the equity method. Through PTBI, we also entered into an option agreement with the majority Mexican shareholder in Grupo Mabe and PMI, pursuant to which, under certain circumstances (including a change of control of Paragon or PTBI), each of PTBI and the Mexican shareholder have certain "put" and "call" rights in respect of their respective interests in PMI and Grupo Mabe, in each case at contractually determined exercise prices. In 1998, Paragon established Goodbaby Paragon Hygienic Products Co. Ltd. ("Goodbaby"), a manufacturing and marketing joint venture in China with Goodbaby Group of Kunshan City and First Shanghai Investment of Hong Kong. We purchased a 40 percent interest in the joint venture with Goodbaby Group and First Shanghai Investment at 30 percent each. A joint venture business license was approved by the Chinese government on December 31, 1997. The joint venture began production and distribution of infant disposable diapers in October 1998. Net sales of PMI, Stronger and Goodbaby, as unconsolidated subsidiaries, are shown in Note 2 "Investment in Unconsolidated Subsidiaries" of the financial statements. RAW MATERIALS The principal raw material components of our products are SAP, fluff pulp, polyethylene backsheet, polypropylene nonwoven liner, closure systems, hotmelt adhesive, elastic and tissue. One of the primary raw materials used in the production of disposable diapers is SAP. In April 1998, we entered into an agreement with a supplier whereby we agreed, subject to competitive terms, to purchase 100 percent of our requirements of SAP through December 31, 2001. Fluff pulp, a product made from wood fibers, is another primary raw material. We currently have an agreement with a supplier that expires December 31, 2003, to buy, subject to competitive terms, 100 percent of our pulp requirements from them. We believe that at least two other sources of supply exist for fluff pulp. Page 3 Our gross margins are significantly impacted by raw material prices, especially the price of fluff pulp which can fluctuate dramatically. Our operating results benefited from relatively favorable fluff pulp market prices in 1998 and 1999 but were adversely affected by increases in raw material prices, primarily fluff pulp, in 2000. COMPETITION National Branded Manufacturers The principal aspects of competition from the national branded manufacturers are price, product quality, product innovation and customer service. The U.S. disposable diaper market is led by the national brands manufactured by P&G and K-C. We estimate that, in 2000, the national branded manufacturers accounted for 74% percent of all U.S. disposable diaper sales. The market position of these manufacturers, relative to us, varies from one geographic region to another, but due to their substantial financial, technical and marketing resources, each of these companies has the ability to exert significant influence on the infant disposable diaper market. The market for disposable diapers is divided into the premium and value segments. The premium segment accounts for approximately 60 percent of the unit volume. Both K-C and P&G dominate the premium segment. The value segment of the industry, which we estimate accounted for approximately 40 percent of unit volume in 2000, is highly competitive. This includes store brands, control labels, P&G's Luvs(R), Drypers(R), Fitti(R), and all other regional brands in the value segment. In total, P&G is the dominant manufacturer in the U.S. diaper market, with approximately 41 percent market share. P&G manufactures two brands: Pampers(R), its premium brand with approximately 27 percent market share, and Luvs(R), its value brand with 14 percent market share. K-C manufactures the number one diaper brand, Huggies(R), with approximately 33 percent market share. K-C does not offer a value brand, but supplies some store brand training pants within the value segment. Price has been a significant variable in the competitive strategy of the national branded companies and the value segment in the past three years. In recent years, pricing pressure has been most evident in volume shifts to multi packs and mass merchants, who now sell multi-packs only. Multi-packs represent a package configuration that provides the consumer two, three, four or six times the amount of diapers found in a standard convenience count package. These multi-packs can sell at unit prices 5 to 20 percent below the branded convenience count package. For most of 2000, pricing pressures and a shift of volume to mass merchants continued. In October of 2000, the national brands instituted an up to a 6 percent price increase on a majority of their product offerings. We implemented a similar price increase on our products in the fourth quarter of 2000. We have realized some of the benefit of the price increase. We believe that the national branded manufacturers have lower per unit costs and higher margins than we do, principally due to their higher volume and prices, coupled with fewer variations in product and packaging. In addition, the national branded manufacturers have access to substantially greater financial resources than we do. As a result, we believe that the national branded manufacturers are capable of maintaining or reducing prices, even in an environment of rising raw material prices. Product quality and innovation are critical aspects of competition for the national branded manufacturers. They have substantially larger research and development budgets than we do and are able to develop product innovations more rapidly and may thereby gain market share at our expense. We estimate that since 1985, the national branded manufacturers have generally introduced a significant product innovation approximately every 6 to 12 months. While in recent years we believe we have been able to introduce product enhancements comparable to those introduced by the national branded manufacturers, there can be no assurance that we will be able to continue to introduce these product innovations at the pace required to remain competitive with the national branded manufacturers. The inability to produce comparable products could adversely affect our gross margins. To the extent that we are unable to introduce comparable products due to competitor's patents, we could experience a decline in net sales and net earnings. Page 4 Customer service is another area where the national brands are able to compete. We believe that each of the national branded manufacturers has an order-delivery cycle that is significantly shorter than our order-delivery cycle. In addition, the national branded manufacturers devote substantially greater financial resources than we do to providing trade customers with category expertise and supply chain management. The national branded manufacturers have sophisticated electronic data interchange systems that interface directly with their customers' product information systems. Value Segment We compete in the value segment of the market with national value brands and store brand products. As with the national branded competition, price has been a significant variable in the competitive strategy of the value segment in the past three years. Our largest competitor in the value segment is P&G with its Luvs brand. K-C also produces store brand training pants. We seek to compete against other value segment manufacturers by emphasizing research and development and by striving to maintain a leading position among value segment competitors in product quality. Training Pants Training pants make an important contribution to our profits. Competition is on the basis of price, product quality, product innovation and customer service. The U.S. disposable training pant market is led by K-C with its Pullups(R) brand training pants which account for approximately 60 percent of all U.S. training pant sales. While to date we have been able to compete effectively in the training pant market, there can be no assurance that we will be able to continue to compete in the training pant market as well as we have to date. A reduction in our training pant sales or the price for which we can sell our training pants could have a material adverse effect on our net sales and net earnings. EMPLOYEES At December 31, 2000, we had approximately 911 full-time employees, including approximately 705 employees located at our three manufacturing facilities. ENVIRONMENT We are subject to federal, state, local and foreign laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water as well as handling and disposal practices for solid and hazardous wastes or (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills and disposals or other releases of hazardous substances (together, "Environmental Laws"). We use certain substances and generate certain wastes that are regulated by or may be deemed hazardous under applicable Environmental Laws. We believe that we currently conduct our operations, and in the past have conducted our operations, in substantial compliance with applicable Environmental Laws. From time to time, however, our operations have resulted or may result in certain noncompliance with applicable requirements. We believe, however, that we will not incur compliance or cleanup costs pursuant to applicable Environmental Laws that would have a material adverse effect on our results of operations or financial condition. We monitor Environmental Laws and regulations, as well as pending legislation, in each of the markets in which our products are sold. A number of states have passed or are considering legislation intended to discourage the use of disposable products, including disposable diapers, or to encourage the use of nondisposable or recyclable products. We do not believe that any such laws currently in effect will have a material adverse effect on our results of operations or financial condition. Page 5 ITEM 2: PROPERTIES As of December 31, 2000, we operated three manufacturing facilities in the United States at Macon, Georgia; Harmony, Pennsylvania; and Waco, Texas. Our plant in Canada at Brampton, Ontario was sold in February 2000. In August of 2000, we made the decision to discontinue our operations in the feminine care and adult incontinence business and as such we are in the process of selling the manufacturing assets that are located at Gaffney, South Carolina. The following table summarizes the physical properties that were held by us at December 31, 2000:
Approximate Size Location Use (Sq. Feet) Owned/Leased - -------------------------------------- ------------------- ----------- ------------ Infant Care: Harmony, Pennsylvania Manufacturing 173,000 Owned Macon, Georgia Manufacturing 308,000 Owned Waco, Texas Manufacturing 151,000 Owned Feminine Care and Adult Incontinence: Gaffney, South Carolina Held for Disposition 213,000 Leased Corporate and Other: Norcross, Georgia Headquarters 69,000 Owned
ITEM 3: LEGAL PROCEEDINGS We are a party to litigation incidental to our business from time to time. We are not currently a party to any litigation that management believes, if determined adversely to us, would have a material adverse effect on our results of operations, financial condition or cash flows. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of our Company was held on December 7, 2000. The results of voting on the proposals submitted for vote at such meeting were as follows: 1. Election of Directors Number of Shares ---------------- For Withheld David W. Cole 11,882,652 7,143 Greg S. Feldman 11,882,716 7,079 David C. Mariano 11,883,077 6,718 James R. McManus 11,883,049 6,746 Michael T. Riordan 11,883,105 6,690 Thomas F. Ryan, Jr. 11,883,101 6,694 J. Dale Sherratt 11,883,052 6,743 Carl M. Stanton 11,882,687 7,108 Thomas J. Volpe 11,883,053 6,742 Page 6 2. Approval of the Paragon Trade Brands, Inc. Stock Option Plan Number of Shares For 11,675,147 Against 39,212 Abstain 423 Broker Non-Vote 175,013 3. Approval of the Paragon Trade Brands, Inc. Stock Option Plan for Non-Employee Directors Number of Shares For 11,666,571 Against 47,738 Abstain 471 Broker Non-Vote 175,015 ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the Company's executive officers:
Name Age Position ------------------ ----- ---------------------------------------------------- Michael T. Riordan 50 Chairman, President and Chief Executive Officer David C. Nicholson 46 Executive Vice President and Chief Financial Officer Brad D. Hunsaker 43 Executive Vice President of Sales and Marketing John R. Cook 59 Vice President of Technical Support Ward Council 37 Vice President, General Counsel and Secretary Kathy L. Evenson 41 Vice President of Human Resources Stanley Littman 60 Vice President of Technology and Materials Jeffrey S. Schoen 40 Vice President of Manufacturing Mark J. Thomas 45 Vice President and Controller
Michael T. Riordan has been President and Chief Executive Officer of the Company since May 4, 2000 and Chairman of the Board since August 10, 2000. Mr. Riordan was also appointed a member of the Executive Committee of the Board of Directors on May 4, 2000. Before joining the Company, Mr. Riordan formerly served as President and Chief Operating Officer of Fort James Corp. from August 1997 to August 1998; and as Chairman and Chief Executive Officer and President and Chief Operating Officer of Fort Howard Corp. from September 1996 to August 1997, and from March 1992 to September 1996, respectively. Mr. Riordan currently serves as a director of The Dial Corporation, a manufacturer of consumer goods, Wallace Computer Services, Inc., a manufacturer of business forms and labels as well as a provider of print management services, and American Medical Security, Inc., a provider of health insurance for small to medium-sized employers. David C. Nicholson has been Executive Vice President and Chief Financial Officer of the Company since October 2000. Prior to joining the Company, Mr. Nicholson was employed by Rock-Tenn Company, a recycled paperboard, folding cartons and corrugated packaging manufacturing company, as Senior Vice President from September 1994 to October 2000. Brad D. Hunsaker has been Executive Vice President of Sales and Marketing since February 2001. Prior to joining the Company, Mr. Hunsaker was employed by Eastman Kodak, Inc. as General Manager Mass Sales and Vice President Consumer Imaging Division from August 1999 to February 2001, General Manager Account Sales and Vice President Consumer Imaging from October 1997 to August 1999, Regional Business General Manager - One-time-use Cameras from January 1996 to October 1997, and Director of Marketing Europe, Middle East and African Region from January 1994 to January 1996. Page 7 John R. Cook has been Vice President of Technical Support of the Company since 1998. Prior to that time, Mr. Cook served as the Company's Vice President - Quality Management from 1994 to 1998. Ward Council has been Vice President, General Counsel and Secretary of the Company since October 2000. Prior to joining the Company, Mr. Council was employed by Flexible Products Company, a manufacturer of polyurethane products, as General Counsel and Secretary from April 1999 to April 2000; and as General Counsel of Visionex, Inc., a manufacturer of fiber optic products, from May 1998 to April 1999. From May 2000 to October 2000 Mr. Council was a partner in the law firm of Alston & Bird LLP, where he was an associate from April 1994 to May 1998. Kathy L. Evenson has been Vice President of Human Resources since August 2000. Prior to that time, Ms. Evenson served the Company as Director, Human Resources from April 1998 to August 2000, Compensation and Benefits from February 1998 to April 1998, Compensation and Benefits Manager from June 1995 to February 1998, and Supervisor, Compensation and Benefits from June 1994 to June 1995. Stanley Littman has been Vice President of Technology and Materials of the Company since September 1998. Prior to that time, Mr. Littman served the Company as Vice President - Supply Management from November 1997 to September 1998 and Director, Supply Management from April 1996 through October 1997. Prior to joining the Company, Mr. Littman was employed by Fiberweb, a nonwovens manufacturing company, as Research Director, Medical Fabrics, from 1992 to 1996. Jeffrey S. Schoen has been Vice President of Manufacturing of the Company since March 1999. Prior to that time, Mr. Schoen served the Company as a Plant Manager at two of its manufacturing facilities from 1994 to March 1999. Mark J. Thomas has been Vice President and Controller and Assistant Secretary of the Company since October 2000. Prior to joining the Company, Mr. Thomas was employed by The Mead Corporation as Director of Finance and Administration from 1997 to October 2000. Mr. Thomas was also employed by Eastman Kodak, Inc. as Financial Director of Marketing and Sales - Digital Imaging from 1994 to 1996. ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS We previously disclosed that trading of our common stock was suspended from the New York Stock Exchange prior to the opening of trading on July 8, 1999. As of July 9, 1999, the National Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board (the "OTCBB") began publishing quotations of our common stock under the symbol PGNFQ. However, as a result of our reorganization in bankruptcy, the OTCBB ceased quotations of our common stock on February 2, 2000. Pursuant to our Second Amended Plan of Reorganization, holders of this common stock (the "Old Common Stock") were to surrender their shares of Old Common Stock and receive therefor 0.0149 shares of our new Common Stock and 0.0524 transferable warrants having an exercise price of $18.91 per share and expiring on January 28, 2010 ("Warrants") for each share of Old Common Stock surrendered. On March 30, 2000, the OTCBB began publishing quotations of our new Common Stock and Warrants issued as a result our reorganization, under the symbols PGTR.OB and PGTRW.OB, respectively. Trading in both classes of securities is sporadic. The following table sets forth high and low sales prices for Old Common Stock for each full quarterly period within the last two fiscal years up to July 7, 1999 as reported by the New York Stock Exchange. Low High ----- ----- First Quarter 1999 $2.06 $6.19 Second Quarter 1999 1.00 3.50 July 1, 1999 to July 7, 1999 .69 1.13 Page 8 The following table sets forth high and low bid information for Old Common Stock for each full quarterly period or portion thereof within the last two fiscal years from July 8, 1999 to February 2, 2000 as reported by the OTCBB. Such prices represent bids between dealers without adjustment for retail mark-ups, mark-downs, or commissions and may not necessarily represent actual transactions. Low High ----- ----- July 8, 1999 to September 26, 1999 $ .16 $1.00 Fourth Quarter 1999 .15 .60 December 27, 1999 to February 2, 2000 .19 .60 The following table sets forth high and low bid information for our new Common Stock and Warrants for each full quarterly period or portion thereof within the last two fiscal years from February 3, 2000 to December 31, 2000 as reported by the OTCBB. Such prices represent bids between dealers without adjustment for retail mark-ups, mark-downs, or commissions and may not necessarily represent actual transactions. Prices set forth below for our new Common Stock may not be comparable to prices set forth above for Old Common Stock.
Common Stock Warrants ------------------------- ----------------------- Low High Low High --- ---- --- ---- February 2, 2000 to March 26, 2000 $ -- $ -- $ -- $ -- Second Quarter 2000 6.25 11.00 1.000 3.375 Third Quarter 2000 10.00 12.13 2.000 3.000 Fourth Quarter 2000 10.19 16.00 1.875 6.750
As of March 5, 2001, there were 96 holders of record of our new Common Stock and 92 holders of record of Warrants. We have not paid dividends on our new Common Stock since our Credit Facility prohibits us from paying cash dividends. Upon termination of the Credit Facility or any other agreement with similar restrictions on dividends, the Board of Directors will determine future dividend policy based upon our results of operations, financial condition, capital requirements and other circumstances. On January 28, 2000, the Company was reorganized pursuant to a Second Amended Plan of Reorganization (the "Plan") filed by the Company and its Official Committee of Unsecured Creditors with the United States Bankruptcy Court for the Northern District of Georgia. Pursuant to the Plan, the Company issued 11,516,405 shares of the Company's common stock, par value $0.01 per share (the "Common Stock") to PTB Acquisition Company, LLC, an affiliate of Wellspring Capital Management LLC, Co-Investment Partners, L.P. and Ontario Teachers' Pension Plan Board for a purchase price of $10.00 per share, or approximately $115 million, in cash. This issuance of securities was made in reliance on the exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering. All of the securities were acquired by the recipients thereof for investment and with no view toward the public resale or distribution of the securities without registration. Pursuant to the Plan, the Company also issued (i) a pro rata portion of an additional 178,365 shares of Common Stock to each holder of the Company's common stock prior to the consummation of the Plan in exchange for such holder's then-existing common stock interest in the Company; (ii) a pro rata portion of 196,530 rights (the "Rights") to purchase shares of Common Stock, for a purchase price of $10.00 per share, to each of the Company's unsecured creditors and each holder of the Company's common stock prior to the consummation of the Plan in exchange for existing claims and common stock interests held by such unsecured creditors and common stockholders, respectively; (iii) an additional 196,530 shares of Common Stock pursuant to the Rights, for a purchase price of $10.00 per share, or approximately $2,000,000, in cash; and (iv) a pro rata portion of 625,842 warrants to purchase shares of Common Stock to each holder of the Company's common stock prior to the consummation of the Plan in exchange for such holder's then-existing common stock interest in the Company. Each of the 625,842 warrants may be exercised to purchase a share of the Common Stock for a purchase price of $18.91. The warrants will expire on January 28, 2010 or the business day immediately preceding the date on which the warrants are called for redemption pursuant to their terms. Each of the issuances described in this paragraph were made in reliance on the exemption from registration under the Securities Act of 1933, as amended, provided in Section 1145 of the United States Bankruptcy Code. Page 9 On March 31, 2000, the Company issued 75,000 shares of Common Stock to Citicorp North America, Inc., 10,000 shares of Common Stock to each of Mr. James R. McManus and Mr. Thomas F. Ryan and 5,000 shares of Common Stock to each of Mr. J. Dale Sherratt and Mr. Thomas J. Volpe, for a purchase price of $10.00 per share, or approximately $1,050,000, in cash. Each of these issuances of securities was made in reliance on the exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering. All of the securities were acquired by the recipients thereof for investment and with no view toward the public resale or distribution of the securities without registration. ITEM 6: SELECTED FINANCIAL DATA The following table shows selected consolidated financial data of our company on a historical basis as described below. The selected consolidated financial data as of December 31, 2000 and December 26, 1999 and for the years then ended, have been derived from the audited consolidated financial statements of our company which are included in Item 8 of this annual report on Form 10-K. The selected consolidated financial data as of December 27, 1998, December 28, 1997 and December 29, 1996, and for the years then ended have been derived from the audited consolidated financial statements of our company. All prior year statements have been restated to reflect our femcare and adult incontinence segment as a discontinued operation. (Dollar amounts in millions, except per share data)
2000/(1)/ 1999/(1)/ 1998/(1)/ 1997/(1)/ 1996/(1)/ ----------------------------------------------------------------------------------------- Net sales $ 557.1 $ 486.9 $ 533.4 $ 564.2 $579.7 Operating profit (loss) 37.4/(3)/ (11.5)/(4)/ (41.0)/(5)/ (160.6)/(6)/ 43.7/(7)/ Earnings (loss) from continuing operations before extraordinary item and cumulative effect of change in accounting principle 7.6/(3)/ (14.4)/(4)/ (48.4)/(5)(8)/ (189.6)/(6)(9)/ 26.0/(7)/ EBITDA/(2)/ 69.6/(3)/ 28.9 /(4)/ 74.6 /(5)/ 83.6 /(6)/ 100.5/(7)/ Earnings (loss) from continuing operations before extraordinary item and cumulative effect of change in accounting principle - per diluted common share $ .63/(3)/ $ (1.20)/(4)/ $ (4.06)/(5)(8)/ $ (15.91)/(6)(9)/ $ 2.14/(7)/ ======================================================================================= Total assets $ 367.1 $ 400.5 $ 429.3 $ 376.1 $373.1 Liabilities subject to compromise - 406.7 406.9 - - Long-term debt 146.0 - - 70.0 70.0 Shareholders' equity (deficit) 120.4 (89.8) (61.8) 5.0 214.7 Capital expenditures $ 17.5 $ 25.4 $ 26.8 $ 49.4 $ 48.9 Diaper units sold (millions) 3,508 3,176 3,463 3,689 3,761
- ------------------ (1) The 2000 fiscal year consisted of 53 weeks and the 1999, 1998, 1997 and 1996 fiscal years consisted of 52 weeks. For comparative purposes, the 2000 fiscal year results include the combined results for the Predecessor Company for the five weeks ended January 28, 2000 and the Successor Company for the 48 weeks ended December 31, 2000. Page 10 (2) Earnings (loss) from continuing operations before extraordinary item and cumulative effect of change in accounting principle excluding income taxes, bankruptcy costs, interest expense, depreciation and amortization and non-recurring charges discussed in (3), (4), (5), (6) and (7) below (Earnings Before Interest, Taxes, Depreciation and Amortization, "EBITDA"). (3) Includes $3.9 related to severance and other payments and $1.3 related to a litigation settlement. (4) Includes $1.6 for the closure of Brampton, Ontario facility. (5) Includes settlement contingencies of $78.5 for the estimated settlement costs of The Procter & Gamble Company ("P&G") and Kimberly-Clark Corporation's ("K-C") claims asserted in our Chapter 11 reorganization proceeding. (6) Includes settlement contingency of $200.0 for an adverse judgment in a patent litigation matter with P&G and $5.0 of asset impairments related to the write-off of software and consulting costs. (7) Includes costs for the integration of Pope & Talbot's disposable diaper business purchased in February 1996 of $8.0 and costs related to the relocation of the corporate headquarters to Atlanta of $9.0. (8) Includes a $32.6 reserve against deferred and other tax-related assets primarily related to continuing operations. (9) Includes a $100.2 reserve against deferred and other tax-related assets primarily related to continuing operations. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Paragon Trade Brands, Inc. is the leading manufacturer of store brand infant disposable diapers in North America. We manufacture a line of premium and economy diapers and training pants which are distributed throughout North America, primarily through mass merchandisers, grocery and food stores, warehouse clubs, toy stores and drug stores that market the products under their own store brand names. We have also established international joint ventures in Mexico, Argentina, Brazil, Colombia and China for the manufacture and sale of infant disposable diapers and other absorbent personal care products. As described in more detail below, the results for fiscal years 1998, 1999 and 2000 reflect certain large nonrecurring items relating to a patent infringement judgment against us and our resulting bankruptcy and post-bankruptcy transition. On January 28, 2000, we emerged from Chapter 11 protection as contemplated by a Second Amended Plan of Reorganization and a related Disclosure Statement, the terms of which included an investment by Wellspring Capital Management LLC and withdrawal of appeals of settlements by our company of patent infringement lawsuits with The Procter & Gamble Company ("P&G") and Kimberly-Clark Corporation ("K-C"). We have recorded the reorganization and related transactions using "fresh start" accounting as required by Statement of Position 90-7 ("SOP 90-7") issued by the American Institute of Certified Public Accountants. "Fresh start" accounting was required because there was more than a 50 percent change in our ownership and the reorganization value of the assets was less than the post-petition liabilities and allowed claims in the bankruptcy. On August 10, 2000, we made a decision to concentrate on our core infant care business with the intent to sell our Gaffney, South Carolina femcare and adult incontinence segment. The expected disposal date depends on market factors as we continue to work toward liquidating the assets of the segment. That segment ceased manufacturing operations in October 2000 and will have some continued inventory shipments until approximately March 2001. Our consolidated financial statements for all periods presented have been restated to reflect the discontinued operations. Assets of the discontinued operations have been reflected in our consolidated balance Page 11 sheet as current or non-current based on the nature of the amounts. No liabilities are anticipated to be assumed by a third party and therefore they are reflected in continuing operations. RESULTS OF OPERATIONS We provide quarterly information in the following tables to assist in evaluating trends in our results of operations. For additional discussion of quarterly information, see our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. Net Sales
(in millions) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year --------- -------- --------- -------- -------- 1998 $ 138.3 $ 124.9 $ 137.3 $ 132.8 $ 533.4 1999 $ 123.3 $ 116.2 $ 124.7 $ 122.7 $ 486.9 2000 $ 126.2 $ 128.6 $ 135.5 $ 166.8 $ 557.1
Net sales for fiscal 2000 increased 14.4% to $557.1 million from $486.9 million for fiscal 1999. Unit sales increased 10.5% to 3,508 million units during 2000 from 3,176 million units during 1999 as a result of increased volume with existing customers and increased sales of training pants. Average unit selling prices increased slightly during 2000 above 1999 levels as a result of a price increase in conjunction with a change in the number of diapers per retail sales package implemented during the fourth fiscal quarter. The favorable impact of the price increase was offset partially by an increase in the percentage of sales to our largest customers, who generally pay a lower average selling price. As a result of increased volume we will continue to aggressively expand our capacity during 2001. Until new capacity is installed we may have difficulty in meeting all of our customer needs. Net sales for fiscal 1999 decreased 8.7% to $486.9 million from $533.4 million in fiscal 1998. Unit sales decreased 8.3% to 3,176 million units during 1999 compared to 3,463 million units during 1998. The decrease in net sales was due to several reasons including the discontinuation of sales to a major customer as well as a customer preference for a mechanical closure system offered by one of the national brand competitors. Sales volumes for 1999 were also affected by discounts and promotional allowances offered by branded manufacturers and value segment competitors. However, the continued roll-out of an improved diaper, the introduction of a new training pant product and the launch of certain destination store brand product and marketing programs had a favorable impact on volume trends in the last half of 1999.
Cost of Sales (% of net sales) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ------ 1998 79.0% 80.6% 77.9% 77.1% 78.6% 1999 86.0% 85.3% 84.4% 87.3% 85.7% 2000 79.5% 83.7% 81.3% 78.0% 80.5%
Cost of sales for fiscal 2000 increased 7.4% to $448.3 million from $417.5 million for fiscal 1999. Cost of sales as a percentage of net sales for fiscal 2000 decreased to 80.5% from 85.7% for fiscal 1999. The decrease in cost of sales as a percentage of sales was primarily attributable to improved manufacturing efficiencies and reduced depreciation expense offset partially by higher royalty and raw material costs. The decrease in depreciation expense is primarily the result of lower asset valuations due to the "fresh start" accounting as a result of our emergence from bankruptcy. (See "Note 1 of Notes to Consolidated Financial Statements.") Cost of sales for fiscal 1999 decreased .4% to $417.5 from $419.4 for fiscal 1998. Cost of sales as a percentage of net sales for fiscal 1999 increased to 85.7% from 78.6% for fiscal 1998. This increase in cost of sales as a percentage of sales was primarily due to manufacturing inefficiencies due to lower volume and new product rollouts, increased raw material costs associated with new products and higher royalties as a result of the settlement and licensing agreements reached in the first quarter of 1999. Page 12 Gross Profit
(% of net sales) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ------ 1998 21.0% 19.4% 22.1% 22.9% 21.4% 1999 14.0% 14.7% 15.6% 12.7% 14.3% 2000 20.5% 16.3% 18.7% 22.0% 19.5%
Gross profit for fiscal 2000 increased 56.8% to $108.8 million from $69.4 million for fiscal 1999. Gross profit as a percentage of net sales increased to 19.5% for fiscal 2000 from 14.3% for fiscal 1999. (See "Cost of Sales.") Gross profit for fiscal 1999 decreased 39.1% to $69.4 million from $114.0 million for fiscal 1998. Gross profit as a percentage of net sales decreased to 14.3% compared to 21.4% for fiscal 1998. (See "Cost of Sales.") Selling, General, and Administrative Expenses
(% of net sales) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year ------- ------- -------- ------- ------ 1998 12.6% 13.5% 15.2% 13.1% 13.6% 1999 15.4% 16.2% 14.8% 15.9% 15.6% 2000 14.4% 12.7% 12.2% 9.6% 12.0%
Selling, general, and administrative expenses for fiscal 2000 decreased 11.5% to $67.0 million from $75.7 million for fiscal 1999. Selling, general, and administrative expenses as a percentage of net sales for fiscal 2000 decreased to 12.0% from 15.6% for fiscal 1999. This decrease is primarily attributable to reduced promotional expenses and lower depreciation expenses partially offset by higher incentive-based compensation expense and severance paid to certain executives. The decrease in depreciation expense is primarily the result of lower asset valuations due to the "fresh start" accounting as a result of our emergence from bankruptcy. (See "Note 1 of Notes to Consolidated Financial Statements.") Selling, general, and administrative expenses for fiscal 1999 increased 4.4% to $75.7 million from $72.6 million for fiscal 1998. Selling, general, and administrative expenses as a percentage of net sales for fiscal 1999 increased to 15.6% from 13.6% for fiscal 1998. The increase was primarily attributable to an increase in promotional spending, amortization, packaging design and artwork, information technology and sales and marketing expenditures. The increase in amortization expense resulted from the amortization of software and consulting costs associated with the implementation of an enterprise resource planning system in the fourth quarter of 1998. These increases were partially offset by lower incentive-based compensation expense, outside sales commissions and non-bankruptcy related legal charges. Research and Development Research and development costs for fiscal 2000 increased 20.6% to $4.4 million from $3.6 million for fiscal 1999. During 2000, we continued improving the "wearability" of our infant diaper products. Research and development costs for fiscal 1999 decreased 8.2% to $3.6 million from $4.0 million for fiscal 1998. The decrease was primarily due to lower baby diaper product development and testing costs. Manufacturing Operation Closing Costs During 1999, we closed our Canadian subsidiary, PTB Canada, located in Brampton, Ontario. This facility was a diaper manufacturing plant servicing Canadian and export customers. The closure resulted in the termination of approximately 110 employees as the production needs were transferred to our manufacturing facility located in Harmony, Pennsylvania. We generally accrue the costs of employee terminations at the time of notification to the employees. Certain other costs, such as moving and relocation costs, are expensed as incurred. For the closure of this facility we incurred $1.6 million in costs of which $1.4 million was for employee severance and related costs and $.2 million was for asset write-downs for the Brampton equipment. Much of the Brampton manufacturing equipment was relocated to plants located in the United States during the fiscal year 2000 in order to increase capacity to meet market demands. Page 13 Settlement Contingencies The settlement contingencies of $78.5 million recorded in 1998 represent additional accruals for the balance of the estimated settlement costs of claims in our Chapter 11 reorganization proceeding. Operating Profit (loss) Operating profit in 2000 increased to $37.4 million from an operating loss of $11.5 million in 1999 primarily as a result of the items discussed above. Operating profit in 2000 was reduced by non-recurring charges of $5.2 million related primarily to severance and litigation expenses. Operating loss in 1999 included non-recurring charges of $1.6 million related primarily to the closure of a manufacturing facility. Operating profit excluding non-recurring charges increased to $42.6 million in 2000 compared to an operating loss excluding non-recurring charges of $9.9 million in 1999. Operating loss in 1999 decreased to $11.5 million from an operating loss of $41.0 million in 1998 primarily as a result of the items discussed above. Operating loss in 1999 was increased by non-recurring charges of $1.6 million related primarily to the closure of a manufacturing facility. Operating loss in 1998 was increased by non-recurring charges of $78.5 million related to estimated settlement costs of claims asserted in our Chapter 11 reorganization proceeding. Operating loss excluding non-recurring charges was $9.9 million in 1999 compared to an operating profit excluding non-recurring charges of $37.5 million in 1998. Equity in Earnings of Unconsolidated Subsidiaries Equity in earnings of unconsolidated subsidiaries was $.6 million during 2000 compared to $2.3 million during 1999. The decrease is primarily attributable to currency devaluation in the Brazilian market and plant start up costs associated with a new manufacturing facility in the northeast of Brazil. In fiscal year 1999, our equity in the earnings of our unconsolidated subsidiaries was $2.3 million compared to $4.1 million during 1998. The decrease in earnings reflects the write-off of capitalized start-up costs, losses associated with our China joint venture and losses associated with our Brazil joint venture. Dividend Income from Unconsolidated Subsidiaries Dividend income from unconsolidated subsidiaries for fiscal 2000 increased to $1.4 million from $1.0 million for fiscal 1999. The dividend represents a distribution from Grupo P.I. Mabe, S.A. de C.V., a Mexican manufacturer of infant diapers and other absorbent sanitary products, which is accounted for on the cost basis. Dividend income of $1.0 million was recorded in 1999 compared to $.9 million in 1998. Interest Expense Interest expense for fiscal 2000 increased to $16.4 million from $.5 million for fiscal 1999 as a result of the issuance of $146.0 million in long-term debt in January 2000. Interest expense for fiscal 1999 and 1998 was $.5 million. Other Income, Net Other income was $2.6 million, $2.5 million and $2.4 million for the fiscal years ended December 31, 2000, December 26, 1999 and December 27, 1998, respectively. In 1998 and 1999 the amounts consisted primarily of interest income from Paragon-Mabesa International, S.A. de C.V., our joint venture in Tijuana, Mexico, ("PMI"). In 2000 it was approximately equally split between interest income from PMI and interest income from cash investments. Page 14 Bankruptcy Costs Bankruptcy costs for fiscal 2000 were $10.4 million compared to $9.5 million in 1999. Bankruptcy costs were $9.5 million during 1999 compared to $6.3 million during 1998. These costs were primarily related to professional fees. Provision for (benefit from) Income Taxes Income tax expense from continuing operations before extraordinary item and cumulative effect of change in accounting principle was $7.5 million in 2000 compared to income tax benefit of $1.4 million in 1999. We also reduced our tax benefit in 2000 by $2.4 million compared to $4.9 million in 1999 to account for the effects of certain non-deductible bankruptcy costs. In 2000, we decreased our valuation allowance adjustment by $41.2 million against our net deferred and other tax-related assets. In 1999, we increased our valuation allowance by $6.2 million against our net deferred and other tax-related assets. The reserve was necessary, as the utilization of our loss carryforwards is dependent upon sufficient future taxable income to offset the loss carryforwards. Loss from Discontinued Operations On August 10, 2000, we made a decision to concentrate on our core infant care business with the intent to sell our Gaffney, South Carolina femcare and adult incontinence segment. The expected disposal date depends on market factors as we continue to work toward liquidating the assets of the segment. That segment ceased manufacturing operations in October 2000 with continued inventory shipments expected through the first quarter of 2001. We recorded a loss from operations of the discontinued segment, net of tax, in 2000, 1999 and fiscal 1998 of $17.6 million, $14.0 million and $16.9 million, respectively. Extraordinary Items During the first quarter of 2000 we recorded an extraordinary gain of $123.0 million for the discharge of indebtedness that resulted from the forgiveness of certain liabilities as a part of our plan of reorganization. Net Income (loss) and EBITDA Net income for 2000 was $112.8 million compared to a net loss of $28.4 million in 1999 and a net loss of $65.4 million in 1998. Earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle excluding income taxes, bankruptcy costs, interest expense, depreciation and amortization and non-recurring charges (EBITDA) was $69.6 million in 2000 compared to $28.9 million in 1999 and $74.6 million in 1998. LIQUIDITY AND CAPITAL RESOURCES During fiscal 2000, cash flow from operating activities increased to $36.9 million compared to $6.5 million in 1999. The increase was primarily the result of an increase in earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle, a decrease in depreciation and amortization, an increase in certain operating assets and liabilities and a reduction of cash used in operating activities of discontinued operations. Cash used in investing activities decreased in 2000 to $5.8 million from $17.4 million in 1999. The decrease was primarily the result of a reduction in capital expenditures and an increase in proceeds from the repayment of advances by an unconsolidated subsidiary. Capital expenditures during 2000 were primarily for two new training pant lines, equipment upgrades and software upgrades. Cash provided by financing activities increased $1.0 million in 2000 as a result of the sale of common stock. Cash and cash equivalents increased to $43.8 million at December 31, 2000 from $11.7 million at December 26, 1999. During 1999, cash flow from operating activities was $6.5 million compared to $61.2 million in 1998. In 1998 adjusting for the loss contingency of $78.5 million previously discussed, we had net income before extraordinary item and cumulative effect of change in accounting principle of $30.1 million, compared to a loss in 1999 of $14.4 million. The year over year change of $44.5 million and a reduction of cash used in operating activities of discontinued operations primarily accounts for the year over year change. Cash used in investing activities Page 15 decreased in 1999 to $17.4 million from $36.9 million in 1998 primarily as a result of increased proceeds from sale of property and equipment and repayment of advances by an unconsolidated subsidiary during 1999 compared to 1998. Capital expenditures during 1999 were primarily for three new training pant lines, equipment upgrades and software upgrades. Cash and cash equivalents decreased from $22.6 million at December 27, 1998 to $11.7 million at December 26, 1999. On January 28, 2000, we entered into a new credit facility. The maximum borrowing under the credit facility may not exceed the lesser of $95 million or an amount determined by a borrowing base formula. The borrowing base formula is comprised of certain specified percentages of eligible accounts receivable, eligible inventory, equipment and personal property and real property of our company. (See "Note 8 of Notes to Consolidated Financial Statements.") There were no borrowings outstanding under the credit facility at December 31, 2000. On January 28, 2000, we issued $146.0 million of 11.25 percent senior subordinated notes due 2005. These notes are not callable until February 1, 2003. Interest is payable semi-annually and during the first two years can be paid in kind if free cash flow, as defined in the indenture, falls below projected levels. We have not paid interest in kind for any payments due in 2000. (See "Note 8 of Notes to Consolidated Financial Statements.") We expect to spend approximately $46 million on capital expenditures during 2001 primarily for capacity expansion, equipment upgrades and software upgrades. Future Realization of Net Deferred Tax Asset We account for income taxes based on the liability method and, accordingly, deferred income taxes are provided to reflect temporary differences between financial and tax reporting. A significant component of deferred income taxes includes temporary differences due to reserves not currently deductible ($47.2 million) and operating loss carryforwards ("NOLs") ($34.4 million). These deferred tax assets may only be realized as an offset to future taxable income. Also, the ability to utilize the NOLs and a portion of the other deferred tax assets is subject to limitation under Section 382 of the Internal Revenue Code as a result of the change in ownership that occurred in connection with the bankruptcy reorganization. To realize the full benefit of these deferred tax assets, we need to generate approximately $246.5 million in future taxable income. Accordingly, we have estimated that this limitation on the annual utilization of built-in deductions will be approximately $6.8 million. We currently have fully reserved our net deferred tax asset of $94.9 million. The future realization of the NOLs, which occurred prior to our emergence from bankruptcy, will be charged directly to capital surplus in accordance with "fresh start" accounting. (See "Note 6 of Notes to Consolidated Financial Statements.") Recent Developments In March 2001, through PTBI, we gave effect to a series of transactions with our Mexican joint venture partner. As a result of these transactions, PTBI: - increased its ownership interest in PMI from 49 percent to 51 percent and the Mexican shareholder reduced his ownership interest accordingly. As a result of this transaction, beginning in the first fiscal quarter of 2001, Paragon will change how it accounts for its indirect investment in PMI from the equity method to the consolidation method; - increased its ownership interest in Grupo Mabe from 15 percent to 20 percent and the Mexican shareholder reduced his ownership interest accordingly. As a result of this transaction, beginning in the first fiscal quarter of 2001, Paragon will change how it accounts for its indirect investment in Grupo Mabe from the cost method to the equity method. In connection with this transaction, PTBI's existing option to purchase an additional 34 percent interest in Grupo Mabe at a contractually determined exercise price was terminated; and - reduced its ownership interest in Stronger from 49 percent to 20 percent and our co-shareholder in Stronger increased its ownership interest accordingly. Paragon will continue to account for its indirect investment in Stronger under the equity method. Through PTBI, we also entered into an option agreement with the majority Mexican shareholder in Grupo Mabe and PMI, pursuant to which, under certain circumstances (including a change of control of Paragon or PTBI), each of PTBI and the Mexican shareholder have certain "put" and "call" rights in respect of their respective interests in PMI and Grupo Mabe, in each case at contractually determined exercise prices. Grupo Mabe is the holding company of a group of entities in Mexico, whose principal activity is the manufacture of baby diapers and other sanitary articles. Page 16 Stronger is a financial investment corporation that holds interest in companies that manufacture, distribute and sell disposable diapers, skin lotions for children and other personal care products primarily in Argentina, Colombia and Brazil. Risks and Uncertainties Increased Costs. As a part of the license agreements entered into in connection with our settlements with P&G and K-C, we have incurred and will continue to incur significant added costs in the form of royalties payable to both parties for sales of the licensed diaper and training pant products. While we believe that the royalties being charged by P&G and K-C under their respective license agreements are approximately the same royalties that will be paid by our major store brand competitors for similar patent rights, the royalties will have a material adverse impact on our future financial condition and results of operations as compared to pre-settlement. Our overall raw material costs have increased during fiscal 2000 and our operating results may be adversely affected by any increases in raw materials costs in the future. Pricing. Price increases are needed to fully offset the added royalty costs being incurred due to the P&G and K-C settlements described above. During the third quarter we began the process of implementing an effective price increase as a result of a package count change. Should we not be able to realize or maintain these price increases, our margins would be negatively impacted. Realization of Investment in Feminine Care and Adult Incontinence Business. As a part of our strategy we decided to concentrate on our core infant care business and liquidate the Gaffney, South Carolina femcare and adult incontinence pad-oriented segment. The expected disposal date depends on market factors as we continue to work towards liquidating the assets of the segment. While we have estimated the costs associated with the discontinuance of this segment, the actual costs could change. Branded Product Innovations. Because of the emphasis on product innovations in the disposable diaper market, patents and other intellectual property rights are an important competitive factor. The national branded manufacturers have sought to vigorously enforce their patent rights. Patents held by the national branded manufacturers could severely limit our ability to keep up with branded product innovations by prohibiting us from marketing products with comparable features. P&G and K-C have also heavily promoted diapers in the multi-pack configuration. These packages offer a lower unit price to the retailer and consumer. It is possible that we may realize lower selling prices and/or lower volumes as a result of these initiatives. Increased Financial Leverage. As a result of the issuance of new debt as previously discussed, our principal and interest obligations have increased substantially. The degree to which we are leveraged could adversely affect our ability to obtain additional financing for working capital, acquisitions or other purposes and could make us more vulnerable to economic downturns and competitive pressures. Our increased leverage could also adversely affect our liquidity and our ability to fund capital expenditures, as a substantial portion of available cash from operations will have to be applied to meet debt service requirements. Based upon anticipated improvements in our operations and certain cost savings measures, we believe that our cash flows from operations, borrowings under the credit facility and other sources of liquidity, will be adequate to meet our anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for the foreseeable future. There can be no assurance, however, that anticipated improvements in operations and cost savings will be realized. If we are unable to generate sufficient cash flows from operations in the future, we may be required to refinance all or a portion of our existing debt or obtain additional financing. There can be no assurance that any refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us. Patent Litigation Risk. We operate in an industry in which patents are numerous and are frequently enforced vigorously. We have been sued for patent infringement in the past and could be sued for patent infringement in the future. The distraction and expense of a patent infringement suit, and any damages awards, additional royalty payments or injunctions that result from a patent infringement suit, could adversely affect our financial condition and results of operations. Page 17 Market for our Common Stock. Wellspring and its affiliates purchased 11,516,405 shares, or approximately 97 percent, of our common stock on January 28, 2000. A small amount of our outstanding common stock is traded sporadically on the National Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board under the symbol PGTR. There can be no assurance that a liquid market will develop for our outstanding securities. New Accounting Standards The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("Statement No. 133") which must be adopted in our fiscal year 2001. This statement establishes accounting and reporting standards for derivative instruments - including certain derivative instruments embedded in other contracts - and for hedging activities. We have determined that we currently have no derivative instruments; accordingly, Statement No. 133 is not expected to impact us. In September 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board (the "Task Force") reached further consensuses on Issue 00-10, Accounting for Shipping and Handling Fees and Costs. The issue addresses the income statement classification for shipping and handling fees and costs. We adopted EITF 00-10 in the fourth quarter of 2000 which resulted in us reclassifying shipping expenses from a reduction of Net Sales into Cost of Sales. The amount of the reclassification was $6.4 million, $7.6 million and $9.4 million for 2000, 1999 and 1998, respectively. In May 2000, the Task Force also reached a consensus on Issue 00-14, Accounting for Certain Sales Incentives. The issue addresses the accounting for sales incentives offered voluntarily by a vendor without charge to customers that can be used in, or that are exercisable by a customer as a result of a single exchange transaction. For sales incentives resulting in the right to a rebate, the Task Force concluded that recognition should occur at the date of sale, measured based upon the estimated amount of refunds expected to be claimed by customers. Indicators pointing to the ability to make a reasonable and reliable estimate of the amount of future rebates or refunds were developed. When recognized, a cash incentive should be classified as a reduction of revenue. We adopted EITF 00-14 in the fourth quarter of 2000 which resulted in us reclassifying coupons expense from Selling, General and Administrative expense to a reduction in Net Sales. The amount of the reclassification was $5.7 million, $6.7 million and $4.7 million for 2000, 1999 and 1998, respectively. Inflation Inflation has not been a significant factor in our results of operations in recent years due to the modest rate of price increases in the United States and Canada. Forward-Looking Statements From time to time, information provided by us, statements made by our employees or information included in our filings with the Securities and Exchange Commission (including the Annual Report on Form 10-K) may include statements that are not historical facts, so-called "forward-looking statements." The words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in our forward-looking statements. Factors which could affect ours financial results, including but not limited to: increased raw material costs and product costs; new product and packaging introductions by competitors; increased price and promotion pressure from competitors; increased financial leverage; and patent litigation, are described herein. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date hereof, and which are made by management pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Page 18 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our market risk-sensitive instruments and foreign currency exchange rate risks do not subject us to material market risk exposures. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES PARAGON TRADE BRANDS, INC.
Page ---- Responsibility for Financial Reporting 20 Report of Independent Auditors 21 Consolidated Statements of Operations for the three years in the period ended December 31, 2000 23 Consolidated Balance Sheets as of December 31, 2000 and December 26, 1999 25 Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2000 26 Consolidated Statements of Comprehensive Income (Loss) for the three years in the period ended December 31, 2000 28 Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the three years in the period ended December 31, 2000 29 Notes to Consolidated Financial Statements 31 Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts 53
Page 19 RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for the preparation of our consolidated financial statements appearing in this report. The financial statements have been prepared in accordance with generally accepted accounting principles and, in the opinion of management, present fairly our financial position, results of operations and cash flows. The financial statements necessarily contain amounts that are based on the best estimates and judgments of management. We maintain a system of internal controls which management believes is adequate to provide reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The selection and training of qualified personnel, the establishment and communication of accounting and administrative policies and procedures and a program of internal audit are important elements of these control systems. We maintain a strong internal auditing program that independently assesses the effectiveness of the internal controls and recommends possible improvements thereto. Management has considered the internal auditors' recommendations concerning our system of internal controls and has taken actions that management believes are cost-effective in the circumstances to respond appropriately to these recommendations. The Board of Directors, through its Audit Committee, is responsible for ensuring that both the management and the independent auditors fulfill their respective responsibilities with respect to our financial statements. The Committee meets regularly with representatives of management and internal and external auditors to review accounting, auditing and financial reporting matters. As part of their audit of our consolidated financial statements, Ernst & Young LLP considered our system of internal controls to the extent they deemed necessary to determine the nature, timing and extent of their audit tests. David C. Nicholson Executive Vice President and Chief Financial Officer Page 20 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders Paragon Trade Brands, Inc. We have audited the accompanying consolidated balance sheet of Paragon Trade Brands, Inc. as of December 31, 2000 (Successor Company consolidated balance sheet), and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity (deficit), and cash flows for the forty-eight week period ended December 31, 2000 (Successor Company operations) and for the five-week period ended January 28, 2000 (Predecessor Company operations). Our audit also included the financial statement schedule listed in the index at Item 14 (a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2000 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Paragon Trade Brands, Inc. at December 31, 2000 (Successor Company consolidated balance sheet) and the consolidated results of its operations and its cash flows for the forty-eight week period ended December 31, 2000 (Successor Company operations) and for the five-week period ended January 28, 2000 (Predecessor Company operations) in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 2 to the consolidated financial statements, in 2000 the Company changed its revenue recognition method for products sold. /s/ Ernst & Young LLP Atlanta, Georgia February 9, 2001 Page 21 REPORT OF INDEPENDENT AUDITORS To the Shareholders of Paragon Trade Brands, Inc.: We have audited the accompanying consolidated balance sheets of Paragon Trade Brands, Inc., a Delaware corporation, and subsidiaries, as of December 26, 1999 and the related consolidated statements of operations, comprehensive loss, changes in shareholders' deficit and cash flows for each of the two years in the period ended December 26, 1999. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Paragon Trade Brands, Inc. and subsidiaries as of December 26, 1999,and the results of their operations and their cash flows for each of the two years in the period ended December 26, 1999, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed in the index to financial statements and schedules is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 2, 2000 (Except for the matter discussed in the next to the last paragraph of Note 11, as to which the date is March 24, 2000 and the matters discussed in Note 4 and the last two paragraphs of Note 2 as to which the date is March 16, 2001.) Page 22 PARAGON TRADE BRANDS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollar amounts in thousands, except per share data)
Successor Company Predecessor Company ------------------ ------------------------------------------------------- Forty-Eight Five Weeks Ended Weeks Ended Year Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ---------------- ---------------- ---------------- ------------- Sales, net of discounts and allowances $ 507,334 $ 49,767 $ 486,918 $ 533,407 Cost of sales 407,561 40,721 417,524 419,400 ---------------- ---------------- ---------------- ------------- Gross profit 99,773 9,046 69,394 114,007 Selling, general and administrative expenses 61,310 5,728 75,726 72,567 Research and development expense 4,081 313 3,644 3,968 Manufacturing operation closing costs -- -- 1,555 -- Asset impairments -- -- -- 8 Settlement contingencies (Notes 1 and 16) -- -- -- 78,500 ---------------- ---------------- ---------------- ------------- Operating profit (loss) 34,382 3,005 (11,531) (41,036) Equity in earnings of unconsolidated subsidiaries 582 -- 2,339 4,077 Dividend income from unconsolidated subsidiary 1,352 -- 992 922 Interest expense/(1)/ 16,318 75 482 450 Other income, net 2,502 97 2,482 2,436 ---------------- --------------- ---------------- ------------ Earnings (loss) from continuing operations before income taxes, bankruptcy costs, extraordinary item and cumulative effect of change in accounting principle 22,500 3,027 (6,200) (34,051) Bankruptcy costs -- (10,399) (9,538) (6,302) (Provision for) benefit from income taxes (7,587) 100 1,350 (8,091) ---------------- --------------- ---------------- ------------ Earnings (loss) from continuing operations before extraordinary item and cumulative effect of change in accounting principle 14,913 (7,272) (14,388) (48,444) Loss from discontinued operations - net of income taxes 16,384 1,195 13,988 16,939 ---------------- --------------- ---------------- ------------ Loss before extraordinary item and cumulative effect of change in accounting principle (1,471) (8,467) (28,376) (65,383) Extraordinary item - gain from discharge of debt -- 123,043 -- -- Cumulative effect of change in accounting principle (295) -- -- -- ---------------- --------------- ---------------- ------------ Net income (loss) $ (1,766) $ 114,576 $ (28,376) $ (65,383) ================ =============== ================ ============ Earnings (loss) per common share - basic: Earnings (loss) from continuing operations before extraordinary item and cumulative effect of change in accounting principle $ 1.25 $ (.61) $ (1.20) $ (4.06) Loss from discontinued operations (1.37) (.10) (1.17) (1.42) ---------------- --------------- ---------------- ------------ Loss per common share - before extraordinary item and cumulative effect of change in accounting principle (.12) (.71) (2.37) (5.48) Extraordinary item -- 10.30 -- -- Cumulative effect of change in accounting principle (.03) -- -- -- ---------------- --------------- ---------------- ------------ Net income (loss) per common share $ (.15) $ 9.59 $ (2.37) $ (5.48) ================ =============== ================ ============
Continued on next page. Page 23 PARAGON TRADE BRANDS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) (Dollar amounts in thousands, except per share data) Earnings (loss) per common share - diluted: Earnings (loss) from continuing operations before extraordinary item and cumulative effect of change in accounting principle $1.24 $ (.61) $(1.20) $(4.06) Loss from discontinued operations (1.36) (.10) (1.17) (1.42) ----- ------ ------ ------ Earnings (loss) per common share - before extraordinary item and cumulative effect of change in accounting principle (.12) (.71) (2.37) (5.48) Extraordinary item - 10.30 - - Cumulative effect of change in accounting principle (.03) - - - ----- ------ ------ ------ Net income (loss) per common share $(.15) $ 9.59 $(2.37) $(5.48) ===== ====== ====== ====== - --------------- (1) Contractual interest $ - $ 569 $5,626 $5,836 ===== ====== ====== ======
(1) Contractual interest - (See "Note 2 Interest Expense.") See accompanying Notes to Consolidated Financial Statements. Page 24 PARAGON TRADE BRANDS, INC. CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands, except share data)
Successor Predecessor Company Company ----------------- ----------------- December 31, 2000 December 26, 1999 ----------------- ----------------- Assets Cash and cash equivalents $ 43,780 $ 11,657 Accounts receivable, net 79,796 84,084 Inventories 42,519 40,086 Current portion of deferred income taxes 1,219 5,557 Prepaid expenses 1,975 2,729 Current assets of discontinued operations 2,385 11,594 ----------------- ----------------- Total current assets 171,674 155,707 Property and equipment, net 69,437 84,904 Construction in progress 14,851 5,988 Assets held for sale 3,571 2,312 Investment in unconsolidated subsidiary, at cost 20,911 22,929 Investment in and advances to unconsolidated subsidiaries, at equity 65,344 56,215 Goodwill - 30,900 Other assets 10,185 11,290 Non-current assets of discontinued operations 11,117 30,275 ----------------- ----------------- Total assets $ 367,090 $ 400,520 ================= ================= Liabilities and Shareholders' Equity (Deficit) Checks issued but not cleared $ 7,675 $ 7,525 Accounts payable 42,577 34,715 Accrued liabilities 49,201 34,259 ----------------- ----------------- Total current liabilities 99,453 76,499 Liabilities subject to compromise (Note 1) - 406,723 Long-term debt 146,000 - Deferred compensation - 211 Deferred income taxes 1,219 6,904 ----------------- ----------------- Total liabilities 246,672 490,337 Commitments and contingencies (Notes 1 and 11) Shareholders' equity (deficit): Preferred stock: (Predecessor Company) Authorized 10,000,000 shares, no shares issued, $.01 par value - - Preferred stock: (Successor Company) Authorized 5,000,000 shares, no shares issued, $.01 par value - - Common stock: (Predecessor Company) Authorized 25,000,000 shares, issued and outstanding 0 and 12,388,464 shares, $.01 par value - 124 Common stock: (Successor Company) Authorized 20,000,000 shares, issued and outstanding 11,996,300 and 0 shares, $.01 par value 120 - Capital surplus 119,972 143,736 Common stock warrants: (Successor Company) Issued 625,842 shares exercisable for 1 share at $18.91 for 10 years from Jan. 28, 2000 2,275 - Accumulated other comprehensive loss (183) (1,213) Retained deficit (1,766) (222,134) Less: Treasury stock: (Predecessor Company) 438,750 shares, at cost - (10,330) ----------------- ----------------- Total shareholders' equity (deficit) 120,418 (89,817) ----------------- ----------------- Total liabilities and shareholders' equity (deficit) $ 367,090 $ 400,520 ================= =================
See accompanying Notes to Consolidated Financial Statements. Page 25 PARAGON TRADE BRANDS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands)
Successor Company Predecessor Company ------------- ------------------------------------------------- Forty-Eight Five Weeks Ended Weeks Ended Year Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ------------- ------------- ------------- ------------- Cash flows from operating activities: Earnings (loss) from continuing operations before extraordinary item and cumulative effect of change in accounting principle $ 14,913 $ (7,272) $ (14,388) $ (48,444) Adjustments to reconcile earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 20,150 2,328 33,043 29,717 Deferred income taxes 128 382 (166) (343) Equity in earnings of unconsolidated subsidiaries, net of dividends 582 - (1,546) (2,807) Write-down of assets 846 173 660 - Changes in operating assets and liabilities: Accounts receivable (9,521) (4,039) 4,566 (15,797) Inventories and prepaid expenses 2,056 (1,934) 9,687 (11,375) Accounts payable 12,133 (6,404) (1,062) 34,529 Checks issued but not cleared (1,359) 1,509 (4,908) 3,058 Prepetition reclamation payment authorized by court - - (546) (1,034) Liabilities subject to compromise - (13,032) - - Accrued liabilities 12,470 7,254 491 85,255 Other 6,377 (429) (4,032) (1,655) ----------- ----------- ----------- ----------- Net cash provided by (used in) operating activities of continuing operations 58,775 (21,464) 21,799 71,104 Net cash provided by (used in) operating activities of discontinued operations 1,116 (1,569) (15,294) (9,887) ----------- ----------- ----------- ----------- Net cash provided by (used in) operating activities 59,891 (23,033) 6,505 61,217 Cash flows from investing activities: Expenditures for property and equipment (16,881) (658) (25,351) (26,834) Proceeds from sale of property and equipment 3,410 104 6,414 3,435 Repayment of advance from unconsolidated subsidiary, at equity 10,579 - 5,612 - Investment in unconsolidated subsidiary, at cost - - (186) (2,779) Investment in and advances to unconsolidated subsidiaries, at equity (647) (1,200) (2,760) (5,375) Proceeds from sale of subsidiary - - 350 5,163 Other (1,501) 1,570 (855) (9,043) ----------- ----------- ----------- ----------- Net cash used in investing activities of continuing operations (5,040) (184) (16,776) (35,433) Net cash used in investing activities of discontinued operations (477) (87) (609) (1,449) ----------- ----------- ----------- ----------- Net cash used in investing activities (5,517) (271) (17,385) (36,882)
Continued on next page. Page 26 PARAGON TRADE BRANDS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollar amounts in thousands)
Successor Company Predecessor Company ------------- ------------------------------------------------ Forty-Eight Five Weeks Ended Weeks Ended Year Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ------------- ------------- ------------- ------------- Cash flows from financing activities: Net increase (decrease) in short-term borrowings - - - (921) Prepetition debt payment authorized by court - - - (1,867) Additions to debt - 15,000 - - Repayments of debt (15,000) - - - Sale of common stock 1,053 - - - -------- ----------- ----------- ----------- Net cash (used in) provided by financing activities (13,947) 15,000 - (2,788) -------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 40,427 (8,304) (10,880) 21,547 Cash and cash equivalents at beginning of period 3,353 11,657 22,537 990 -------- ----------- ----------- ----------- Cash and cash equivalents at end of period $ 43,780 $ 3,353 $ 11,657 $ 22,537 ======== =========== =========== =========== Cash paid (received) during the period for: Interest, net of amounts capitalized $ 9,814 $ 232 $ 645 $ 1,557 Income taxes $ (2,937) $ (619) $ 235 $ 78 Bankruptcy costs $ 3,424 $ 10,819 $ 7,507 $ 2,461 Supplemental non-cash disclosures: Settlement of liabilities subject to compromise $ - $ 393,691 $ - $ - Extinguishment of stock (Predecessor Company) $ - $ 24,918 $ - $ - Issuance of stock/warrants $ - $ - (Successor Company) $ - $ 121,185 Issuance of senior subordinated notes $ - $ 146,000 $ - $ -
See accompanying Notes to Consolidated Financial Statements. Page 27 PARAGON TRADE BRANDS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Dollar amounts in thousands)
Successor Company Predecessor Company ------------- ----------------------------------------------------- Forty-Eight Five Weeks Ended Weeks Ended Year Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ------------- ------------- ------------- ------------- Net income (loss) $ (1,766) $ 114,576 $ (28,376) $ (65,383) Other comprehensive income (loss) Foreign currency translation adjustments/(1)/ (183) 1,213 627 (774) ------------ ------------ ------------ ------------ Comprehensive income (loss) $ (1,949) $ 115,789 $ (27,749) $ (66,157) ============ ============ ============ ============ _____________ (1) Tax (benefit) expense $ (98) $ 761 $ 393 $ (485) ============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements. Page 28 PARAGON TRADE BRANDS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (Dollar amounts in thousands)
Accumulated Common Other Common Capital Stock Comprehensive Retained Treasury Stock Surplus Warrants Loss Deficit Stock -------- ---------- --------- ------------- ----------- ---------- BALANCE, December 28, 1997 $ 123 $ 144,368 $ - $ (1,066) $ (128,375) $ (10,095) Net loss - - - - (65,383) - Issuance of common stock 1 150 - - - - Translation adjustment - - - (774) - - Restricted stock forfeiture - (600) - - - (189) -------- ---------- --------- ------------- ----------- ---------- BALANCE, December 27, 1998 124 143,918 - (1,840) (193,758) (10,284) Net loss - - - - (28,376) - Issuance of common stock - 28 - - - - Translation adjustment - - - 627 - - Restricted stock forfeiture - (210) - - - (46) -------- ---------- --------- ------------- ----------- ---------- BALANCE, December 26, 1999 124 143,736 - (1,213) (222,134) (10,330) Net income - - - - 114,576 - Translation adjustment - - - 159 - - Effect of reorganization and and fresh-start accounting: Extinguishment of stock (Predecessor Company) (124) (143,736) - 1,054 107,558 10,330 Issuance of stock and warrants (Successor Company) 119 118,791 2,275 - - - -------- ---------- --------- ------------- ----------- ---------- BALANCE, January 28, 2000 119 118,791 2,275 - - - Net loss - - - - (1,766) - Issuance of common stock 1 1,052 - - - - Stock options granted - 129 - - - - Translation adjustment - - - (183) - - -------- ---------- --------- ------------- ----------- ---------- BALANCE, December 31, 2000 $ 120 $ 119,972 $ 2,275 $ (183) $ (1,766) $ - ======== ========== ========= ============= =========== ==========
Continued on next page. Page 29 PARAGON TRADE BRANDS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (Continued) (Dollar amounts in thousands) The following summarizes the changes in the number of shares of capital stock and common stock warrants:
Common Common Stock Treasury Stock Warrants Stock --------------------- -------------------- ---------------------- BALANCE, December 28, 1997 12,343,324 - 388,658 Issuance of common stock - Profit Sharing and Savings Plan 35,292 - - Restricted stock forfeiture - - 41,038 --------------------- -------------------- ---------------------- BALANCE, December 27, 1998 12,378,616 - 429,696 Issuance of common stock - Profit Sharing and Savings Plan 9,848 - - Restricted stock forfeiture - - 9,054 --------------------- -------------------- ---------------------- BALANCE, December 26, 1999 12,388,464 - 438,750 Extinguishment of stock (Predecessor Company) (12,388,464) - (438,750) Issuance of stock and warrants (Successor Company) 11,891,000 625,842 - --------------------- -------------------- ---------------------- BALANCE, January 28, 2000 11,891,000 625,842 - Issuance of common stock 105,300 - - --------------------- -------------------- ---------------------- BALANCE, December 31, 2000 11,996,300 625,842 - ===================== ==================== ======================
See accompanying Notes to Consolidated Financial Statements. Page 30 PARAGON TRADE BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, except per share and per share data) Note 1: Chapter 11 Proceedings and Reorganization On January 6, 1998, Paragon Trade Brands, Inc. filed for relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq., in the United States Bankruptcy Court for the Northern District of Georgia (Case No. 98-60390). The Chapter 11 filing did not include our wholly owned subsidiaries including Paragon Trade Brands (Canada) Inc., ("PTB Canada"), PTB International, Inc., ("PTBI"), PTB Acquisition Sub, Inc., Paragon Trade Brands FSC, Inc. and Changing Paradigms, Inc. ("Changing Paradigms"), which was sold in October 1998. The following information summarizes the combined results of operations for the years ended December 26, 1999 and December 27, 1998, as well as the combined balance sheets as of December 26, 1999 for these subsidiaries. This information has been prepared on the same basis as the consolidated financial statements.
December 26, 1999 December 27, 1998 ----------------- ----------------- Sales, net of discounts and allowances $ 26,269 $ 57,374 Gross profit $ 1,714 $ 10,161 Earnings before income taxes $ 1,967 $ 10,034 Net earnings $ 2,354 $ 7,277 December 26, 1999 ----------------- Current assets $ 5,612 Non-current assets $ 59,477 Current liabilities $ 1,840 Non-current liabilities $ 3,306
On January 28, 2000, we emerged from Chapter 11 protection as contemplated by a Second Amended Plan of Reorganization (the "Plan") and a related Disclosure Statement, the terms of which included an investment by Wellspring Capital Management LLC, ("Wellspring"), and withdrawal of appeals of settlements of our patent infringement lawsuits with The Procter & Gamble Company and Kimberly-Clark Corporation. Reorganization. On January 28, 2000, in connection with the emergence from Chapter 11 protection, all of our pre-petition obligations were discharged. Pursuant to the Plan, Wellspring and certain of its affiliates purchased an aggregate of 11,516,405 shares, or approximately 97 percent, of the common stock of the reorganized Company for cash of $115,200. This cash was paid directly to the creditors of the Predecessor Company. Credit Facility. On January 28, 2000, we and certain subsidiaries of ours, as guarantors, entered into a three-year $95,000 financing facility (the "Credit Facility") with a bank group led by Citicorp USA, Inc. ("Citicorp"). Senior Subordinated Notes. On January 28, 2000, we issued $146,000 of 11.25 percent senior subordinated notes due 2005 (the "New Notes") as contemplated under the Plan. Fresh Start Accounting. We have recorded the reorganization and related transactions using "fresh start" accounting as required by Statement of Position 90-7 ("SOP 90-7") issued by the American Institute of Certified Public Accountants. "Fresh start" accounting was required because there was more than a 50 percent change in our ownership and the reorganization value of the assets was less than the post-petition liabilities and allowed claims in the bankruptcy. Our reorganization value of approximately $360,000 as of January 28, 2000 was determined by management, with assistance from independent financial professionals. The methodology employed involved estimation of enterprise value which was determined to be approximately $280,000, including approximately $15,000 in borrowings under the Credit Facility, taking into account a discounted cash flow analysis. Approximately $76,000 of post-petition liabilities were assumed by us. Page 31 At January 28, 2000, current assets and current liabilities were recorded at their historical carrying values as such amounts approximate their fair market value. Property and equipment was recorded at its appraised value as determined by an independent appraisal based on a "continued use value," which assumes that the assets will be used for the purpose for which they were designed and constructed. Property held for sale was valued at estimated net realizable value. Our foreign investments were valued based on an estimation of enterprise value taking into account a discounted cash flow analysis. Other non-current assets were stated at historical carrying values which approximated fair value. As the reorganization value was less than the current valuations of the assets, as stated above, the resulting deficit was allocated proportionally to the non-current assets. In connection with the recording of "fresh start" accounting, we recorded an extraordinary gain of $123,043 in 2000 related to discharge of debt. The effect of the Plan on our condensed consolidated balance sheet as of January 28, 2000, was as follows (unaudited):
Predecessor Adjustments Successor Company To Record Company Balance Sheet Plan of Fresh Start Balance Sheet January 28, 2000 Confirmation Adjustments(8) January 28, 2000 ---------------- -------------------------- --------------- ---------------- Current assets $ 157,142 $ (16,478)/(1)(2)(3)(5)/ $ 2,830 $ 143,494 Property and equipment, net 122,878 - (11,372) 111,506 Investments in and advances to unconsolidated subsidiaries 80,344 - 14,030 94,374 Goodwill 30,749 - (30,749) - Other assets 10,243 1,224/(2)/ (1,619) 9,848 --------------- ------------ -------------- -------------- Total assets $ 401,356 $ (15,254) $ (26,880) $ 359,222 =============== ============ ============== ============== Current liabilities $ 81,639 $ (921)/(3)/ $ (4,508) $ 76,210 Liabilities subject to compromise 406,220 (406,220)/(1)(4)(5)(6)/ - - Long-term debt - 161,000/(4)(5)/ - 161,000 Other 2,684 - (1,857) 827 --------------- ------------ -------------- -------------- Total liabilities 490,543 (246,141) (6,365) 238,037 Common stock 124 (5)/(6)(7)/ - 119 Capital surplus 143,736 (24,945)/(6)(7)/ - 118,791 Common stock warrants - 2,275/(1)(6)/ - 2,275 Foreign currency translation adjustments (1,055) - 1,055 - Accumulated deficit (221,662) 243,232/(6)(7)/ (21,570) - Treasury stock (10,330) 10,330/(7)/ - - --------------- ------------ -------------- -------------- Shareholders' equity (deficit) (89,187) 230,887 (20,515) 121,185 --------------- ------------ -------------- -------------- Total liabilities and shareholders' equity (deficit) $ 401,356 $ (15,254) $ (26,880) $ 359,222 =============== ============ ============== ==============
____________________ /(1)/ To record reduction of cash to pay certain liabilities subject to compromise and reduction of certain receivables that were offset against liabilities subject to compromise. /(2)/ To record deferred financing costs of the Credit Facility. /(3)/ To record payment of certain accrued professional fees related to the bankruptcy. /(4)/ To record the extinguishment of liabilities subject to compromise per the Plan. /(5)/ To record the issuance of the New Notes and borrowings under the Credit Facility. Page 32 /(6)/ To record the issuance of 11,996,300 shares of common stock at $10 per share, issuance of 625,842 warrants to purchase common stock, gain from extinguishment of debt and certain fees arising from confirmation of the Plan. /(7)/ To record the extinguishment of common stock (Predecessor Company). /(8)/ To record the effect of "Fresh start" accounting, including recording assets at their current fair values adjusted for the reorganization value. Note 2: Basis of Presentation and Summary of Significant Accounting and Reporting Policies Basis of Presentation and Related Information Paragon is the leading manufacturer of store brand infant disposable diapers in North America. We manufacture a line of premium and economy diapers, training pants which are distributed throughout North America, primarily through mass merchandisers, grocery and food stores, warehouse clubs, toy stores and drug stores that market the products under their own store brand names. We have also established international joint ventures in Mexico, Argentina, Brazil, Colombia and China for the manufacture and sale of infant disposable diapers and other absorbent personal care products. Our consolidated financial statements include the accounts of Paragon Trade Brands, Inc. and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States and necessarily include amounts based on management's estimates and assumptions. The estimates and assumptions of management affect the reported amounts of assets, liabilities, revenues and expenses, including disclosures regarding contingent assets and liabilities. Actual results may differ from those reported due to these estimates and assumptions. We use a 52 week year as our annual fiscal reporting period, however this necessitates that every seventh year we use a 53 week year to ensure that our fiscal calendar remains coordinated with the year end Julian calendar. The fiscal year ended December 31, 2000 is a 53 week year while the years ended December 26, 1999 and December 27, 1998 include 52 weeks. Certain amounts in the prior year financial statements have been reclassified to conform with current year presentation. Cash and Cash Equivalents We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Deposits with banks are federally insured in limited amounts. The obligation for outstanding checks is reflected as checks issued but not cleared. Accounts Receivable Receivables consist of the following:
December 31, 2000 December 26, 1999 ----------------- ----------------- Accounts receivable - trade $ 63,748 $ 66,181 Current portion of advances to equity subsidiary 11,284 11,059 Other receivables 11,404 20,643 ----------------- ----------------- 86,436 97,883 Less: Allowance for doubtful accounts (6,640) (13,799) ----------------- ----------------- Net receivables $ 79,796 $ 84,084 ================= =================
Page 33 Inventories Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last-in, first-out ("LIFO") method is used to value domestic pulp and diaper-related finished goods inventories. The first-in, first-out ("FIFO") method is used to value all other inventories. Had the FIFO method been used to value the domestic pulp and finished goods inventories, the amounts at which they are stated would have been $33 and $3,883 greater at December 31, 2000 and December 26, 1999, respectively. The decrease reflects our emergence from bankruptcy and implementation of "fresh start" accounting. (See "Note 1.") During the fiscal years ended December 31, 2000 and December 26, 1999, we liquidated certain LIFO inventories. The effect of this liquidation was to increase income before taxes by approximately $2,049 in 2000 and decrease the loss before taxes by $136 in 1999. Inventories consist of the following: December 31, 2000 December 26, 1999 ----------------- ----------------- LIFO: Raw materials - pulp $ 231 $ 40 Finished goods 24,858 22,068 FIFO: Raw materials - other 4,450 5,754 Materials and supplies 15,339 17,777 ----------------- ----------------- 44,878 45,639 Reserve for excess and obsolete items (2,359) (5,553) ----------------- ----------------- Net inventories $ 42,519 $ 40,086 ================= ================= Property and Equipment Our property accounts are maintained on an individual asset basis. Betterments and replacements of major units are capitalized. Maintenance, repairs and minor replacements are expensed. Depreciation is provided on the straight-line method at rates based upon estimated useful lives as follows: Buildings 20 to 40 years Building improvements 10 years Machinery, equipment, furniture and fixtures 2 to 10 years The cost and related depreciation of property sold or retired is removed from the property and allowance for depreciation accounts and the gain or loss is recorded. Property and equipment, at cost, are as follows: December 31, 2000 December 26, 1999 ----------------- ----------------- Land $ 2,308 $ 2,836 Buildings and improvements 13,394 29,845 Machinery and equipment 74,545 218,443 ----------------- ----------------- 90,247 251,124 Less: Allowance for depreciation (20,810) (166,220) ----------------- ----------------- Net property and equipment $ 69,437 $ 84,904 ================= ================= Patents and Trademarks We operate in a commercial field in which patents relating to the products, processes, apparatus and materials are numerous. We take careful steps in designing, producing and selling our products to attempt to avoid infringing any valid patents of our competitors. However, there can be no assurance that we will not be challenged with respect to patents in the future. Page 34 Purchased patents and trademarks are amortized on a straight-line basis over a five-year life. In 1999, we acquired a non-exclusive, fully paid-up, irrevocable worldwide license to the Tracy patent for $500. Amortization expense for such patent license was $100 for the year ended December 31, 2000 and $50 for the year ended December 26, 1999. Accumulated amortization was $90 and $5,573 at December 31, 2000 and December 26, 1999, respectively on all patents and trademarks. Significant Licensing Agreements We have agreements on certain key components of diaper designs with other diaper manufactures for a specified percentage of net sales. Investments in Unconsolidated Subsidiaries On January 26, 1996, we purchased through our subsidiary Paragon Trade Brands, International ("PTBI") a 15 percent interest in Grupo P.I. Mabe, S.A. de C.V. ("Grupo Mabe"), the second largest manufacturer of infant disposable diapers in Mexico. In 1999 and 1998, based on Grupo Mabe prior year's financial results, we paid additional consideration of $200 and $2,800, respectively. The investment is carried at cost in the accompanying consolidated balance sheets. We also own a 49 percent interest in Paragon-Mabesa International, S.A. de C.V. ("PMI"), a manufacturer of infant diapers in Tijuana, Mexico. The investment is accounted for using the equity method. A summary of financial information for PMI is as follows:
As of and for the Year Ended December 31, 2000 --------------------- Current assets $ 34,509 Non-current assets 36,019 --------------------- Total assets $ 70,528 ====================- Current liabilities $ 34,532 Non-current liabilities 19,433 --------------------- Total liabilities $ 53,965 ===================== Sales, net of discounts and allowances $ 96,199 Cost of sales 76,762 --------------------- Gross profit $ 19,437 ===================== Net income $ 5,397 =====================
On August 26, 1997, PTBI purchased a 49 percent interest in Stronger Corporation S.A. ("Stronger"), a financial investment corporation incorporated under Uruguayan law. An affiliate of Grupo Mabe owns the remaining 51 percent. Stronger has been used to establish joint ventures in Argentina, Colombia and Brazil and can be used to establish additional Latin American joint ventures. In 1999 and 1998, we made additional capital contributions to Stronger of $2,000 and $2,000, respectively. The investment is accounted for using the equity method. On August 26, 1997, Stronger acquired 70 percent of Serenity S.A., the third largest diaper manufacturer in Argentina. Stronger also acquired an option to purchase the remaining 30 percent interest in Serenity by 2002 at a contractually determined exercise price. Serenity manufactures infant disposable diapers, sanitary napkins and adult incontinence products in two facilities. PTBI advanced $5,700 to Stronger, its pro-rata share of the purchase price in 1997, and paid additional consideration of $600 and $647 in 1998 and 2000, respectively. All amounts paid to date by PTBI are classified as investment in and advances to unconsolidated subsidiaries, at equity, in the accompanying balance sheet. Stronger paid the 1999 additional consideration. Page 35 On November 10, 1997, Stronger acquired 99 percent of the disposable diaper business of MPC Productos para Higiene Ltda. ("MPC"). MPC is engaged in the manufacture, distribution, and sale of disposable diapers, skin lotions for children and other personal care products. In 1998, we established Goodbaby Paragon Hygienic Products Co. Ltd., ("Goodbaby") a manufacturing and marketing joint venture in China with Goodbaby Group of Kunshan City and First Shanghai Investment of Hong Kong. We purchased a 40 percent interest in the joint venture with Goodbaby Group and First Shanghai Investment purchasing 30 percent each. Initial registered capital of the venture was approved by the Chinese government at $15,000, to be funded over a two-year period. A joint venture business license was approved by the Chinese government on December 31, 1997. Groundbreaking for a new factory took place in February 1998. The joint venture began production and distribution of infant disposable diapers in October 1998. Paragon made capital contributions of $1,200 in 2000, $800 in 1999 and $4,000 in 1998. The investment is accounted for using the equity method. As discussed above, Stronger and Goodbaby are accounted for under the equity method at 49 and 40 percent, respectively. A summary of financial information for Stronger and Goodbaby combined is as follows:
As of and for the Year Ended December 31, 2000 -------------------- Current assets $ 41,798 Non-current assets 38,844 -------------------- Total assets $ 80,642 ==================== Current liabilities $ 35,344 Non-current liabilities 23,039 -------------------- Total liabilities $ 58,383 ==================== Minority interest $ 2,753 ==================== Sales, net of discounts and allowances $ 88,185 Cost of sales 68,417 -------------------- Gross profit $ 19,768 ==================== Net loss $ (3,736) ====================
Through December 31, 2000, there have been no dividend distributions to us from PMI, Stronger or Goodbaby. We received dividend distributions of $1,352 and $992 from Grupo Mabe in the years ended December 31, 2000 and December 26, 1999, respectively. We recorded a dividend of $922 declared by Grupo Mabe in the year ended December 27, 1998, which was paid in 1999. All investments were revalued as of January 28, 2000 upon our emergence from bankruptcy and implementation of "fresh start" accounting (See "Note 1"). As a result of the revaluation, implied goodwill was recorded for each of the investments on the equity method and is being amortized over a 20-year life. The implied goodwill values were as follows at December 31, 2000: Stronger, $18,668; PMI, $11,332; and Goodbaby, $762. We have consolidated retained earnings of $582 from undistributed earnings of subsidiaries under the equity method as of December 31, 2000. Goodwill On February 8, 1996, we completed the purchase of substantially all of the assets of Pope & Talbot, Inc.'s disposable diaper business. Goodwill was recorded in connection with such transaction and represents the excess of the cost of these assets over their estimated fair value at the date of acquisition and was amortized on a Page 36 straight line basis over 20 years. The goodwill was written off when we emerged from bankruptcy and implemented "fresh start" accounting. (See "Note 1.") Amortization expense was $151, $1,919 and $1,919 for the years ended December 31, 2000, December 26, 1999 and December 27, 1998, respectively. Accumulated amortization was $7,494 as of December 26, 1999. Other Assets - Software The primary component of other assets is capitalized software and development costs which are being amortized on a straight-line basis over a 10-year life. Amortization expense was $916, $3,028 and $451 for the years ended December 31, 2000, December 26, 1999 and December 27, 1998, respectively. Accumulated amortization was $811 and $3,470 at December 31, 2000 and December 26, 1999, respectively. The decrease in accumulated amortization reflects the implementation of "fresh start" accounting. (See "Note 1.") Accrued Liabilities Accrued liabilities are as follows:
December 31, 2000 December 26, 1999 ----------------- ----------------- Payroll $ 14,160 $ 8,369 Coupons and promotions 3,502 8,214 Royalties 16,995 8,225 Interest 7,000 - Reserve for discontinued operations 1,822 - Other 5,722 9,451 ----------------- ----------------- Total $ 49,201 $ 34,259 ================= =================
Fair Values of Financial Instruments Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying value of cash, accounts receivable and accounts payable approximates fair market value; the carrying amount of long-term debt approximates fair market value based on our current risk profile. PTBI's additional consideration obligation for 2000 was satisfied as discussed above in the investment in unconsolidated subsidiaries note. Significant Customer During the years ended December 31, 2000, December 26, 1999 and December 27, 1998, the percentages of net sales to an individual customer whose sales represent in excess of 10 percent of net sales were 36, 25 and 19, respectively. These sales consisted primarily of infant care products. During the years ended December 31, 2000 and December 26, 1999, the percentages of trade accounts receivable to an individual customer whose balance represents in excess of 10 percent of accounts receivable - trade were 38 and 27, respectively. The 2000 percentage represented one customer and the 1999 percentage represented two customers who were 16 and 11 percent, respectively. These sales consisted primarily of infant care products. Revenue Recognition We recognize revenue when goods are delivered and title has passed to customers. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides various guidance on issues surrounding the timing of the recognition of revenue. We adopted SAB 101 in the fourth quarter of 2000 resulting in a $295 charge (net of an income tax benefit of $185). The change was recorded as a cumulative effect of an accounting change. Page 37 Assets Held for Sale Assets held for sale at December 31, 2000 and December 26, 1999 were $3,571 and $2,312, respectively. The assets held for sale in 2000 represent obsolete manufacturing equipment. The timing of the disposition is dependent upon a number of market factors and cannot be accurately predicted. In 1999, the assets consisted of diaper manufacturing equipment of $1,071 primarily from the shutdown of the Brampton, Canada plant and $1,241 for the Brampton facility held for sale. The Brampton facility was sold in February 2000 for $2,313. Interest Expense Total contractual interest expense for years 2000, 1999 and 1998, prior to our emergence from bankruptcy on January 28, 2000, was $569, $5,626 and, $5,836, respectively. Due to the bankruptcy proceedings only portions of the contractual interest were deemed payable and recognized as interest expense. Income Taxes We account for income taxes based on the liability method and, accordingly, deferred income taxes are provided to reflect temporary differences between financial and tax reporting. Deferred tax assets and liabilities are measured based on enacted tax laws and rates without anticipation of future changes. Effects on deferred taxes of enacted changes in tax laws are recognized in income for financial statement purposes in the period of enactment. As of December 31, 2000, there was approximately $8,373 of cumulative undistributed earnings of our foreign subsidiaries and investments accounted for by the equity method. Under existing law, undistributed earnings are not subject to U.S. tax until distributed as dividends. Furthermore, any taxes that are paid to foreign governments on such future earnings may be used, in whole or in part, as credits against the U.S. tax on any distributions from such earnings. Foreign Currency Assets and liabilities of operations whose functional currency is other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates. Revenues and expenses are translated at average rates during the period. Profit Sharing and 401(k) Plans Paragon has both a defined contribution profit sharing plan and a 401(k) savings plan, known as the Paragon Retirement Investment Savings Management Plan ("PRISM"), covering most of its employees. As amended in 1999, "PRISM" provides for employee 401(k) deferrals as well as employer contributions for retirement and profit sharing. "PRISM" participants are fully vested with respect to employer profit sharing and 401(k) matching contributions made prior to March 1, 1999, after three years of service. Employee contributions and employer retirement contributions after March 1, 1999 vest immediately. Contributions to "PRISM" are based on a percentage of employees' wages. Contributions for the fiscal years ended December 31, 2000, December 26, 1999 and December 27, 1998 were $2,362, $2,936 and $2,589, respectively. New Accounting Standards The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," (Statement No. 133) which must be adopted in our fiscal year 2001. This statement establishes accounting and reporting standards for derivative instruments - including certain derivative instruments embedded in other contracts - and for hedging activities. We have determined that we currently have no derivative instruments; accordingly, Statement No. 133 is not expected to have an impact on our financial statements. In September 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board (the "Task Force") reached further consensuses on Issue 00-10, Accounting for Shipping and Handling Fees and Costs. The issue addresses the income statement classification for shipping and handling fees and costs. We adopted EITF Page 38 00-10 in the fourth quarter of 2000 which resulted in us reclassifying shipping expenses from a reduction of Net Sales into Cost of Sales. The amount of the reclassification was $6,431, $7,567 and $9,449 for 2000, 1999 and 1998, respectively. In May 2000, the Task Force also reached a consensus on Issue 00-14, Accounting for Certain Sales Incentives. The issue addresses the accounting for sales incentives offered voluntarily by a vendor without charge to customers that can be used in, or that are exercisable by a customer as a result of a single exchange transaction. For sales incentives resulting in the right to a rebate, the Task Force concluded that recognition should occur at the date of sale, measured based upon the estimated amount of refunds expected to be claimed by customers. Indicators pointing to the ability to make a reasonable and reliable estimate of the amount of future rebates or refunds were developed. When recognized, a cash incentive should be classified as a reduction of revenue. We adopted EITF 00-14 in the fourth quarter of 2000 which resulted in us reclassifying coupon expense from Selling, General and Administrative expense to a reduction of Net Sales. The amount of the reclassification was $5,657, $6,735 and $4,665 in 2000, 1999 and 1998, respectively. Note 3: Manufacturing Operation Closing Costs On April 30, 1999, we announced that our Canadian subsidiary, Paragon Trade Brands (Canada), Inc., would cease manufacturing infant disposable diapers at its Brampton, Ontario facility. Manufacturing operations ceased during June 1999 and resulted in severing the employment of approximately 110 employees. For the period ended December 26, 1999, the consolidated statements of operations include $1,555 of pre-tax charges as a result of cessation of manufacturing operations. The charge consisted of $1,400 of employee severance and related items and $155 of asset write-downs. We expect to utilize most of the Brampton diaper making equipment in its U.S. operations, and residual equipment will be held for sale. The Brampton facility was placed for sale in the fourth quarter of 1999 and sold to a third party in February of 2000 for $2,313. Note 4: Discontinued Operation On August 10, 2000, we made a decision to concentrate on our core infant care business with the intent to sell our Gaffney, South Carolina femcare and adult incontinence segment. The expected disposal date depends on market factors as we continue to work toward liquidating the assets of the segment. That segment ceased manufacturing operations in October 2000 and will have some continued inventory shipments until approximately March 2001. Our consolidated financial statements for all periods presented have been restated to reflect the femcare and adult incontinence segment as a discontinued operation. Assets of the discontinued operation have been reflected in the consolidated balance sheet as current or non-current based on the nature of the amounts. No liabilities are anticipated to be assumed by a third party and therefore they are reflected in continuing operations. Page 39 The following is a summary of the assets of the discontinued operation:
Successor Predecessor Company Company ----------------- ----------------- December 31, 2000 December 26, 1999 ----------------- ----------------- Cash and short-term investments $ 37 $ 28 Accounts receivable 1,352 1,892 Inventories - net 990 8,658 Prepaid expenses 6 1,016 ------------------ ----------------- Current assets of discontinued operations $ 2,385 $ 11,594 ================== ================= Property and equipment $ 11,117 $ 30,270 Other - 5 ------------------ ----------------- Non-current assets of discontinued operations $ 11,117 $ 30,275 ================== =================
We reported a loss from operations of the discontinued segment, net of tax, of $17,579, $13,988 and $16,939 for the fiscal years ended December 31, 2000, December 26, 1999 and December 27, 1998, respectively. Net sales were $13,560, $12,570 and $6,584 for discontinued operations for the fiscal years ended December 31, 2000, December 26, 1999 and December 27, 1998, respectively. At December 31, 2000, we had accrued $8,587 for costs expected to be incurred in disposing of the remaining assets of the segment. Note 5: Bankruptcy Costs Bankruptcy costs directly associated with our Chapter 11 reorganization proceedings consisted of the following:
Predecessor Company ------------------------------------------------------------ Five Weeks Ended Year Ended Year Ended Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ---------------- ---------------- ---------------- Professional fees $ 6,990 $ 9,061 $ 6,772 Employee confirmation bonuses 3,308 - - Amortization of debtor-in-possession credit costs 50 616 813 Other 125 156 160 Interest income (74) (295) (1,443) ---------------- ---------------- ---------------- Bankruptcy costs $ 10,399 $ 9,538 $ 6,302 ================ ================ ================
Page 40 Note 6: Income Taxes Earnings (losses) from continuing operations before taxes, extraordinary item and cumulative effect of change in accounting principle which are the basis for tax expense are as follows:
Successor Predecessor Company Company --------------- ------------------------------------------------------------ Forty-Eight Five Weeks Ended Weeks Ended Year Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ---------------- ---------------- ---------------- --------------- Domestic $ 21,923 $ (7,416) $ (14,453) $ (45,300) Foreign 577 44 (1,285) 4,947 ---------------- ---------------- ---------------- --------------- $ 22,500 $ (7,372) $ (15,738) $ (40,353) ================ ================ ================ ===============
As provisions for (benefits from) income taxes are allocated to discontinued operations for the five week period ended January 28, 2000 and the forty-eight week period ended December 31, 2000, a reconciliation between the federal statutory rate and the effective tax rate on continuing operations before taxes, extraordinary item and cumulative effect of change in accounting principle follows for those periods. Because we had losses from continuing operations and discontinued operations during the years ended December 26, 1999 and December 27, 1998, provisions for (benefits from) income taxes are not allocated to discontinued operations for those years. A reconciliation between the federal statutory rate and the effective tax rate on net income before taxes follows for the years ended December 26, 1999 and December 27, 1998.
Successor Predecessor Company Company ------------- --------------------------------------------------------- Forty-Eight Five Weeks Ended Weeks Ended Year Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ------------- ------------- ------------- ------------- Expected provision for (benefits from) income taxes at the statutory rate $ 7,875 $ (2,590) $ (10,404) $ (20,052) State income taxes, net of federal tax benefit 690 (174) (1,040) (2,005) Equity earnings (204) - (892) (983) Nondeductible bankruptcy expenses - 2,420 4,940 - Change in valuation allowance - - 6,181 32,585 Goodwill (1,311) - - - All other, net 537 244 (135) (1,454) ------------- ------------- ------------- ------------- $ 7,587 $ (100) $ (1,350) $ 8,091 ============= ============= ============= =============
For the five week period ended January 28, 2000 and the forty-eight week period ended December 31, 2000, respectively, the change in the valuation allowance arose primarily due to "fresh start" adjustments and discontinued operations; and therefore, the change does not impact the rate reconciliation from continuing operations. In 2000, the valuation allowance decreased by $41,200. Page 41 Provisions for (benefits from) income taxes allocated to the following are:
Successor Predecessor Company Company ------------- --------------------------------------------------------- Forty-Eight Five Weeks Ended Weeks Ended Year Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ------------- ------------- ------------- ------------- Continuing operations $ 7,587 $ (100) $ (1,350) $ 8,091 Discontinued operations (5,769) - - - Cumulative effect of change in accounting principle 185 - - - ------------ ------------ ------------ ------------ Total income tax expense $ 2,003 $ (100) $ (1,350) $ 8,091 ============ ============ ============ ============
Provisions for (benefits from) income taxes include the following:
Successor Predecessor Company Company ------------- --------------------------------------------------------- Forty-Eight Five Weeks Ended Weeks Ended Year Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 26, 1999 Dec. 27, 1998 ------------- ------------- ------------- ------------- Federal: Current $ 336 $ (100) $ (744) $ 4,647 Deferred - - - 967 ------------- ------------- ------------- ------------- 336 (100) (744) 5,614 ------------- ------------- ------------- ------------- State: Current 75 - (138) 598 Deferred - - - 161 ------------- ------------- ------------- ------------- 75 - (138) 759 ------------- ------------- ------------- ------------- Foreign: Current 1,592 - (333) 2,096 Deferred - - (135) (378) ------------- ------------- ------------- ------------- 1,592 - (468) 1,718 ------------- ------------- ------------- ------------- $ 2,003 $ (100) $ (1,350) $ 8,091 ============= ============= ============= =============
Net deferred income tax assets (liabilities) are attributable to the following temporary differences:
Successor Predecessor Company Company ----------------- ---------------------------------------------- Forty-Eight Five Weeks Ended Weeks Ended December 31, 2000 January 28, 2000 December 26, 1999 ----------------- ---------------- ----------------- Intangible assets $ - $ - $ (1,857) Net property and equipment (2,783) (1,645) (6,415) Goodwill and other intangibles 2,612 2,927 9,302 Reserves not currently deductible 47,249 48,840 116,271 Package design costs 1,922 1,557 2,198 Net operating loss carryforwards 34,425 26,243 3,369 Tax credit carryforwards 8,172 9,253 8,768 All other, net 3,297 919 3,158 ----------------- ---------------- ----------------- Net deferred tax asset 94,894 88,094 134,794 Valuation allowance (94,894) (87,970) (136,141) ----------------- ---------------- ----------------- Total deferred taxes, net $ - $ 124 $ (1,347) ================= ================ =================
Page 42 Our ability to utilize the available net operating loss carryforwards and a portion of the other deferred tax assets is subject to limitation under Section 382 of the Internal Revenue Code as a result of the change in ownership that occurred in connection with the Bankruptcy Reorganization. To realize the full benefit of the deferred tax assets, we need to generate approximately $246,500 in future taxable income. Accordingly, we have estimated that this limitation on the annual utilization of built-in deductions will be approximately $6,800. We have fully reserved the net deferred tax asset of $94,894 as of December 31, 2000. Federal net operating losses in the amount of $12,979 and $63,937 are due to expire in 2019 and 2020, respectively. A federal alternative minimum tax credit in the amount of approximately $8,000 may be carried forward indefinitely as a credit against future regular tax liability. Note 7: Compensation Plans Long-Term Incentive Plans On January 28, 2000, our Long-Term Incentive Compensation Plan ("LTIC Plan"), 1995 Incentive Compensation Plan ("1995 Plan") and 1996 Non-Officer Employee Incentive Compensation Plan ("1996 Plan") were cancelled in connection with our reorganization. Prior to that time, the LTIC Plan and the 1995 Plan were administered by the Compensation Committee of the Board of Directors (the "Board") and the 1996 Plan was administered by an Administrative Committee appointed by the Board. The various plans were designed to link management rewards with the long-term interests of Paragon's stockholders. Restricted Stock Grants While in effect, the 1995 and 1996 Plans provided that a maximum of 150,000 and 250,000 shares, respectively, were available for grant thereunder as restricted shares or other stock based awards. 9,054 and 41,038 shares of restricted stock previously granted under the various plans were forfeited by employees during the years ended December 26, 1999 and December 27, 1998, respectively. Compensation expense was recorded for the stock grants at their fair value. Compensation income, due to the reversal of previously recognized compensation expense, recorded for the fiscal years ended December 26, 1999 and December 27, 1998 was $256 and $788, respectively. The weighted average fair value per share at the date of grant of stock forfeited for the years ended December 26, 1999 and December 27, 1998 was $28.25 and $19.20, respectively. Stock Options While in effect, the LTIC, 1995 and 1996 Plans had a maximum of 800,000, 450,000 and 400,000 shares available, respectively, for grant as stock options or stock appreciation rights ("SARs"). Stock options, when granted to key management, were generally granted at amounts that approximated market value on the date of the grant. Awards, when made, vested 25 percent per year for four years and had a term of 10 years. These plans were replaced by the Paragon Trade Brands, Inc. Stock Option Plan (the "Option Plan"). While in effect, the Paragon Trade Brands, Inc. Stock Option Plan for Non-Employee Directors (the "Old Director Option Plan") had a maximum of 100,000 shares available for grant. Stock options were awarded to directors at amounts that approximated market value at the date of the grant. Awards vested 100 percent after one year and had a term of 10 years. This plan was also cancelled in connection with our reorganization pursuant to the Plan and the Old Director Option Plan was replaced by the Paragon Trade Brands, Inc. Stock Option Plan for Non-Employee Directors (the "Director Option Plan") which was adopted in 2000. The Option Plan has a maximum of 1,321,222 shares available for issuance upon exercise of stock options. Stock options, when granted to key management, are generally granted at amounts that approximate market value at the date of the grant. Options granted under the Option Plan vest based on continued employment but may accelerate upon the attainment of stated performance criteria. Unless otherwise set forth in the applicable stock option agreement, time-vesting options shall vest ratably at 20 percent per year on each of the first five anniversaries of the date of grant. Unless otherwise set forth in the applicable stock option agreement, performance-vesting options shall vest ratably at 20 percent per year based on the attainment of performance targets as set by our Board of Directors. Notwithstanding the failure to meet performance targets, performance- Page 43 vesting options will vest fully on the seventh anniversary of the date of grant. Options granted under the Option Plan have a term of 10 years. The Director Option Plan has a maximum of 100,000 shares available for issuance upon exercise of stock options. Under the Director Option Plan, each member of our Board of Directors that is not our employee is granted an option to purchase 3,000 shares of Common Stock on the first business day following his or her initial election as a director and on the first business day following the day of each annual meeting of the stockholders thereafter. The exercise price of options granted under the Director Option Plan is generally the fair market value per share of our Common Stock on the date of grant. Options granted under the Director Option Plan vest 100 percent after one year and have a term of 10 years. Accounting for Stock-Based Compensation We have applied APB Opinion 25, "Accounting for Stock Issued to Employees" in accounting for stock options granted under the LTIC Plan, 1995 Plan, 1996 Plan, Old Director Option Plan, Option Plan and Director Option Plan. Accordingly, no compensation cost has been recognized for these plans in 2000, 1999 or 1998. Had compensation cost been recognized on the basis of fair value pursuant to FASB Statement No. 123, "Accounting for Stock-Based Compensation" net income (loss) and income (loss) per share would have been affected as follows:
Year Ended Year Ended Year Ended December 31, 2000 December 26, 1999 December 27, 1998 ----------------------- ---------------------- ------------------------- Net income (loss) As reported $ 112,810 $ (28,376) $ (65,383) Pro forma $ 112,400 $ (27,963) $ (65,646) Basic income (loss) per common share As reported $ 9.44 $ (2.37) $ (5.48) Pro forma $ 9.39 $ (2.34) $ (5.50) Diluted income (loss) per common share As reported $ 9.44 $ (2.37) $ (5.48) Pro forma $ 9.33 $ (2.34) $ (5.50)
Pro forma information regarding net income and earnings per share is required by FASB 123 and has been determined as if we had accounted for our employee stock options granted under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000: risk-free interest rate of 6.3 percent, dividend yield of 0.0 percent, volatility factors of the expected market price of our Common Stock of 45.0 percent and a weighted average expected life of the options of 7.45 years. The weighted-average fair value of options granted under our stock option plans was $4.90 for the year 2000. The fair value of each option grant contained in the years ended December 26, 1999 and December 27, 1998 was estimated on the date of the grant using the Black-Scholes multiple option pricing model with the following weighted average assumptions: a range of risk-free interest rates of 6.15 - 6.43 percent was used; a dividend yield of 0.0 percent; and an estimated volatility of 40 percent. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded option, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Page 44 Following is a summary of the status of the LTIC Plan, 1995 Plan, 1996 Plan and Old Director Option Plan during the years ended December 31, 2000, December 26, 1999 and December 27, 1998. These plans were cancelled on January 28, 2000.
December 31, 2000 December 26, 1999 December 27, 1998 ----------------- ----------------- ----------------- Weighted Weighted Weighted Number Average Number Average Number Average of Exercise of Exercise of Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding, beginning of period 646,667 $20.58 699,491 $20.45 774,935 $20.46 Cancelled at January 28, 2000 646,667 $20.58 Forfeited - - 52,824 $18.83 75,444 $20.54 ------- ------- ------- Outstanding, end of period - - 646,667 $20.58 699,491 $20.45 ======= ======= ======= Options exercisable, end of period - - 602,167 $20.68 569,407 $20.96 ======= ======= =======
Following is a summary of the status of options granted under the Option Plan and Director Option Plan at December 31, 2000. All prior options under the 1995 Plan, 1996 Plan, LTIC Plan and Old Director Option Plan were cancelled.
Outstanding Options Exercisable Options ---------------------------------------------- ------------------------ Weighted Average Remaining Weighted Contractual Weighted Average Average Exercise Price Number Life (Years) Exercise Price Number Exercise Price - -------------- ------ ------------ --------------- ------ -------------- $10.00 1,188,000 9.43 $10.00 209,520 $10.00 ========= =======
The following summarizes transactions involving SARs:
December 31, 2000 December 26, 1999 December 27, 1998 ------------------------ ----------------------- ------------------------ Weighted Weighted Weighted Number Average Number Average Number Average of Exercise of Exercise of Exercise SARs Price SARs Price SARs Price ---- ----- ---- ----- ---- ----- Outstanding, beginning of period 101,908 $20.23 150,740 $20.19 235,660 $20.35 Cancelled at January 28, 2000 101,908 $20.23 - - - - Forfeited - - 48,832 $20.11 84,920 $20.63 ------- ------ ------- ------ ------- ------ Outstanding, end of period - - 101,908 $20.23 150,740 $20.19 Exercisable, end of period - - 68,913 $20.88 61,917 $21.26
SARs were granted at amounts that approximated market value at the date of the grant and vested 25 percent per year for four years and had a term of 10 years. Page 45 Note 8: Long Term Debt December 31, 2000 December 26, 1999 ----------------- ----------------- Revolving credit facility (A) $ - $ - 11.25% senior subordinated notes, due January 2005 (B) $ 146,000 $ - ========= ======= (A) On January 28, 2000, we entered into a new financing facility (the "Credit Facility") with a bank group led by Citicorp USA, Inc. The maximum borrowing under the Credit Facility may not exceed the lesser of $95,000 or an amount determined by a borrowing base formula. The borrowing base formula is comprised of certain specified percentages of our eligible accounts receivable, eligible inventory, equipment and personal property and real property. Borrowings under the Credit Facility are secured by a security interest in, pledge of and lien on substantially all of our North American assets and properties and the proceeds thereof. Borrowings under the Credit Facility are guaranteed by certain domestic subsidiaries and may be used to fund working capital and other general corporate purposes including acquisitions and investments in existing and new international joint ventures. The Credit Facility contains restrictive covenants, including among other things, a prohibition on dividends, limitations on the creation of additional liens and indebtedness, limitations on capital expenditures, investments, loans and advances, the sale of assets and transactions with affiliates. Financial covenants include the maintenance of minimum earnings before interest, taxes, depreciation and amortization, fixed charges coverage ratio, tangible net worth and a maximum leverage ratio. The Credit Facility provides that borrowings will bear interest at a rate of 1.50 percent in excess of Citicorp's base rate, or at our option, a rate of 2.50 percent in excess of the reserve adjusted Eurodollar rate for interest periods of one, two, three or six months. After March 31, 2001, borrowing rates will be subject to a pricing grid. We pay a commitment fee of .5 percent per annum on the unused portion of the Credit Facility, a letter of credit fee equal to 2.75 percent per annum on the average outstanding letters of credit and certain other fees. As of December 31, 2000, there was an aggregate of $4,358 in letters of credit issued under the Credit Facility and no direct borrowings. (B) On January 28, 2000, we issued $146 million of 11.25 percent senior subordinated notes due 2005 as contemplated under the Plan. The New Notes are guaranteed by certain domestic subsidiaries and are not callable until February 1, 2003. Interest is payable semi-annually and during the first two years can be paid in kind if free cash flow, as defined in the indenture, falls below projected levels. The New Notes are subordinated in right of payment to the payment of all senior indebtedness. The New Notes contain customary restrictive covenants, including among other things, limitations on dividends and restricted payments, the incurrence of additional indebtedness, liens, investments, loans and advances, the sales of assets and transactions with affiliates. During 2000 we did not pay interest in kind. Note 9: Liabilities Subject to Compromise Liabilities subject to compromise under our reorganization proceeding included substantially all current and long-term unsecured debt as of the date of the Chapter 11 filing. Pursuant to the Bankruptcy Code, payment of these liabilities could not be made except pursuant to a plan of reorganization or Bankruptcy Court order while we continued to operate as a debtor-in-possession. We received approval from the Bankruptcy Court to pay or otherwise honor the pre-petition obligations including a portion of short-term borrowings, claims subject to reclamation and employee wages, benefits and expenses. Page 46 Liabilities subject to compromise are comprised of the following: December 26, 1999 December 27, 1998 ----------------- ----------------- Accrued settlement contingencies $ 278,500 $ 278,500 Bank debt 81,397 81,397 Accounts payable 39,510 39,752 Accrued liabilities 5,920 5,920 Deferred compensation 1,396 1,290 ---------- ---------- $ 406,723 $ 406,859 ========== ========== On January 28, 2000, we emerged from Chapter 11 protection as contemplated under the Plan. All pre-petition obligations were discharged at that time. See "Note 1" for the effect of the Plan on our condensed consolidated balance sheet as of January 28, 2000. Note 10: Related Party Transactions We have entered into various agreements with our subsidiaries and affiliates to sell certain diaper making equipment and purchase a portion of our diaper needs. Prices for the various transactions are established through negotiations between the related parties. The following is a summary of significant transactions and balances with its subsidiaries and affiliates as of and for the years ended December 31, 2000, December 26, 1999 and December 27, 1998: PMI Pursuant to the Joint Venture Agreement dated January 26, 1996, whereby we acquired a 49 percent interest in Paragon-Mabesa International, S.A. de C.V., our joint venture in Tijuana, Mexico, ("PMI"), we agreed to sell to PMI certain diaper manufacturing equipment, finance the construction of a building and entered into a product supply agreement.
December 31, 2000 December 26, 1999 December 27, 1998 ----------------- ----------------- ----------------- Purchase of equipment $ 1,030 $ - $ - Purchase of diapers from PMI 94,238 72,724 67,346 Due from PMI 32,768 45,181 43,381 Due to PMI 14,431 12,047 7,340
The amounts due from PMI are primarily for equipment purchased, the financing of the building construction and working capital funding and are evidenced by interest-bearing promissory notes and corresponding Purchase Loan and Security Agreements. At December 31, 2000, the notes had an interest rate of LIBOR plus 1 percent, approximately 7 percent at December 31, 2000. The amounts due under these agreements are reflected as either receivables or investments in and advances to unconsolidated subsidiaries, at equity, on the accompanying balance sheets depending upon their maturities. Amounts due to PMI are included in accounts payable and accrued liabilities in 2000; in 1999 and 1998, amounts due to PMI are included in accounts payable and liabilities subject to compromise in the accompanying balance sheets. Page 47 Grupo Mabe We have purchased certain diaper product needs from and also sold excess diaper making equipment to Grupo Mabe.
December 31, 2000 December 26, 1999 December 27, 1998 ----------------- ----------------- ----------------- Sale of equipment $ 1,075 $ 517 $ - Purchase of diapers from Grupo Mabe - 154 1,733 Due from Grupo Mabe 11 10 2,732 Due to Grupo Mabe 355 318 312
The amounts due from Grupo Mabe for equipment purchased are classified as receivables in the accompanying balance sheets. Amounts due to Grupo Mabe are included in accounts payable and accrued liabilities in 2000; in 1999 and 1998, amounts due to Grupo Mabe are included in accounts payable and liabilities subject to compromise in the accompanying balance sheets. MPC We have sold certain diaper making equipment to MPC.
December 31, 2000 December 26, 1999 December 27, 1998 ----------------- ----------------- ----------------- Sale of equipment and technology transfer $ 400 $ - $ - Due from MPC 887 287 287
The amounts due from MPC are classified as receivables in the accompanying balance sheets. Goodbaby We have sold certain diaper making equipment to Goodbaby. December 31, 2000 December 26, 1999 December 27, 1998 ----------------- ----------------- ----------------- Due from Goodbaby $ 325 $ 722 $ 1,182 The amounts due from Goodbaby are classified as receivables in the accompanying balance sheets. At December 26, 1999 and December 27, 1998, we had deferred gains on the sales of equipment of $3,647 and $3,927, respectively. These gains were eliminated as part of our emergence from bankruptcy and implementation of "fresh start" accounting. Note 11: Commitments and Contingencies Substantially all of our assets are owned by us. However, we do have a few minor operating leases on items such as copiers and have other facility leases primarily for satellite sales offices. We have operating lease agreements for certain facilities that expire during the years 2001 through 2003. Future minimum lease payments required under the above mentioned non-cancelable operating leases are: $271 in 2001, $163 in 2002 and $84 in 2003. Rental expense for facilities and equipment was $2,689, $2,607 and $2,676 for the years ended December 31, 2000, December 26, 1999 and December 27, 1998, respectively. Commitments for capital expenditures as of December 31, 2000 are $6,626. Other commitments include purchase contracts for key raw materials at prevailing market rates. Currently we have an agreement with a supplier, subject to competitive terms and conditions, to purchase 100 percent of our requirements of Page 48 superabsorbent polymer ("SAP") through December 31, 2001. Additionally, we have an agreement with a supplier that expires December 31, 2003, to buy, subject to competitive terms and conditions, 100 percent of our pulp requirements from them. We are a party to litigation incidental to our business from time to time. We are not currently a party to any litigation that management believes, if determined adversely to us, would have a material adverse effect on our results of operations, financial condition or cash flows. Kimberly-Clark Worldwide, Inc. v. Paragon Trade Brands, Inc. - On March 20, 2000, Kimberly-Clark Worldwide, Inc. ("K-C") filed suit in the U.S. District Court in Delaware against the Company for allegedly infringing a certain K-C patent related to a method and apparatus for attaching a graphic patch to a disposable absorbent garment. The suit sought injunctive relief, unspecified treble damages, interest and attorneys' fees and expenses. On July 31, 2000, we entered into an agreement with K-C settling this litigation. Under the terms of the agreement, we paid K-C $1.3 million as a royalty on all manufacture, shipment and sale of the old product prior to July 31, 2000 and paid royalties of $.5 million to K-C for products sold during the May 1, 2000 to September 30, 2000 phase out period. Reorganized Paragon was reimbursed $.5 million by the bankruptcy estate for infringement prior to the January 28, 2000 emergence from Chapter 11 protection. As part of the settlement, K-C dismissed the litigation with prejudice, thus terminating the litigation. Note 12: Earnings (Loss) Per Common Share Following is a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per common share:
Successor Predecessor Company Company ------------- ----------------------------------------------- Forty-Eight Five Weeks Ended Year Ended Weeks Ended Year Ended Dec. 31, 2000 Jan. 28, 2000 Dec. 27, 1998 Dec. 26, 1999 ------------- ------------- ------------- ------------- Earnings (loss) from continuing operations $ 14,913 $ (7,272) $ (14,388) $ (48,444) ============ =========== =========== =========== Weighted average number of common shares used in basic EPS (000's) 11,970 11,950 11,950 11,937 Effect of dilutive securities: Stock options (000's) 78 - - - ------------ ----------- ----------- ----------- Weighted average number of common shares and potentially dilutive common shares in diluted EPS (000's) 12,048 11,950 11,950 11,937 ============ =========== =========== =========== Earnings (loss) per common share from continuing operations - basic $ 1.25 $ (.61) $ (1.20) $ (4.06) Earnings (loss) per common share from continuing operations - diluted $ 1.24 $ (.61) $ (1.20) $ (4.06)
Diluted and basic earnings (loss) per share are the same for the years ended December 26, 1999 and December 27, 1998, because the computation of diluted earnings per share was anti-dilutive. Page 49 Note 13: Quarterly Results of Operations (Unaudited) The quarters presented below are all based upon 13-week periods except for the fourth quarter of 2000 whose period consists of 14 weeks in conformance with our fiscal calendar. The amounts below differ from what was previously reported in the respective Form 10-Q's because we have restated the periods for our discontinued Gaffney, South Carolina femcare and adult incontinence segment, the adoption of EITF Issue 00-10, Accounting for Shipping and Handling Fees and Costs, and EITF Issue 00-14, Accounting for Certain Sales Incentives. Fiscal Year Ended December 31, 2000
First Second Third Fourth ---------- --------- --------- ---------- Net sales $ 126,241 $ 128,563 $ 135,484 $ 166,813 Gross profit 25,907 20,973 25,291 36,648 Earnings (loss) from continuing operations before extraordinary item and cumulative effect of (5,972) 1,753 3,774 8,086 change in accounting principle Net income (loss) $ 114,012 $ (1,999) $ (15,113) $ 15,910 ========== ========= ========= ========== Earnings (loss) per basic common share - before extraordinary item and cumulative effect of $ (.50) $ .15 $ .31 $ .67 change in accounting principle Basic income (loss) per common share $ 9.54 $ (.17) $ (1.26) $ 1.33 ========== ========= ========= ========== Earnings (loss) per diluted common share - before extraordinary item and cumulative effect of $ (.50) $ .15 $ .31 $ .66 change in accounting principle Diluted income (loss) per common share $ 9.54 $ (.17) $ (1.25) $ 1.30 ========== ========= ========= ========== Price range of the Company's common stock: High $ 10.00 $ 11.00 $ 12.13 $ 16.00 Low $ 10.00 $ 6.25 $ 10.00 $ 10.19
For the purposes of this presentation the first quarter income (loss) per common share was computed by adding the Predecessor Company five weeks to the successor company eight weeks. Fiscal Year Ended December 26, 1999
First Second Third Fourth ---------- --------- --------- ---------- Net sales $ 123,319 $ 116,224 $ 124,696 $ 122,679 Gross profit 17,257 17,080 19,469 15,588 Loss from continuing operations before extraordinary item and cumulative effect (4,166) (4,901) (1,632) (3,689) of change in accounting principle Net loss $ (7,219) $ (8,385) $ (5,235) $ (7,537) ========== ========= ========= ========== Loss per basic and diluted common share before extraordinary item and cumulative $ (.35) $ (.41) $ (.14) $ (.31) effect of change in accounting principle Basic and diluted loss per common share $ (.60) $ (.70) $ (.44) $ (.63) ========== ========= ========= ========== Price range of the Company's common stock: High $ 6.19 $ 3.50 $ 1.13 $ .60 Low $ 2.06 $ 1.00 $ .16 $ .15
Page 50 Note 14: Subsequent Events In March 2001, through PTBI, we gave effect to a series of transactions with our Mexican joint venture partner. As a result of these transactions, PTBI: - increased its ownership interest in PMI from 49 percent to 51 percent and the Mexican shareholder reduced his ownership interest accordingly. As a result of this transaction, beginning in the first fiscal quarter of 2001, Paragon will change how it accounts for its indirect investment in PMI from the equity method to the consolidation method; - increased its ownership interest in Grupo Mabe from 15 percent to 20 percent and the Mexican shareholder reduced his ownership interest accordingly. As a result of this transaction, beginning in the first fiscal quarter of 2001, Paragon will change how it accounts for its indirect investment in Grupo Mabe from the cost method to the equity method. In connection with this transaction, PTBI's existing option to purchase an additional 34 percent interest in Grupo Mabe at a contractually determined exercise price was terminated; and - reduced its ownership interest in Stronger from 49 percent to 20 percent and our co-shareholder in Stronger increased its ownership interest accordingly. Paragon will continue to account for its indirect investment in Stronger under the equity method. Through PTBI, we also entered into an option agreement with the majority Mexican shareholder in Grupo Mabe and PMI, pursuant to which, under certain circumstances (including a change of control of Paragon or PTBI), each of PTBI and the Mexican shareholder have certain "put" and "call" rights in respect of their respective interests in PMI and Grupo Mabe, in each case at contractually determined exercise prices. Page 51 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Effective April 12, 2000, the Audit Committee (the "Audit Committee") of the Board of Directors of Paragon Trade Brands, Inc. approved the dismissal of Arthur Andersen LLP ("AA") as the independent accountant engaged to audit our financial statements. Also effective April 12, 2000, the Audit Committee approved the engagement of Ernst & Young LLP ("E&Y") as the new independent accountant to replace AA and assigned to it the responsibility of auditing our 2000 financial statements. AA's audit opinion for fiscal year 1998 contained an explanatory fourth paragraph with respect to our ability to continue as a going concern, but contained no other qualifications, modifications or disclaimers. AA's audit opinion for fiscal year 1999 was unqualified. There were no disagreements with AA during our last two fiscal years with respect to any matter of accounting principles or practice, financial statement disclosure or auditing scope or procedure, which if not resolved to the satisfaction of AA, would have caused AA to describe the subject matter of the disagreement in its report. Likewise, there were no reportable events, as specified under Item 304(a)/(1)/(v) of Regulation S-K, during our last two fiscal years. During the last two fiscal years, we have not consulted with E&Y on any matter related to the application of accounting principles to a specified transaction or the type of audit opinion that E&Y might render on our financial statements and no advice, either oral or written, was received by us from E&Y on any such matter. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The section under the heading "Election of Directors and Director Information" entitled "Nominees for Election" in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2001 is incorporated herein by reference for information on the directors of the Registrant. See Item X in Part I hereof for information regarding the executive officers of the Registrant. The section under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2001 is incorporated herein by reference. ITEM 11: EXECUTIVE COMPENSATION The sections under the heading "Election of Directors and Director Information" entitled "Director Compensation" and "Compensation Committee Interlocks and Insider Participation" and the sections under the heading "Executive Compensation" entitled "Compensation of Executives" and "Employment Agreements; Change-in-Control Arrangements" in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2001 are incorporated herein by reference. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the heading "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2001 is incorporated herein by reference. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the heading "Certain Transactions" in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2001 is incorporated herein by reference. Page 52 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedule Report of Independent Auditors Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Changes in Shareholders' Equity (Deficit) Notes to Consolidated Financial Statements Financial Statement Schedule: Schedule II: Valuation and Qualifying Accounts (b) No Current Reports on Form 8-K were filed during the last quarter of the period covered by this report. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS PARAGON TRADE BRANDS, INC. For the three years in the period ended December 31, 2000 (Dollar amounts in thousands)
Balance at Charged Deductions Balance at Beginning to From End of Description of Period Earnings Reserve Period - ------------------------------------------------------- ------------- -------------- ---------------- --------------- Reserve deducted from related assets: Doubtful accounts - accounts receivable 2000....................................... $ 13,799 $ (5,216) $ (1,933) $ 6,650 ============= ============== ================ =============== 1999....................................... $ 8,700 $ 5,031 $ 68 $ 13,799 ============= ============== ================ =============== 1998....................................... $ 6,535 $ 3,787 $ (1,622) $ 8,700 ============= ============== ================ =============== Excess and obsolete items - inventories 2000....................................... $ 6,459 $ 7,742 $ (7,701) $ 6,500 ============= ============== ================ =============== 1999....................................... $ 6,637 $ 11,098 $ (11,276) $ 6,459 ============= ============== ================ =============== 1998....................................... $ 7,397 $ 3,000 $ (3,760) $ 6,637 ============= ============== ================ ===============
Page 53 (c) Exhibits Exhibit Description ------- ----------- Exhibit 2.1 Juliette Stock Purchase Agreement dated March 15, 2001 by and between Hortela Investimentos S.A. and PTB International, Inc. Exhibit 2.2 PMI Stock Purchase Agreement dated March 15, 2001 by and between Gilberto Marin Quintero and PTB International, Inc. Exhibit 3.1 Amended and Restated Certificate of Incorporation of Paragon Trade Brands, Inc./(1)/ Exhibit 3.2 Amended and Restated By-Laws of Paragon Trade Brands, Inc., as amended through January 28, 2000/(1)/ Exhibit 4.1 Amended and Restated Certificate of Incorporation of Paragon Trade Brands, Inc. (See Exhibit 3.1) Exhibit 4.2 Amended and Restated By-Laws of Paragon Trade Brands, Inc. (See Exhibit 3.2) Exhibit 4.3 Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January 28, 2000 (See Exhibit 10.30) Exhibit 4.4 First Supplemental Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January 28, 2000 (See Exhibit 10.31) Exhibit 4.5 Warrant Agreement between Paragon Trade Brands, Inc. and ChaseMellon Shareholder Services, L.L.C. dated as of January 28, 2000 Exhibit 9 Shareholders' Agreement among Paragon Trade Brands, Inc., PTB Acquisition Company, LLC, Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other Shareholders, dated as of January 28, 2000 (See Exhibit 10.28) Exhibit 10.1 Intellectual Property Agreement, dated as of February 2, 1993, between Weyerhaeuser and Paragon Exhibit 10.2 License, dated as of February 2, 1993, between Weyerhaeuser and Paragon Exhibit 10.3 Sublicense, dated as of February 2, 1993, between Weyerhaeuser and Paragon Exhibit 10.4 Diaper Patent Agreement by and among Johnson & Johnson, Weyerhaeuser Company, Paragon Trade Brands, Inc. and Scott Health Care Exhibit 10.5** Agreement for the Purchase and Sale of Pulp made as of November 28, 2000, between Weyerhaeuser Company and Paragon Trade Brands Exhibit 10.6* Employment Agreement, dated as of August 11, 1998, between Paragon and Bobby V. Abraham/(2)/ Exhibit 10.7* Employment Agreement, dated as of May 4, 2000, between Paragon and Page 54 Michael T. Riordan/(3)/ Exhibit 10.8* Consulting and Separation Agreement by and between Bobby V. Abraham and Paragon Trade Brands, Inc. dated as of May 5, 2000/(3)/ Exhibit 10.9* Novation Agreement and General Release by and between Robert McClain and Paragon Trace Brands, Inc. Exhibit 10.10* Employment agreement, dated as of, November 14, 2000, between Paragon and Stanley Littman Exhibit 10.11* Employment Agreement, dated as of, November 14, 2000, between Paragon and Jeffrey S. Schoen Exhibit 10.12* Paragon Trade Brands, Inc. Stock Option Plan/(1)/ Exhibit 10.13* Paragon Trade Brands, Inc. Stock Option Plan for Non- Employee Directors Exhibit 10.14 Credit Agreement dated as of January 28, 2000 Among Paragon Trade Brands, Inc. as Borrower and The Lenders and Issuers Party Hereto and Citicorp USA, Inc. as Administrative Agent and Salomon Smith Barney as Arranger/(1)/ Exhibit 10.14.1 Pledge and Security Agreement dated as of January 28, 2000 Among Paragon Trade Brands, Inc. and Each Other Grantor from Time to Time Party Hereto and Citicorp USA, Inc. as Administrative Agent/(1)/ Exhibit 10.15** Sales Contract, dated as of April 30, 1998, between Clariant Corporation and Paragon Trade Brands, Inc./(4)/ Exhibit 10.16 Lease Agreement between Cherokee County, South Carolina and Paragon Trade Brands, Inc., dated as of October 1, 1996/(5)/ Exhibit 10.17 Settlement Agreement, dated as of February 2, 1999, between Paragon Trade Brands, Inc. and The Procter & Gamble Company/(6)/ Exhibit 10.18 U.S. License Agreement, dated as of February 2, 1999, between The Procter & Gamble Company and Paragon Trade Brands, Inc./(6)/ Exhibit 10.19 Canadian License Agreement, dated as of February 2, 1999, between The Procter & Gamble Company and Paragon Trade Brands, Inc./(6)/ Exhibit 10.20 U.S. License Agreement, dated as of February 2, 1999, between The Procter & Gamble Company and Paragon Trade Brands, Inc./(6)/ Exhibit 10.21 Canadian License Agreement, dated as of February 2, 1999, between The Procter & Gamble Company and Paragon Trade Brands, Inc./(6)/ Exhibit 10.22 Settlement Agreement, dated as of March 19, 1999, between Kimberly-Clark Corporation and Paragon Trade Brands, Inc./(6)/ Exhibit 10.23 License Agreement Between Kimberly-Clark Corporation and Paragon Trade Brands, Inc., dated as of March 15, 1999/(6)/ Exhibit 10.24 License Agreement Between Kimberly-Clark Corporation and Paragon Trade Brands, Inc., dated as of March 15, 1999/(6)/ Exhibit 10.25 Modified Second Amended Plan of Reorganization/(7)/ Page 55 Exhibit 10.26 Stock Purchase Agreement by and Between PTB Acquisition Company LLC and Paragon Trade Brands, Inc., dated as of November 16, 1999/(8)/ Exhibit 10.27 Shareholders' Agreement Among Paragon Trade Brands, Inc., PTB Acquisition Company, LLC, Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other Shareholders, dated as of January 28, 2000/(1)/ Exhibit 10.28 Registration Rights Agreement Among Paragon Trade Brands, Inc., PTB Acquisition Company, Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other Shareholders, dated as of January 28, 2000/(1)/ Exhibit 10.29 Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January 28, 2000/(9)/ Exhibit 10.30 First Supplemental Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January 28, 2000/(9)/ Exhibit 10.31 Amended and Restated By-Laws (Estatutas Sociales) of --------- -------- Grupo P.I. Mabe, S.A. de C.V. Exhibit 10.31.1 English Summary of the Material Provisions of the Amended and Restated By-Laws (Estatutos Sociales) of --------- -------- Grupo P.I. Mabe, S.A. de C.V. Exhibit 11 Computation of Per Share Earnings (See Note 12 to Financial Statements) Exhibit 16 Letter re Change in Certifying Accountant/(10)/ Exhibit 21.1 Subsidiaries of Paragon Trade Brands, Inc. - ------------------ *Management contract or compensatory plan or arrangement. **Confidential treatment has been requested as to a portion of this document. (1) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 26, 1999. (2) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 27, 1998. (3) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 25, 2000. (4) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 28, 1998. (5) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 29, 1996. (6) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 27, 1998. (7) Incorporated by reference from Paragon Trade Brands, Inc.'s current report on Form 8-K dated January 13, 2000. (8) Incorporated by reference from Paragon Trade Brands, Inc.'s Application for Qualification of Indenture Under the Trust Indenture Act of 1939 on Form T-3, filed with the Commission on January 26, 2000. (9) Incorporated by reference from Paragon Trade Brands, Inc.'s current report on Form 8-K dated January 28, 2000. (10) Incorporated by reference from Paragon Trade Brands, Inc.'s current report on Form 8-K dated April 12, 2000. Page 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 30th day of March, 2001. PARAGON TRADE BRANDS, INC. By: /s/ MICHAEL T. RIORDAN ------------------------------- Michael T. Riordan Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on this 30th day of March, 2001. /s/ MICHAEL T. RIORDAN /s/ DAVID W. COLE - ------------------------------------ ----------------------------------- Michael T. Riordan David W. Cole Chairman, President and Chief Executive Director Officer /s/ DAVID C. NICHOLSON /s/ GREG S. FELDMAN - ------------------------------------ ----------------------------------- David C. Nicholson Greg S. Feldman Executive Vice President and Chief Director Financial Officer (Principal Financial Officer) /s/ DAVID C. MARIANO ----------------------------------- /s/ MARK J. THOMAS David C. Mariano - ------------------------------------ Director Mark J. Thomas Vice President and Controller (Principal Accounting Officer) /s/ JAMES R. McMANUS ----------------------------------- James R. McManus Director /s/ THOMAS F. RYAN, JR. ----------------------------------- Thomas F. Ryan, Jr. Director /s/ J. DALE SHERRATT ----------------------------------- J. Dale Sherratt Director /s/ CARL M. STANTON ----------------------------------- Carl M. Stanton Director /s/ THOMAS J. VOLPE ------------------------------------ Thomas J. Volpe Director Page 57 EXHIBIT INDEX Exhibit Description - ------- ----------- Exhibit 2.1 Juliette Stock Purchase Agreement dated March 15, 2001 by and between Hortela Investimentos S.A. and PTB International, Inc. Exhibit 2.2 PMI Stock Purchase Agreement dated March 15, 2001 by and between Gilberto Marin Quintero and PTB International, Inc. Exhibit 3.1 Amended and Restated Certificate of Incorporation of Paragon Trade Brands, Inc./(1)/ Exhibit 3.2 Amended and Restated By-Laws of Paragon Trade Brands, Inc., as amended through January 28, 2000/(1)/ Exhibit 4.1 Amended and Restated Certificate of Incorporation of Paragon Trade Brands, Inc. (See Exhibit 3.1) Exhibit 4.2 Amended and Restated By-Laws of Paragon Trade Brands, Inc. (See Exhibit 3.2) Exhibit 4.3 Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January 28, 2000 (See Exhibit 10.30) Exhibit 4.4 First Supplemental Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January 28, 2000 (See Exhibit 10.31) Exhibit 4.5 Warrant Agreement between Paragon Trade Brands, Inc. and ChaseMellon Shareholder Services, L.L.C. dated as of January 28, 2000 Exhibit 9 Shareholders' Agreement among Paragon Trade Brands, Inc., PTB Acquisition Company, LLC, Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other Shareholders, dated as of January 28, 2000 (See Exhibit 10.28) Exhibit 10.1 Intellectual Property Agreement, dated as of February 2, 1993, between Weyerhaeuser and Paragon Exhibit 10.2 License, dated as of February 2, 1993, between Weyerhaeuser and Paragon Exhibit 10.3 Sublicense, dated as of February 2, 1993, between Weyerhaeuser and Paragon Page 58 Exhibit 10.4 Diaper Patent Agreement by and among Johnson & Johnson, Weyerhaeuser Company, Paragon Trade Brands, Inc. and Scott Health Care Exhibit 10.5** Agreement for the Purchase and Sale of Pulp made as of November 28, 2000, between Weyerhaeuser Company and Paragon Trade Brands Exhibit 10.6* Employment Agreement, dated as of August 11, 1998, between Paragon and Bobby V. Abraham/(2)/ Exhibit 10.7* Employment Agreement, dated as of May 4, 2000, between Paragon and Michael T. Riordan/(3)/ Exhibit 10.8* Consulting and Separation Agreement by and between Bobby V. Abraham and Paragon Trade Brands, Inc. dated as of May 5, 2000/(3)/ Exhibit 10.9* Novation Agreement and General Release by and between Robert McClain and Paragon Trace Brands, Inc. Exhibit 10.10* Employment agreement, dated as of, November 14, 2000, between Paragon and Stanley Littman Exhibit 10.11* Employment Agreement, dated as of, November 14, 2000, between Paragon and Jeffrey S. Schoen Exhibit 10.12* Paragon Trade Brands, Inc. Stock Option Plan/(1)/ Exhibit 10.13* Paragon Trade Brands, Inc. Stock Option Plan for Non-Employee Directors Exhibit 10.14 Credit Agreement dated as of January 28, 2000 Among Paragon Trade Brands, Inc. as Borrower and The Lenders and Issuers Party Hereto and Citicorp USA, Inc. as Administrative Agent and Salomon Smith Barney as Arranger/(1)/ Exhibit 10.14.1 Pledge and Security Agreement dated as of January 28, 2000 Among Paragon Trade Brands, Inc. and Each Other Grantor from Time to Time Party Hereto and Citicorp USA, Inc. as Administrative Agent/(1)/ Exhibit 10.15** Sales Contract, dated as of April 30, 1998, between Clariant Corporation and Paragon Trade Brands, Inc./(4)/ Exhibit 10.16 Lease Agreement between Cherokee County, South Carolina and Paragon Trade Brands, Inc., dated as of October 1, 1996/(5)/ Exhibit 10.17 Settlement Agreement, dated as of February 2, 1999, between Paragon Trade Brands, Inc. and The Procter & Gamble Company/(6)/ Exhibit 10.18 U.S. License Agreement, dated as of February 2, 1999, between The Procter & Gamble Company and Paragon Trade Brands, Inc./(6)/ Exhibit 10.19 Canadian License Agreement, dated as of February 2, 1999, between The Procter & Gamble Company and Paragon Trade Brands, Inc./(6)/ Exhibit 10.20 U.S. License Agreement, dated as of February 2, 1999, between The Procter & Gamble Company and Paragon Trade Brands, Inc./(6)/ Exhibit 10.21 Canadian License Agreement, dated as of February 2, 1999, between The Procter & Gamble Company and Paragon Trade Brands, Inc./(6)/ Exhibit 10.22 Settlement Agreement, dated as of March 19, 1999, between Kimberly-Clark Page 59 Corporation and Paragon Trade Brands, Inc./(6)/ Exhibit 10.23 License Agreement Between Kimberly-Clark Corporation and Paragon Trade Brands, Inc., dated as of March 15, 1999/(6)/ Exhibit 10.24 License Agreement Between Kimberly-Clark Corporation and Paragon Trade Brands, Inc., dated as of March 15, 1999/(6)/ Exhibit 10.25 Modified Second Amended Plan of Reorganization/(7)/ Exhibit 10.26 Stock Purchase Agreement by and Between PTB Acquisition Company LLC and Paragon Trade Brands, Inc., dated as of November 16, 1999/(8)/ Exhibit 10.27 Shareholders' Agreement Among Paragon Trade Brands, Inc., PTB Acquisition Company, LLC, Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other Shareholders, dated as of January 28, 2000/(1)/ Exhibit 10.28 Registration Rights Agreement Among Paragon Trade Brands, Inc., PTB Acquisition Company, Co-Investment Partners, L.P., Ontario Teachers Pension Plan Board and Certain Other Shareholders, dated as of January 28, 2000/(1)/ Exhibit 10.29 Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January 28, 2000/(9)/ Exhibit 10.30 First Supplemental Indenture for $182,000,000 11.25% Senior Subordinated Notes due 2005, dated as of January 28, 2000/(9)/ Exhibit 10.31 Amended and Restated By-Laws (Estatutos Sociales) of Grupo --------- -------- P.I. Mabe, S.A. de C.V. Exhibit 10.31.1 English Summary of the Material Provisions of the Amended and Restated By-Laws (Estatutos Sociales) of Grupo P.I. Mabe, --------- -------- S.A. de C.V. Exhibit 11 Computation of Per Share Earnings (See Note 12 to Financial Statements) Exhibit 16 Letter re Change in Certifying Accountant/(10)/ Exhibit 21.1 Subsidiaries of Paragon Trade Brands, Inc. - ------------------ *Management contract or compensatory plan or arrangement. **Confidential treatment has been requested as to a portion of this document. (1) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 26, 1999. (2) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 27, 1998. (3) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 25, 2000. (4) Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 28, 1998. (5) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 29, 1996. (6) Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 27, 1998. (7) Incorporated by reference from Paragon Trade Brands, Inc.'s current report on Form 8-K dated January 13, 2000. Page 60 (8) Incorporated by reference from Paragon Trade Brands, Inc.'s Application for Qualification of Indenture Under the Trust Indenture Act of 1939 on Form T-3, filed with the Commission on January 26, 2000. (9) Incorporated by reference from Paragon Trade Brands, Inc.'s current report on Form 8-K dated January 28, 2000. (10) Incorporated by reference from Paragon Trade Brands, Inc.'s current report on Form 8-K dated April 12, 2000. Page 61 EX-2.1 2 0002.txt JULIETTE STOCK PURCHASE AGREEMENT EXHIBIT 2.1 JULIETTE STOCK PURCHASE AGREEMENT BETWEEN HORTELA INVESTIMENTOS S.A., as Seller AND PTB INTERNATIONAL, INC., as Purchaser ------------------------------------ Dated as of March 15, 2001 ------------------------------------ JULIETTE STOCK PURCHASE AGREEMENT --------------------------------- JULIETTE STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of March 15, 2001, --------- by and between Hortela Investimentos S.A., a Uruguayan corporation (sociedad -------- anonima) (the "Seller") and PTB International, Inc., a Delaware corporation (the - ------- ------ "Purchaser"). --------- The Seller and the Purchaser are parties to the Irrevocable Call Option Agreement, dated as of November 6, 1996 (the "Hortela-PTBI Irrevocable Call ----------------------------- Option Agreement"), as modified by the Inducement Agreement, dated as of July - ---------------- 21, 1997, by and among L.T. International Options, Ltd. (predecessor by merger of Juliette (as defined below)), International Disposable Products Investments, Ltd. (predecessor by merger of the Seller), the Seller, the Purchaser and Paragon Trade Brands, Inc. The Seller, the Purchaser and together with other parties have entered into a Framework Agreement, dated as of January 31, 2001 (the "Framework Agreement"). Capitalized expressions used herein without ------------------- definition shall have the respective meanings assigned to them in the Framework Agreement. It is a condition to the consummation of the transactions contemplated by the Framework Agreement that the Seller and the Purchaser concurrently enter into, and consummate the Transaction (as defined below) contemplated by, this Agreement. The Seller is the sole legitimate legal and beneficial owner of 100% of the issued and outstanding shares (the "Juliette Shares") of capital stock of --------------- Juliette Research, S.A. ("Juliette"), a Uruguayan corporation (sociedad -------- -------- anomina). Juliette is the beneficial and record owner of an aggregate of 2,941 shares (the "Mabesa Shares"), representing 5% of the issued and outstanding ------------- shares of capital stock (acciones ordinarias), on a fully-diluted basis, of ------------------- Grupo P.I. Mabe, S.A. de C.V. ("Mabesa"), a Mexican corporation (sociedad ------ -------- anonima de capital variable), which Mabesa Shares are fully subscribed and paid - --------------------------- for and are therefore "acciones liberadas." The Purchaser wishes to exercise ------------------ its call option to purchase the Juliette Shares under the Hortela-PTBI Irrevocable Call Option Agreement, and the Seller wishes to sell to the Purchaser the Juliette Shares, upon the terms and subject to the conditions set forth in this Agreement and the Hortela-PTBI Irrevocable Call Option Agreement. Now, therefore, the parties hereto agree as follows: ARTICLE I SALE AND PURCHASE OF THE JULIETTE SHARES ---------------------------------------- 1.1 Sale and Purchase of the Juliette Shares. ---------------------------------------- At the Closing (as defined below), the Seller shall sell to the Purchaser, and the Purchaser shall purchase from the Seller, upon the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties and agreements of the parties contained herein, the Juliette Shares, free and clear of any Lien, and in consideration therefor, the Seller shall be entitled to receive from the Purchaser an amount equal to US$14,202,272 (the "Exercise Price"), by wire transfer to an account in New -------------- York, New York, designated therefor by the Seller in a notice to the Purchaser three (3) Business Days prior to the Closing. 1.2 Deliveries at the Closing. ------------------------- (a) At the Closing, the Seller shall deliver to the Purchaser: (i) the stock certificates representing the Juliette Shares (which shall represent 100% of the issued and outstanding shares of capital stock of Juliette, on a fully-diluted basis), duly endorsed in favor of the Purchaser or accompanied by stock powers duly executed, in proper form for transfer to the Purchaser; (ii) evidence reasonably satisfactory to the Purchaser of the due authorization and issuance of the Juliette Shares described in item (a)(i) above; (iii) evidence reasonably satisfactory to the Purchaser of the registration of the Juliette Shares described in item (i) in the books and registers of Juliette in the name of the Seller, as the sole legitimate legal and beneficial owner thereof; (iv) all requisite documentation, executed by the Seller, as the case may be, to give effect to the registration of the Juliette Shares described in item (a)(i) above in the books and registers of Juliette, in the name and for the benefit of the Purchaser. (b) At the Closing, the Purchaser shall deliver to the Seller the Exercise Price, subject to the provisions of Section 1.3. 2 1.3 Taxes. ----- (a) The Seller is solely responsible for any transfer, stamp and similar taxes and for any income taxes of the Seller and Juliette, resulting from the consummation, prior to the consummation of the Transaction, of the exercise by Juliette of its option to acquire the Mabesa Shares under the terms and conditions of the Juliette-Marin Stock Purchase and Termination Agreement and the Marin-Juliette Irrevocable Call Option Agreement, and (ii) the Transaction. (b) The Purchaser is solely responsible for any income taxes, if any, of the Purchaser resulting from the consummation of the Transaction. 1.4 Closing; Closing Date. --------------------- The closing (the "Closing") of the sale and purchase of the Juliette ------- Shares (the "Transaction") shall take place at the offices of Creel, Garcia- ----------- Cuellar y Muggenburg, S.C., Mexico City, or such other place as the parties may agree, at 10:00 a.m., local time, on the date hereof. The time and date upon which the Closing occurs is herein called the "Closing Date." ------------ ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER -------------------------------------------- The Seller represents and warrants to the Purchaser as follows: 2.1 Organization and Capitalization of Hortela and Juliette. ------------------------------------------------------- (a) Hortela (i) is a Uruguayan corporation (sociedad anonima) duly ---------------- organized, validly existing and in good standing under the laws of Uruguay, and (ii) has all the requisite corporate power and lawful authority to conduct its business, as it is being conducted on and as of the Closing Date. (b) Juliette (i) is a Uruguayan corporation (sociedad anonima) ---------------- duly organized, validly existing and in good standing under the laws of Uruguay, (ii) has all the requisite corporate power and lawful authority to conduct its business, and (iii) is authorized to issue shares of common stock, with a par value (valor nominal) of five U.S. Dollars (U.S.$5.00) per share, of which 50 ------------- shares are issued and outstanding. All of the issued and outstanding shares of common stock of Juliette are duly authorized and validly issued, fully paid and non-assessable. No other class of capital stock or other ownership interests in Juliette is authorized or outstanding. 3 (c) Hortela owns, free and clear of any Lien, exactly 50 shares of Juliette, representing 100% of the issued and outstanding shares of common stock of Juliette, on a fully-diluted basis. Hortela does not, directly or indirectly, own any interest in any Person other than Juliette. (d) Juliette owns, free and clear of any Lien, exactly 2,941 shares of Mabesa, representing 5% of the issued and outstanding shares of common stock of Mabesa, on a fully-diluted basis. Juliette does not, directly or indirectly, own any interest in any Person other than Mabesa. (e) Except for this Agreement, the Hortela-PTBI Irrevocable Call Option Agreement (which is being terminated concurrently herewith), the Marin- Juliette Irrevocable Call Option Agreement (which is being terminated concurrently herewith) and the Framework Agreement and after giving effect to the transactions contemplated by the Termination and Release Agreement, there is no outstanding right, subscription, warrant, call, unsatisfied preemptive right, option or other agreement of any kind to purchase or otherwise to receive from Hortela or Juliette any of the common stock or any other capital stock or any other security of Juliette or Mabesa, and there is no outstanding security of any kind of Hortela or Juliette convertible into any such common or capital stock. (f) At the Closing, upon payment to the Seller in accordance with Section 1.1 and subject to Section 1.3, the Seller will convey to the Purchaser good, valid and marketable title to the Juliette Shares (which represent 100% of the issued and outstanding capital stock of Juliette, on a fully-diluted basis), free and clear of any Lien. 2.2 Tax Compliance. -------------- Juliette has (x) timely and adequately filed any and all required income tax and other returns and all such tax returns are correct and complete in all material respects, and (y) paid all income and other Taxes owing by it, for all periods ending on or before the date hereof. Juliette has no liability for Taxes, for any period prior to the Closing Date, that is or could become a liability, directly or indirectly, of Mabesa or the Purchaser. 2.3 Juliette Balance Sheet. ---------------------- The Seller has delivered to PTBI an unaudited balance sheet of Juliette (the "Juliette Balance Sheet") on and as of the Closing Date (the ---------------------- "Juliette Balance Sheet Date"), attached as Schedule 2.3 hereto. The Juliette - ---------------------------- ------------ Balance Sheet fairly presents in all respects the assets and liabilities of Juliette, on and as of such Juliette Balance Sheet Date, in accordance with generally accepted accounting principles in Uruguay, consistently applied. As set forth in the Juliette Balance Sheet, on and as of the Juliette Balance Sheet Date, Juliette does not have any assets or any Financial Liability or any other direct or indirect Liability. 4 Since its date of incorporation, Juliette has not declared, set aside or paid any dividend or other distribution (when in cash, securities or property or any combination thereof) in respect of any capital stock of Juliette. 2.4 Claims. ------ There is no Claim pending, or to the knowledge of Hortela or Juliette threatened, against or affecting Hortela or Juliette, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority outstanding against or affecting Hortela or Juliette with respect to the transactions contemplated by this Agreement. 2.5 Special Purpose Companies. ------------------------- (a) Since its date of incorporation, Hortela has not (i) engaged in any activity or business other than (aa) holding the Juliette Shares and (bb) acting as party to, exercising its rights and performing its obligations under this Agreement, the Framework Agreement, the Hortela-PTBI Irrevocable Call Option Agreement and the escrow arrangements related thereto, or (ii) incurred any indebtedness or obligations (including, without limitation, any indebtedness for borrowed money), except for legal fees incurred (and paid prior to the Closing Date) in connection with the foregoing activities. (b) Since its date of incorporation, Juliette has not (i) engaged in any activity or business other than (aa) exercising its option to acquire certain shares under the terms and conditions of the Juliette-Marin Stock Purchase and Termination Agreement and the Marin-Juliette Irrevocable Call Option Agreement and (bb) acting as party to, exercising its rights and performing its obligations under this Agreement, the Framework Agreement, the Marin-Juliette Irrevocable Call Option Agreement and the escrow arrangements related thereto, or (ii) incurred any indebtedness or obligations (including, without limitation, any indebtedness for borrowed money). ARTICLE III MISCELLANEOUS ------------- 3.1 Entire Agreement. This Agreement, the Framework Agreement, the ---------------- Hortela-PTBI Irrevocable Call Option Agreement, the Termination and Release Agreement and the Indemnification Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements or understandings with respect thereto, both written and oral. 3.2 Amendments and Waiver. Any provision of this Agreement may be --------------------- amended or waived if, and only if, such amendment or waiver is in writing 5 and signed, in the case of an amendment by each party hereto, or in the case of a waiver by the party against whom the waiver is to be effective. 3.3 Successors and Assigns. The provisions of this Agreement shall be ---------------------- binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN SUCH STATE, WITHOUT REGARD TO CHOICE OF LAW PRINCIPLES OF SUCH STATE. 3.5 Arbitration. Each party to this Agreement hereby irrevocably ----------- agrees that any dispute, controversy or Claim (a "dispute") arising out of (or ------- relating to) this Agreement or any of the transactions contemplated hereby shall first be resolved amicably between the parties, and, if the parties are unable to resolve any such dispute within a period of 30 (thirty) Business Days after notice thereof has been given by one party to the other, the parties agree that the dispute shall be submitted to the then Chief Executive Officers of Paragon and PTBI and Hortela for good faith discussions and resolution and, if the parties are unable to resolve any such dispute within a period of 20 (twenty) Business Days of its submission to such mediation, any remaining dispute between the parties shall be submitted to, and resolved by, final and binding arbitration held in New York, New York, U.S.A. (or in such other city as the parties to the dispute may agree) conducted in accordance with the rules of the International Chamber of Commerce (the "ICC Arbitration") as currently in --------------- effect. Any ICC Arbitration in respect of any dispute shall be conducted in English. The parties irrevocably agree that any notice with respect to any ICC Arbitration shall be given to their respective addresses as set forth on Schedule 9.9 of the Framework Agreement. 3.6 Headings. The headings in this Agreement are for reference only, -------- and shall not affect the interpretation of this Agreement. 3.7 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. HORTELA INVESTIMENTOS S.A. By: /s/ Jeroen Van Zanten -------------------------- Name: Jeroen Van Zanten Title: Director/President PTB INTERNATIONAL, INC. By: /s/ Michael Riordan ------------------------ Name: Michael Riordan Title: Chairman Signature page to Juliette Stock Purchase Agreement 7 EX-2.2 3 0003.txt PMI STOCK PURCHASE AGREEMENT EXHIBIT 2.2 ================================================================================ PMI STOCK PURCHASE AGREEMENT BETWEEN GILBERTO MARIN QUINTERO, as Seller AND PTB INTERNATIONAL, INC., as Purchaser ---------------------------- Dated as of March 15, 2001 ---------------------------- PMI STOCK PURCHASE AGREEMENT ---------------------------- PMI STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of March 15, --------- 2001, by and between Gilberto Marin Quintero (the "Seller") and PTB ------ International, Inc., a Delaware corporation (the "Purchaser"). --------- The Seller and the Purchaser and together with certain other parties have entered into a Framework Agreement, dated as of January 31, 2001 (the "Framework Agreement"). It is a condition to the consummation of the - -------------------- transactions contemplated by the Framework Agreement that the Seller and the Purchaser concurrently enter into, and consummate the Transaction (as defined below) contemplated by, this Agreement. Capitalized expressions used herein without definition shall have the respective meanings assigned to them in the Framework Agreement. The Seller wishes to sell to the Purchaser, and the Purchaser wishes to purchase from the Seller, an aggregate of 508 shares (the "PMI Shares"), ---------- representing 2% of the issued and outstanding shares of capital stock (acciones -------- ordinarias), on a fully-diluted basis, of Paragon-Mabesa International, S.A. de - ---------- C.V. ("PMI"), a Mexican corporation (sociedad anonima de capital variable), --- ------------------------------------ which PMI Shares are fully subscribed and paid for and therefore "acciones -------- liberadas", in each case upon the terms and subject to the conditions set forth - --------- in this Agreement. Now, therefore, the parties hereto agree as follows: ARTICLE I SALE AND PURCHASE OF THE PMI SHARES ----------------------------------- 1.1 Sale and Purchase of the PMI Shares. ----------------------------------- At the Closing (as defined below), the Seller shall sell to the Purchaser, and the Purchaser shall purchase from the Seller, upon the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties and agreements of the parties contained herein, the PMI Shares, free and clear of any Lien, and in consideration therefor, the Seller shall be entitled to receive from the Purchaser an amount equal to US$500,000 (the "PMI Purchase Amount"), by wire transfer to an account in Mexico ------------------- designated therefor by the Seller in a notice to the Purchaser three (3) Business Days prior to the Closing. 1.2 Delivery of the PMI Shares. -------------------------- (a) At the Closing, the Seller shall deliver to the Purchaser: (i) the stock certificates representing the PMI Shares (which shall represent two percent (2%) of the issued and outstanding shares of capital stock of PMI, on a fully-diluted basis), duly endorsed in property in favor of the Purchaser, which shares are fully subscribed and paid for, and are therefore "acciones liberadas"; ------------------ (ii) evidence reasonably satisfactory to the Purchaser of the due authorization and issuance of the PMI Shares described in item (a)(i) above; (iii) evidence reasonably satisfactory to the Purchaser of the registration of the PMI Shares described in item (a)(i) in the books and registers of PMI in the name of the Seller; and (iv) all requisite documentation, executed by the Seller or PMI, as the case may be, to give effect to the registration of the PMI Shares described in item (a)(i) above in the books and registers of PMI, in the name and for the benefit of the Purchaser. (b) At the Closing, the Purchaser shall deliver to the Seller the PMI Purchase Amount, subject to the provisions of Section 1.3. 1.3 Taxes. ----- (a) The Seller is solely responsible for any transfer, stamp and similar taxes and for any income taxes of the Seller, resulting from the consummation of the Transaction. (b) The Purchaser is solely responsible for any income taxes, if any, of the Purchaser resulting from the Consummation of the Transaction. 1.4 Closing; Closing Date. --------------------- The closing (the "Closing") of the sale and purchase of the PMI Shares ------- (the "Transaction") shall take place at the offices of Creel, Garcia-Cuellar y ----------- Muggenburg, S.C., Mexico City, or such other place as the parties may agree, at 10:00 a.m., local time, on the date hereof. The time and date upon which the Closing occurs is herein called the "Closing Date." ------------ 2 ARTICLE II REPRESENTATIONS AND WARRANTIES ------------------------------ 2.1 Representations and Warranties of the Seller. The Seller -------------------------------------------- represents and warrants to the Purchaser as follows: (a) Organization and Capitalization of PMI. -------------------------------------- (i) PMI (x) is a Mexican corporation (sociedad anonima de ------------------- capital variable) duly organized, validly existing and in good standing ---------------- under the laws of Mexico, and is duly registered in the Registro Publico de Comercio of Tijuana, Mexico, (y) has all the requisite corporate power and lawful authority to conduct its business, as it is being conducted on and as of the Closing Date, and (z) is authorized to issue shares of common stock (acciones ordinarias), with a stated value (valor nominal) of Ps One ------------------- ------------- Thousand (1,000 Mexican pesos) per share, of which 25,397 shares are duly issued and outstanding. All of the issued and outstanding shares of common stock of PMI are duly authorized and validly issued, fully subscribed paid for and are therefore "acciones liberadas". No other class of capital stock ------------------ or other ownership interests in PMI is authorized or outstanding. (ii) Except for this Agreement and the Framework Agreement and after giving effect to the transactions contemplated by the Termination and Release Agreement, there is no outstanding right, subscription, warrant, call, unsatisfied preemptive right, option or other agreement of any kind to purchase or otherwise to receive from Marin or PMI any of the common stock or any other capital stock or any other security of PMI, and there is no outstanding security of any kind of PMI convertible into any such common or capital stock. (iii) Immediately prior to giving effect to the Transaction, the Seller owns, free and clear of any Liens, exactly 12,970 shares of PMI, representing 51% of the issued and outstanding shares of capital stock of PMI, on a fully-diluted basis. At the Closing, upon payment to the Seller in accordance with Section 1.1 and subject to Section 1.3, the Seller will convey to the Purchaser good, valid and marketable title in and to the PMI Shares (which represent 2% of the issued and outstanding capital stock of PMI, on a fully-diluted basis), free and clear of any Lien (except any Lien on such shares created pursuant to the terms and conditions of the Option Agreement). Immediately after giving effect to the Transaction, the Seller will own, free and clear of any Lien (except any Lien on such shares created pursuant to the terms and conditions of the Option Agreement), exactly 12,462 shares of PMI, representing 49% of the issued and outstanding capital stock of PMI, on a fully-diluted basis. 3 (b) Tax Compliance. -------------- PMI has (i) timely and adequately filed any and all required income tax and other tax returns and all such tax returns are correct and complete in all material respects, and (ii) paid all material income and other Taxes owing by it, for all periods ending on or before the date hereof. (c) PMI Balance Sheet. ----------------- (i) The Seller has delivered to PTBI an unaudited balance sheet of PMI (the "PMI Balance Sheet") as of December 31, 2000 (the "PMI Balance ----------------- ----------- Sheet Date"), attached as Schedule 2.1(c) hereto. The PMI Balance Sheet ---------- --------------- fairly presents in all material respects the assets and liabilities of PMI as owner and operator of its business, on and as of such PMI Balance Sheet Date, in accordance with Mexican GAAP consistently applied, subject to normal year-end audit adjustments. Since the PMI Balance Sheet Date, PMI has not declared, set aside or paid any dividend or other distribution (when in cash, securities or property or any combination thereof) in respect of any capital stock of PMI. (ii) Except as and to the extent set forth on the PMI Balance Sheet, as of the PMI Balance Sheet Date, PMI did not have any material Financial Liability that was not fully and adequately reflected on the PMI Balance Sheet. (iii) On and as of the Closing Date, (i) PMI has not incurred any material Financial Liabilities or, except in the ordinary course of business, any other Liabilities since the PMI Balance Sheet Date, and (ii) there has not been any material adverse change in the assets, business, properties, prospects or condition (financial or otherwise) of PMI or the business of PMI since the PMI Balance Sheet Date. 2.2 Representations and Warranties of the Purchaser. The ----------------------------------------------- Purchaser represents and warrants to the Seller that, as of the date hereof, to the Purchaser's knowledge (as defined below) the Seller is not in breach of its representations and warranties contained in Section 2.1(b) and Section 2.1(c) above. For purposes hereof, "Purchaser's knowledge" means the actual knowledge --------------------- of any of the persons identified in Schedule 2.2 hereto. ------------ ARTICLE III MISCELLANEOUS ------------- 3.1 Entire Agreement. This Agreement, the Framework Agreement ---------------- and the Indemnification Agreement constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements or understandings with respect thereto, both written and oral. 4 3.2 Amendments and Waiver. Any provision of this Agreement may --------------------- be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment by each party hereto, or in the case of a waiver by the party against whom the waiver is to be effective. 3.3 Successors and Assigns. The provisions of this Agreement ---------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND ------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF MEXICO. 3.5 Arbitration. Each party to this Agreement hereby ----------- irrevocably agrees that any dispute, controversy or Claim (a "dispute") arising ------- out of (or relating to) this Agreement or any of the transactions contemplated hereby shall first be resolved amicably between the parties, and, if the parties are unable to resolve any such dispute within a period of 30 (thirty) Business Days after notice thereof has been given by one party to the other, the parties agree that the dispute shall be submitted to the then Chief Executive Officers of Paragon and PTBI and Marin for good faith discussions and resolution and, if the parties are unable to resolve any such dispute within a period of 20 (twenty) Business Days of its submission to such mediation, any remaining dispute between the parties shall be submitted to, and resolved by, final and binding arbitration held in New York, New York, U.S.A. (or in such other city as the parties to the dispute may agree) conducted in accordance with the rules of the International Chamber of Commerce (the "ICC Arbitration") as currently in --------------- effect. Any ICC Arbitration in respect of any dispute shall be conducted in English. The parties irrevocably agree that any notice with respect to any ICC Arbitration shall be given to their respective addresses as set forth on Schedule 9.9 of the Framework Agreement. 3.6 Headings. The headings in this Agreement are for reference -------- only, and shall not affect the interpretation of this Agreement. 3.7 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ Gilberto Marin Quintero ----------------------------- Gilberto Marin Quintero PTB INTERNATIONAL, INC. By: /s/ Michael Riordan ------------------- Name: Michael Riordan Title: Chairman Signature page for PMI Stock Purchase Agreement 6 Schedule 2.1(c) PMI Balance Sheet ----------------- Schedule 2.2 ------------ Michael Riordan Dave Nicholson Mark Thomas Adolfo Gomez EX-4.5 4 0004.txt WARRANT AGREEMENT EXHIBIT 4.5 ____________________________________________________________ WARRANT AGREEMENT BETWEEN PARAGON TRADE BRANDS, INC. AND CHASEMELLON SHAREHOLDER SERVICES, L.L.C. Dated as of January 28, 2000 ____________________________________________________________ TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DISTRIBUTION OF WARRANT CERTIFICATES.......................................... 1 1.1 Appointment of Warrant Agent.................................................. 1 1.2 Form of Warrant Certificates.................................................. 2 1.3 Execution of Warrant Certificates............................................. 2 1.4 Issuance and Distribution of Warrant Certificates............................. 2 ARTICLE 2 WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS............................... 3 2.1 Exercise Price................................................................ 3 2.2 Exercisability of Warrants.................................................... 3 2.3 Procedure for Exercise of Warrants............................................ 3 2.4 Issuance of Warrant Shares.................................................... 3 2.5 Certificates for Unexercised Warrants......................................... 4 2.6 Reservation of Shares......................................................... 4 2.7 Disposition of Proceeds....................................................... 4 ARTICLE 3 CALL OF WARRANTS.............................................................. 4 3.1 Call Price.................................................................... 4 3.2 Notice of Call................................................................ 5 3.3 Payment of Call Price......................................................... 5 3.4 Qualified Change of Control................................................... 6 3.5 Fair Market Value............................................................. 6 3.6 Wellspring Defined............................................................ 7 ARTICLE 4 ADJUSTMENTS AND NOTICE PROVISIONS............................................. 7 4.1 Adjustment of Exercise Price.................................................. 7 4.2 Current Market Price.......................................................... 8 4.3 No Adjustments to Exercise Price.............................................. 8 4.4 Deferral of Adjustments to Exercise Price..................................... 8 4.5 Adjustment to Number of Shares................................................ 9 4.6 Reorganizations............................................................... 9 4.7 Reclassifications............................................................. 10 4.8 Verification of Computations.................................................. 10 4.9 Notice of Certain Actions..................................................... 11 4.10 Notice of Adjustments......................................................... 12 4.11 Warrant Certificate Amendments................................................ 12 4.12 Fractional Shares............................................................. 12 ARTICLE 5 OTHER PROVISIONS RELATING TO RIGHTS OF REGISTERED HOLDERS OF WARRANT CERTIFICATES....................................................... 12 5.1 Rights of Warrant Holders..................................................... 12 5.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates..................... 13
ARTICLE 6 SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND CANCELLATION OF WARRANT CERTIFICATES.................................................................. 13 6.1 Split Up, Combination, Exchange and Transfer of Warrant Certificates.......... 13 6.2 Cancellation of Warrant Certificates.......................................... 14 6.3 Agreement of Warrant Certificate Holders...................................... 14 ARTICLE 7 PROVISIONS CONCERNING THE WARRANT AGENT AND OTHER MATTERS..................... 14 7.1 Payment of Taxes and Charges.................................................. 14 7.2 Resignation or Removal of Warrant Agent....................................... 15 7.3 Notice of Appointment......................................................... 15 7.4 Merger of Warrant Agent....................................................... 16 7.5 Company Responsibilities...................................................... 16 7.6 Certification for the Benefit of Warrant Agent................................ 16 7.7 Books and Records............................................................. 16 7.8 Liability of Warrant Agent.................................................... 17 7.9 Use of Attorneys, Agents and Employees........................................ 17 7.10 Indemnification............................................................... 17 7.11 Acceptance of Agency.......................................................... 18 7.12 Changes to Agreement.......................................................... 18 7.13 Assignment.................................................................... 18 7.14 Successor to Company.......................................................... 18 7.15 Notices....................................................................... 18 7.16 Defects in Notice............................................................. 19 7.17 Governing Law................................................................. 19 7.18 Standing...................................................................... 19 7.19 Headings...................................................................... 20 7.20 Counterparts.................................................................. 20 7.21 Conflict of Interest.......................................................... 20 7.22 Availability of the Warrant Agreement......................................... 20
Exhibit A FORM OF WARRANT CERTIFICATE Exhibit B CALL PRICE AND ADJUSTED VALUE CALCULATIONS WARRANT AGREEMENT ----------------- WARRANT AGREEMENT dated as of January 28, 2000, between PARAGON TRADE BRANDS, INC., a Delaware corporation (including, on or after the effective date of the Plan, as defined below, its successor, as reorganized pursuant to Chapter 11, Title 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), the "Company"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company, as warrant agent (the "Warrant Agent"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, pursuant to a Second Amended Plan of Reorganization, dated as of November 15, 1999, of the Company (the "Plan") and the order confirming the Plan issued by the Bankruptcy Court for the Northern District of Georgia (the "Bankruptcy Court") on January 13, 2000, the Company proposes to issue and deliver its certificates (the "Warrant Certificates") evidencing an aggregate of 625,821 warrants (the "Warrants") to acquire up to an aggregate 625,821 shares (subject to adjustment as provided herein) of its Common Stock, par value $.01 per share (the "Common Stock"); and WHEREAS, the Company desires the Warrant Agent, and the Warrant Agent agrees, to act on behalf of the Company in connection with the issuance, transfer, exchange, replacement, redemption and surrender of the Warrant Certificates; and WHEREAS, the Company and the Warrant Agent desire to set forth in this Warrant Agreement, among other things, the form and provisions of the Warrant Certificates and the terms and conditions under which they may be issued, transferred, exchanged, replaced, redeemed and surrendered in connection with the exercise and redemption of the Warrants. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, the parties hereto agree as follows: ARTICLE 1 DISTRIBUTION OF WARRANT CERTIFICATES ------------------------------------ 1.1 Appointment of Warrant Agent. The Company hereby appoints the ---------------------------- Warrant Agent to act on behalf of the Company in accordance with the instructions hereinafter set forth in this Warrant Agreement, and the Warrant Agent hereby accepts such appointment. 2 1.2 Form of Warrant Certificates. The Warrant Certificates for the ---------------------------- Warrants shall be issued in temporary or fully registered form and, together with the purchase and assignment forms to be printed on the reverse thereof, shall be substantially in the form of Exhibit A attached hereto, and, in addition, may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements stamped, printed, lithographed or engraved thereon as the Company may deem appropriate; which do not affect the duties or responsibilities of the Warrant Agent and as are not inconsistent with the provisions of this Agreement or as, in any particular case, may be required, in the opinion of counsel for the Company, to comply with any law or with any rule or regulation of any regulatory authority or agency or to conform to customary usage. 1.3 Execution of Warrant Certificates. The Warrant Certificates --------------------------------- shall be executed on behalf of the Company by its Chairman of the Board, Chief Executive Officer or President or any Vice President, and by its Chief Financial Officer or Treasurer or any Assistant Treasurer, or Secretary or any Assistant Secretary, either manually or by facsimile signature printed thereon. The Warrant Certificates shall be manually countersigned and dated the date of countersignature by the Warrant Agent and shall not be valid for any purpose unless so countersigned and dated. In case any authorized officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer of the Company either before or after delivery thereof by the Company to the Warrant Agent, the signature of such Person on such Warrant Certificates shall, nevertheless, be valid and such Warrant Certificates may be countersigned by the Warrant Agent and issued and delivered to those Persons entitled to receive the Warrants represented thereby with the same force and effect as though the person who signed such Warrant Certificates has not ceased to be such officer of the Company. As used in this Warrant Agreement, the term "Person" shall mean any individual, firm, corporation, partnership, limited liability company, trust or other entity, and shall include any succession (by merger or otherwise) to such entity. 1.4 Issuance and Distribution of Warrant Certificates. The Company ------------------------------------------------- shall deliver to the Warrant Agent an adequate supply of Warrant Certificates for the Warrants executed on behalf of the Company as described in Section 1.3 hereof. Upon receipt of an order from the Company, the Warrant Agent shall, within five business days, complete and countersign Warrant Certificates representing the total number of Warrants to be issued hereunder and shall deliver such Warrant Certificates pursuant to written instructions of the Company. As used in this Warrant Agreement, the term "business day" shall mean any day other than Saturday or Sunday or a day on which banking institutions in the State of New York or the city in which the office of the Warrant Agent is located are authorized or obligated by law or executive order to close. 3 ARTICLE 2 WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS ----------------------------------------------- 2.1 Exercise Price. Each Warrant Certificate for the Warrants shall, -------------- when signed by the Chairman, Chief Executive Officer or President or any Vice President, and by the Chief Financial Officer or Treasurer or any Assistant Treasurer, or Secretary or any Assistant Secretary, of the Company and countersigned by the Warrant Agent, entitle the registered holder thereof, subject to the provisions of Article 3 hereof, to purchase from the Company one share of Common Stock for each Warrant evidenced thereby, at the purchase price of $18.91 per share (the "Initial Exercise Price"), or such adjusted number of shares at such adjusted purchase price as may be established from time to time pursuant to the provisions of Article 4 hereof, payable in full at the time of exercise of the Warrant. 2.2 Exercisability of Warrants. Each Warrant may be exercised at any -------------------------- time on or after January 28, 2000 (the "Effective Date"), but not after 5:00 P.M., New York City time, on the earlier of the tenth anniversary of the Effective Date, or the business day immediately preceding the Call Date (as defined in Section 3.2). The term "Exercise Deadline" as used in this Agreement shall mean the latest time and date at which the Warrants may be exercised. 2.3 Procedure for Exercise of Warrants. During the period specified ---------------------------------- in and subject to the provisions of Section 2.2 hereof, the Warrants may be exercised by surrendering the Warrant Certificates representing such Warrants to the Warrant Agent at its office, which is presently at 450 West 33rd Street, New York, New York 10001, with the election to purchase form set forth on the Warrant Certificate properly completed and duly executed, with signatures guaranteed by a member firm of a national securities exchange, a commercial bank or trust company located in the United States, a member of the National Association of Securities Dealers, Inc. ("NASD") or other eligible guarantor institution which is a participant in a signature guarantee program (as such terms are defined in Reg. 240.17Ad-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) acceptable to the Warrant Agent ("Signatures Guaranteed"), accompanied by payment in full of the Exercise Price as provided in Section 2.1 in effect at the time of such exercise, together with such taxes as are specified in Section 7.1 hereof, for each share of Common Stock with respect to which such Warrants are being exercised. Such Exercise Price and taxes shall be paid in full by certified check or money order, payable in United States currency to the order of the Company. The date on which any Warrant is exercised in accordance with this Section 2.3(a) is sometimes referred to herein as the "Date of Exercise" of such Warrant. 2.4 Issuance of Warrant Shares. As soon as practicable after the -------------------------- Date of Exercise of any Warrants, the Company shall issue, or cause the transfer agent for the Common Stock, if any, to issue, a certificate or certificates for the 4 number of full shares of Common Stock to which such holder is entitled, registered in accordance with the instructions set forth in the election to purchase. All Warrant Shares shall be validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof. Each Person in whose name any such certificate for Warrant Shares is issued shall for all purposes be deemed to have become the holder of record of the Warrant Shares represented thereby on the Date of Exercise of the Warrants resulting in the issuance of such shares, irrespectively of the date of issuance or delivery of such certificate for the Warrant Shares. 2.5 Certificates for Unexercised Warrants. In the event that less ------------------------------------- than all of the Warrants represented by a Warrant Certificate are exercised, the Warrant Agent shall upon receipt of all necessary information, execute and mail, by first-class mail, within 30 days of the Date of Exercise, to the registered holder of such Warrant Certificate, or such other Person as shall be designated in the election to purchase, a new Warrant Certificate representing the number of full Warrants not exercised. In no event shall a fraction of a Warrant be exercised, and the Warrant Agent shall distribute no Warrant Certificates representing fractions of Warrants under this or any other section of this Agreement. Fractions of shares shall be treated as provided in Section 4.12. 2.6 Reservation of Shares. The Company shall at all times reserve --------------------- and keep available for issuance upon the exercise of Warrants a number of its authorized but unissued shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants. 2.7 Disposition of Proceeds. The Warrant Agent shall account at ----------------------- least monthly (or more frequently upon the request of the Company) to the Company with respect to Warrants exercised and concurrently deliver to the Company all funds received upon the exercise of Warrants. ARTICLE 3 CALL OF WARRANTS ---------------- 3.1 Call Price. The Company (or its successor by merger) may, at its ---------- option, upon not less than 30 days' nor more than 60 days' notice given at any time within 90 days following a Qualified Change of Control (as defined in Section 3.4 hereof), call for redemption all of the outstanding Warrants at the call price per warrant (such price is hereinafter referred to as the "Call Price") determined by the Company using the formula set forth on Exhibit B hereto. In the event the Company exercises its right to redeem the Warrants, such Warrants will be exercisable until the close of business on the business day immediately preceding the date fixed for redemption in such notice. If any Warrant called for redemption is not exercised by 5 such time, such Warrant shall cease to be exercisable and the holder thereof shall be entitled only to the Call Price, without interest thereon. The Company (or its successor by merger) shall have the option to pay the Call Price in cash, equity securities or new warrants to purchase equity securities, or any combination thereof, provided, however, that if the Call Price is to be paid in other than cash, (a) the issuance of capital stock or other equity securities and/or new warrants (and the underlying equity securities issuable upon exercise thereof) to be issued in payment of part or all of the Call Price shall be registered under the Securities Act of 1933, (b) such capital stock or other equity securities and/or such new warrants (together with the underlying equity securities issuable upon the exercise thereof) shall be, immediately following the issuance as part of the Call Price, (i) registered pursuant to Section 12 of the Exchange Act, (ii) held of record by not less than 300 Persons and (iii) listed on a national securities exchange or authorized to be quoted in an inter- dealer quotation system of a registered national securities association, and (c) the issuer thereof shall have received an opinion from a nationally recognized investment banking firm to the effect that the value of the securities to be issued in payment of the Call Price, together with any cash to be paid in connection therewith, has a fair market value equal, on the fifth business day prior to the Call Date (as defined in Section 3.2), to not less than the Call Price, and provided, further, that if any new warrants are to be issued in full or partial payment of the Call Price, the terms and conditions of those new warrants (other than number of shares and exercise price) shall be substantially similar to the terms of the Warrants issued under this Warrant Agreement. As used in this Warrant Agreement, "close of business" shall mean 5:00 P.M., New York City time, on such date; provided, however, that if such date is not a business day it shall mean 5:00 P.M., New York City time, on the next succeeding business day. 3.2 Notice of Call. Notice of any call for redemption shall be given -------------- to the Warrant Agent by the Company upon not less than 30 days nor more than 60 days prior to the date established for such call (the "Call Date") and such notice shall be mailed to all registered holders of Warrant Certificates to be called by the Warrant Agent promptly after the Company shall have given such notice to the Warrant Agent. Each such notice of call will specify the Call Date and the Call Price. The notice will state that payment of the Call Price will be made by the Warrant Agent upon presentation and surrender of the Warrant Certificates representing such Warrants to the Warrant Agent at its office, and will also state that the right to exercise the Warrants will terminate at 5:00 P.M., New York City time, on the business day immediately preceding the Call Date. 3.3 Payment of Call Price. On or prior to the opening of business on --------------------- the Call Date, the Company (or its successor by merger) will deposit or cause to be deposited with the Warrant Agent funds in form satisfactory to the Warrant Agent sufficient to pay the cash portion, if any, of the Call Price to purchase all the Warrants being redeemed, and certificates representing the securities, if any, which are being issued to purchase all of the Warrants being redeemed. Payment of the Call 6 Price will be made by the Warrant Agent upon presentation and surrender of the Warrant Certificates representing such Warrants to the Warrant Agent at its office. 3.4 Qualified Change of Control. For purposes of this Article 3, a --------------------------- "Qualified Change of Control" shall mean the occurrence of any of the following: (i) the consummation of any transaction or series of related transactions (including, without limitation, any merger or consolidation) the result of which is that any Person other than Wellspring (as defined in Section 3.6), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the equity of the Company; or (ii) the Company consolidates with or merges into another Person or any Person consolidates with, or mergers into, the Company, in any such event pursuant to a transaction in which the outstanding Common Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where the holders of the Common Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the voting stock of the surviving or resulting Person immediately after such transaction; provided, however, that no Qualified Change of Control shall be deemed to have occurred pursuant to the immediately preceding clause (i) if such transaction resulted from the sale of Common Stock of the Company to a Person or Persons acting as underwriters in connection with a firm commitment underwriting; and provided, further, that no Qualified Change of Control shall be deemed to have occurred pursuant to the immediately preceding clauses (i) or (ii) unless, as a result of such transaction Wellspring shall have realized a return on its initial investment in the Company pursuant to the Plan of 8% of more, on an annualized basis, based on its initial purchase price per share of $10.00. Not later than 15 days following the occurrence of any event specified in the preceding clauses (i) or (ii), the Company's Board of Directors shall determine whether or not such event (a "Triggering Event") resulted in a Qualified Change of Control and such determination shall be final and binding absent manifest error. The determination of whether or not Wellspring has realized an 8% annualized return on its initial $10.00 per share investment shall be based upon the appreciation in the Fair Market Value (as defined in Section 3.5) of the Common Stock from the Effective Date (as defined in the Plan) until the date that the Triggering Event is publicly announced, taking into account the value of any securities received by Wellspring in such transaction. The Board shall determine the value of any securities received by Wellspring in such transaction based on such securities' Fair Market Value (as defined in Section 3.5) as of the date of such transaction. The Board of Directors shall cause the Company to promptly notify the Warrant Agent in writing of the Board of Directors' determination as to whether or not a Qualified Change of Control has occurred. 3.5 Fair Market Value. For purposes of this Article 3, the "Fair ----------------- Market Value" of any security on any date shall be deemed to be the average of the daily closing bid prices as reported by Nasdaq (or the closing price on the primary exchange on which such security is then listed for trading, if any) for the 30 7 consecutive trading days immediately preceding the date in question. If on any such date such security is not listed or admitted to trading on any national securities exchange and is not quoted by NASDAQ or any similar organization, the Fair Market Value of such security on such date shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive absent manifest error. 3.6 Wellspring Defined. For purposes of this Article 3, "Wellspring" ------------------ shall mean any or all of PTB Acquisition Company, LLC, Wellspring Capital Partners II, L.P., Wellspring Capital Management, LLC, any member, partner, manager, officer or director of any of the foregoing, any Person controlling, controlled by or under common control with any of the foregoing, or the spouse or child of any natural Person that is one of the foregoing. ARTICLE 4 ADJUSTMENTS AND NOTICE PROVISIONS --------------------------------- 4.1 Adjustment of Exercise Price. Subject to the provisions of this ---------------------------- Article 4, the Exercise Price in effect from time to time and the number of shares of Common Stock issuable upon exercise of the Warrants shall be subject to adjustment, as follows: 4.1.1 In case the Company shall at any time after the date hereof (i) declare a dividend on the outstanding Common Stock payable in shares of any class of its capital stock, (ii) subdivide the outstanding Common Stock into a larger number of shares, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock by reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then, in each case, the Exercise Price in effect, and the number of shares of Common Stock issuable upon exercise of the Warrants outstanding, at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, shall be proportionately adjusted so that the holders of the Warrants after such time shall be entitled to receive the aggregate number and kind of shares which, if such Warrants had been exercised immediately prior to such time, such holders would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. 4.1.2 In case the Company shall distribute to all holders of Common Stock (including any such distribution made to the shareholders of the Company in connection with a consolidation or merger in which the Company is the continuing corporation) evidences of its indebtedness, cash or assets (other than (i) 8 distributions and dividends payable in shares of Common Stock or (ii) cash dividends paid out of retained earnings), or rights, options or warrants to subscribe for or purchase Common Stock, or securities convertible into or exchangeable for shares of Common stock, then, in each case, the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date for the determination of shareholders entitled to receive such distribution by a fraction, the numerator of which shall be the Current Market Price (as determined pursuant to Section 4.2 hereof) per share of Common Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive for all purposes) of the portion of the evidences of indebtedness or assets so to be distributed, or of such rights, options, or warrants or convertible or exchangeable securities, or the amount of such cash, applicable to one share, and the denominator of which shall be such Current Market Price per share of Common Stock. Such adjustment shall become effective at the close of business on such record date. 4.2 Current Market Price. For the purpose of any computation under -------------------- Section 3.1 and this Article 4, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing bid prices as reported by Nasdaq (or such exchange on which the Common Stock is then traded) for the 30 consecutive trading days immediately preceding the date in question. If on any such date the Common Stock is not listed or admitted to trading on any national securities exchange and is not quoted by NASDAQ or any similar organization, the fair value of a share of Common Stock on such date as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive for all purposes, shall be deemed to be the Current Market Price. 4.3 No Adjustments to Exercise Price. No adjustment in the Exercise -------------------------------- Price shall be required if such adjustment is less than $.05; provided, however, that any adjustments which by reason of this Article 4 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 4 shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. 4.4 Deferral of Adjustments to Exercise Price. In any case in which ----------------------------------------- this Article 4 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the holders of the Warrants, if any holder has exercised a Warrant after such record date, the shares of Common Stock, if any, issuable upon such exercise over and above the shares of Common Stock, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such exercising holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. 9 4.5 Adjustment to Number of Shares. Upon each adjustment of the ------------------------------ Exercise Price as a result of the calculations made in Section 4.1(b) hereof, the Warrants shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares (calculated to the nearest hundredth) obtained by dividing (A) the product obtained by multiplying the number of shares purchasable upon exercise of the Warrants prior to adjustment of the number of shares by the Exercise Price in effect prior to adjustment of the Exercise Price by (B) the Exercise Price in effect after such adjustment of the Exercise Price. 4.6 Reorganizations. In case of any capital reorganization, other --------------- than in the cases referred to in Section 4.1 hereof, or the consolidation or merger of the Company with or into another Person (other than (i) a merger or consolidation in which the Company is the surviving or continuing corporation and which does not result in any reclassification of the outstanding shares of Common Stock or the conversion of such outstanding shares of Common Stock into shares of other stock or other securities or property, or (ii) a consolidation or merger of the Company in which the Company is not the surviving or continuing corporation and which constitutes a Qualified Change of Control and in which the shares of Common Stock outstanding prior to such consolidation or merger were converted, as a result of such consolidation or merger, into consideration other than equity securities), or in the case of any sale, lease or conveyance of another Person of the property and assets of any nature of the Company as an entirety or substantially as an entirety (such actions being hereinafter collectively referred to as "Reorganizations"), there shall thereafter be deliverable upon exercise of any Warrant (in lieu of the number of shares of Common Stock theretofore deliverable) the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock which would otherwise have been deliverable upon the exercise of such Warrant would have been entitled upon such Reorganization if such Warrant had been exercised in full immediately prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of Directors of the Company, shall be made in the application of the provisions herein set forth with respect to the rights and interests of Warrant holders so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of Warrants. Any such adjustment shall be made by and set forth in a supplemental agreement between the Company, or any successor thereto, and the Warrant Agent and shall for all purposes hereof be conclusively deemed to be an appropriate adjustment. The Company shall not effect any such Reorganization unless upon or prior to the consummation thereof the successor corporation, or if the Company shall be the surviving corporation in any such Reorganization and is not the issuer of the shares of stock or other securities or property to be delivered to holders of shares of the Common Stock outstanding at the effective time thereof, then such issuer, shall assume by written instrument the obligation to deliver to the registered holder of any Warrant Certificate such shares of stock, securities, cash or other property as such holder shall be entitled to purchase in accordance with the foregoing provisions. In 10 the event of sale, lease or conveyance or other transfer of all or substantially all of the assets of the Company as part of a plan for liquidation of the Company, all rights to exercise any Warrant shall terminate 30 days after the Company gives written notice to each registered holder of a Warrant Certificate that such sale or conveyance or other transfer has been consummated. In the event of a consolidation or merger of the Company in which the Company is not the surviving or continuing corporation and which constitutes a Qualified Change of Control and where the Company or its successor by merger has not exercised its right to call the Warrants pursuant to Section 3.1 hereof and where the outstanding shares of Common Stock outstanding immediately prior to the consummation of such merger or consolidation were converted, as a result of such consolidation or merger, into consideration other than equity securities, the number of shares for which each Warrants then remaining outstanding shall be adjusted, effective as of the date on which the Qualified Change of Control occurred (the "Adjustment Date"), so that the aggregate value of the then outstanding Warrants shall be equal to the value (the "Adjusted Value") calculated as set forth in Exhibit B hereto. 4.7 Reclassifications. In case of reclassification or change of the ----------------- shares of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or as a result of a subdivision or combination, but including any change in the shares into two or more classes or series of shares), or in case of any consolidation or merger of another Person into the Company in which the Company is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or as a result of a subdivision or combination, but including any change in the shares into two or more classes or series of shares), the holders of the Warrants shall have the right thereafter to receive upon exercise of the Warrants solely the kind and amount of shares of stock and other securities, property, cash, or any combination thereof receivable upon such reclassification, change, consolidation or merger by a holder of the number of shares of Common Stock for which the Warrants might have been exercised immediately prior to such reclassification, change, consolidation or merger. Thereafter, appropriate provision shall be made for adjustments which shall be as nearly equivalent as practicable to the adjustments in Article 4. The above provisions of this Section 4.7 shall similarly apply to successive reclassifications and changes of shares of Common Stock. 4.8 Verification of Computations. Whenever the exercise price is ---------------------------- adjusted as provided in this Article 4, the Company will promptly obtain a certificate of a firm of independent public accountants of recognized standing selected by the Board of Directors (who may be the regular auditors of the Company) setting forth the exercise price as so adjusted and a brief statement of the facts and computation accounting for such adjustment, and will make available a brief summary thereof to the Warrant Agent and to the holders of the Warrant Certificates, at their addresses listed on the register maintained for that purpose by the Warrant Agent (which 11 summary may be included in any notice of adjustment required by Section 4.10 hereof). The Warrant Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall have no duty with respect to and shall not be deemed to have knowledge of any such adjustment unless and until it has received such certification. 4.9 Notice of Certain Actions. In case at any time the Company shall ------------------------- propose: 4.9.1 to pay any dividend or make any distribution on shares of Common Stock in shares of Common Stock or make any other distribution (other than regularly scheduled cash dividends which are not in a greater amount per share than the most recent such cash dividend) to all holders of Common Stock; or 4.9.2 to issue any rights, warrants or other securities to all holders of Common Stock entitling them to purchase any additional shares of Common Stock or any other rights, warrants or other securities; or 4.9.3 to effect any Reorganization, or any reclassification or change of outstanding shares of Common Stock, described in Section 4.7; or 4.9.4 to effect any liquidation, dissolution or winding-up of the Company; or 4.9.5 to take any other action which would cause an adjustment to the Exercise Price; then, in each such case, the Company shall promptly cause notice of such proposed action to be mailed to the Warrant Agent. Such notice shall specify the date on which the books of the Company shall close, or a record shall be taken, for determining holders of Common Stock entitled to receive such stock dividend or other distribution or such rights or warrants, or the date on which such reclassification, change, consolidation, merger, sale, lease, other disposition, liquidation, dissolution, winding up or exchange or other action shall take place or commence, as the case may be, the date as of which it is expected that holders of record of Common Stock shall be entitled to receive securities or other property deliverable upon such action, if any such date has been fixed. The Company shall cause copies of such notice to be mailed to each registered holder of a Warrant Certificate. Such notice shall be mailed, in the case of any action covered by Subsection 4.9.1 or 4.9.2 above, at least 15 days prior to the record date for determining holders of the Common Stock for purposes of receiving such payment or offer; in the case of any action covered by Subsection 4.9.3 or 4.9.4 above, at least 15 days prior to the earlier of the date upon which such action is to take place or any record date to determine holders of Common Stock entitled to receive such securities or other property; and in the case of any 12 action covered by Subsection 4.9.5 above, no more than 15 days after such action. In addition, within 30 days following the occurrence of a Qualified Change of Control, the Company (or its successor by merger) shall mail a notice stating that Qualified Change of Control has occurred to the Warrant Agent and to each registered holder of a Warrant Certificate. 4.10 Notice of Adjustments. Whenever any adjustment is made pursuant --------------------- to this Article 4, the Company shall cause written notice of such adjustment to be sent by registered mail, postage prepaid to the Warrant Agent within 15 days thereafter, such notice to include in reasonable detail (i) the events precipitating the adjustment, (ii) the computation of any adjustments, and (iii) the Exercise Price, the number of shares or the securities or other property purchasable upon exercise of each Warrant and the Call Trigger Price after giving effect to such adjustment. The Warrant Agent shall within 15 business days after receipt of such notice from the Company and all other necessary information cause a similar notice to be mailed to each registered holder of a Warrant Certificate. 4.11 Warrant Certificate Amendments. Irrespective of any adjustments ------------------------------ pursuant to this Article 4, Warrant Certificates theretofore or thereafter issued need not be amended or replaced but certificates thereafter issued shall bear an appropriate legend or other notice of any adjustments. 4.12 Fractional Shares. The Company shall not be required upon the ----------------- exercise of any Warrant to issue fractional shares of Common Stock which may result from adjustments in accordance with this Article 4 to the Exercise Price or number of shares of Common Stock purchasable under each Warrant. If more than one Warrant is exercised at one time by the same registered holder, the number of full shares of Common Stock which shall be deliverable shall be computed based on the number of shares deliverable in exchange for the aggregate number of Warrants exercised. With respect to any final fraction of a share called for upon the exercise of any Warrant or Warrants, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price of a share of Common Stock calculated in accordance with Section 4.2. ARTICLE 5 OTHER PROVISIONS RELATING TO RIGHTS OF REGISTERED HOLDERS OF WARRANT CERTIFICATES ---------------------------- 5.1 Rights of Warrant Holders. No Warrant Certificate shall entitle ------------------------- the registered holder thereof to any of the rights of a shareholder of the Company, including, without limitation, the right to vote, to receive dividends and other 13 distributions, or to receive any notice of, or to attend, meetings of shareholders or any other proceedings of the Company. 5.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates. If --------------------------------------------------------- any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company shall direct the Warrant Agent to execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Warrant Certificate, or in lieu of or in substitution for a lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate for the number of Warrants represented by the Warrant Certificate so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Warrant Certificate, and of the ownership thereof, and indemnity, if requested, all satisfactory to the Company and the Warrant Agent. Applicants for such substitute Warrant Certificates shall also comply with such other reasonable regulations and pay such other reasonable charges incidental thereto as the Company or Warrant Agent may prescribe. Any such new Warrant Certificate shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone. ARTICLE 6 SPLIT UP, COMBINATION, EXCHANGE, TRANSFER AND CANCELLATION OF WARRANT CERTIFICATES ---------------------------------------- 6.1 Split Up, Combination, Exchange and Transfer of Warrant ------------------------------------------------------- Certificates. Prior to Exercise Deadline, Warrant Certificates, subject to the - ------------ provisions of Section 6.2, may be split up, combined or exchanged for other Warrant Certificates representing a like aggregate number of Warrants or may be transferred in whole or in part. Any holder desiring to split up, combine or exchange a Warrant Certificate or Warrant Certificates shall make such request in writing delivered to the Warrant Agent at its office and shall surrender the Warrant Certificate or Warrant Certificates so to be split up, combined or exchanged at said office. Subject to any applicable laws, rules or regulations restricting transferability, any restriction on transferability that may appear on a Warrant Certificate in accordance with the terms hereof, or any ""top- transfer""instructions the Company may give to the Warrant Agent to implement any such restrictions (which instructions the Company is expressly authorized to give), transfer of outstanding Warrant Certificates may be effected by the Warrant Agent from time to time upon the books of the Company to be maintained by the Warrant Agent for that purpose, upon a surrender of the Warrant Certificate to the Warrant Agent at its office, with the assignment form set forth in the Warrant Certificate duly executed and with Signatures Guaranteed. Upon any such surrender for split up, combination, exchange or transfer, the Warrant Agent shall execute and deliver to the Person entitled thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested. The Warrant Agent may 14 require the holder to pay a sum sufficient to cover any tax or charge that may be imposed in connection with any split up, combination, exchange or transfer of Warrant Certificates prior to the issuance of any new Warrant Certificate. The Warrant Agent shall have no duty or obligation under this Section unless and until it is satisfied that all such taxes and/or charges have been paid. 6.2 Cancellation of Warrant Certificates. Any Warrant Certificate ------------------------------------ surrendered upon the exercise of Warrants or for split up, combination, exchange or transfer, or purchased or otherwise acquired by the Company, shall be canceled and shall not be reissued by the Company; and, except as provided (i) in Section 2.5, in case of the exercise of less than all of the Warrants evidenced by a Warrant Certificate, or (ii) in Section 6.1, in case of a split up, combination, exchange or transfer of the Warrants evidenced by a Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu of such canceled Warrant Certificate. Any Warrant Certificate so cancelled shall be retained by the Warrant Agent for a period of seven years thereafter, after which it shall be destroyed unless the Warrant Agent is otherwise directed by the Company. 6.3 Agreement of Warrant Certificate Holders. Every holder of a ---------------------------------------- Warrant Certificate by accepting the same consents and agrees with the Company and the Warrant Agent and with every other holder of a Warrant Certificate that: 6.3.1 transfer of the Warrant Certificates shall be registered on the books of the Company maintained for that purpose by the Warrant Agent only if surrendered at the office of the Warrant Agent, duly and properly endorsed or accompanied by a proper instrument of transfer, with Signatures Guaranteed; and 6.3.2 prior to due presentment for registration of transfer, the Company and the Warrant Agent may deem and treat the Person in whose name the Warrant Certificate is registered as the absolute owner thereof and of the Warrants evidenced thereby (notwithstanding any notations of ownership or writing on the Warrant Certificates made by anyone other than the Company or the Warrant Agent) for all purposes whatsoever, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. ARTICLE 7 PROVISIONS CONCERNING THE WARRANT AGENT AND OTHER MATTERS -------------------------- 7.1 Payment of Taxes and Charges. The Company will from time to time ---------------------------- promptly pay to the Warrant Agent, or make provisions satisfactory to the Warrant Agent for the payment of, all taxes and charges that may be imposed by the United States or any state upon the Company or the Warrant Agent in connection with 15 the issuance or delivery of shares of Common Stock upon the exercise of any Warrants, but any taxes or charges in connection with the issuance of Warrant Certificates or certificates for shares of Common Stock in any name other than that of the registered holder of the Warrant Certificate surrendered shall be paid by such registered holder; and, in such case, the Company shall not be required to issue or deliver any Warrant Certificate or certificate for shares of Common Stock until such taxes or charges shall have been paid or it has been established to the Company's satisfaction that no tax or charge is due. The Warrant Agent shall have no duty or obligation under this Section unless and until it is satisfied that all such taxes and/or charges have been paid. 7.2 Resignation or Removal of Warrant Agent. The Warrant Agent may --------------------------------------- resign its duties and be discharged from all further duties and liabilities hereunder after giving 30 days' notice in writing to the Company, except that such shorter notice may be given as the Company shall, in writing, accept as sufficient. Upon comparable notice to the Warrant Agent, the Company may remove the Warrant Agent; provided, however, that in such event the Company shall appoint a new Warrant Agent, as hereinafter provided. If the Warrant Agent resigns or becomes or incapacitated to act or otherwise, the Company shall appoint in writing a new Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by the registered holder of any Warrant Certificate, then the registered holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or any such court, shall be in good standing and incorporated under the United States banking laws or under the laws of any State within the United States, having its principal office within the United States. Any new Warrant Agent appointed hereunder shall execute, acknowledge and deliver to the former Warrant Agent and to the Company, an instrument accepting such appointment under substantially the same terms and conditions as are contained herein and thereupon such new Warrant Agent, without any further act or deed, shall become vested with the rights, powers, duties and responsibilities of the Warrant Agent and the former Warrant Agent shall cease to be the Warrant Agent; but if for any reason it becomes necessary or expedient to have the former Warrant Agent execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the former Warrant Agent. 7.3 Notice of Appointment. Not later than the effective date of the --------------------- appointment of a new Warrant Agent, the Company shall cause notice thereof to be mailed to the former Warrant Agent and the transfer agent, if any, for the Common Stock and shall forthwith cause a copy of such notice to be mailed to each registered holder of a Warrant Certificate. Failure to mail such notice, or any defect contained therein, shall not affect the legality or validity of the appointment of the successor Warrant Agent. 16 7.4 Merger of Warrant Agent. Any company into which the Warrant ----------------------- Agent may be merged or with which it may be consolidated, or any company resulting from any merger or consolidation to which the Warrant Agent shall be a party, shall be the successor Warrant Agent under this Agreement without further act, provided that such company would be eligible for appointment as a successor Warrant Agent under the provisions of Section 7.2 hereof. Any such successor Warrant Agent may adopt the prior countersignature of any predecessor Warrant Agent and distribute Warrant Certificates countersigned but not distributed by such predecessor Warrant Agent, or may countersign the Warrant Certificates in its own name. 7.5 Company Responsibilities. The Company agrees that it shall (i) ------------------------ pay the Warrant Agent reasonable compensation for all its services as Warrant Agent hereunder and will reimburse the Warrant Agent upon demand for all expenses, advances, disbursements and expenditures that the Warrant Agent may reasonably incur in the execution and administration of this Warrant Agreement and the exercise and performance of its duties hereunder (including reasonable fees and expenses of its counsel); (ii) provide the Warrant Agent, upon request, with sufficient funds to pay any cash due pursuant to Section 4.12 upon exercise of Warrants; and (iii) perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all further and other acts, instruments and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing by the Warrant Agent of the provisions of this Agreement. 7.6 Certification for the Benefit of Warrant Agent. Whenever in the ---------------------------------------------- performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any matter be proved or established or that any instructions with respect to the performance of its duties hereunder be given by the Company prior to taking or suffering any action hereunder, such matter may be deemed to be conclusively proved and established, or such instructions may be given, by a certificate or instrument signed by the Chairman, the Chief Executive Officer, the President, a Vice President, the Secretary or the Treasurer of the Company and delivered to the Warrant Agent. Such certificate or instrument may be relied upon by the Warrant Agent for any action taken, suffered or omitted in good faith by it under the provisions of this Agreement; but in its discretion the Warrant Agent may in lieu thereof accept other evidence of such matter or may require such further or additional evidence as it may deem reasonable. 7.7 Books and Records. The Warrant Agent shall maintain the ----------------- Company's books and records for registration and registration of transfer of the Warrant Certificates issued hereunder. Such books and records shall show the names and addresses of the respective holder of the Warrant Certificates, the number of Warrants evidenced on its face by each Warrant Certificate and the date of each Warrant Certificate. 17 7.8 Liability of Warrant Agent. The Warrant Agent shall only be -------------------------- liable hereunder for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. The Warrant Agent shall act hereunder solely as an agent for the Company and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Warrant Agreement or in the Warrant Certificates (except its counter-signature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. The Warrant Agent will not incur any liability or responsibility to the Company or to any holder of any Warrant Certificate for any action taken, suffered or any failure to take action, in reliance on any notice, resolution, waiver, consent, order, certificate or other paper, document or instrument reasonably believed by the Warrant Agent to be genuine and to have been signed, sent or presented by the proper party or parties. The Warrant Agent shall not be under any responsibility in respect of the validity of this Warrant Agreement or the execution and delivery hereof by the Company or in respect of the validity or execution of any Warrant Certificate (except its counter-signature thereof); not shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Warrant Certificate; nor shall it be responsible for the making of any adjustment required under the provisions of Article 4 hereof or responsible for the manner, method or amount of any such adjustment or the facts and computations that would require any such adjustment; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or other securities to be issued pursuant to this Agreement or any Warrant Certificate or as to whether any shares of Common Stock or other securities will, when issued, be validly authorized and issued and fully paid and nonassessable. 7.9 Use of Attorneys, Agents and Employees. The Warrant Agent may -------------------------------------- execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys, agents or employees. 7.10 Indemnification. The Company agrees to indemnify the Warrant --------------- Agent and save it harmless against any and all losses, expenses, damage, fine, penalty, claim, demand settlement or liabilities, including judgments, costs and reasonable counsel fees arising out of any action taken, suffered or omitted by the Warrant Agent in connection with its acceptance and administration of this Warrant Agreement, except as a result of the gross negligence or willful misconduct of the Warrant Agent as determined by a court of competent jurisdiction. The indemnity provided herein shall survive the termination of this Warrant Agreement and the resignation or removal of the Warrant Agent. The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company. Anything to the contrary notwithstanding, in no event shall the Warrant Agent be liable for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Warrant Agent has been advised of the likelihood of such loss or damage. Any liability of the Warrant Agent under 18 this Warrant Agreement will be limited to the amount of fees paid by the Company to the Warrant Agent. 7.11 Acceptance of Agency. The Warrant Agent hereby accepts the -------------------- agency established by this Warrant Agreement and agrees to perform the same upon the terms and conditions herein set forth. 7.12 Changes to Agreement. The Warrant Agent may, without the consent -------------------- or concurrence of any registered holder of a Warrant Certificate, by supplemental agreement or otherwise, join with the Company in making any changes or corrections in this Warrant Agreement that they shall have been advised by counsel (i) are required to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error herein contained, (ii) add to the covenants and agreements of the Company or the Warrant Agent in this Warrant Agreement such further covenants and agreements thereafter to be observed, or (iii) result in the surrender of any right or power reserved to or conferred upon the Company or the Warrant Agent in this Warrant Agreement, but which changes or corrections do not or will not adversely affect, alter or change the rights, privileges or immunities of the registered holders of Warrant Certificates or change or increase the Warrant Agent's duties, liabilities or obligations. 7.13 Assignment. All the covenants and provisions of this Agreement ---------- by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns. 7.14 Successor to Company. The Company will not merge or consolidate -------------------- with or into any other Person or sell or otherwise transfer its property, assets and business substantially as an entirety to a successor Person, unless the Person resulting from such merger, consolidation, sale or transfer (if not the Company) shall expressly assume, by supplemental agreement satisfactory in form and substance to the Warrant Agent and delivered to the Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Warrant Agreement to be performed and observed by the Company. 7.15 Notices. Any notice or demand required by this Warrant Agreement ------- to be given or made by the Warrant Agent or by the registered holder of any Warrant Certificate to or on the Company shall be sufficiently given or made if sent by first-class or registered mail, postage prepaid, addressed (until another address is filed in writing with the Warrant Agent by the Company) as follows: Paragon Trade Brands, Inc. 180 Technology Parkway Norcross, Georgia 30092 Attention: General Counsel 19 Any notice or demand required by this Warrant Agreement to be given or made by the registered holder of any Warrant Certificate or by the Company to or on the Warrant Agent shall be sufficiently given or made if sent by first-class or registered mail, postage prepaid, addressed (until another address is filed in writing with the Company by the Warrant Agent), as follows: ChaseMellon Shareholder Services, L.L.C. 450 West 33rd Street New York, New York 10001 Attention: Kimberly Crowell Any notice or demand required by this Agreement to be given or made by the Company or the Warrant Agent to or on the registered holder of any Warrant Certificate shall be sufficiently given or made, whether or not such holder receives the notice, if sent by first-class or registered mail, postage prepaid, addressed to such registered holder at his last address as shown on the books of the Company maintained by the Warrant Agent. Otherwise such notice or demand shall be deemed given when received by the party entitled thereto. 7.16 Defects in Notice. Failure to file any certificate or notice or ----------------- to mail any notice, or any defect in any certificate or notice pursuant to this Agreement, shall not affect in any way the rights of any registered holder of a Warrant Certificate or the legality or validity of any adjustment made pursuant to Article 4 hereof, or any transaction giving rise to any such adjustment, or the legality or validity of any action taken or to be taken by the Company. 7.17 Governing Law. This Warrant Agreement and the Warrant ------------- Certificates issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for our purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts made and performed entirely within such state. 7.18 Standing. Nothing in this Warrant Agreement expressed and -------- nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any Person other than the Company, the Warrant Agent, and the registered holders of the Warrant Certificates any right, remedy or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise or agreement contained herein; and all covenants, conditions, stipulations, promises and agreements contained in this Warrant Agreement shall be for the sole and exclusive benefit of the Company and the Warrant Agent and their respective successors and assigns, and the registered holders of the Warrant Certificates. 20 7.19 Headings. The descriptive headings of the articles and sections -------- of this Warrant Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 7.20 Counterparts. This Warrant Agreement may be executed in any ------------ number of counterparts, each of which so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. 7.21 Conflict of Interest. The Warrant Agent and any shareholder, -------------------- director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrant Certificates or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though the Warrant Agent were not Warrant Agent under this Warrant Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company, including, without limitation, as trustee under any indenture or as transfer agent for the Units, Common Stock or any other securities of the Company, or for any other legal entity. 7.22 Availability of the Warrant Agreement. The Warrant Agent shall ------------------------------------- keep copies of this Warrant Agreement available for inspection by holders of Warrants during normal business hours at its office. Copies of this Agreement may be obtained upon written request addressed to: Paragon Trade Brands, Inc. 180 Technology Parkway Norcross, Georgia 30092 Attention: General Counsel 21 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written. PARAGON TRADE BRANDS, INC. By: /s/ Catherine O. Hasbrouck ---------------------------------- Name: Catherine O. Hasbrouck Title: VP., General Counsel and Secretary CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By: /s/ Kimberly Crowell Name: Kimberly Crowell Title: Assistant Vice President Exhibit A [FORM OF WARRANT CERTIFICATE] No. ___ Certificate for ____ Warrants NOT EXERCISABLE AFTER 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 28, 2010 PARAGON TRADE BRANDS, INC. COMMON STOCK PURCHASE WARRANT CERTIFICATE THIS CERTIFIES that: or registered assigns is the registered holder (the "Registered Holder") of the number of Warrants set forth above, each of which represents the right to purchase one fully paid and nonassessable share of Common Stock, par value $.01 per share (the "Common Stock"), of Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), at the initial exercise price (the "Exercise Price") of $18.91 by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon duly executed at the office maintained pursuant to the Warrant Agreement hereinafter referred to for that purpose by ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company, or its successor as warrant agent (any such warrant agent being herein called the "Warrant Agent"), and by paying in full the Exercise Price, plus transfer taxes, if any. Payment of the Exercise Price shall be made in United States currency, by certified check or money order payable to the order of the Company. The Warrants are subject to call for redemption by the Company (or its successor by merger) upon not less than 30 days' nor more than 60 days' notice at a call price per warrant (the "Call Price") determined pursuant to Section 3.1 of the Warrant Agreement, dated as of January 28, 2000, between the Company and the Warrant Agent (the "Warrant Agreement"), if notice of such call (the "Call Notice") is given by the Company to the Warrant Agent pursuant to Section 3.1 of the Warrant Agreement within 30 days following a Qualified Change of Control (as defined in Section 3.4 of the Warrant Agreement). No Warrant may be exercised after 5:00 P.M., New York City time, on the expiration date (the "Expiration Date") which will be the earlier of January 28, 2010, or the business day preceding the call date specified in a Call Notice. All Warrants evidenced hereby shall thereafter become null and void. Prior to the Expiration Date, subject to any applicable laws, rules or regulations restricting transferability and to any restriction on transferability that may A-1 appear on this Warrant Certificate in accordance with the terms of the Warrant Agreement, the Registered Holder shall be entitled to transfer this Warrant Certificate, in whole or in part, upon surrender of this Warrant Certificate at the office of the Warrant Agent maintained for that purpose with the form of assignment set forth hereon duly executed, with signatures guaranteed by a member firm of a national securities exchange, a commercial bank or a trust company located in the United States, or a member of the National Association of Securities Dealers, Inc., or other eligible guarantor institution which is a participant in a signature guarantee program (as such terms are defined in Reg. 240.17Ad-15 under the Securities Exchange Act of 1934, as amended), acceptable to the Warrant Agent. Upon any such transfer, a new Warrant Certificate or Warrant Certificates representing the same aggregate number of Warrants shall be issued in accordance with instructions in the form of assignment. Upon the exercise of less than all of the Warrants evidenced by this Warrant Certificate, there shall be issued to the Registered Holder a new Warrant Certificate in respect of the Warrants not exercised. Prior to the Expiration Date, the Registered Holder shall be entitled to exchange this Warrant Certificate, with or without other Warrant Certificates, for another Warrant Certificate or Warrant Certificates of the same aggregate number of Warrants, upon surrender of this Warrant Certificate at the office maintained for such purpose by the Warrant Agent. Upon certain events provided for in the Warrant Agreement hereinafter referred to, the Exercise Price, the number of shares of Common Stock issuable upon the exercise of each Warrant are required to be adjusted. No fractional shares will be issued upon the exercise of Warrants. As to any final fraction of a share which the registered holder of one or more Warrant Certificates, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay the cash value thereof determined as provided in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with the Warrant Agreement and is subject to the terms and provisions contained in said Warrant Agreement, to all of which terms and provisions the Registered Holder consents by acceptance hereof. This Warrant Certificate shall not entitle the Registered Holder to any of the rights of a shareholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to attend or receive any notice of meetings of shareholders or any other proceedings of the Company. This Warrant Certificate shall not be valid for any purpose unless and until it shall have been countersigned by the Warrant Agent. A-2 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its facsimile Corporate Seal. PARAGON TRADE BRANDS, INC. By:________________________________ Name: Title: Seal Attest: Countersigned: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. as Warrant Agent Dated: ___________ By:________________________________ Name: Title: A-3 [FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to exercise ____________ of the Warrants represented by this Warrant Certificate and to purchase the shares of Common Stock issuable upon the exercise of said Warrants, and requests that certificates for such shares be issued and delivered as follows: ISSUE TO: __________________________________________________________ (Name) __________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) __________________________________________________________ (SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER) DELIVER TO: ________________________________________________________ (Name) __________________________________________________________ (ADDRESS, INCLUDING ZIP CODE) If the number of Warrants hereby exercised is less than all the Warrants represented by this Warrant Certificate, the undersigned requests that a new Warrant Certificate representing the number of full Warrants not exercised be issued and delivered as set forth below. In full payment of the purchase price with respect to the Warrants exercised and transfer taxes, if any, the undersigned hereby tenders payment of $_________ by certified check of money order payable to the order of the Company in United States currency. Dated: _________________ ________________________ _____________________________________________ (Insert Social Security or (Signature of registered holder) other identifying number(s) of holder(s)) _____________________________________________ (signature of registered holder, if co-owned) NOTE: Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate. A-4 [FORM OF ASSIGNMENT] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned represented by the within Warrant Certificate, with respect to the number of warrants set forth below: Name of Assignee Address No. of Warrants ------------------ ------------------ ------------------------------- and does hereby irrevocably constitute and appoint ________________ to make such transfer on the books of Paragon Trade Brands, Inc. maintained for that purpose, with full power of substitution in the premises. Dated: ___________, 20__ ___________________________ _____________________________________________ (Insert Social security or (Signature of Assignee) other identifying number(s) of holder(s)) ________________________________________ (Signature of Assignee if co-owned) NOTE: Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate. Signature(s) Guaranteed: A-5 Exhibit B CALL PRICE AND ADJUSTED VALUE CALCULATIONS The Call Price or the Adjusted Value, as applicable, shall be determined using the Black-Scholes model with the following input values as of the date the Qualified Change of Controls occurs: 1. The average Current Market Price for the 30 day period ending on the date of the Qualified Change of Control. 2. The then current Exercise Price ($18.91, as such price may be adjusted as provided in Article 4 of the Warrant Agreement). 3. The risk free rate of return shall be the then current rate for treasury bills of comparable maturity to the remaining life of the Warrants. 4. The remaining life of the Warrants. 5. The number of Warrants outstanding. 6. A 32.5% volatility rate. In the case of an Adjusted Value calculation, the dollar value obtained pursuant to the foregoing calculation shall be determined on a per Warrant basis, and the number of shares purchasable per Warrant at the then current Exercise Price shall be adjusted so that each Warrant will have a value, effective as of the date of the Qualified Change of Control, equal to its Adjusted Value. B-1 EX-10.1 5 0005.txt INTELLECTUAL PROPERTY AGREEMENT EXHIBIT 10.1 ================================================================================ INTELLECTUAL PROPERTY AGREEMENT between WEYERHAEUSER COMPANY and PARAGON TRADE BRANDS, INC. Dated as of February 2, 1993 ================================================================================ INTELLECTUAL PROPERTY AGREEMENT by and between Weyerhaeuser Company, a Washington corporation ("Weyerhaeuser"), and Paragon Trade Brands, Inc., a Delaware corporation ("Paragon"). WHEREAS, Weyerhaeuser and Paragon have entered into an Asset Transfer Agreement, having a Closing Date of January 26, 1993 (the "Asset Transfer Agreement") pursuant to which Weyerhaeuser is selling and transferring to Paragon certain assets and properties relating to the Business (as defined in the Asset Transfer Agreement) on such other terms and conditions as contained therein; and WHEREAS, the Asset Transfer Agreement provides that Weyerhaeuser and Paragon shall enter into an agreement relating to intellectual property with respect to the Business on and after the Closing Date and this Intellectual Property Agreement is made to fulfill that provision. ARTICLE I CERTAIN DEFINITIONS ------------------- As used in this Agreement each of the following terms shall have the following meaning: 1.01 The definitions in the Asset Transfer Agreement are expressly made a part of this Agreement as fully as though completely set forth herein. 1.02 "Copyrights" shall mean rights in original works of authorship as those terms are defined and used in 17 United States Code (S) 101 et seq. or ------- under any foreign copyright laws and registration and applications to register therefor. 1.03 "Know-How" shall mean (i) design drawings, (ii) specifications and performance criteria, (iii) operating instructions and maintenance manuals, (iv) manufacturing information, including production documentation, methods, layouts and supplier and cost information, (v) computer software and related documentation, including, without limitation, source and object code listings, (vi) prototypes, models or samples, (vii) computer-aided design or computer- aided manufacturing data, (viii) files relating to registration of, and disclosures and applications to register Patent Rights, (ix) files and studies relating intellectual property rights of third parties and (x) other tangible materials. 1 1.04 "Patent Rights" shall mean (i) rights provided by a United States or foreign patent or similar government-granted right, including reissues or extensions thereof, (ii) applications for the foregoing, including any divisions, continuations and continuations-in-part thereof filed by Paragon after the Closing Date, and (iii) potentially patentable inventions described in invention reports. 1.05 "Third Party Intellectual Property Agreements" shall mean all intellectual property agreements, including settlements, licenses, patent assignments, joint technology, confidential relationship agreements, consulting agreements, indemnity agreements, and trademark agreements. 1.06 "Primary Intellectual Property Rights" shall mean those Patent Rights, Copyrights, Know-How, Trade Secrets and Third Party Intellectual Property Agreements that are owned, licensed or controlled by Weyerhaeuser and used by Weyerhaeuser as of the Closing Date solely in connection with the Business or the Products as they exist on the Closing Date. 1.07 "Products" shall mean the products manufactured, or in the process of design or development for manufacture, by the Business as of the Closing Date. 1.08 "Trade Secrets" shall mean all information (including formulas, patterns, compilations, programs, devices, methods, techniques or processes, product and business plans or other bodies of information embodied in Know-How), that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by third parties who can obtain economic value from its disclosure or use and (ii) is the subject of efforts by any of its owners that are reasonable under the circumstances to maintain its secrecy. 1.09 "Trademarks" shall mean all trademarks or service marks as defined in 15 United States Code (S) 1127 and comparable foreign laws that are (i) owned, controlled or used or intended to be used by Weyerhaeuser solely in connection with the Business or the Products as of the Closing Date and (ii) the subject of a registration or a pending application for registration or that is unregistered and are identified by words, symbols or designs. 1.10 "Secondary Intellectual Property Rights" shall mean those Patent Rights, Copyrights, Know-How and Trade Secrets that (i) are owned and controlled by Weyerhaeuser and with respect to which Weyerhaeuser has a right to grant the licenses 2 being herein granted to Paragon, (ii) are used or may be used by Weyerhaeuser as of the Closing Date in connection with the Business or the Products as they exist on the Closing Date and (iii) are being licensed to Paragon pursuant to Section 3.03 of this Agreement. 1.11 "Prime Line Technology" shall mean all information relating to processes, materials, equipment, designs, operation, performance, controls or structures for the manufacture of fluid absorbent articles comprising fibers and a fluid absorbent polymer which has been polymerized in situ on and/or in said article, which information has been disclosed to Weyerhaeuser by Johnson & Johnson under a Technology Agreement effective July 1, 1987 or developed by Weyerhaeuser in support of its prime line equipment in Bowling Green, Kentucky before the Closing Date. 1.12 "Weyerhaeuser Trade Secrets" shall mean Prime Line Technology and all other information (including formulas, patterns, compilations, programs, devices, methods, techniques or processes, product and business plans, or other bodies of information embodied in Know-How) that is owned by Weyerhaeuser but is not used as of the Closing Date solely in connection with the Business or the Products and that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by third parties who can obtain economic value from its disclosure or use and (ii) is the subject of efforts by any of its owners that are reasonable under the circumstances to maintain its secrecy. ARTICLE II CONVEYANCE OF INTELLECTUAL PROPERTY ASSETS ------------------------------------------ 2.01 Primary Intellectual Property and Trademarks. On the Closing Date --------------------------------------------- Weyerhaeuser shall transfer, convey, assign and deliver to Paragon and Paragon shall acquire and receive from Weyerhaeuser all of Weyerhaeuser's right, title and interest in and to the Primary Intellectual Property Rights and all Trademarks and the associated goodwill therein. 2.02 Delivery by Weyerhaeuser. On the Closing Date Weyerhaeuser shall ------------------------- deliver to Paragon all Instruments of Assignment necessary or appropriate to perfect the conveyance of the Primary Intellectual Property Rights and Trademarks and associated goodwill therein specified in Section 2.01 hereof. 3 ARTICLE III INTELLECTUAL PROPERTY RIGHTS ---------------------------- 3.01 Assignments of Rights. On the Closing Date, Weyerhaeuser shall assign, ---------------------- convey and transfer to Paragon all its right, title and interest in: 3.01(a) the Patent Rights identified in Schedule 3.01(a) hereto; 3.01(b) the Trademarks, including associated good will, listed in schedule 3.01(b) hereto; and 3.01(c) all other Primary Intellectual Property. 3.02 Assignments of Third Party Intellectual Property Agreements. On the ------------------------------------------------------------ Closing Date, Weyerhaeuser shall assign, convey and transfer to Paragon all its right, title and interest in: 3.02(a) Settlement Agreement between Weyerhaeuser and The Procter & Gamble Company effective May 15, 1991 limited to the baby diaper business. 3.02(b) Settlement Agreement between Weyerhaeuser and Uni-Charm Corporation effective October 31, 1991 and its amendment of May 1, 1992, limited to Infant Diapers and excluding Weyerhaeuser's rights and obligations regarding the supply of Pulp to Uni-Charm as provided in Article 4 of the Settlement Agreement. 3.02(c) License Agreements of November 29, 1989 and March 1, 1990 between Weyerhaeuser and Paper Converting Machine Company granting paid-up licenses under U.S. Patent 4,711,683 on the diaper machines listed in such Agreements. Since these licenses are silent as to assignability, Weyerhaeuser assigns to Paragon these licenses to the extent they are assignable. 3.02(d) Patent Assignment and License Agreement between Weyerhaeuser and Pepsico, Inc. effective March 21, 1990 relating to U.S. Patent 4,078,659. 3.02(e) License Agreement effective December 28, 1987 between Weyerhaeuser and Landstingens Inkopscentrol, LIC, Ekonomisk Forening which was assigned to LIC CARE AB on January 1, 1990 and amended January 1, 1991 granting licenses under U.S. Patent Reissue 33,106 and Canadian Patent 1,211,902, subject to the option of sublicensing rights of Scott Health Care effective May 30, 1992. 4 3.02(f) License Agreement effective May 30, 1992 between Weyerhaeuser and Scott Health Care; prior written consent of Scott to be assigned has been obtained January 21, 1993. 3.02(g) License Agreements effective November 13, 1991 and February 28, 1992 in the United States and Canada respectively, with Jim Henson Productions, Inc. which requires written assumption of obligations by Paragon. 3.02(h) Cross License Agreement between Molnlycke AB and Weyerhaeuser Company effective November 4, 1992. 3.02(i) Joint Technology Agreement between Molnlycke AB and Weyerhaeuser Company effective November 4, 1992. 3.02(j) Consulting Agreements between Weyerhaeuser and the consultants providing services to the Business as of the Closing Date. Since these agreements are silent as to assignability, Weyerhaeuser assigns these agreements to the extent they are assignable. 3.02(k) Indemnity agreements between Weyerhaeuser and the customers or suppliers to the Business as of the Closing Date. 3.02(l) Confidential Relationship agreements between Weyerhaeuser and third parties relating to information of interest to the Business. 3.02(m) Software and associated software licenses to the extent used by the Business as of the Closing Date, to the extent they are assignable. 3.02(n) License Agreement between Weyerhaeuser and Arquest Inc. dated September 24, 1992. All of these assignments are conditioned on Paragon's acceptance of the obligations of Weyerhaeuser unless otherwise specified under such agreements. 3.03 License. On the Closing Date, Weyerhaeuser shall grant Paragon a ------- license under the Secondary Intellectual Property Rights in accordance with the terms of the License attached hereto and made a part hereof. 3.04 Sublicense. On the Closing Date, Weyerhaeuser shall grant a sublicense ---------- to Paragon under the Johnson & Johnson Technology Agreement Effective July 1, 1987 in accordance with the terms of the Sublicense attached hereto and made a part hereof. 3.05 No Other Assignments or Licenses. Except for the assignments of ---------------------------------- Primary Intellectual Property Rights, and Trademarks pursuant to Sections 2.01, 3.01 and 3.02, the 5 License of Secondary Intellectual Property Rights of Section 3.03 and Sublicense of Section 3.04, Paragon shall have no other assignments, licenses or rights by implication or otherwise in technology, business information, trademarks, Weyerhaeuser Trade Secrets or other intellectual property rights owned, controlled or used by Weyerhaeuser. 3.06. Facilitation of Assignments and Licenses. The communication of ---------------------------------------- Primary Intellectual Property Rights and Trademarks from Weyerhaeuser to Paragon shall occur primarily through Paragon's acquisition of the Assets and the employment of personnel at the Facilities. To the extent not covered by the foregoing and notwithstanding the provisions of Section 5.02 of the Asset Transfer Agreement, Weyerhaeuser shall provide to Paragon within a reasonable time, not to exceed one (1) year after the Closing Date, any files in Weyerhaeuser's files for or related to Primary Intellectual Property Rights and Trademarks. In addition, to facilitate the assignments and licenses to Paragon set forth above, Weyerhaeuser shall for a period of one (1) year from the Closing Date: 3.06(a) execute assignments or other documents prepared by Paragon that are necessary for evidencing or recording by Paragon of the assignment to Paragon of Primary Intellectual Property Rights and Trademarks as provided in this Agreement. 3.06(b) provide to Paragon, upon Paragon's written request and at Paragon's expense, consultation by Weyerhaeuser's Corporate Patent Counsel drawing on his extensive experience and personal knowledge concerning intellectual property matters of interest to Paragon. It is understood that such consultation will not include the practice of law on behalf of Paragon and will be provided at times and places which will not unreasonably affect his primary duties to Weyerhaeuser. 3.07 Enforcement of Rights. After the Closing Date, Paragon shall have the --------------------- sole right, at Paragon's sole expense and discretion, to bring any legal action against persons infringing or violating the Primary Intellectual Property Rights or Trademarks by past, present or future acts that compete with or injure the Business or the Products and retain any and all recoveries from such legal actions. 3.08 Applications. As of the Closing Date, Paragon shall assume ------------ responsibility for all Primary Intellectual Property Rights and Trademarks which are assigned to it pursuant to Sections 2.01, 2.02 and 3.01 hereof and shall thereafter pursue such applications, maintain 6 Patent Rights and make and pursue applications on invention reports according to its judgment and sole discretion. 3.09 Nondisclosure by Weyerhaeuser. Weyerhaeuser hereby agrees to safeguard ----------------------------- against disclosure to third parties all Trade Secrets assigned to Paragon hereunder, by using reasonable secrecy measures and not less than the same degree of care as for its own similar proprietary information, for a period of five (5) years after the Closing Date; provided however, Weyerhaeuser shall not be obligated to maintain any such Trade Secret in confidence to the extent that: 3.09(a) the Trade Secret or its use is or becomes public knowledge without the fault of Weyerhaeuser; 3.09(b) the Trade Secret or its use is or becomes available after the date hereof on an unrestricted basis to Weyerhaeuser from a source other than Paragon or Weyerhaeuser; 3.09(c) the Trade Secret or its use becomes available on an unrestricted basis to a third party from Paragon or from someone acting under its control; or 3.09(d) the Trade Secret or its use is disclosed by Weyerhaeuser as a result of a court or government action; provided, however, that Weyerhaeuser agrees to provide written notification to Paragon of such action, and provided further that disclosure solely pursuant to this Section 3.09(d) shall not release Weyerhaeuser from its obligation otherwise to maintain confidentiality unless otherwise permitted by this Agreement. 3.10 Nondisclosure by Paragon. Paragon hereby agrees to safeguard against ------------------------ disclosure to third parties all Weyerhaeuser Trade Secrets by using reasonable secrecy measures and not less than the same degree of care as for its own similar proprietary information, for a period of five (5) years after the Closing Date; provided however, Paragon shall not be obligated to maintain any such Trade Secret in confidence to the extent that: 3.10(a) the Trade Secret or its use is or becomes public knowledge without the fault of Paragon; 3.10(b) the Trade Secret or its use is or becomes available after the date hereof on an unrestricted basis to Paragon from a source other than Weyerhaeuser; 3.10(c) the Trade Secret or its use becomes available on an unrestricted basis to a third party from Weyerhaeuser or from someone acting under its control; or 7 3.10(d) the Trade Secret or its use is disclosed by Paragon as a result of a court or government action; provided, however, that Paragon agrees to provide written notification to Weyerhaeuser of such action, and provided further that disclosure solely pursuant to this Section 3.10(d) shall not release Paragon from its obligation otherwise to maintain confidentiality unless otherwise permitted by this Agreement. 3.11 Representation and Warranty. Weyerhaeuser represents and warrants --------------------------- that, to the best of its knowledge (i) it is the sole and exclusive owner of the Primary Intellectual Property Rights and Secondary Intellectual Property Rights, (ii) Schedules 3.01(a) and 3.01(b) are accurate and complete lists of all Patent Rights and Trademarks, as used in connection with the Business or the Products, (iii) the Primary Intellectual Property Rights and Secondary Intellectual Property Rights are free from any liens or security interest except as noted on the Schedules, (iv) there is no claim, suit, action or proceeding pending or threatened against Weyerhaeuser or its affiliates asserting that the operation of the Business infringes the rights of any third party except in each case as disclosed in the Prospectuses for the Public Offering; (v) the patents, trademarks and licenses listed in Schedules 3.01(a), 3.01(b), and in Section 3.02 hereof are valid and enforceable; (vi) all renewal fees, annuities, and other maintenance with respect to the Primary Intellectual Property Rights which have fallen due on or prior to the date hereof have been paid; and (vii) that the Primary Intellectual Property plus Trademarks and Secondary Intellectual Property are adequate for the continuation of the Business as currently conducted. ARTICLE IV CLAIMS, EMPLOYEE AGREEMENT -------------------------- 4.01 Patent, Trade Secret or Trademark Claims. Paragon shall be obligated ---------------------------------------- for and hereby agrees to indemnify, defend and hold harmless Weyerhaeuser for, from and against any and all liability, expense and costs asserted against, imposed on, or incurred by Weyerhaeuser, directly or indirectly, for patent, trade secret, copyright or trademark infringement or other similar claims involving products, processes, materials and/or equipment relating to the Business or Products made, used or sold prior to, on or after the Closing Date. The indemnification procedures set forth in Section 11-03 of the Asset 8 Transfer Agreement shall apply with respect to the indemnification provided in this Section 4.01. 4.02 Employee Invention Agreements. Weyerhaeuser hereby assigns to Paragon, ----------------------------- to the extent that they are assignable, the Employee Invention Agreements signed by all former Weyerhaeuser employees who were employed in the Business to the extent of all inventions relating to Primary Intellectual Property Rights conceived before the Closing Date. 4.03 Employee Confidentiality Agreements. Weyerhaeuser hereby assigns to ----------------------------------- Paragon, to the extent that they are assignable, the Employee Confidentiality Agreements signed by all former Weyerhaeuser employees who were employed in the Business to the extent of all Trade Secrets but not Weyerhaeuser Trade Secrets. 4.04 Employee Covenants Against Conflicting Employment. Weyerhaeuser hereby ------------------------------------------------- assigns to Paragon, to the extent that they are assignable, the Covenant(s) Against Conflicting Employment signed by all former Weyerhaeuser employees who were employed in the Business and Paragon shall be obligated to undertake all responsibilities of Weyerhaeuser under such agreements as of the Closing Date. ARTICLE V MISCELLANEOUS ------------- 5.01 Entire Agreement. This Agreement, including the exhibits hereto and ---------------- the documents, schedules, certificates and instruments referred to herein, embodies the entire understanding between the parties hereto with respect to the transactions contemplated hereby and supersedes and replaces all prior and contemporaneous agreements and understandings, oral or written, with regard to such transactions. 5.02 Successors and Assigns. This Agreement shall inure to the benefit of ---------------------- and shall be binding upon the successors and assigns of the parties hereto. 5.03 Governing Law. This Agreement shall be construed, performed and ------------- enforced in accordance with, and governed by, the internal laws of the State of Washington without giving effect to the principles of conflicts of laws thereof. 5.04 Force Majeure. Neither party shall be liable for any failure of or ------------- delay in the performance of this Agreement for the period that such failure or delay is due to acts of God, public enemy, war (declared or undeclared), strikes or labor disputes, or any other 9 cause beyond the parties' reasonable control. Each party agrees to notify the other party promptly of occurrence of any such cause and to carry out this Agreement as promptly as practicable after such cause is terminated. 5.05 Severability. In the event that any part of this agreement is declared ------------ by any court or other judicial or administrative body to be null, void or unenforceable, said provision shall survive to the extent it is not so declared, and all of the other provisions of this Agreement shall remain in full force and effect. 5.06 Notices. All notices, requests, demands and other communications under ------- this Agreement shall be in writing and shall be deemed to have been duly given (i) on the date of service if served personally on the party to whom notice is to be given, (ii) on the day of transmission if sent via facsimile transmission to the facsimile number given below, provided telephonic confirmation of receipt is obtained promptly after completion of transmission, (iii) on the day after delivery to an overnight courier service or the Express Mail service maintained by the United States Postal Service, provided receipt of delivery has been confirmed, or (iv) on the fifth day after mailing, provided not returned, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, properly addressed and return-receipt requested, to the party as follows: If to Weyerhaeuser: Weyerhaeuser Company 33663 Weyerhaeuser Way South Federal Way, Washington 98003 Telephone: 206/924-2061 FAX: 206/924-3253 If to Paragon: Paragon Trade Brands, Inc. 505 South 336th Street Federal Way, Washington 98003 Telephone: 206/924-4509 FAX: 206/924-4559 Any party may change its address by giving the other party written notice of its new address in the manner set forth above. 5.07 Amendments; Waivers. This Agreement may be amended or modified, and ------------------- any term, covenant, representation, warranty or condition hereof may be waived, only by a 10 written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition or of the breach of any provision, term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation or warranty of this Agreement. 5.08 Parties in Interest. Nothing in this Agreement is intended to ------------------- confer any rights or remedies under or by reason of this Agreement on any persons other than Weyerhaeuser or Paragon and their respective successors and permitted assigns. Nothing in this Agreement is intended to relieve or discharge the obligations or liability of any third persons to Weyerhaeuser or Paragon. No provision of this Agreement shall give any third persons any right of subrogation or action over or against Weyerhaeuser or Paragon. 5.09 Section and Paragraph Headings. The section and paragraph headings ------------------------------ in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 5.10 Counterparts. This Agreement may be executed in counterparts, each of ------------ which shall be deemed an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized on the date first written above. PARAGON TRADE BRANDS, INC. WEYERHAEUSER COMPANY By: /s/ B.V. Abraham By: /s/ Robert A. Dowdy ------------------- ------------------- Name: B. V. Abraham Name: Robert A. Dowdy Title: President Title: Deputy General Counsel 11 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) PATENTS AND PATENT APPLICATIONS Ctry Status Appl'n No. File Date Patent # Issue Date Expiration - ---- ------ ---------- --------- -------- ---------- ---------- File No.: 4566 Title: DISPOSABLE DIAPER WITH CUTOUT PAD AT TAPE ATTACHMENT AREA - Licensed to Scott US Issued 729230 10/04/76 4055183 10/25/77 10/25/94 File No.: 4590 Title: DISPOSABLE DIAPER WITH IMPROVED TAPE FASTENER - Licensed to Scott US Issued 743896 11/22/76 4067338 1/10/78 1/10/95 File No.: 4591 Title: DISPOSABLE DIAPER WITH IMPROVED TAPE FASTENER - Licensed to Scott US Issued 747589 12/06/76 4068665 1/17/78 1/17/95 File No.: 4675 Title: DISPOSABLE DIAPER WITH CENTER FOLDED EDGES - Licensed to Scott CA Issued 345249 2/12/80 1134551 11/2/82 11/2/99 US Issued 25439 3/30/79 4216773 8/12/80 8112/97 File No.: 4753 Title: METHOD FOR APPLICATION OF ELASTIC TO ARTICLES - Licensed to Scott US Issued 161722 6/23/80 4297157 10/27/81 10/27/98 File No.: 12401 Title: LEAK RESISTANT DIAPER OR INCONTINENT GARMENT - US and Canada are Licensed to Scott CA Issued 474741 2/20/85 1235853 5/03/88 5/03/05 US Issued 559597 12/08/83 4578072 3/25/86 3/25/03 1 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) PATENTS AND PATENT APPLICATIONS Ctry Status Appl'n No. File Date Patent # Issue Date Expiration - ---- ------ ---------- --------- -------- ---------- ---------- File No.: 13310 Title: DIAPER OR INCONTINENT PAD HAVING PLEATED ATTACHMENT STRAP - Licensed to Scott US Issued 755126 7/15/85 4670012 6/02/87 6/02/04 File No.: 13725 Title: ELASTIC LEG DIAPER AND METHOD AND APPARATUS FOR ITS MANUFACTURE - U.S. and Canada are Licensed to Scott CA Issued 533498 3/13/87 1282554 4/09/91 3/31/07 EPO Pend. 87906551.4 11/24/86 JP Pend. 501108/87 12/10/87 US Issued 850183 4/10/86 4726807 2/23/88 2/23/05 US Issued 089197 8/24/87 4938821 7/03/90 7/03/07 CA Pend. 601796 6/05/89 US Issued 132823 12/14/87 4854985 8/08/89 8/08/06 File No.: 15608 Title: WAIST ELASTIC APPLICATOR FOR DIAPER OR SIMILAR ARTICLE - Licensed to Scott CA Issued 547689 9/24/87 1295301 2/04/92 2/04/09 JP Pending 28612/88 2/9/88 US Issued 032271 3/31/87 4726874 2/23/88 2/13/05 File No.: 15668 Title: WAIST ELASTIC APPLICATOR FOR DIAPER OR SIMILAR ARTICLE AND METHOD - US Licensed to Scott. Japanese filed by Uni-Charm JP Pend. 1-55989 3/07/89 US Pend. 164752 3/07/88 2 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) PATENTS AND PATENT APPLICATIONS Ctry Status Appl'n No. File Date Patent # Issue Date Expiration - ---- ------ ---------- --------- -------- ---------- ---------- File No.: 15746 Title: DISPOSABLE DIAPER WITH REFASTENABLE MECHANICAL FASTENING SYSTEM - U.S. and Canada are licensed to Scott CA Pend. 2011596 3/06/90 EPO Pend. 90104041.0 3/19/90 JP Pend. 68534/90 3/20/90 US Pend. 677606 3/27/91 US Pend. 918,279 7/22/92 US Aban. 328493 3/24/89 File No.: 15981 Title: VENTILATED DIAPER OR INCONTINENCE GARMENT - Licensed to Scott US Issued 142165 1/11/88 4887602 12/19/89 12/19/06 File No.: 15986 Title: SANITARY NAPKIN OR LIKE ARTICLE HAVING INTEGRAL CARRYING/DISPOSAL ENVELOPE - Licensed to Scott US Issued 153120 2/08/88 4857066 8/15/89 8/15/06 File No.: 16495 Title: PERINEAL SHIELD - Licensed to Scott US Issued 97990 9/17/87 4753645 6/28/88 6/28/05 File No.: 16547 Title: LEAK RESISTANT ELASTIC WAIST DIAPER - Licensed to Scott US Issued 118831 11/09/87 4917682 4/17/90 4/17/07 File No.: 16598 Title: SELF-ADJUSTING SUSPENSION SYSTEM FOR PERINEAL SHIELD - Licensed to Scott US Issued 203371 5/31/88 4932950 6/12/90 6/12/07 3 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) PATENTS AND PATENT APPLICATIONS Ctry Status Appl'n No. File Date Patent # Issue Date Expiration - ---- ------ ---------- --------- -------- ---------- ---------- File No.: 16771 Title: DISPOSABLE DIAPER - Licensed to Scott US Issued 269298 11/10/88 4892528 1/09/90 1/09/07 File No.: 16800 Title: ELASTIC BAND HEAT ACTIVATION SYSTEM - U.S. Licensed to Scott US Issued 595048 10/09/90 5140757 8/25/92 8/25/09 US Pend. 896332 6/10/92 File No.: 16833 Title: ATTACHMENT MEANS AND INCONTINENT GARMENT INCORPORATING SAME - Licensed to Scott US Issued 230109 8/09/88 4911702 3/27/90 3/27/07 File No.: 16890 Title: DISPOSABLE ELASTIC STRUCTURE - US only Licensed to Scott US Issued 245492 9/19/88 4977011 12/11/90 12/11/07 US Pend. 742223 8/06/91 US Aban. 472600 2/20/90 File No.: 17504 Title: HEAT SHRUNK CARRIER FOR BOTTLES - ASSIGNED FROM PEPSICO, LICENSE BACK TO PEPSICO FOR USE WITH FOOD; Licensed to Scott US Issued 697578 6/18/76 4078659 3/14/78 3/14/95 File No.: 17914 Title: DISPOSABLE DIAPER WITH WIDE ELASTIC GATHERING MEANS FOR IMPROVED COMFORT - ASSIGNED FROM J&J, SUBJECT TO REASSIGNMENT UNDER SEC. 4.6; Nonexclusive license to P&G, J&J, Scott CA Issued 343133 1/07/80 1154901 10/11/83 10/11/00 US Issued 119898 2/08/80 4388075 6/14/83 7/14/00 CA Issued 419134 1/07/83 1181201 1/22/85 1/22/02 4 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) PATENTS AND PATENT APPLICATIONS Ctry Status Appl'n No. File Date Patent # Issue Date Expiration - ---- ------ ---------- --------- -------- ---------- ---------- File No.: 18005 Title: ABSORBENT STRUCTURE - U.S. Licensed to Scott US Pend. 868626 4/14/92 File No.: 18038 Title: DISPOSABLE DIAPER AND METHOD FOR INCORPORATION OF ELASTIC MEMBER INTO SUCH DIAPER - ASSIGNED FROM UNI-CHARM; Licensed nonexclusively to P&G, Scott, and Uni-Charm. Uni-Charm license is assignable. US Issued 755369 7/16/85 4626305 12/02/86 12/02/03 US Issued 899421 8/22/86 4687477 8/18/87 8/18/04 File No.: 18064 Title: APPARATUS FOR SYNCHRONOUS IN-LINE PLACEMENT OF ABSORBENT PANEL COMPONENT - U.S. Licensed to Scott US Pend. 07/854354 3/19/92 File No.: 18153 Title: HEAT-SHRUNK PROTECTIVE PACKAGING FOR MULTIPLE UNITS - Licensed to Scott US Issued 512706 4/23/90 5048687 9/17/91 9/17/08 File No.: 18226 Title: SHAPED ABSORBENT PAD FOR DISPOSABLE DIAPERS - ASSIGNED FROM J&J; Licensed to Scott and Johnson & Johnson CA Issued 318637 12/27/78 1100706 5/12/81 5/12/98 File No.: 18227 Title: WICKING FIBERS IN COMBINATION WITH A REPELLANT FABRIC - ASSIGNED FROM J&J; Licensed to Scott and Johnson & Johnson CA Issued 400345 4/01/82 1180173 1/02/85 1/02/02 5 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) PATENTS AND PATENT APPLICATIONS Ctry Status Appl'n No. File Date Patent # Issue Date Expiration - ---- ------ ---------- --------- -------- ---------- ---------- File No.: 18233 Title: ABSORBENT STRUCTURE - U.S. Licensed to Scott US Pend. 809052 12/17/91 File No.: 18389 Title: DISPOSABLE ABSORBENT GARMENT WITH COMPOSITE TOP SHEET ASSEMBLY - Mexico and US are Licensed to Scott MX Pend. 91 01934 11/05/91 PCT Pend. US91/07913 10/25/91 US Pend. 608809 11/05/90 File No.: 18642 Title: INSERT PAD FOR A DIAPER OR PANT (DESIGN CASE) - Licensed to Scott US Pend. 744214 8/12/91 US Pend. 744213 8/12/91 US Pend. 744212 8/12/91 US Pend. 745121 8/12/91 US Pend. 744215 8/12/91 US Pend. 745126 8/12/91 US Pend. 745124 8/12/91 File No.: 18699 Title: ABSORBENT PRODUCT - Mexico and U.S. are Licensed to Scott MX Pend. 92 00798 2/25/92 PCT Pend. US92/01544 2/26/92 US Pend. 782938 10/25/91 US Pend. 07/863323 4/01/92 File No.: 18991 Title: ABSORBENT GARMENT WITH TARGET REGION AND END CAPS - Licensed to Scott US Pend. 929812 8/14/92 6 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) PATENTS AND PATENT APPLICATIONS Ctry Status Appl'n No. File Date Patent # Issue Date Expiration - ---- ------ ---------- --------- -------- ---------- ---------- File No.: 19070 Title: STRETCH DISPOSABLE DIAPER WHICH PROVIDES IMPROVED FIT AROUND BABY'S LEGS - ASSIGNED FROM J&J; Mexico Licensed to Scott GB Issued 7849082 12/19/78 2010682 8/4/82 12/19/98 MX Issued 2010682 10/03/80 150635 6/13/84 6/13/94 File No.: 19073 Title: ABSORBENT ARTICLE HAVING AUXILIARY ABSORBENT MEMBER HAVING STANDING LEG GATHER - U.S. Licensed to Scott US Pend. 07/853928 3/19/92 File No.: 19075 Title: DISPOSABLE ABSORBENT PANEL ASSEMBLY - U.S. Licensed to Scott US Pend. 07/865968 4/9/92 File No.: 19098 Title: A METHOD AND APPARATUS FOR ZONED APPLICATION OF PARTICLES IN FIBROUS MATERIAL - U.S. Licensed to Scott US Pend. 07/825928 1/27/92 File No.: 19125 Title: DISPOSABLE ABSORBENT ARTICLE US Pend. 07/960902 10/14/92 File No.: 19150 Title: METHOD AND APPARATUS FOR ZONED APPLICATION OF PARTICLES IN FIBROUS MATERIAL WITH DUAL DISPENSING NOZZLES - U.S. Licensed to Scott US Pend. 07/825930 1/27/92 7 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) PATENTS AND PATENT APPLICATIONS Ctry Status Appl'n No. File Date Patent # Issue Date Expiration - ---- ------ ---------- --------- -------- ---------- ---------- File No.: 19259 Title: DISPOSABLE ABSORBENT GARMENT - Licensed to Scott Inventors: Huffman, Gloria and Pieniak, Heinz US Pend. 07/924300 8/3/92 File No.: 19313 Title: TWO-PHASE ABSORBENT PARTICLES, ABSORBENT PRODUCT COMPRISING PAD MADE THEREFROM AND METHOD OF MAKING SUCH PARTICLES - Licensed to Scott US Pend. 07/917769 7/21/92 File No.: 19330 Title: MODULAR APPARATUS FOR FABRICATING AN ABSORBENT ARTICLE US Pend. 07/942926 9/10/92 File No.: 19398 Title: DIAPER WITH POCKETING STRUCTURE JP Pend. 6566 6/1/92 File No.: 19489 Title: ABSORPTION PRODUCT WITH LIQUID BARRIER JP Pend. D-10939 8/13/92 File No.: 19490 Title: SHEET FORM ABSORBENT JP Pend. D-10998 8/13/92 8 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) INVENTION REPORTS ----------------- File No.: 12317 Title: INVERTED Z-FOLD DIAPER Inventors: LANCASTER, EP File No.: 13030 Title: ELASTIC APPLICATOR Inventors: VANVLIET, RA File No.: 13036 Title: SOFT BREATHABLE STRAP FOR INCONTINENCE PRODUCT Inventors: LANCASTER, EP File No.: 13284 Title: VARIABLE ATTRITION ZONE MILL Inventors: WHALEY, JP File No.: 13194 Title: DIAPER WITH ATTACHED DISPOSAL BAG Inventors: YOUNG, R.H. File No.: 13569 Title: VIRUCIDAL SKIN COATING Inventors: HANKE, D.E. File No.: 13570 Title: LEAKPROOF BABY DIAPER AND INCONTINENT PAD Inventors: HANKE, D.E. File No.: 13574 Title: MALE DRIPPLER PAD Inventors: RAHKONEN,R. File No.: 13600 Title: IN-SITU FORMATION OF SAP IN PERSONAL PRODUCTS Inventors: HANKE, D.E. File No.: 13610 Title: STRETCH TO FIT ELASTICITY ON BRIEFS Inventors: LANCASTER,EP File No.: 13644 Title: DIAPER WAISTBAND METHOD Inventors: YANCEY,M. 9 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 13677 Title: ELASTIC WAIST BAND APPLICATION Inventors: RODEN, J. File No.: 13928 Title: DOUBLE POLY BARRIER APPLICATOR Inventors: JOHNSON, NK and YANCEY, M File No.: 15607 Title: IMPROVED LEG SEAL Inventors: LANCASTER, EP File No.: 15753 Title: LOW STIFFNESS (CLOTHLIKE) ABSORBENT PAD Inventors: LANCASTER, EP File No.: 15789 Title: SHRINKABLE ELASTIC HOT MELT Inventors: YOUNG, R.H. File No.: 15925 Title: ELASTIC WAISTBAND METHOD FOR BABY DIAPER Inventors: YANCEY, M. File No.: 15970 Title: THERMALLY DISSIMILAR COVER STOCK AND UNDERLYING FLUFF MAT Inventors: HANKE, D.E. File No.: 15980 Title: NOVEL ELASTIC WAIST FOR DIAPERS Inventors: YOUNG, R.H. File No.: 15984 Title: LOW STIFFNESS EMBOSSED ABSORBENT STRUCTURE Inventors: ALLISON, K.S. and HANKE, D.E. File No.: 15985 Title: DIAPER DISPOSAL ATTACHMENT Inventors: O'LEARY A. File No.: 16007 Title: TWO COMPONENT ABSORBENT BODY Inventors: RAHKONEN, R. 10 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 16111 Title: REMOVABLE DISPOSABLES MADE FROM EMBOSSED MULTI-PILES Inventors: HANKE, D.E. File No.: 16180 Title: SURFACTANT TREATED CELLULOSE PULP Inventors: HANKE, D.E. and ALLISON, K.S. File No.: 16345 Title: PROCESS FOR APPLYING SKIP ELASTIC TO DIAPERS Inventors: JOHNSON,NK File No.: 16405 Title: FLY FRONT FOR DISPOSABLE INCONTINENT PRODUCT Inventors: O'LEARY, A. File No.: 16891 Title: CAPILLARY NONWOVEN FIBERS Inventors: ISKRA, M File No.: 16892 Title: UNITIZED ABSORBENT STRUCTURE Inventors: ISKRA, M. File No.: 16894 Title: METHOD FOR PROVIDING DISCONTINUOUS DELIVERY FROM OUTPUT FEED AUGER Inventors: WHALEY, J. File No.: 16997 Title: METHOD OF METERING, OPENING AND BLENDING SYNTHETIC FIBERS Inventors: WHALEY, J. File No.: 16998 Title: MULTIPLE DISCHARGE POWDER FEEDING SYSTEM Inventors: MARTIN, JAMES; PAFF, G. and WHALEY, J. File No.: 17001 Title: ABSORBENT CORE STRUCTURE TO IMPROVE DRYNESS Inventors: RAHKONEN, R. and SMITH, C. File No.: 17045 Title: POWDER APPLICATOR Inventors: WHALEY, J and REBA, E. 11 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 17212 Title: BLUE LEG BARRIER DIAPER Inventors: NOKLEBY, S; URBAN, A. and HESS, L. File No.: 17216 Title: SURFACTANT ZONE-TREATED POLYPROPYLENE NONWOVEN BABY DIAPERS Inventors: HESS, L. File No.: 17277 Title: DIAGNOSTIC BRIEF Inventors: KARLSON, M.A. File No.: 17281 Title: INTERMITTENTLY APERATURED NONWOVEN Inventors: LANCASTER, EP File No.: 17349 Title: TAPELESS ATTACHMENT SYSTEM FOR ABSORBENT ARTICLES Inventors: RAHKONEN R. File No.: 17350 Title: BABY DIAPER WITH COHESIVE ADHESIVE CLOSURE Inventors: RAHKONEN, R. File No.: 17351 Title: BREATHABLE ATTACHMENT FOR INCONTINENT PRODUCT Inventors: RAHKONEN R. File No.: 17410 Title: DISPOSABLE DIAPER WITH VARYING LEG ELASTIC TENSION Inventors: HESS, L. and URBAN, A. File No.: 17411 Title: THERMOBONDED ABSORBENT ARTICLE Inventors: YOUNG, R.H. File No.: 17443 Title: LESS IRRITATING PREMATURE BABY DIAPER Inventors: RAHKONEN R. File No.: 17444 Title: DRIPRIDE SHIP TO/DISPOSAL HAMPER Inventors: KARLSON, M. 12 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 17470 Title: SONIC SOUND ADHESIVE DEFLECTOR Inventors: MARTIN, J. File No.: 17530 Title: UNDERPADS ON A ROLL Inventors: O'LEARY, A. File No.: 17574 Title: ABSORBENT COMPOSITE ARTICLE Inventors: HOGSON, K.; LANCASTER, EP and ROBINSON, R. File No.: 17611 Title: BREATABLE SIDES FOR DISPOSABLE BRIEFS Inventors: DUNCAN, P; O'LEARY, A. and RAKOHNEN, R. File No.: 17612 Title: CURVED STANDUP GATHERS - Licensed to Scott Inventors: OLEARY, AUDREY File No.: 17613 Title: CONVOLUTED DISPOSABLE UNDERPAD Inventors: O'LEARY, A. File No.: 17759 Title: DIAPER WITH MOVABLE TOP PAD - Licensed to Scott Inventors: PIENIAK, HEINZ and HUFFMAN, GLORIA File No.: 17912 Title: STANDING LEG GATHER PROCESS Inventors: TARRIZO, J. and TERADA, S. File No.: 17913 Title: ABSORBENT LEG GATHER - Licensed to Scott Inventors: PIANTEK, TOM File No.: 18040 Title: DISPOSABLE DIAPER WITH ELEVATED SIDE GATHERS Inventors: PIENIAK, H. and HUFFMAN, G. File No.: 18193 Title: HYDROPHOBIC TOP SHEET - Licensed to Scott Inventors: PIENIAK, HEINZ and HUFFMAN, GLORIA 13 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 18391 Title: CLOTHLIKE BACKSHEET FOR DIAPERS - Licensed to Scott Inventors: HUFFMAN, GLORIA File No.: 18470 Title: POUCH DIAPER CONCEPT - Licensed to Scott Inventors: PIANTEK, TOM File No.: 18572 Title: NO POLY DIAPER WINGS - Licensed to Scott Inventors: PIENIAK, HEINZ File No.: 18576 Title: SEMI-AUTOMATIC COMPRESSED PACKAGING LOADER Inventors: DENNIS D'ADAM File No.: 18610 Title: ABSORBENT PANEL STRUCTURE Inventors: SUZUKI, 0. File No.: 18611 Title: WAIST GATHER WITH NOVEL ELASTIC SYSTEM - Licensed to Scott Inventors: Suzuki, 0. File No.: 18612 Title: LEG ELASTIC COMPOSITE RECOVERY - Licensed to Scott Inventors: Suzuki, 0. File No.: 18614 Title: ABSORBENT PANTS - Licensed to Scott Inventors: Suzuki, 0. File No.: 18642 Title: ATTACHMENT OF INSERT TO OUTER COVER AS WELL AS BEING AS CLOSURE FOR THE OUTER COVER Inventors: HUFFMAN, G. File No.: 18643 Title: IMPROVED ADULT BRIEF WITH IMPROVED URINE CONTAINMENT FOR MALES - Licensed to Scott Inventors: ZAJACZKOWSKI, PETER File No.: 18644 Title: ADULT BRIEF WITH SINGLE FASTENING MEANS - Licensed to Scott Inventors: ZAJACZKOWSKI, PETER 14 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No. 18645 Title: ABSORBENT ARTICLE WITH IMPROVED CONTAINMENT OF BODY EXTRUDATES- Licensed to Scott Inventors: ZAJACZKOWSKI, PETER File No.: 18780 Title: FRONT OPENING TAPELESS DIAPER Inventors: RILEY, J.M. File No.: 18782 Title: END FLAPS FOR DIAPERS - Licensed to Scott Inventors: HUFFMAN, G and PIENIAK H File No.: 18866 Title: STRETCHABLE FILM PROCESS BY CHILLING Inventors: ZAJACZKOWSKI, P File No.: 18867 Title: IMPROVED CONTAINMENT DEVICE FOR DISPOSABLE DIAPER - Licensed to Scott Inventors: OLEARY, AUDREY File No.: 18870 Title: INTERLOCKING DOUBLE TAPE SYSTEM Inventors: ZAJACZKOWSKI, P File No.: 18877 Title: ACCORDIAN CROUCH CUTOUT DESIGN - Licensed to Scott Inventors: BELLAMY, LINDA File No.: 18941 Title: DIAPER WITH REVERSED GATHERS - Licensed to Scott Inventors: PIENIAK, HEINZ and HUFFMAN, GLORIA File No.: 18945 Title: COMFORT PANEL - Licensed to Scott Inventors: HUFFMAN, GLORIA File No.: 19028 Title: ANGLED TAPES FOR ADULT DIAPER - Licensed to Scott Inventors: O'LEARY A File No.: 19067 Title: HYDROPHOBIC WAISTBAND DIAPER - Licensed to Scott Inventors: LOVESTEDT, P 15 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 19068 Title: WAY TO REDUCE WASTE VOLUME AT DIAPER PLANTS Inventors: HEBBARD, C. File No.: 19071 Title: COMPRESSIBLE TAPES - Licensed to Scott Inventors: ZAJACZKOWSKI, P File No.: 19099 Title: URINE AND BOWEL CONTAINMENT - Licensed to Scott Inventors: ROBINSON, ROBIN File No.: 19100 Title: IMPROVED CROTCH FIT FOR DIAPER - Licensed to Scott Inventors: ZAJACZKOWSKI, PETER File No.: 19101 Title: IMPROVED FIT FOR ADULT BRIEF - Licensed to Scott Inventors: ZAJACZKOWSKI, PETER File No.: 19102 Title: PROCESS TO MANUFACTURE ABSORBENT CORE WITHOUT TISSUE CARRIER SHEET Inventors: ROBINSON, R. File No.: 19103 Title: PROCESS TO MANUFACTURE URINE AND BOWEL CONTAINMENT SYSTEM - Licensed to Scott Inventors: ROBINSON, ROBIN File No.: 19104 Title: DISPOSABLE DIAPER DESIGN CONCEPT DESIGNED TO STREAMLINE MANUFACTURING Inventors: ROBINSON, ROBIN File No.: 19148 Title: USE OF ANTIMICROBIAL TOPSHEET ON BRIEF OR INSERT PAD Inventors: ROBINSON, R. File No.: 19151 Title: PROCESS FOR APPLYING SAP POWDER INTO TARGET AREAS Inventors: SODERLUND, D.J. File No.: 19166 Title: COMPOSITE ELASTIC MATERIAL Inventors: SUZUKI 16 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 19167 Title: DIAPER STRUCTURE WITH MEMORY Inventors: SUZUKI File No.: 19206 Title: MACHINE DIRECTIONAL SCARFING METHOD AND APPARATUS FOR A DIAPER - Licensed to Scott Inventors: LAMBER,CLARE File No.: 19256 Title: ABSORBENT PAD DIAPER STRUCTURE WITH LARGE HOLES - Licensed to Scott Inventors: WEST, HUGH File No.: 19258 Title: END POCKETS OR CAPS FOR DIAPERS - Licensed to Scott Inventors: RILEY, JILL File No.: 19260 Title: NEWBORN DIAPER WITH ELASTIC UMBILICAL CORD PROTECTION - Licensed to Scott Inventors: HUFFMAN, GLORIA File No.: 19261 Title: PREFORMED SPRAY HOTMELT FOR BREATHABLE SUBSTRATE Inventors: PIENIAK, HP File No.: 19264 Title: IMPROVED ABSORBENT ARTICLE - Licensed to Scott Inventors: ZAJACZKOWSKI, PETER File No.: 19306 Title: TARGETED SAP ARTICLE - Licensed to Scott Inventors: UNRAU, DAVID; SODERLUND, J. DONALD; LAMBER, CLARE and KENDALL, JEFFERY File No.: 19308 Title: COMFORT FOLDOVER METHOD AND PRODUCT FOR DIAPER - Licensed to Scott Inventors: LOVESTEDT, PENNY File No.: 19309 Title: ABSORBENT PADS WITH DIFFERENT ACQUISITION LAYERS - Licensed to Scott Inventors: ROBINSON, ROBIN File No.: 19310 Title: IMPROVED CLOSURE SYSTEM FOR ADULT DIAPER - Licensed to Scott Inventors: ROBINSON, ROBIN 17 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 19311 Title: ON LINE PROCESS CONTROL FOR SAP APPLICATOR - Licensed to Scott Inventors: KENDALL, JEFFERY and LAMBER, CLARENCE File No.: 19312 Title: ALTERNATIVE INNER LEG GATHER CONSTRUCTIONS - Licensed to Scott Inventors: PIENIAK, HEINZ File No.: 19314 Title: CONCAVE CUT-OFF FRONT EDGE OF DIAPER PANEL Inventors: ERDMAN, C. and ERDMAN, E. File No.: 19315 Title: CUSHION FOR ELASTIC IN DISPOSABLE DIAPER - Licensed to Scott Inventors: OLEARY, AUDREY A. File No.: 19327 Title: ONE TAPE CLOSURE FOR MODIFIED BRIEF OR PAD - Licensed to Scott Inventors: CARR, KAROL File No.: 19328 Title: T-SHAPED BRIEF WITH FOLDED ADHESIVE WINGS/TAILS - Licensed to Scott Inventors: CARR, KAROL File No.: 19333 Title: DIAPER LEAKAGE AND CONTAINMENT PREVENTION POCKET Inventors: WILSON, L. File No.: 19334 Title: TOP SHEET FOR SANITARY PRODUCT - Licensed to Scott Inventors: SUZUKI File No.: 19363 Title: GENDER SPECIFIC ABSORBENT PADS WITH ACQUISITION ZONES - Licensed to Scott Inventors: UNRAU, DAVID and SODERLUND, DONALD File No.: 19364 Title: AIR DIVERTER SUPERABSORBENT ZONING SYSTEM - Licensed to Scott Inventors: LAMBER, CLARENCE and GARAY, RUDY File No.: 19396 Title: ANCHORING FASTENING TAPE Inventors: BELLAMY, LINDA 18 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 19397 Title: DEVELOPMENTAL TRAINING PANTS INSERT Inventors: BELLAMY, LINDA File No.: 19399 Title: SURFACE COVERSTOCK MATERIAL FOR DIAPER Inventors: SUZUKI File No.: 19429 Title: HYDROPHOBIC TOP SHEET WITH SURFACTANT PATTERN Inventors: PIENLAK, H. File No.: 19433 Title: PAD WITH CONCENTRATION IN LEG AREA Inventors: RILEY, J. File No.: 19451 Title: SPRAYABLE SAP Inventors: ZAJACZKOWSKI, P. and PIENIAK, H. File No.: 19452 Title: CONFORMABLE PAD CROTCH Inventors: ZAJACZKOWSKI, P. File No.: 19453 Title: END CAP DESIGN Inventors: ZAJACZKOWSKI, P. File No.: 19454 Title: DIAPER WITH HYDROPHOBIC WAISTBAND AREA Inventors: Pieniak, H. File No.: 19455 Title: REINFORCED DIAPER BACKSHEET SYSTEM Inventors: Schmidt, J. and Wilson, L. File No.: 19456 Title: DIAPER WITH ELASTIC SIDES FOR IMPROVED FIT AND LEAKAGE CONTROL Inventors: Wilson, L.; Schmidt, J. and Barber, J. File No.: 19457 Title: DIAPER WITH WINGLESS FRONT Inventors: SCHMIDT, J.; WILSON, L. and BARBER, J. 19 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 19458 Title: NON ADHESIVELY BONDED TAPE SYSTEM Inventors: ZAJACZKOWSKI, P. File No.: 19460 Title: PROCESS TO FORM GENDER SPECIFIC ABSORBENT PADS WITH ACQUISITION ZONES Inventors: SODERLUND, J.D. and UNRAU, D. File No.: 19462 Title: DISPOSABLE GARMENT WITH IMPROVED FIT Inventors: SILVANOWICZ, T. File No.: 19464 Title: TRAINING PANT DESIGN Inventors: O'LEARY, A. File No.: 19465 Title: SERVO CONTROLLED WATER KNIFE SYSTEM Inventors: KENDALL, J. File No.: 19491 Title: DIAPER TAPE AND SIDE SAVER Inventors: O'LEARY A. File No.: 19494 Title: WEIGHT FOR CUPPED LIQUID DISTRIBUTION TEST Inventors: HOWAT, R.F. File No.: 19527 Title: NARROW CROTCH ABSORBENT CORE Inventors: ROBINSON, ROBIN File No.: 19528 Title: ABSORBENT CORE HAVING A LIQUID DISTRIBUTION CHANNEL Inventors: Robinson, R. File No.: 19529 Title: FLOW THROUGH ABSORBENCY PAD Inventors: Lovestedt, P. File No.: 19530 Title: REFASTENABLE SEAM (ZIP LOC) Inventors: Bellamy, L; Huffman, G. 20 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 19533 Title: PAD STABILIZATION METHOD AND PRODUCT Inventors: Pieniak, H. File No.: 19534 Title: MULTIPLE SAP ABSORBENT PAD Inventors: O'Leary, A. File No.: 19535 Title: PANT/DIAPER WITH PULL ON FEATURE Inventors: Huffman, G. File No.: 19716 Title: PANT/DIAPER WITH ELASTICIZED WAIST PANEL Inventors: Huffman, G. File No.: 19717 Title: DIAPER PAD STABILIZATION FOR ULTRA THIN PAD Inventors: Robinson, R. File No.: 19718 Title: POCKET FORMED INSERT POCKET W/EXCHANGABLE SIDE PLATES Inventors: Robinson, R. File No.: 19719 Title: ABSORENT STRUCTURE Inventors: Zajaczkowski, P.; Silwanowicz, A. File No.: 19720 Title: POCKET FORMER POCKET DESIGN Inventors: Robinson, R. File No.: 19721 Title: TRAINING PANT WITH FLOATING PAD Inventors: O'Leary, A. File No.: 19722 Title: DISPOSABLE DIAPER WITH ELASTICIZED WAIST AND CLOSURE SYSTEM Inventors: Wagner, R.; Schmidt, J.; Wilson, L. File No.: 19723 Title: DISPOSABLE DIAPER USING A NON-TAPE ADHESIVE CLOSURE SYSTEM Inventors: Wagner, R.; Schmidt, J; Wilson, L. 21 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 19724 Title: FIT-SEAM FOR DISPOSABLE PANTS Inventors: Lovestedt, P. File No.: 19725 Title: SAP DISTRIBUTION WHEEL Inventors: Baker, A. File No.: 19758 Title: THIN ABSORBENT CORE WITH HIGH ABSORPTION RATE AND LOW LEAKAGE Inventors: DeCoster, D. File No.: 19759 Title: CONTINUOUS PHASE SAP FOR CCW Inventors: DeCoster, D. File No.: 19760 Title: SAP COATED FIBER WEB Inventors: DeCoster, D. File No.: 19761 Title: THIN COATED WEB PAD FOR ABSORBENT STRUCTURES Inventors: DeCoster, D. File No.: 19762 Title: THERMAL LAMINATION OF PULP TO CW Inventors: DeCoster, D. File No.: 19763 Title: IN-SITU LAMINATION OF THIN COATED WEB PAD Inventors: DeCoster, D. File No.: 19764 Title: COATED WEB WITH INTEGRAL HIGH LOFT TOPSHEET Inventors: DeCoster, D. File No.: 19765 Title: TAPELESS DIAPER FOR TRAY SHAPED CORE Inventors: Suzuki, M. File No.: 19776 Title: TAPELESS DIAPER WITH HAMMOCK STRUCTURED PAD Inventors: Suzuki, M. 22 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(a) File No.: 19777 Title: USE OF THREE LAYERS OF FLUFF PULP IN COMBINATION WITH TWO LAYERS OF SAP IN THE ULTRA DIAPER PAD COMPOSITE Inventors: Gomez, R. File No.: 19778 Title: UTILIZING A STARCH SOLUTION AS COMPONENT IN THE CONSTRUCTION OF THE ULTRA THIN PULP/SAP PAD COMPOSITE Inventors: Gomez, R. File No.: 19779 Title: UTILIZING TISSUE AS A COMPONENT IN THE ULTRA THIN PULP\SAP PAD COMPOSITE Inventors: Gomez, R. File No.: 19780 Title: USE OF POLYETHYLENE MESH IN THE ULTRA THIN PULP/SAP PAD Inventors: Gomez, R. File No.: 19782 Title: DISPOSABLE GARMET WITH STRETCHABLE SIDES Inventors: Silwanowicz, A. 23 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: ADORABLE Status: P Country: CANADA Application #: 692166 Application Date: 10/18/91 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS (ITU) ******************************************************************************** ******************************************************************************** Mark: BABY PRINTS Status: R Country: USA Application #: 786324 Application Date: 3/13/89 Registration #: 1576338 Registration Date: 1/09/90 US 8&15 Date: 1/09/96 Renewal Date: 1/09/10 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: BY MYSELF Status: P Country: USA Application #: 312522 Application Date: 9/190/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE TRAINING PANTS ******************************************************************************** ******************************************************************************** Mark: CHERISH Status: R Country: USA Application #: 773321 Application Date: 9/10/92 Registration #: 1553722 Registration Date: US 8&15 Date: 8/29/95 Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: COMPARE AND SAVE Status: R Country: CANADA Application #: 610004 Application Date: 6/23/88 Registration #: 367863 Registration Date: 4/20/90 US 8&15 Date: Renewal Date: 4/20/05 Goods: DISPOSABLE BABY DIAPERS ******************************************************************************** ******************************************************************************** 1 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: COMPARE AND SAVE Status: P Country: MEXICO Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: COMPARE AND SAVE Status: R Country: USA Application #: 637860 Application Date: 12/31/86 Registration #: 1465397 Registration Date: 11/17/87 US 8&15 Date: 11/17/93 Renewal Date: 11/17/07 Goods: DISPOSABLE BABY DIAPERS ******************************************************************************** ******************************************************************************** Mark: COTTONTAILS Status: R Country: USA Application #: 836157 Application Date: 11/06/89 Registration #: 1603724 Registration Date: 6/26/90 US 8&15 Date: 6/26/96 Renewal Date: 6/26/10 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: DOUBLERS Status: R Country: CANADA Application #: 514783 Application Date: 1/05/84 Registration #: 300634 Registration Date: 3/08/85 US 8&15 Date: Renewal Date: 3/08/00 Goods: INSERT PADS FOR DIAPERS ******************************************************************************** ******************************************************************************** Mark: DOUBLERS Status: R Country: USA Application #: 204593 Application Date: 2/22/79 Registration #: 1167396 Registration Date: 9/01/81 US 8&15 Date: Renewal Date: 9/01/01 Goods: DISPOSABLE DIAPERS INSERT PAD ******************************************************************************** ******************************************************************************** 2 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: DOUX ELASTIQUE (SOFT STRETCH) Status: R Country: CANADA Application #: 632497 Application Date: 5/23/89 Registration #: 376168 Registration Date: 11/23/90 US 8&15 Date: Renewal Date: 11/23/90 Goods: ELASTIC WAISTBAND FOR DIAPERS ******************************************************************************** ******************************************************************************** Mark: DRY'N HAPPY Status: P Country: DOMINICAN REPUBLIC Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: DRY'N HAPPY Status: R Country: USA Application #: 779128 Application Date: 1/31/89 Registration #: 1557983 Registration Date: 9/26/89 US 8&15 Date: 9/26/95 Renewal Date: 9/26/09 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: DUCKY DRYS Status: P Country: MEXICO Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: DUCKY DRYS Status: R Country: USA Application #: 778023 Application Date: 1/31/89 Registration #: 1556817 Registration Date: 9/19/89 US 8&15 Date: 9/19/95 Renewal Date: 9/19/09 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 3 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: DUCKYS Status: R Country: USA Application #: 777940 Application Date: 1/31/89 Registration #: 1556815 Registration Date: 9/19/89 US 8&15 Date: 9/19/95 Renewal Date: 9/19/09 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: GIGGLES Status: P Country: CANADA Application #: 650575 Application Date: 2/09/90 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: GIGGLES Status: R Country: USA Application #: 777939 Application Date: 1/31/89 Registration #: 1557979 Registration Date: 9/26/89 US 8&15 Date: 9/26/95 Renewal Date: 9/26/09 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: HAPPY DRYS Status: R Country: USA Application #: 777931 Application Date: 1/31/89 Registration #: 1556814 Registration Date: 9/19/89 US 8&15 Date: 9/19/95 Renewal Date: 9/19/09 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: KINDERPANTS Status: P Country: CANADA Application #: 708,280 Application Date: 7/3/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: TRAINING PANTS ******************************************************************************** ******************************************************************************** 4 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: KINDERPANTS Status: P Country: USA Application #: 74/279908 Application Date: 6/1/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: TRAINING PANTS (1B) ******************************************************************************** ******************************************************************************** Mark: LEAKGUARD Status: 0 Country: CANADA Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: LEAKGUARD Status: 0 Country: USA Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: LOVING TOUCH Status: P Country: ARGENTINA Application #: 1.850.461 Application Date: 7/23/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: LOVING TOUCH Status: P Country: BRAZIL Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 5 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: LOVING TOUCH Status: P Country: DOMINICAN REPUBLIC Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: LOVING TOUCH Status: P Country: MEXICO Application #: 147,031 Application Date: 8/11/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: LOVING TOUCH Status: R Country: USA Application #: 676719 Application Date: 8/04/87 Registration #: 1604540 Registration Date: 7/03/90 US 8&15 Date: 7/03/96 Renewal Date: 7/03/10 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: LOVING TOUCH Status: P Country: VENEZUELA Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: NATURE SOFT Status: R Country: USA Application #: 836162 Application Date: 11/06/89 Registration #: 1604615 Registration Date: 7/03/90 US 8&15 Date: 7/03/96 Renewal Date: 7/03/10 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 6 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: NATURE'S CARE Status: R Country: USA Application #: 836160 Application Date: 11/06/89 Registration #: 1604614 Registration Date: 7/03/90 US 8&15 Date: 7/03/96 Renewal Date: 7/03/10 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: NATURE'S FRIEND Status: R Country: USA Application #: 836164 Application Date: 11/06/89 Registration #: 1604616 Registration Date: 7/03/90 US 8&15 Date: 7/03/96 Renewal Date: 7/03/10 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: PARAGON AND LOGO Status: P Country: USA Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS AND DISPOSABLE TRAINING PANTS (1B) ******************************************************************************** ******************************************************************************** Mark: PARAGON AND LOGO Status: P Country: CANADA Application #: 715863 Application Date: 11/3/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS AND DISPOSABLE TRAINING PANTS (1B) ******************************************************************************** ******************************************************************************** Mark: QUICK-FIT Status: R Country: USA Application #: 445706 Application Date: 1/11/73 Registration #: 1015538 Registration Date: 7/08/75 US 8&15 Date: Renewal Date: 7/08/95 Goods: CLOTHING (DIAPERS) ******************************************************************************** ******************************************************************************** 7 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: RISETTES Status: R Country: CANADA Application #: 564788 Application Date: 6/20/86 Registration #: 333846 Registration Date: 11/06/87 US 8&15 Date: Renewal Date: 11/06/02 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: P Country: ARGENTINA Application #: 1.850.460 Application Date: 7/23/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: P Country: BRAZIL Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: R Country: CANADA Application #: 562143 Application Date: 6/05/86 Registration #: 326492 Registration Date: 4/16/87 US 8&15 Date: Renewal Date: 4/16/02 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: R Country: DENMARK Application #: 551989 Application Date: 7/27/89 Registration #: 3913 Registration Date: 6/15/90 US 8&15 Date: Renewal Date: 6/15/00 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 8 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SMILES Status: R Country: FRANCE Application #: 146800 Application Date: 7/28/89 Registration #: 1543748 Registration Date US 8&15 Date: Renewal Date: 7/28/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: R Country: GERMANY Application #: 3944216 Application Date: 7/24/89 Registration #: 1157279 Registration Date: 4/10/90 US 8&15 Date: Renewal Date: 7/24/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: P Country: IRELAND Application #: 409289 Application Date: 7/26/89 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: P Country: ITALY Application #: 49649 Application Date: 8/10/89 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: P Country: MEXICO Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 9 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SMILES Status: P Country: PORTUGAL Application #: 257880 Application Date: 8/21/89 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: P Country: SPAIN Application #: 1516339 Application Date: 8/11/89 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: P Country: TAIWAN Application #: 49878 Application Date: 11/16/90 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: R Country: USA Application #: 326074 Application Date: 8/31/81 Registration #: 1210639 Registration Date: 9/28/82 US 8&15 Date: Renewal Date: 9/28/02 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SMILES Status: P Country: VENEZUELA Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 10 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: ALABAMA Application #: Application Date: Registration #: 103945 Registration Date: 4/25/89 US 8&15 Date: Renewal Date: 4/25/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: ALASKA Application #: 2041 Application Date: 5/05/89 Registration #: 8902464 Registration Date: 5/05/89 US 8&15 Date: Renewal Date: 5/05/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: ARIZONA Application #: Application Date: Registration #: 27294 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/16/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: ARKANSAS Application #: Application Date: 6/20/89 Registration #: 13789 Registration Date: 6/20/89 US 8&15 Date: Renewal Date: 6/20/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: CALIFORNIA Application #: Application Date: 4/19/89 Registration #: 90218 Registration Date: 8/10/89 US 8&15 Date: Renewal Date: 8/10/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 11 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: COLORADO Application #: Application Date: Registration #: 891036293 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: DELAWARE Application #: Application Date: 4/24/89 Registration #: Registration Date: 4/24/89 US 8&15 Date: Renewal Date: 4/24/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: FLORIDA Application #: Application Date: Registration #: 10860 Registration Date: 4/19/89 US 8&15 Date: Renewal Date: 2/14/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: GEORGIA Application #: Application Date: Registration #: 9171 Registration Date: 5/10/89 US 8&15 Date: Renewal Date: 5/10/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: HAWAII Application #: Application Date: 4/17/89 Registration #: 107415 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 12 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: IDAHO Application #: Application Date: Registration #: 12609 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: ILLINOIS Application #: Application Date: Registration #: 64336 Registration Date: 4/18/89 US 8&15 Date: Renewal Date: 4/18/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: INDIANA Application #: Application Date: Registration #: 50099417 Registration Date: 4/24/89 US 8&15 Date: Renewal Date: 4/24/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: IOWA Application #: Application Date: 4/17/89 Registration #: 9548 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/19/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: KENTUCKY Application #: Application Date: Registration #: 8688 Registration Date: 4/26/89 US 8&15 Date: Renewal Date: 4/26/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 13 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: LOUISIANA Application #: Application Date: Registration #: Registration Date: 4/18/89 US 8&15 Date: Renewal Date: 4/18/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: MAINE Application #: Application Date: 5/16/89 Registratio #: 19890118 Registration Date: 5/16/89 US 8&15 Date: Renewal Date: 4/19/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: MARYLAND Application #: Application Date: Registration #: 897065 Registration Date: 5/12/89 US 8&15 Date: Renewal Date: 5/12/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: MARYLAND Application #: Application Date: 4/19/89 Registration #: 897065 Registration Date: 4/19/89 US 8&15 Date: Renewal Date: 4/19/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: MASSACHUSETTS Application #: 42693 Application Date: 5/08/89 Registration #: 42693 Registration Date: 5/08/89 US 8&15 Date: Renewal Date: 5/08/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 14 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: MINNESOTA Application #: Application Date: Registration #: 14605 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: MISSISSIPPI Application #: Application Date: Registration #: Registration Date: 4/18/89 US 8&15 Date: Renewal Date: 4/18/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: MISSOURI Application #: Application Date: Registration #: 10497 Registration Date: 5/05/89 US 8&15 Date: Renewal Date: 5/04/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: MONTANA Application #: Application Date: Registration #: 15539 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: NEBRASKA Application #: Application Date: Registration #: 9338 Registration Date: 4/24/89 US 8&15 Date: Renewal Date: 4/24/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 15 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: NEVADA Application #: Application Date: Registration #: Registration Date: 4/19/89 US 8&15 Date: Renewal Date: 4/19/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: NEW HAMPSHIRE Application #: Application Date: 4/17/89 Registration #: Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: NEW JERSEY Application #: Application Date: 4/25/89 Registration #: Registration Date: 4/25/89 US 8&15 Date: Renewal Date: 4/25/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: NEW MEXICO Application #: Application Date: Registration #: 89041701 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: NEW YORK Application #: 25523 Application Date: 2/14/89 Registration #: 25523 Registration Date: 5/03/89 US 8&15 Date: Renewal Date: 5/03/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 16 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: NORTH CAROLINA Application #: Application Date: Registration #: Registration Date: 4/21/89 US 8&15 Date: Renewal Date: 4/21/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: NORTH DAKOTA Application #: Application Date: Registration #: 12714 Registration Date: 4/28/89 US 8&15 Date: Renewal Date: 4/28/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: OHIO Application #: Application Date: Registration #: 6080342 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: OKLAHOMA Application #: Application Date: Registration #: 22543 Registration Date: 4/28/89 US 8&15 Date: Renewal Date: 4/28/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: OREGON Application #: 23322 Application Date: 4/25/89 Registration #: 23322 Registration Date: 4/25/89 US 8&15 Date: Renewal Date: 4/25/94 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 17 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: PENNSYLVANIA Application #: Application Date: 4/19/89 Registration #: 8932377 Registration Date: 4/19/89 US 8&15 Date: Renewal Date: 4/19/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: RHODE ISLAND Application #: Application Date: Registration #: 89417 Registration Date: 4/25/89 US 8&15 Date: Renewal Date: 4/25/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: SOUTH CAROLINA Application #: Application Date: Registration #: Registration Date: 4/18/89 US 8&15 Date: Renewal Date: 4/18/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: SOUTH DAKOTA Application #: Application Date: Registration #: Registration Date: 4/18/89 US 8&15 Date: Renewal Date: 4/18/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: TENNESSEE Application #: Application Date: 5/11/89 Registration #: Registration Date: 5/11/89 US 8&15 Date: Renewal Date: 5/11/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 18 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: UTAH STATE Application #: Application Date: Registration #: 29879 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: VERMONT Application #: Application Date: Registration #: 5800 Registration Date: 5/03/89 US 8&15 Date: Renewal Date: 5/03/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: VIRGINIA Application #: Application Date: 4/25/89 Registration #: Registration Date: 4/25/89 US 8&15 Date: Renewal Date: 4/25/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: WASHINGTON STATE Application #: Application Date: Registration #: 18870 Registration Date: 4/18/89 US 8&15 Date: Renewal Date: 4/18/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: WEST VIRGINIA Application #: Application Date: Registration #: Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 19 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: SNUG'N DRY Status: R Country: WISCONSIN Application #: Application Date: Registration #: Registration Date: 4/19/89 S 8&15 Date: Renewal Date: 4/19/09 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SNUG'N DRY Status: R Country: WYOMING Application #: Application Date: Registration #: 253857 Registration Date: 4/17/89 US 8&15 Date: Renewal Date: 4/17/99 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: SOFT STRETCH Status: R Country: CANADA Application #: 627515 Application Date: 1/06/89 Registration #: 389322 Registration Date: 10/04/91 US 8&15 Date: Renewal Date: 10/04/06 Goods: WAISTBAND OF DISPOSABLE DIAPERS, WAISTBAND SOLD AS A COMPONENT OF DIAPERS ******************************************************************************** ******************************************************************************** Mark: SOFT STRETCH Status: P Country: MEXICO Application #: Application Date: Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: WAISTBAND FOR DIAPERS ******************************************************************************** ******************************************************************************** Mark: SOFT-STRETCH Status: R Country: USA Application #: 773323 Application Date: 1/06/89 Registration #: 1590837 Registration Date: 4/10/90 US 8&15 Date: 4/10/96 Renewal Date: 4/10/10 Goods: WAISTBAND SOLD AS A COMPONENT OF DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** 20 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: ULTRASOFTS Status: P Country: CANADA Application #: 650596 Application Date: 2/09/90 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: ULTRASOFTS Status: R Country: USA Application #: 6522 Application Date: 11/29/89 Registration #: 1639711 Registration Date: 4/02/91 US 8&15 Date: 4/02/97 Renewal Date: 4/02/01 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: UNDEEZ Status: P Country: CANADA Application #: 708,278 Application Date: 7/3/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: TRAINING PANTS ******************************************************************************** ******************************************************************************** Mark: UNDEEZ Status: P Country: USA Application #: 74/279909 Application Date: 6/1/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: TRAINING PANTS (1B) ******************************************************************************** ******************************************************************************** Mark: WONDER DRY Status: P Country: USA Application #: 192057 Application Date: 8/06/91 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: DISPOSABLE DIAPERS (1B) ******************************************************************************** ******************************************************************************** 21 INTELLECTUAL PROPERTY AGREEMENT SCHEDULE 3.01(b) TRADEMARKS ---------- Mark: WONDER DRY SYSTEM AND DESIGN Status: R Country: USA Application #: 2798 Application Date: 11/16/89 Registration #: 1629112 Registration Date: 12/25/90 US 8&15 Date: 12/25/96 Renewal Date: 12/25/10 Goods: DISPOSABLE DIAPERS ******************************************************************************** ******************************************************************************** Mark: WUNDERPANTS Status: P Country: CANADA Application #: 708,279 Application Date: 7/3/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: TRAINING PANTS ******************************************************************************** ******************************************************************************** Mark: WUNDERPANTS Status: P Country: USA Application #: 74/279907 Application Date: 6/1/92 Registration #: Registration Date: US 8&15 Date: Renewal Date: Goods: TRAINING PANTS (1B) ******************************************************************************** ******************************************************************************** 22 EX-10.2 6 0006.txt LICENSE, DATED 2/2/93 EXHIBIT 10.2 LICENSE This Agreement, by and between Paragon Trade Brands, Inc., a Delaware corporation ("Licensee"), and Weyerhaeuser Company, a Washington corporation ("Licensor"). W I T N E S S E T H: WHEREAS, Licensor and Licensee have executed that certain Asset Transfer Agreement dated as of January 26, 1993 ("Transfer Agreement") providing for the sale of certain assets relating to the business of making and selling infant diapers of Licensor to Licensee and further providing in the Intellectual Property Agreement the licensing and sublicensing of certain technical information, copyrights and patents relating to such business; WHEREAS, Licensor has acquired title to the patents rights and proprietary technology, defined in the Intellectual Property Agreement as Secondary Intellectual Property Rights. WHEREAS, Licensee desires to have a license to such Secondary Intellectual Property Rights. NOW, THEREFORE, in consideration of the mutual covenants hereinafter recited and other good and valuable consideration, the parties hereto agree as follows: 1. Definitions ----------- 1.1 "Absorbent Article Patent" shall mean the invention described and claimed in U.S. Patent Application Serial No. 07/467,797 filed January 16, 1990 For: "Absorbent Article With Superabsorbent Particle Containing Insert Pad and Liquid Dispersion Pad" Inventors: Richard H. Young, Sr., Michael R. Hansen, E. Peter Lancaster, Haresh R. Mehta and 1 Christel Brunnenkant and any U.S. or foreign patent which result from the issuance, re-examination, reissue, extension of this application or any continuation or division thereof. 1.2 "Valid Claim" shall mean a claim in a patent which has not lapsed or become abandoned and which claim has not been declared null or invalid by an irrevocable or unappealed decision or judgment of a patent office or a court of competent jurisdiction. 1.3 "Process Automation Systems" shall mean process control systems developed for the Business by Licensor prior to the Closing Date, which systems are being or have been installed, and which are identified on Attachment A hereof. 1.4 The definitions in the Asset Transfer Agreement and in the Intellectual Property Agreement are expressly made a part of this Agreement as fully as though completely set forth herein. 2. Grants ------ 2.1 Licensor hereby grants to Licensee a paid-up, royalty free, worldwide, non-exclusive license to utilize the information contained in the Absorbent Article Patent application to manufacture, have manufactured, use and sell absorbent products. 2.2 Licensor hereby grants to Licensee a paid-up, royalty free, worldwide, non-exclusive license to manufacture, have manufactured, use and sell absorbent products within the scope of any Valid Claim of any Absorbent Article Patent. 2.3 Licensor hereby grants to Licensee a paid-up, royalty free, worldwide, nonexclusive license to utilize in the business of Licensee the Process Automation Systems to manufacture, have manufactured, use and sell absorbent products. 3. Miscellaneous Provisions ------------------------ 3.1 Licensor makes no warranty or representation that any patent rights can or will be obtained relating to Absorbent Article Patent Rights. Any decision regarding what patent rights to seek, maintain or abandon shall be solely at Licensor's discretion. However, in the event Licensor decides not to seek or maintain such patent protection, Licensor will so notify Licensee of Licensor's decision in such regard and Licensee shall have thirty (30) days in which to notify Licensor that Licensee desires to seek protection, or continue the prosecution and/or maintenance of such patent or patent applications or pursue patent 2 protection at Licensee's sole discretion and cost. Upon receipt of such notice Licensor shall promptly execute an assignment of all right, title and interest in and to the invention offered and shall execute any further documents as may be reasonably requested by Licensee; Licensor shall retain a royalty fee, nonexclusive right to practice such invention or patent. 3.2 The term of this License shall extend from the Closing Date until the expiration of the last to expire patent subject hereto, if any, and the right to use the information of Section 2.1 and 2.3 shall continue without time limit. 3.3 Terms relating to Confidentiality, Assignment, Governing Law and other issues shall be as provided in the Intellectual Property Agreement. IN WITNESS WHEREOF, this License has been executed by the parties hereto as of the dates noted below: Licensor: Licensee: WEYERHAEUSER COMPANY PARAGON TRADE BRANDS, INC. By /s/ Robert A. Dowdy By /s/ B.V. Abraham -------------------------- --------------------------- (Signature) (Signature) Robert A. Dowdy B. V. Abraham Deputy General Counsel President - ----------------------------- -------------------------- (Print Name and Title) (Print Name and Title) FEB 2 1993 FEB 2 1993 - ----------------------------- -------------------------- (Date) (Date) 3 ATTACHMENT A PROCESS AUTOMATION SYSTEMS Moisture Control System SAP Monitoring System Video Imaging Diaper Weight SQC System Diaper Bag Weight Monitor Target SAP Motor Control for Valve Speed Monitor Plant-Wide Information System 4 EX-10.3 7 0007.txt SUBLICENSE, DATED 2/2/93 EXHIBIT 10.3 SUBLICENSE This Agreement, by and between Paragon Trade Brands, Inc., a Delaware corporation ("Sublicensee"), and Weyerhaeuser Company, a Washington corporation ("Licensor"). W I T N E S S E T H: WHEREAS, Licensor and Sublicensee have executed that certain Asset Transfer Agreement dated as of January 26, 1993 ("Transfer Agreement') providing for the sale of certain assets relating to the business of making and selling infant diapers of Licensor to Sublicensee and further providing in the Intellectual Property Agreement the licensing and sublicensing of certain technical information and patents relating to such business; WHEREAS, Licensor has acquired through the Technology Agreement effective July 1, 1987 and as amended to the date hereof (the 'Technology Agreement") with Johnson & Johnson, a New Jersey corporation (J&J), rights to practice certain patents and proprietary technology relating to among other things infant diapers and the rights to grant sublicenses under such rights. WHEREAS, Sublicensee desires to have a sublicense under certain rights granted to Licensor by J&J. NOW, THEREFORE, in consideration of the mutual covenants hereinafter recited and other good and valuable consideration, the parties hereto agree as follows: 1. Definitions ----------- 1.1 "Infant Diaper" shall mean any product sold for absorbing body wastes and fluids, other than human blood and/or menstrual fluid, and designed for use on a person having a weight of less than fifty (50) pounds. 1 1.2 "C-C Patents" shall mean each and every unexpired patent right of J&J or Licensor as listed in Schedule A and Schedule A' attached thereto and made a part hereof, including patents which result from the issuance, re-examination, reissue, extension or foreign equivalent of any so-listed patent or application. 1.3 "Diaper Patents" shall mean each and every unexpired patent right of J&J as listed in Schedule B, Schedule B' and Schedule C attached hereto and made a part hereof, including patents which result from the issuance, re-examination, reissue, extension or foreign equivalent of any so-listed patent or application. 1.4 "Other Patents" shall mean each and every unexpired patent right of J&J issued or pending as of July 1, 1987, other than C-C Patents and Diaper Patents, including patents which result from the issuance, re-examination, reissue, extension or foreign equivalent of such patent or patent application. 1.5 "Prime Line Technology" shall mean all the information relating to processes, materials, equipment, designs, operations, performance, controls or structures for the manufacture of fluid absorbent articles comprising fibers and a fluid absorbent polymer which has been polymerized in situ on and/or in said article, which information has been disclosed by J&J to Licensor or developed by Licensor in support of its prime line equipment in Bowling Green, Kentucky before the Closing Date. 1.6 "Diaper Technology" shall mean all the information relating to processes, materials, equipment, designs, operation, performance, controls or structures of or for making Infant Diapers, which information has been disclosed by J&J to Licensor excluding Prime Line Technology. 1.7 "Valid Claim" shall mean a claim in a patent which has not lapsed or become abandoned and which claim has not been declared null or invalid by an irrevocable or unappealed decision or judgment of a patent office or a court of competent jurisdiction. 2 2. Grants ------ 2.1 Licensor hereby grants to Sublicensee a worldwide, exclusive sublicense, with the right to grant sublicenses, to utilize Diaper Technology to manufacture, have manufactured, use and sell Infant Diapers. 2.2 Licensor hereby grants to Sublicensee a worldwide, exclusive sublicense, with the right to grant sublicenses, to manufacture, have manufactured, use and sell Infant Diapers within the scope of any Valid Claim of a Diaper Patent listed on Schedule B and Schedule B'. 2.3 Licensor hereby grants to Sublicensee a worldwide, non-exclusive sublicense, with the right to grant sublicenses, to manufacture, have manufactured, use and sell Infant Diapers within the scope of a Valid Claim of a Diaper Patent listed on Schedule C. 2.4. Licensor hereby grants to Sublicensee the benefit of J&J's covenants not to sue Sublicensee and its sublicensees for infringement of any Valid Claim of any Other Patents as long as the Infant Diaper is made, used or sold exercising the licenses of Paragraph 2.1, 2.2 or 2.3. 3. Compensation ------------ 3.1 Sublicensee shall pay Licensor annual royalties in December of each of the following years: a. 1993: Three Hundred Thousand Dollars ($300,000); and b. 1994: Four Hundred Thousand Dollars ($400,000). Thereafter, this Sublicense shall be paid up and royalty free. 3.2 Licensor agrees to refund to Sublicensee any royalties Licensor receives from any other sublicensees under the J&J Technology Agreement for rights in 1993 and 1994 up to the amount for the year in question provided in Section 3.1. Such refunds, if any, will be paid by Licensor by April 30 after each year in question. Licensor shall provide to sublicensee an accounting thereof. 4. Patents ------- 4.1 In the event Licensor, in its sole discretion, decides not to continue the prosecution and/or maintenance of any Johnson & Johnson Schedule B, Schedule B' or 3 Schedule C Patent in any country which has been offered to Licensor by Johnson & Johnson under the terms of the Agreement between Licensor and Johnson & Johnson, Licensor will so notify Sublicensee of Licensor's decision in such regard and Sublicensee shall have twenty (20) days from receipt of such notice in which to notify Licensor that Sublicensee desires to continue the prosecution and/or maintenance of such patent or patent application at Sublicensee's direction and cost. In such event Licensor shall undertake to cause such patent or patent application to be assigned to Sublicensee subject to any sublicenses previously granted by Licensor and further prosecution and/or maintenance of the same shall be at the sole discretion and cost of Sublicensee. 4.2 In the event that Sublicensee receives notice of any claim from a third party that the practice of any Diapers Patent is or may be an infringement of a patent right of such third party, Sublicensee shall promptly notify Licensor who shall then notify J&J of the need to respond to such claim. 4.3 In the event that Sublicensee notifies Licensor of an infringement by any third party of any Diaper Patent, Licensor shall then notify J&J of the need to respond and will notify Sublicensee as to what action, if any, J&J intends to take to abate such infringement. 5. Miscellaneous Provisions ------------------------ 5.1 The term of this Sublicense shall extend from the date of the Asset Purchase Agreement until the expiration of the last to expire Diaper Patents or Other Patents and the right to use Diaper Technology shall continue without limit. 5.2 Any notice with reference to this Sublicense shall be by letter, cable, facsimile letter or telex followed by a confirming letter mailed within seven (7) days, and each of these communications shall be addressed as follows: To Licensor: Weyerhaeuser Company 33663 Weyerhaeuser Way South Federal Way, Washington 98003 Telephone: 206/924-2162 FAX: 206/924-3253 4 To Sublicensee: Paragon Trade Brands, Inc. 505 South 336th Street Federal Way, Washington 98003 Telephone: 206/924-4509 FAX: 206/924-4559 5.3 Terms relating to Confidentiality, Assignment, Governing Law and other issues shall be as provided in the Intellectual Property Agreement. IN WITNESS WHEREOF, this Sublicense has been executed by the parties hereto as of the dates noted below: Licensor: Sublicensee: WEYERHAEUSER COMPANY PARAGON TRADE BRANDS, INC. By /s/ Robert A. Dowdy By B. V. Abraham --------------------------- ------------------------------ (Signature) (Signature) Robert A. Dowdy B. V. Abraham Deputy General Counsel President - ----------------------------- --------------------------------- Print Name and Title) (Print Name and Title) FEB 2 1993 FEB 2 1993 - ----------------------------- --------------------------------- (Date) (Date) 5 REVISED NOVEMBER 10, 1992 ------------------------- Schedule A ---------- A-1 JBD 2/25 (Weyco #16951) Patents - ------- U.S. Patent 4,500,315 and 4,537,590 - ----------------------------------- Argentina 234479 Austria 0108637 Australia 558202 Belgium 0108637 Bolivia B-4737 Brazil P-18306016 Canada 1,209,752 Chile 34798 Denmark 161,664 Ecuador PI-86-187 Eire 54695 EPO 0108637 France 0108637 Germany P-3378952.5.08 Great Britain 2,131,346 Greece 78755 Guatemala 3775 Hong Kong 419/1987 India 161085 Italy 0108637 Japan 1,586,799 Korea 42835 Luxembourg 0108637 6 Mexico 157756 REVISED NOVEMBER 10, 1992 ------------------------- A-1 Continued JBID 2/25 (Weyco #16951) Netherlands 0108637 New Zealand 206055 Norway 167,760 Peru 3814 Philippines 19243 Portugal 77627 Sarawak 3208 Singapore 242/87 South Africa 83/8282 Spain 527081,280301,280302, 280303, 280304, 280305, 280306 Sweden 0108637 Switzerland 0108637 Taiwan 22229 Trinidad 24/1987 Venezuela 47305 Patent Applications ------------------- Colombia 227109 Egypt 691/1983 Malaysia 8801552 Thailand 001958 7 REVISED NOVEMBER 10, 1992 ------------------------- A-2 JBD 54 (Weyco #16953) Patents - ------- U.S. Patent 4,676,784 --------------------- Canada 1239012 Singapore 187/91 Trinidad 16/1991 - -------------------------------------------------------------------------------- A-3 JBD 62 (Weyco #16954) Patents - ------- U.S. 4,560,372 -------------- Canada 1245004 Hong Kong 305/1991 Singapore 164/91 Trinidad 15/1991 8 REVISED NOVEMBER 10, 1992 ------------------------- A-4 JBID 72 (Weyco #16956) Patents - ------- U.S. Patent 4,559,050 --------------------- Canada 1251902 Patent Applications - ------------------- Japan 180067/85 - -------------------------------------------------------------------------------- A-5 JBID 73 (Weyco #16957) Patents - ------- U.S. 4,596,567 -------------- Canada 1251902 Patent Applications - ------------------- Japan 180068/85 - -------------------------------------------------------------------------------- A-6 JBID 74 (Weyco #16958) Patents - ------- U.S. 4,605,402 -------------- Canada 1251901 Hong Kong 1076/1991 Singapore 955/91 Trinidad 61/1991 Patent Applications - ------------------- Brazil 8503820 9 Japan 180069/85 10 REVISED NOVEMBER 10, 1992 ------------------------- A-7 ABTK 1 (Weyco # 16946) Patents - ------- Australia 543970 Brazil PI 8108591 Canada 1,163,599 EPO 0040087 France 0040087 Great Britain 0040087 Germany 3165831.8 Hong Kong 291/1985 Malaysia 1115/1985 Mexico 154820 Netherlands 0040087 Singapore 928/84 South Africa 81/3131 Patent Applications - ------------------- Japan 501802/81 - -------------------------------------------------------------------------------- A-8 ABTK 009 (Weyco #16947) Patents - ------- U.S. 4,381,320 -------------- Argentina 229126 Australia 551832 Brazil PI 8203234 Canada 1203772 Great Britain 2099828 New Zealand 200725 Portugal 74987 South Africa 82/3882 Patent Applications - ------------------- Germany 3220735.2 11 Japan 94149/82 12 REVISED NOVEMBER 10, 1992 ------------------------- A-9 U.S. Patent 4, 573,988 JBD 66 (Weyco #18681) - ---------------------- (CIP of JBD 2 and JBD 25) U.S. Patent 4,540,454 JBD 78 (Weyco #18682) - --------------------- (Div. of JBD 2 and JBD 25) 13 REVISED NOVEMBER 10, 1992 ------------------------- A'-1 Recent Inventions - ----------------- File 1047.141 Relatively Soft Pliable Water-Swellable Polymer: Filed June - ------------- 12, 1989; S.N. 07/365,206 (JBD 154) ABANDONED May 1991 Weyco #16635 File 1047.143 Hydrocolloid Polymer: Filed June 12, 1989; S.S. 365,224 - ------------- (JBD155). ABANDONED 8/26/91. Weyco #16697 File 1047.145 Absorbent Mixture, Method of Making Same and Absorbent - ------------- Article Including Same: Filed June 14,1989; S.N. 365,967 Weyco #16698 (JBD 153) now U.S. Patent No. 5,100,397 issued 3/31/92. All foreign cases assigned to Weyerhaeuser. 16698N S.N. 772,772 filed 10/07/91. Notice of Allowance 6/29/92. File 1047.148 Hydrocolloid Polymer with Improved Sorption: Filed - ------------- June 12, 1989; S.N. 07/365,979 (JBD 156) ABANDONED 5/1/91. Weyco #16699 Weyco #16888 Highly Swellable Absorbent Polymers. No application filed. - ------------ Weyco #16889 Highly Swellable Absorbent Polymer via U.V. No - ------------ application filed. Weyco #16893 Manufacture of Composite Web Having Absorbent Properties: - ------------ Filed April 10, 1989; S.N. 335,764 (JBD 158) ABANDONED May 1991. 14 REVISED NOVEMBER 10, 1992 ------------------------- SCHEDULE B ---------- B-1 JBD 8 (Weyco #16949) Patents - ------- U.S. Patent 4,413,995 --------------------- Canada 1,192,456 Singapore 860/85 - -------------------------------------------------------------------------------- B-2 JBD 11 (Weyco #16950) Patents - ------- U.S. 4,540,415 -------------- - -------------------------------------------------------------------------------- B-3 Patents JBP 22 (Weyco # 14022) - ------- U.S. 4,084,592 -------------- Patents JBD 76 (Weyco # 16960) - ------- U.S. 4,880,420 -------------- Brazil P18503818 Canada 1257751 Patent Applications - ------------------- Japan 180071/85 15 REVISED NOVEMBER 10, 1992 ------------------------- B-4 JBD 70 (Design) (Weyco #16955) Patents - ------- Canada 55968 - -------------------------------------------------------------------------------- B6 JBD 47/103 (Weyco #16952) Patents - ------- U.S. Patent 4,985,025 --------------------- Canada 1241503 - -------------------------------------------------------------------------------- B-7 JBD 75/106/129/149 (Weyco # 16964) Patents - ------- U.S. 4,883,480 -------------- Canada 1252952 - -------------------------------------------------------------------------------- B-8 JBD 29/JBD 130 (Weyco #18828) Patents - ------- Canada 1236074 Singapore 611/90 Trinidad 25/90 16 REVISED NOVEMBER 10, 1992 ------------------------- B-9 JBD 107/JBD 128 (Weyco #14107) Patents - ------- U.S. 4,813,947 -------------- Patent Applications - ------------------- Canada 526378-6 - -------------------------------------------------------------------------------- B-10 Patents - ------- U.S. 3,779,246 J&J 665 (Weyco #14665) Canada 977,268 U.S. 4,464,217 JBP 177 (Weyco #14177) Canada 1,186,288 U.S. 4,084,592 JBP 22 (Weyco #14022) U.S. 4,573,991 JBD 50 (Weyco #14050) U.S. 4,479,836 JBD 43 (Weyco #14043) U.S. 4,576,598 JBD 41 (Weyco #14041) U.S. 4,552,560 JBD 48 (Weyco #14048) U.S. 4,723,954 JBD 104 (Weyco #16963) U.S. 4,662,874 JBD 105 (Weyco #14105) U.S. 4,731,066 JBD 131 (Weyco #14131) U.S. 4,886,511 JBD 144 (Weyco #14144) U.S. 4,941,933 JBD 146 (Weyco #14146) 17 REVISED NOVEMBER 10, 1992 ------------------------- SCHEDULE B' ---------- B'-I Recent Inventions: - ------------------ File 1047.142 Disposable Diaper with Center Gathers: Filed October 27, - ------------- 1988; S.N. 263,260 (JBD 159) U.S. Patent 4,935,021 issued Weyco #16696 6/19/90; Canada S.N. 614682 9/29/89 File 1047.153 Low Bulk Disposable Diaper: Filed October 27, 1988; S.N. 263,529 (JBD 157) Now U.S. Patent No. 5,098,423 issued 3/24/92. - ------------- Weyco #16700 18 REVISED NOVEMBER 10, 1992 ------------------------- SCHEDULE C ---------- C-1 JBD 7/JBP 98/JBP 158 (Weyco #14098) Patents - ------- U.S. 4,450,026 -------------- U.S. 4,337,771 -------------- Australia 528,814 Brazil 7900459 Canada 1,195,804 Japan 1,591,935 South Africa 79/0351 - -------------------------------------------------------------------------------- C-2 JBD 44/JBP 97/JBP 159/JBP 120/JBP 166 (Weyco #s 14044, 16696, 19070, 19147, 17914) Patents - ------- U.S. RE 31,922 -------------- U.S. 4,324,245 -------------- Argentina 221074 Australia 526338-533635 Canada 1153152 Chile 31273 Guatemala 3295 Venezuela 40765 Patent Application - ------------------ Ecuador 210 19 REVISED NOVEMBER 10, 1992 ------------------------- C-3 JBP 157/JBP 100 (Weyco #18226) Patents - ------- U.S. 4,336,803 -------------- - -------------------------------------------------------------------------------- C-5 Patent - ------ U.S. 4,381,783 JBP 210 (Weyco #14210) - -------------- U.S. RE 32,957 JBD 90 (Weyco #14090) - -------------- 20 U.S. ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement, made and dated February 2, 1993, is made by Paragon Trade Brands, Inc. ("Paragon") to and for the benefit of Weyerhaeuser Company ("Weyerhaeuser") pursuant to and as contemplated by the Asset Transfer Agreement (the "Agreement"), dated as of January 26, 1993, between Weyerhaeuser and Paragon and their Canadian subsidiaries. All terms defined in the Agreement shall have the same meaning when used herein. Weyerhaeuser hereby assigns to Paragon and Paragon hereby assumes all rights, title and interest in all Liabilities and obligations relating to or arising from the operation of the Businesses, whether before or after the Closing Date, including but not limited to: (a) all Liabilities and obligations still existing at the Closing Date and which either are set forth, reflected, disclosed or reserved for on the balance sheet of the Business as of September 27, 1992 or have arisen in the ordinary course of business after September 27, 1992 but excluding liabilities discharged prior to the Closing Date; (b) all Liabilities and obligations of Weyerhaeuser pursuant to, under or relating to all agreements, contracts and leases of Weyerhaeuser relating to the Businesses including, without limitation, all agreements, contracts and leases shown in Schedule 1; (c) all warranty, performance and similar obligations entered into or made in the course of business of the Businesses with respect to its products; (d) all Liabilities and obligations of Weyerhaeuser pursuant to and under all Collective Bargaining Agreements including, without limitation, all collective bargaining agreements shown on Schedule 2 hereto; 1 (e) the Liabilities and obligations to or with respect to Employees or Transferred Employees being assumed by Paragon; (f) the Liabilities and obligations being assumed by or agreed to be performed by Paragon pursuant to any other agreement being entered into in connection with the Agreement, including, without limitation, the Related Agreements; (g) the Liabilities and obligations relating to all Actions related to or arising out of the operations of the Businesses including, without limitation, all actions listed on Schedule 3 hereto; and (h) all permits and licenses held by Weyerhaeuser which to the extent they are transferable and which relate principally to the Business, including, without limitation, those permits and licenses shown on Schedule 4 hereto; provided, that Paragon shall not assume any liabilities or obligations of -------- Weyerhaeuser to the extent that such liabilities or obligations are expressly retained by Weyerhaeuser pursuant to the terms of the Agreement. PARAGON TRADE BRANDS, INC. By B.V. Abraham ----------------------------- Its President ---------------------- 2 SCHEDULE 1 AGREEMENTS, CONTRACTS AND LEASES (other than real property leases) B R A M P T 0 N 1. Agreement dated December 15, 1987 between Weyerhaeuser Canada Limited and Courtier Provincial En Alimentation (1971) Inc. 2. Rental Agreement dated November 25, 1991 between City Water International Inc. and Weyerhaeuser Canada Ltd. Term: Five years, commencing November 25, 1991. (NEED REVERSE SIDE FOR TERMS AND CONDITIONS.) 3. Rental Contract dated November 25, 1991 between Pacific National Leasing Corporation and Weyerhaeuser Canada Ltd. Term: 60 months, commencing November 25, 1991. (NEED REVERSE SIDE FOR TERMS AND CONDITIONS.) 4. Lease agreement dated November 28, 1991 between Norex Leasing, Inc. and Weyerhaeuser Canada Ltd. Term: 66 months, starting December 1, 1991. (NEED REVERSE SIDE FOR TERMS AND CONDITIONS.) 5. Bell Canada Rate Stability Contract No. CPO6671 dated April 12, 1991. Term: 120 months. REQUIRES WRITTEN CONSENT TO ASSIGN. 6. Bell Canada Rate Stability Contract No. CNMO1177 dated April 12, 1991. Term: 120 months. REQUIRES WRITTEN CONSENT TO ASSIGN. 7. Lease Agreement No. 479526 dated April 21, 1992 between MGL Copy Systems Inc. and Weyerhaeuser Canada Ltd. Term: 66 months. (NEED REVERSE SIDE FOR TERMS AND CONDITIONS.) 8. Lease Amending Agreement dated December 29, 1992 between Triathlon Leasing Inc. and Weyerhaeuser Canada Ltd. 9. Maintenance Agreement dated August 20, 1980 between Richard, Besner & Associates Ltd.; Amendment dated November 29, 1991; term: December 1, 1991 to December 1, 1993. H A R M 0 N Y 1. Agreement dated June 13, 1991 between Weyerhaeuser Company and Western Butler County Authority for use of the Authority's manhole by Weyerhaeuser in the Borough of Harmony for the purpose of sampling Weyerhaeuser's sanitary sewer discharge and testing thereof. Agreement effective for five years. 2. Industrial Board Order dated April 1, 1992 from the Pennsylvania Department of Labor and Industry granting special approval to permit the installation of a material elevator (reciprocating conveyor). Certificate of Operation No. 35740 expires April 30, 1993. 3. Support Service Agreement dated March 22, 1991 between XL/DATACOMP, Inc. and Weyerhaeuser Company for maintenance of listed machines. Term: 60 months. CUSTOMER SHALL NOT ASSIGN WITHOUT FIRST PROVIDING WRITTEN NOTICE. 4. Maintenance Agreements between Memorex Telex and Weyerhaeuser Company for maintenance of listed equipment. Terms run for twelve months. 5. Lease Agreement No. 16964-2 between Comdoc Leasing and Weyerhaeuser Company dated January 29, 1990. Term: 60 months. LEASE IS NON-CANCELABLE; LESSEE HAS NO RIGHT TO . . . ASSIGN . . . THE EQUIPMENT. 6. Agreement dated June 15, 1992 between The Peoples Natural Gas Company and Weyerhaeuser Company wherein Peoples will transport for Weyerhaeuser, and Weyerhaeuser will furnish to Peoples, natural gas for such transportation. Term commences April 1, 1992; can be terminated by 30 days' written notice. ASSIGNMENT REQUIRES WRITTEN CONSENT. 7. Natural Gas Sales Agreement dated February 7, 1990 between O & R Energy, Inc. and Weyerhaeuser Company concerning the sale of natural gas. Term: Month-to-month. MAY NOT BE ASSIGNED WITHOUT WRITTEN CONSENT OF BOTH PARTIES. 8. Invoice for Service Agreement No. K205050029 from Standard Register from May 1, 1992 to April 30, 1993 for 2700 Continuous Forms Signer. 9. Contract dated November 1, 1983 between Weyerhaeuser Company, The Baltimore and Ohio Railroad Company, The Chesapeake and Ohio Railway Company, Richmond, Fredericksburg and Potomac Railroad Company, and Seaboard System Railroad, Inc. NEITHER PARTY MAY DISCLOSE THE TERMS OF THIS CONTRACT TO A THIRD PARTY WITHOUT THE WRITTEN CONSENT OF THE OTHER PARTY, EXCEPT AS PERMITTED IN THE CONTRACT. Three subsequent contract amendments. Current contract term: January 1, 1992 through December 31, 1993. 10. Maintenance Agreement dated July 23, 1991 between Weyerhaeuser and Ricoh Corporation; Term: Three years; NOT ASSIGNABLE WITHOUT WRITTEN CONSENT OF RICOH. 11. Rental of Pitney Bowes Postage Meter for year 1993 (Model 5318, Serial No. 557542). 12. Equipment Maintenance Agreements between Pitney Bowes and Weyerhaeuser Company for: Mailing Machine, Model 5460, Serial No. 0212322; Mailing Machine, Model 5460, Serial No. 0212324; 5# scale, Model 5820, Serial No. 0007540. 13. Pitney Bowes Register License Agreement dated September 20, 1989 between Pitney Bowes and Weyerhaeuser for UPS Meter, Model 5301, Serial No. 0094371; Term: Five years; AGREEMENT IS PERSONAL, NON-TRANSFERABLE. CANNOT BE ASSIGNED WITHOUT PITNEY BOWES' CONSENT. 14. Sidetrack Agreement dated August 6, 1975 between The Baltimore and Ohio Railroad Company, operating Properties of the Pittsburg and Western Railroad Company and Weyerhaeuser Company. 15. Average agreement for demurrage with CSX. KENT RESEARCH FACILITY 1. Blanket Purchase Order No. RD-0011150 with Bowman Distribution for purchase of miscellaneous fasteners; term: May 31, 1992 - May 31, 1993. 2. Contract for Recurrent or Continuing Maintenance or Repair Services between Washington Uniform and Weyerhaeuser Company; extended through June 6, 1993. 3. Building Security Service Contract between National Guardian Security Services and Weyerhaeuser Company for the Kent Facility. 4. Contract dated August 13, 1990 between Tri-Star Disposal and Weyerhaeuser Company for rental of 30 yard container. Contract extended through July 31, 1993. 5. Weyerhaeuser Company Radio Station License; expires March 26, 1995. CANNOT BE ASSIGNED WITHOUT SPECIFIC AUTHORIZATION. 6. Business License issued by The City of Kent. NOT TRANSFERABLE OR ASSIGNABLE. (Renewed January, 1993) 7. Water Service Permit issued by The City of Kent. 8. Notice from City of Kent Fire Prevention that a permit is required. Permit No. 401 renewed; expiration date: April, 1993. 9. Contract with Kent Sandwich Shop; expires November 11, 1993. 10. Contract with Kit's Camera; expires December 31, 1993. 11. Paper products are ordered from Service Paper Company under CH Blanket purchase order. 12. Supplies for use in laboratories are ordered from VWR Scientific using WTC Blanket purchase order. 13. Contract No. RD-1767-SC dated July 14, 1989 between Roberts Service Company, Inc. and Weyerhaeuser Company for H.V.A.C. maintenance; expires July 1, 1993. 14. Contract No. RD-1538-SC dated December 31, 1990 between Overall Laundry Service and Weyerhaeuser Company for shop towels; expires: December 31, 1993. 15. Contract with AMCO dated March 30, 1989 for janitorial services; expires April 1, 1993. 16. Purchase Order RD003647 issued to Growing Green Interiors, Inc. for maintenance of plants; expires April 1, 1993. 17. Purchase Order RD0021787 issued to Instron Corporation to cover preventative maintenance on Instron Model 1122, Serial #4127 located at Weyerhaeuser Kent Technical Center; expires December 31, 1993. 18. Purchase Order RD0021785 issued to Landauer Company to cover radiation film badge service; expires December 31, 1993. 19. Agreement dated June 16, 1992 between United States Testing and Weyerhaeuser Company for monthly flammability testing. Term: May 1, 1992 - May 1, 1993. 20. Purchase Order RD0021890 issued to Wilson Effective Compliance for consulting services in the areas of environmental, hazardous waste and safety. Term: November 23, 1992 - December 23, 1993. L A P U E N T E 1. South Coast Air Quality Management District Trip Reduction Plan. 2. Equipment Maintenance Agreements with Pitney Bowes for Moistener; MM-Roll Tape Unit; 5 lb scale and Softguard. 3. GTEL Communications Systems Maintenance Agreement dated August 7, 1991; term: one year. MAY NOT BE ASSIGNED WITHOUT WRITTEN CONSENT. 4. Datacomp Customer Support Agreement dated October 30, 1989 between XL/DATACOMP, INC. and Weyerhaeuser Company for data processing machines and features. Term: month-to-month; ASSIGNMENT REQUIRES WRITTEN CONSENT. 5. Maintenance Service Schedules between Memorex Telex Corporation and Weyerhaeuser Company. 6. Service Agreement dated October 14, 1991 between Procomp Associates and Weyerhaeuser Company. Term: one year. AGREEMENT CAN BE ASSIGNED . . . UPON THE SALE OF SUBSTANTIALLY ALL OF THE ASSETS OF THE BUSINESS TO WHICH THIS AGREEMENT PERTAINS. 7. Installation and Service Agreement between Weyerhaeuser Company and M A B Services, Incorporated dated March 1, 1981. Term: Expires March 1, 1995. 8. Maintenance Agreement dated June 28, 1991 between Weyerhaeuser Company and York Maintenance & Energy Services; Term: August 1, 1992 - July 31, 1993. 9. Central Station Protective Signaling Service Renewal Agreement dated July 24, 1991 between Wells Fargo Alarm Services and Weyerhaeuser Company; Term: Five years. AGREEMENT IS NOT ASSIGNABLE EXCEPT UPON PRIOR WRITTEN CONSENT OF WELLS FARGO ALARM. 10. Agreement with Pinkerton's Inc. to provide security service. Term: month- to-month. 11. Consulting Agreement effective January 4, 1993 between Weyerhaeuser Company and Connie L. Randmaa. 12. Industrial Track Agreement dated April 1, 1962 between Southern Pacific Company and Weyerhaeuser Company. 13. Average agreement for demurrage with Southern Pacific. M A C 0 N 1. Service Agreement between Protecom, Inc. and Weyerhaeuser Company effective February 1, 1989. Cancellation notice given; maintenance contract on Telrad 24/64 telephone system will be cancelled effective February 28, 1993. 2. Equipment Maintenance Agreement between Pitney Bowes and Weyerhaeuser Company dated January 21, 1988. 3. State of Georgia Certificate of Occupancy No. 23177L dated January 28, 1980. 4. CTR Systems Service Agreement between CTR and Weyerhaeuser Company dated December 1, 1990 for service of System 55.4. Automatically renewed for successive one year terms. NOT ASSIGNABLE WITHOUT PRIOR WRITTEN CONSENT OF CTR. 5. Pest Control Service Agreement between Orkin Extermination Company, Inc. and Weyerhaeuser Company dated July 3, 1991. Expires July 3, 1992; automatically renews on month to month basis. Can be canceled by giving 30 days written notice. 6. Purchase Agreement between Georgia Duplicating Products and Weyerhaeuser Company dated March 20, 1992. Term appears to be for one year. Can be canceled upon 30 days written notice and payment of liquidated damages. NO ASSIGNMENT UNLESS CONSENTED TO IN WRITING. 7. Purchase Agreement between Georgia Duplicating Products and Weyerhaeuser Company dated December 18, 1991. Term appears to be for one year. Can be canceled upon 30 days written notice and payment of liquidated damages. NO ASSIGNMENT UNLESS CONSENTED TO IN WRITING. 8. Norfolk Southern Rate Authority issued April 19, 1991. 9. Contract for Sale (Macon Recycling, Inc.) between Weyerhaeuser Company and Caraustar Industries, Inc., dated August 3, 1992. 10. Equipment Maintenance Agreement between Pitney Bowes and Weyerhaeuser Company dated January 21, 1988. 11. Agreement for Products and Services between ROLM Company and Weyerhaeuser Company dated October 14, 1992. 12. Agreement dated May 10, 1979 among Central of Georgia Railroad Company, Macon-Bill County Industrial Authority and Weyerhaeuser Company concerning operation of a track at Walden, Georgia. 13. Average agreement for demurrage with Norfolk Southern. W A C 0 1. Agreement for Weyerhaeuser Employee Assistant (sic) Program dated April 1, 1992 and Weyerhaeuser Company. Term: one year. May be terminated with 30 days written notice. No mention of assignment, except changes must be in writing. 2. Certificate for a Qualified Business in an Enterprise Zone as Designated by the State of Texas issued to Weyerhaeuser Company on November 18, 1991. Agreement effective from November 19, 1991 to August 31, 1996. 3. Certificate of Compliance Agreement for Development and Tax Abatement for Weyerhaeuser Company issued by the City of Waco on January 15, 1992. Exemption from taxation commences on January 1, 1992, continuing through the year 1996. 4. SSW Track Agreement (Industrial Track Agreement) dated July 8, 1982 between St. Louis Southwestern Railway Company and Weyerhaeuser Company. 5. Service and Inspection Contract dated January 1, 1992 between Central Texas Fire & Safety Equipment Co., Inc. and Weyerhaeuser Company. Expiration: January 31, 1994. 6. Central Station Alarm Services Agreement (a) between National Guardian Security Services and Weyerhaeuser Company dated October 15, 1987; Term: 5 years. (Agreement expired October 15, 1992.) 7. Preventive Maintenance Schedule and Agreement with Lochridge-Priest, Inc. for HVAC System. 8. Preventive Maintenance Schedule and Agreement with Lochridge-Priest, Inc. for Trance Centrifugal chillers. 9. Lawn Maintenance Agreement with Barrera Landscaping. 10. Service Agreement between Cintas Corp. and Weyerhaeuser Company for garment rental. 11. Special Products Rental Service between Cintas Corp. and Weyerhaeuser Company. 12. Termite Protection Plan dated April 10, 1990. 13. Monthly Service Agreement with Chem Cal, Inc. for services (including chemicals). 14. Centex Waste Management Service Agreement dated November 8. 1990. Term: three years. 15. Security Deposit Receipt for $3,000 - not transferable from Lone Star Gas Company. Waco is on a regular published rate; therefore, no "signed" contract is necessary for service. 16. Texas Utilities Electric Company Agreement for Electric Service effective December 1, 1991. Term: three years. NO ASSIGNMENT EFFECTIVE UNTIL ACCEPTED IN WRITING BY COMPANY. 17. J. B. Hunt Transport, Inc. MC-135797 Sub 342 Contract Tariff. 18. Contract Carrier Schedule from Dart Transit Company (Fleetline, Inc.) of Rules, Rates, and Charges. 19. Letter of agreement from Contract Freighters, Inc. dated March 7, 1990. 20. Revised tariff item from Westway Express, Inc. 21. Transportation Agreement dated January 23, 1990 between Weyerhaeuser Company and Glenn McClendon Trucking Company, Inc. 22. Contract for Transportation Services dated May 9, 1989 between Weyerhaeuser Company and Swift Transportation Co., Inc. 23. Lease Agreement between Alco Capital Resource, Inc. and Weyerhaeuser Company dated June 4, 1992 for Canon copier, equipment and Fax. 24. Average agreement for demurrage with Norfolk Southern. DIVISION - AGENT/BROKER CONTRACTS - MISC CONTRACTS 1. Letter agreement dated August 14, 1989 from Ogilvy & Mather/West defining terms and conditions under which Ogilvy will manage public relations work for Personal Care Products' premium private label diaper. 2. Lease Agreement No. 36625 between Weyerhaeuser Company and The Wm. Dierickx Co. dated May 25, 1990. Term: 36 months. LESSEE'S RIGHTS ARE NON-ASSIGNABLE. 3. Letter dated September 30, 1991 from Weyerhaeuser Company to Information Resources, Inc. describing commitment to purchase IRI InfoScan service for Food, Drug and Mass Merchandiser channels in disposable diaper category; also includes DataServer(tm) and SalesPartner(tm) software timesharing license fees. Term: January 1, 1992 - January 1, 1995. Requires six month cancellation. 4. Professional Services Master Agreement No. 339 dated October 11, 1991 between Computer Consulting Group, Inc. and Weyerhaeuser Company Personal Care Products. Term: month-to-month. MAY NOT BE ASSIGNED BY EITHER PARTY WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTY, EXCEPT TO . . . A CORPORATION SUCCEEDING TO ITS BUSINESS BY SALE, MERGER, CONSOLIDATION OR AFFILIATION. 5. Service Agreement No. 87031397D between Digital Equipment Corporation and Weyerhaeuser. Term: December 1, 1991 - November 30, 1992. NEED TERMS AND CONDITIONS. 6. Equipment Lease Agreement dated March 22, 1991 between XL/Datacomp; Term: 36 months. NOT ASSIGNABLE WITHOUT FIRST OBTAINING THE WRITTEN CONSENT OF XLDC. 7. Maintenance Service Schedules 2, 3, 4, 5, 6 and 7 to Master Maintenance Agreement No. H-1207-SA between Memorex Telex Corporation and Weyerhaeuser; effective July 1, 1989, for equipment located in Federal Way, Washington. 8. Maintenance Service Schedules 2 and 3 to Master Maintenance Agreement No. S4782912 between Memorex Telex Corporation and Weyerhaeuser; effective March 9, 1990, for equipment located in Federal Way, Washington. 9. Master Equipment Purchase Agreement No. P4732300 between Memorex Telex Corporation and Weyerhaeuser Company effective January 11, 1989. Term: month-to-month. AGREEMENT IS NOT ASSIGNABLE WITHOUT PRIOR WRITTEN CONSENT OF MTC. 10. Master Equipment Purchase Agreement No. _____ between Memorex Telex Corporation and Weyerhaeuser Company dated December 29, 1992. 11. Maintenance Service Schedules to Master Maintenance Agreement No. H-1207-SA between Memorex Telex Corporation and Weyerhaeuser; effective July 1, 1989, for equipment located in Macon, Georgia. 12. Master Maintenance Agreement No. S5557312 between Memorex Telex Corporation and Weyerhaeuser effective January 28, 1991. MAY NOT BE ASSIGNED WITHOUT PRIOR WRITTEN CONSENT OF MTC. 13. Agreement for Maintenance Services No. 036919 dated April 23, 1992 between EMC and Weyerhaeuser for equipment located at Bowling Green, Kentucky. Term: 18 months. NEED TERMS AND CONDITIONS. 14. Volume Purchase Agreement dated September 30, 1986 between System Software Associates, Incorporated and Weyerhaeuser, Inc.; NEITHER PARTY MAY ASSIGN RIGHTS WITHOUT PRIOR WRITTEN CONSENT OF OTHER. ADDENDUM A: BPCS Software License Agreement between System Software Associates, Incorporated and Weyerhaeuser, Inc. dated Septeber 30, 1986. 15. Software License Agreement between Software Plus, Inc. and Personal Care Products Division, a subsidiary of Weyerhaeuser corporation, for Human Resources/38 and Payroll/38 Software. IN THE EVENT . . . AT A FUTURE DATE ANY OPERATION OF PCP CEASES TO COME WITHIN THE DEFINITION OF PCP, ... SAID OPERATION SHALL BE ALLOWED TO RETAIN THEIR LICENSE TO USE THE SOFTWARE. 16. Infant Disposable Diaper Sales Agreement dated July 1, 1991 between Weyerhaeuser Company and Cirrus Resources, Inc. 17. Consulting Agreement effective November 16, 1992 with Kenneth Krupski Consulting, Inc. 18. Lease Agreement No. 92-049 dated August 24, 1992 between Weyerhaeuser and Texas State Technical College Waco for lodging facilities for Weyerhaeuser employees while participating in training activities. 19. Private Label Agreement dated November 22, 1983 between Albertson's Inc. and Weyerhaeuser Company. 20. Service Agreement dated June 29, 1992 between Pivotal Sales Company and Weyerhaeuser Company. 21. Private Label Agreements and Continuous Packaging Agreements with customers authorizing Weyerhaeuser to purchase poly bags required to package disposable diaper products. 22. Letter agreement dated March 23, 1992 from James Mead & Company to Sam J. Efnor describing agreement to assist in search for eight Regional Sales Managers. 23. Consulting Agreement No. 18809 dated August 31, 1991 between Japan Absorbent Technology Institute (Migaku Suzuki) and Weyerhaeuser Company. Term: September 1, 1991 - August 31, 1993. 24. Project Proposal dated December 7, 1992 from Marty Byrne, Professional Research Services for project management services. 25. Consulting Agreement with Mulhern Consulting for Project Proposal dated May 21, 1992. 26. Sales Agreements described on the attached Exhibit A. SALES AGREEMENTS
Name of Broker Date of Agreement Comments - ------------------------------------------------------------------------------------------- Advantage Sales & June 26, 1989 Supersedes Marketing Contract of February 2, 1988 A. J. Seibert December 14, 1992 Associated Brokers November 30, 1992 Action Sales & Marketing September 1, 1992 Interim Sales Agreement Alliance Associates September 1, 1992 Interim Sales Agreement Barclay-Braun September 1, 1992 Interim Sales Agreement Big Apple Brokerage, Inc. September 1, 1992 Interim Sales Agreement Brokerage Company (The) March 27, 1989 Supersedes Contract of April 1, 1987 Budd Mayer Company of October 14, 1992 Georgia, Inc. C&S Wholesale Grocers, April 20, 1992 Inc. Cal Grocers Corporation October 24, 1990 and April 15,1992 Carter Marketing Group, November 12, 1992 Inc. Castle Sales & Marketing September 8, 1981 Originally (Revised 8/1/85 known as W.V.W. and 3/9/87) Inc. Continental Companies December 31, 1991 Crown BBK October 12, 1992 Daymon Associates, Inc. October 6, 1988 DBB Marketing October 27, 1992
Name of Broker Date of Agreement Comments - ------------------------------------------------------------------------------------------------- DeJarnett Sales January 1, 1988 Supersedes Contract of April 1, 1987 Dick Hughes Company February 26, 1991 Dugan/Doss, Inc. November 12, 1991 Eisenhart & Associates October 28, 1992 Emco Sales February 10, 1989 Enterprise Marketing November 30, 1992 Federated Foods, Inc. October 28, 1992 Feldkamp Marketing September 1, 1992 Interim Sales Agreement Ferolie Corporation July 20, 1989 Fodor & Company (A. W.) January 10, 1986 Revised December 2, 1986 Galaxy Agency September 4, 1984 G. C. McGill Associates, August 30, 1988 Inc. Girodo, Henry July 20, 1989 (Pathmark Consultant) Golden Bay Foods, Inc. October 28, 1992 (formerly Continental Companies) Gordon Companies (The) September 1, 1992 Interim Sales Agreement Hendley Sales & Marketing November 30, 1992 Hess & Associates, Inc. November 30, 1992 Holstrom Sales Company April 1, 1987 Intersales Marketing, September 1, 1986 Inc. J & J Sales & Marketing March 27, 1989 Co. Karlin-MacLellan-Harris, November 12, 1992 Inc.
Name of Broker Date of Agreement Comments - ------------------------------------------------------------------------------------------------ Ken-Son Sales, Inc. April 1, 1987 Kitchen Products L. H. Gamble October 27, 1992 L. J. Elkin, Inc. February 17, 1989 Major Marketing, Inc. April 1, 1987 Marketing Management January 3, 1986 and February 1, 1991 Marty Landis & Assoc. September 1, 1992 Interim Sales Agreement Midland Marketing, Inc. September 1, 1992 Interim Sales Agreement Midwest Military Brokers April 1, 1987 Morris Alper & Sons, Inc. November 12, 1992 P & C Distributors, Inc. September 1, 1992 Interim Sales Agreement Packaging Associates September 1, 1992 Corporation Performance Systems April 1, 1987 Pfeister Company (The) December 15, 1992 Plate & Temkim Brokerage October 12, 1992 P.M.C. Inc. November 12, 1992 Progressive Sales September 1, 1992 Interim Sales Agreement Promark October 20, 1992 Sales Mark October 23, 1992 Slattery Marketing August 30, 1988 Corporation Sommer Associates December 23, 1992 Southeastern Military February 15, 1989 Associates (Bobby Dukes) Summit Sales September 1, 1992 Interim Sales Agreement
Name of Broker Date of Agreement Comments - ------------------------------------------------------------------------------------------------ Supermarket Brands December 14, 1992 Marketing, Inc. Terrell Associates May 3, 1990 Trans-European Marketing, February 26, 1991 Inc. Trend Marketing Services, November 30, 1992 Inc. United Sales and December 31, 1990 Marketing, Inc. Will Price Sales Company November 30, 1992 Wright Brokerage (Farm March 1, 1991 Fresh)
SCHEDULE 2 COLLECTIVE BARGAINING AGREEMENTS Labor Agreement between Weyerhaeuser Company/Paragon Trade Brands, Inc., La Puente, CA and Graphic Communications Union, Local 388, District Council No. 2; AFL-CIO; 1992-1994. Schedule 3 ACTIONS 1. Curtis Gaylord v. Automated Systems of Tacoma, Inc. v. Weyerhaeuser ------------------------------------------------------------------- Company; Case No. 89 L 6789 filed in Cook County, Illinois circuit Court on ------- December 1, 1989. 2. In May, 1990 the Federal Trade Commission ("FTC") contacted Weyerhaeuser with an oral inquiry relating to Weyerhaeuser making claim of biodegradability of disposable diapers. The FTC representative who called seemed to have a bag of "Nature's Care" diapers and a Weyerhaeuser document of "Weyerhaeuser's Position on Biodegradable Diapers." Further samples of these items were sent to the FTC on May 7, 1990. Nothing further has been heard from them. 3. Charge of Discrimination filed by Marvin Townsend on May 25, 1990 with the State of Illinois Department of Human Rights, Charge No. 1990CF3344 charging race discrimination. 4. La Puente Diaper Plant - San Gabriel Valley Superfund Site. Weyerhaeuser ---------------------------------------------------------- was notified on March 20, 1991 of being a potentially liable party to the San Gabriel Superfund site. The Superfund site consists of approximately 170 square miles, including the industrial zone. The primary contaminate is chlorinated hydrocarbons in the groundwater. The Company has had no further communication with the EPA since our response of April 25, 1991 was forwarded to them. In 1986 the facility was inspected by the state which had concerns about groundwater contamination. A subsurface investigation was undertaken and test results concluded there was no subsurface contamination in the soil. Three groundwater monitoring wells were installed and monitoring is still ongoing. Test results consistently show levels of pollutants to be nondetectable or below drinking water standards. 5. The Company was notified in December, 1991 of the result of Procter & Gamble's analysis of the Company's Ultra product and concerns about the infringement of U.S. Patents 4,695,278 (Larson) and 4,795,454 (Dragoo). Modifications of the Company's product are being studied. The Lawson patent was subject to an appeal resulting from a Kimberly-Clark Seattle suit. The appeal decision was generally in favor of Kimberly-Clark, leaving the Lawson patent with narrow claims. Settlement discussions are continuing. 6. 19176 (615-2) Weyerhaeuser v. Ralston Purina - Trademark Opposition No. 86,555 filed December 13, 1991 in the Trademark Trial Appeal Board: Opposition against the registration of STAGE 3 for diapers, applied for by Ralston Purina, based on generic meaning of "stage" regarding development of children. 7. 19344 (615-2) Weyerhaeuser v. Ralston Purina - Trademark opposition in the Trademark Trial and Appeal Board: Opposition against the registration of STAGE 1 for diapers. See STAGE 3, above. Notice of Opposition filed May 18, 1992. 8. Weyerhaeuser v. Ralston Purina - Trademark opposition in the Trademark Trial and Appeal Board: Opposition against the registration of STAGES for diapers was not filed. We propose to file cancellation proceedings should the mark ever be registered. NOTE: Settlement discussions are in progress concerning Items 7, 8 and 9. 9. Emma R. Floyd v. Weyerhaeuser Company, et al. --------------------------------------------- Complaint filed February 14, 1992 in the Superior Court of Bibb County, State of Georgia, Case No. 92CV85114D3, alleging that plaintiff was wrongfully discharged. Plaintiff has previously been denied a claim for unemployment insurance by the Georgia Department of Labor. A Charge of Discrimination filed with the EEOC alleging race and sex discrimination was unsuccessful. Counsel for Weyerhaeuser Company believes the vast majority of the claims in this lawsuit are without merit, and are either barred by the statutes of limitation or are invalid as a matter of law. 10. Notice of Charge of Discrimination, DFEH No. FEP 92-93 Bl-0396-00-se; EEOC # 340925404, dated August 5, 1992 against Weyerhaeuser Company by Anna Marie Morales, alleging discrimination based on sex (sexual harassment). 11. Notice of Charge of Discrimination, Charge Number 380930087, dated October 29, 1992 against Weyerhaeuser Company by Pam M. Terry, Personal Care Products, alleging religious discrimination. 12. In November, 1992 Kimberly-Clark began a dialogue with the company concerning some Kimberly-Clark patents and the Company's current inner leg gather diaper and training pant product. Kimberly-Clark has recently filed suit against Drypers Corp. and Pope & Talbot in the U. S. District Court in Seattle alleging infringement of one of the same patents. Kimberly-Clark has offered the Company a license, upon the payment of royalties, for the right to continue to use the inner-leg feature. The Company has taken the position that the patent coverage claimed by Kimberly-Clark is not applicable to the Company's products and is of questionable validity. 13. Workers Compensation Report attached as Exhibit A. 14. Automobile/liability claims/lawsuits report attached as Exhibit B. SCHEDULE 4 PERMITS AND LICENSES 1. HARMONY: Industrial Board Order dated April 1, 1992 from the Pennsylvania Department of Labor and Industry granting special approval to permit the installation of a material elevator (reciprocating conveyor). Certificate of Operation No. 35740; expires April 30, 1993. 2. KENT: Weyerhaeuser Company Radio Station License; expires March 26, 1995. 3. KENT: Business License issued by The City of Kent. 4. KENT: Water Service Permit issued by The City of Kent. 5. KENT: City of Kent Fire Prevention Permit No. 401; expires April, 1993. 6. LA PUENTE: County of Los Angeles Weighing and Measuring Device Registration Certificate, ID No. 016044. 7. MACON: State of Georgia Certificate of Occupancy No. 23177L dated January 28, 1980. EX-10.4 8 0008.txt DIAPER PATENT AGREEENT EXHIBIT 10.4 DIAPER PATENT AGREEMENT Johnson & Johnson, a corporation organized and existing under the law of the State of New Jersey and its subsidiaries and affiliates which it controls by majority ownership, including McNeil-PPC, Inc. (hereinafter called "J&J"); Weyerhaeuser Company, a corporation organized and existing under the law of the State of Washington (hereinafter called "Weyerhaeuser"); Paragon Trade Brands, Inc., a corporation organized and existing under the law of the State of Delaware (hereinafter called "Paragon") and Scott Health Care, a partnership operating under the laws of the State of Delaware (hereinafter called "SHC"), in consideration of the premises and of the covenants and agreements hereinafter set forth, do hereby covenant and agree as follows: 1. Background ---------- 1.1 Effective July 1, 1987 J&J and Weyerhaeuser entered into an agreement relating to absorbent products technology and related patents (hereinafter called the "Technology Agreement"), which agreement was amended as follows: a. J&J letter of May 23, 1988 modification of Schedule C-2. b. Weyerhaeuser letter of July 17, 1989 Accepted July 18, 1989 by Weyerhaeuser and Accepted August 24, 1989 by J&J c. J&J letter of September 8, 1989 Accepted September 11, 1989 by J&J and Accepted November 1, 1989 by Weyerhaeuser. d. J&J letter of April 3, 1990 Revised Schedules dated April 2, 1990. e. Weyerhaeuser letter of March 14, 1991 Accepted March 18, 1991 by Weyerhaeuser and Accepted June 19, 1991 by J&J. 1 f. J&J letter of May 12, 1992 re U.S. Patent 4,388,075 Accepted by Weyerhaeuser May 22, 1992. g. J&J letter of May 20, 1992 Accepted by J&J May 20, 1992 and Accepted by Weyerhaeuser May 22, 1992. h. Weyerhaeuser letter of June 10, 1992 Accepted by Weyerhaeuser and Accepted by J&J June 30, 1992. i. Weyerhaeuser letter of November 10, 1992 Accepted by Weyerhaeuser November 11, 1992 and accepted by J&J December 2, 1992. 1.2 Effective May 30, 1992 Weyerhaeuser granted to SHC a sublicense under the Technology Agreement with permission of J&J (hereafter called the "SHC Sublicense"). 1.3 Effective February 2, 1993 Weyerhaeuser granted to Paragon a sublicense under the Technology Agreement excluding C-C Patents and Prime Line Technology (hereinafter called the "Paragon Sublicense"). 1.4 Since February 2, 1993 Weyerhaeuser is no longer directly involved in the production of diapers and is currently in the process of dismantling its facility designed for the practice of C-C Patents and Prime Line Technology. 1.5 Since no facilities exist for the commercial practice of the C-C Patents and the Technology Agreement provides certain paid-up rights effective after payment of the minimum royalty for calendar year 1994, the parties hereto have agreed to terminate the Technology Agreement and establish this Agreement among the Parties for the remaining rights other than those relating to C-C Patents. 2 2. Definitions ----------- 2.1 "Licensed Technology" shall mean all information relating to the processes, materials, equipment, designs, operation, performance, controls or structures of or for making Infant Diapers, which information was known by J&J employees involved with developments relating to the C-C Patents as of July 1, 1987 and disclosed to Weyerhaeuser under the Technology Agreement. 2.2 "Prime Line Technology" shall mean all information relating to processes, materials, equipment, designs, operations, performance, controls or structures for the manufacture of fluid absorbent articles comprising fibers and a fluid absorbent polymer which has been polymerized in situ on and/or in said article, which information has been disclosed by J&J to Weyerhaeuser under the Technology Agreement as part of the Licensed Technology or developed by Weyerhaeuser in support of its prime line equipment in Bowling Green, Kentucky before February 2, 1993. 2.3 "Diaper Technology" shall mean all Licensed Technology except for Prime Line Technology which has been disclosed by Weyerhaeuser to SHC under the SHC Sublicense and to Paragon under the Paragon Sublicense. 2.4 "C-C Patents" shall mean each and every unexpired patent right of J&J as listed in Schedule A attached hereto and made a part hereof, including patents which result from the issuance, re-examination, reissue or extension of any so-listed patent or application. 2.5 "Diaper Patents" shall mean each and every unexpired patent right as listed in Schedules B and C attached hereto and made a part hereof, including patents which result from the issuance, re-examination, reissue or extension of any so-listed patent or application. 2.6 "Other Patents" shall mean each and every unexpired patent right of J&J issued or pending as of July 1, 1987, other than C-C Patents and Diaper Patents, including patents which result from the issuance, re-examination, reissue, extension or foreign equivalent thereof; 3 such patents rights include but are not limited to those listed in Schedule D attached hereto and made a part hereof. 2.7 "Valid Claim" shall mean a claim in a patent which has not lapsed or become abandoned and which claim has not been declared null or invalid by an irrevocable or unappealed decision or judgment of a patent office or a court of competent jurisdiction. 2.8 "Infant Diaper" shall mean any product for absorbing body wastes and fluids, other than human blood and/or menstrual fluid, and designed for use on a person having a weight of less than fifty (50) pounds. 2.9 "Adult Diaper" shall mean any product for absorbing body wastes and fluids, other than human blood and/or menstrual fluid, and designed for use on a person have a weight of at least fifty (50) pounds. 2.10 "Licensed Territory" shall mean the United States of America, Canada and Mexico. 2.11 "Party or Parties" shall mean J&J, Weyerhaeuser, SHC and Paragon as the context indicates. 2.12 "Effective Date" shall mean the latest date that this Agreement has been signed by all the Parties hereto. 3. Termination of Prior Agreements ------------------------------- 3.1 This Agreement supersedes and terminates the Technology Agreement, the SHC Sublicense and the Paragon Sublicense. 3.2 It is acknowledged by the Parties that as a result of this termination all rights in the C-C Patents revert to J&J. 4 4. Assignments ----------- 4.1 J&J hereby assigns to Paragon all of the Diaper Patents and agrees to execute assignments thereof substantially in the form of Attachment E, attached hereto and made a part hereof, as needed to record these assignments. Paragon agrees to reimburse J&J for any outside costs incurred in responding to Paragon's reasonable request for cooperation in support of any litigation involving Diaper Patents. 4.2 J&J hereby assigns to Weyerhaeuser all of its rights and interest in U.S. Patents 5,100,397; 5,171,237; and 5,246,429 and agrees to execute assignments thereof substantially in the form of Attachment F, attached hereto and made a part hereof, as needed to record these assignments. Weyerhaeuser agrees to reimburse J&J for any outside costs incurred in responding to Weyerhaeuser's reasonable request for cooperation in support of any litigation involving these assigned patents. 5. Grants ------ 5.1 Paragon hereby grants to J&J a non-exclusive, paid-up, worldwide, irrevocable right and license to practice the inventions within the scope of any Valid Claim of the Diaper Patents listed in Schedule B in the manufacture, use and sale of any products other than Infant Diapers. 5.2 Paragon hereby grants to J&J a non-exclusive, paid-up, worldwide, irrevocable right and license to practice the inventions within the scope of any Valid Claim of the Diaper Patents listed in Schedule C in the manufacture, use and sale of any products. 5.3 Weyerhaeuser hereby grants to J&J a non-exclusive, paid-up, worldwide, irrevocable right and license to practice the inventions within the scope of any Valid Claim of U.S. Patents, 5,100,397; 5,171,237; and 5,246,429 and any foreign equivalents thereof owned by Weyerhaeuser in the manufacture, use and sale of any products. 5 5.4 J&J and Weyerhaeuser hereby reaffirm the grant to Paragon of a worldwide, irrevocable right and exclusive license, with the right to grant sublicenses, to utilize Diaper Technology to manufacture, have manufactured, use and sell Infant Diapers and Adult Diapers. 5.5 J&J hereby covenants not to sue Paragon and its licensees and sublicensees for infringement of any Valid Claim of any Other Patents by any Infant Diaper or Adult Diaper as long as the Infant Diaper or Adult Diaper is made, used or sold exercising the assignment rights of Paragraph 4.1 or the license of Paragraph 5.4 except said covenant not to sue shall not extend to U.S. Patent 4,938,754. J&J acknowledges that as to U.S. Patent 4,938,754 Paragon has a non-exclusive license for Infant Diapers and Adult Diapers which license will be paid-up once the payment under Paragraph 6.3 has been made. 5.6 Paragon hereby grants to SHC a non-exclusive and irrevocable right and sublicense in the Licensed Territory to utilize Diaper Technology to manufacture, have manufactured, use and sell Adult Diapers. 5.7 Paragon hereby grants to SHC a non-exclusive and irrevocable right and license in the Licensed Territory to manufacture, have manufactured, use and sell Adult Diapers within the scope of any Valid Claim of any Diaper Patent. 5.8 J&J hereby covenants not to sue SHC for infringement of any Valid Claim of any Other Patents by any Adult Diaper as long as the Adult Diaper is made, use or sold exercising the licenses of Paragraph 5.6 or 5.7 except said covenant not to sue shall not extend to U.S. Patent 4,938,754. J&J acknowledges that as to U.S. Patent 4,938,754 SHC has a non-exclusive license for Adult Diapers which license will be paid-up once full payment under Paragraph 6.2 has been made. 5.9 Weyerhaeuser and Paragon hereby reaffirm the right of J&J to grant non-exclusive licenses under U.S. Patent 4,388,075 if and to the extent that such license(s) are granted together with an express license under J&J's U.S. Patent 4,938,754. It is understood that in such licenses, royalties attributable solely to U.S. Patent 4,388,075 shall be equally divided between J&J and Paragon, but that royalties attributed solely to U.S. Patent 4,938,754, or jointly to Patents 4,388,075 and 4,938,754, shall be solely to the right and property of J&J. 6 6. Compensation and Payments ------------------------- 6.1 Since Weyerhaeuser has no future benefits and is paid up as to the past, it has no further compensation obligations to the other Parties with regard to the Technology Agreement and this Agreement. 6.2 SHC agrees to pay J&J Forty Thousand Dollars ($40,000) for paid-up rights under the Agreement. SHC shall make two payments of Twenty Thousand Dollars ($20,000) with the first in June 1994 and the final payment in December 1994. 6.3 Paragon agrees to pay J&J Three Hundred Sixty Thousand Dollars ($360,000) for paid-up rights under this Agreement. Paragon shall make this payment in December 1994. 6.4 The payments by SHC and Paragon to J&J shall be addressed as follows: Lawrence D. Schuler, Esq. Office of General Counsel Johnson & Johnson One Johnson & Johnson Plaza New Brunswick NJ 08933-7002 This address may be changed by J&J by written notice to SHC and Paragon. 7. Representations, Warranties and Indemnities -------------------------------------------- 7.1 The Party owning any patents subject to this Agreement makes no warranties or representations with respect to the validity, scope or enforceability of such patents or to the freedom to practice such patents free of infringement of any other patents which are not subject to this Agreement. 7.2 J&J does not warrant the completeness or total usefulness of the Diaper Technology. J&J makes no warranties or representations with respect to the Parties' freedom to use the Diaper Technology free of infringement of any patents which are not subject to this Agreement. 7 7.3 Each Party agrees to indemnify and hold the other Parties harmless with respect to any product liability claims, suits, damages and expenses arising out of the manufacture, use or sale of any products make, used or sold by the indemnifying Party or its licensee(s) or sublicensee(s), or by any third party. The Party using Diaper Technology does so at that Party's risk based on that Party's own judgment. 8. Confidentiality --------------- 8.1 All information within-the Diaper Technology, Licensed Technology and Prime Line Technology supplied or received by a Party under the terms of this Agreement, the Technology Agreement, SHC Sublicense or Paragon Sublicense shall be protected as follows: (a) To the extent that such information is of a confidential nature the disclosing Party shall clearly mark such information as "Proprietary" or "Confidential" if in written form or, if not in written form, the disclosing Party shall clearly characterize such information as "Proprietary" or "Confidential" so that the receiving Party is aware that is protected under the terms hereof when first disclosed by one Party to another Party. (b) Without prior written consent of Paragon, the other Parties shall not disclose Proprietary or Confidential Diaper Technology information to any third party without first obtaining from said third party a written agreement to maintain the confidential status and to strictly limit the use of such information to that permitted such other Party under this Agreement. (c) The Parties shall only disclose Proprietary or Confidential information disclosed to it by another Party under the Technology Agreement, SHC Sublicense, Paragon Sublicense or this Agreement to those of its consultants, contractors, employees, licensees' or sublicensees' employees who shall reasonably need to know such information and then only upon such consultants, contractor and employees' written agreement to maintain the confidential status and to strictly limit the use of such information to that permitted such Party under this Agreement. 8 8.2 The obligation of Paragraph 8.1 shall not deprive the Parties of the right to use (subject to patent rights) and disclose any information: (a) Which is, at the time of first disclosure to the receiving Party, generally known to the trade or public; (b) Which becomes at a later date generally known to the trade or public through no fault of the receiving Party and then only after such later date; (c) Which is possessed by the receiving Party, as shown by such Party's written or other tangible evidence, before its first disclosure by the disclosing Party or anyone confidentially bound to the disclosing Party as to such information; (d) Which is disclosed to the receiving Party in good faith by a third party who has an independent right to such information; or (e) After December 31, 1996. 8.3 Each Party agrees that the other Parties are not restricted from the disclosure of Diaper Technology information as is reasonably necessary in the other Parties' efforts to obtain patents and to commercially exploit the rights granted and retained under this Agreement. 8.4 The Parties hereto acknowledge that the SHC Sublicense referenced in Paragraphs 1.2 and 8.1 contains no provision for confidentiality. 9. Terms and Termination --------------------- 9.1 The term of this Agreement shall extend from the Effective Date until the expiration or lapse of the last to expire or lapse of the Diaper Patents or Other Patents and the rights to use Diaper Technology shall continue without time limit. 9 9.2 In view of the rights and obligations involved in this Agreement, the Parties agree that a termination with notice provision for any material breach of this Agreement would not be an adequate or appropriate remedy. In the event of any material breach of this Agreement, the Parties agree to diligently work to resolve their differences in a manner which will allow the benefits foreseen from this Agreement to continue. It is also agreed by the Parties that upon mutually accepted written terms, a termination prior to the expiration of this Agreement can be effective. 10. Miscellaneous Provisions ------------------------ 10.1 Any notice or request with reference to this Agreement shall be by letter or by facsimile letter followed by a confirming letter mailed within five (5) days; and such communications shall be addressed as follows: (a) To J&J: Lawrence D. Schuler, Esq. Office of General Counsel Johnson & Johnson One Johnson & Johnson Plaza New Brunswick NJ 08933-7002 Tel (908) 524-2811, Fax (908) 524-2808 (b) To Weyerhaeuser: Patrick D. Coogan, Esq. Assistant General Counsel and Corporate Patent Counsel Law Department, CH 2J29 Weyerhaeuser Company Tacoma WA 98477 Tel (206) 924-2061, Fax (206) 924-3253 (c) To SHC: Mark G. Bocchetti, Esq. Senior Patent Attorney Law Division Scott Paper Company Scott Plaza Philadelphia PA 19113 Tel (215) 522-5804, Fax (215) 522-7275 10 (d) To Paragon: Susan Barley, Esq. Vice President and General Counsel Paragon Trade Brands, Inc. 505 South 336th Street Federal Way WA 98003 Tel (206) 924-4282, Fax (206) 924-4739 Each Party may by written notice to the other Parties change the above-noted address. Notices shall be effective when received. 10.2 Any Party owning patents subject to the terms of this Agreement shall have complete discretion as to its decisions to prosecute, maintain, enforce, license, sublicense, defend, reissue, re-examine, disclaim, abandon, assign or any other action relating to such patent(s). 10.3 This Agreement shall be construed and the legal relations among the parties determined in accordance with the law of the State of Washington. 10.4 This Agreement and the rights and obligations hereunder are personal as among the Parties and shall not be assigned by any Party to any other Party or any third party without the prior written consent of the other Parties except to the successor by way of purchase or otherwise of a substantial part of the business relating to absorbent products of that Party. In such event, prior written consent is not required but prompt notification of such an assignment with the written assurance by the acquiring party of its willingness and ability to fully perform the obligations of the Party acquired are necessary for such assignment to be effective. 10.5 Except as otherwise expressly provided, this Agreement may not be released, discharged, changed or modified in any manner, except by a document of concurrent or subsequent date to the Effective Date, in writing, signed by duly authorized officers of all of the Parties hereto. 11 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in quadruplicate, with each copy thereof to be deemed an original, by their duly authorized officers as to the date indicated. AGREED TO ACCEPTED THIS AGREED TO AND ACCEPTED THIS 22nd day of April, 1994 15th day of April, 1994 JOHNSON & JOHNSON WEYERHAEUSER COMPANY By /s/ Stephen J. Cosgrove By /s/ Edward Soule --------------------------- ---------------------------- (Signature) (Signature) Stephen J. Cosgrove Edward Soule Vice President, Finance J&J CP1 Vice President - ------------------------------- -------------------------------- (Print Name and Title) (Print Name and Title) AGREED TO ACCEPTED THIS AGREED TO AND ACCEPTED THIS 4th day of May, 1994 26th day of April, 1994 PARAGON TRADE BRANDS, INC. SCOTT HEALTH CARE By /s/ B.V. Abraham By /s/ John S. Clement --------------------------- ----------------------------- (Signature) (Signature) Bobby V. Abraham, Chairman and John S. Clement Chief Executive Officer President and General Manager - ------------------------------- -------------------------------- (Print Name and Title) (Print Name and Title) 12 Schedule A ---------- Patents A-1 - ------- JBD 2/25 U.S. Patent 4,500,315 and 4,537,590 (Weyco #16951) ----------------------------------- Argentina 234479 Austria 0108637 Australia 558202 Belgium 0108637 Bolivia B-4737 Brazil P-18306016 Canada 1,209,752 Chile 34798 Columbia 23698 Denmark 161,664 Ecuador PI-86-187 Eire 54695 EPO 0108637 France 0108637 Germany P-3378952.5.08 Great Britain 2,131,346 Greece 78755 Guatemala 3775 Hong Kong 419/1987 India 161085 Italy 0108637 Japan 1,586,799 Korea 42835 Luxembourg 0108637 Mexico 157756 Netherlands 0108637 New Zealand 206055 A-1 Continued JBD 2/25 (Weyco #16951) Peru 3814 Philippines 19243 Portugal 77627 Sarawak 3208 Singapore 242/87 South Africa 83/8282 Spain 527081, 280301, 280302, 280303, 280304, 280305, 280306 Sweden 0108637 Switzerland 0108637 Taiwan 22229 Trinidad 24/1987 Venezuela 47305 Patent Applications - ------------------- Egypt 691/1983 Malaysia 8801552 Thailand 001958 Patents A-2 - ------- JBD 54 U.S. Patent 4,676,784 (Weyco #16953) --------------------- Canada 1239012 Singapore 187/91 Trinidad 16/1991 - ------------------------------------------------------------------------------- Patents A-3 - ------- JBD 62 U.S. 4,560,372 (Weyco #16954) -------------- Canada 1245004 Hong Kong 305/1991 Singapore 164/91 Trinidad 15/1991 - ------------------------------------------------------------------------------- Patents A-4 - ------- JBD 72 U.S. Patent 4,559,050 (Weyco #16956) --------------------- Canada 1252953 Patent Application - ------------------ Japan 180067/85 - -------------------------------------------------------------------------------- Patent A-5 - ------ JBD 73 U.S. 4,596,567 (Weyco #16957) -------------- Canada 1251902 Patent Application - ------------------ Japan 180068/85 Patents A-6 - ------- JBD 74 U.S. 4,605,402 (Weyco #16958) -------------- Brazil P18503820 Canada 1251901 Hong Kong 1076/1991 Singapore 955/91 Trinidad 61/1991 Patent Applications - ------------------- Japan 180069/85 - -------------------------------------------------------------------------------- Patents A-7 - ------- ABTK 1 (Weyco #16946) Australia 543970 Brazil PI 8108591 Canada 1,163,599 EPO 0040087 France 0040087 Great Britain 0040087 Germany 3165831.8 Hong Kong 291/1985 Japan 1712175 Malaysia 1115/1985 Mexico 154820 Netherlands 0040087 Singapore 928/84 South Africa 81/3131 Patents A-8 - ------- ABTK 009 U.S. 4,381,320 (Weyco #16947) -------------- Argentina 229126 Australia 551832 Brazil PI 8203234 Canada 1203772 Great Britain 2099828 Japan 1686025 New Zealand 200725 Portugal 74987 South Africa 82/3882 Patent Application - ------------------ Germany 3220735.2 - -------------------------------------------------------------------------------- U.S. Patent 4,573,988 JBD 66 (Weyco #18681) A-9 - ---------------------- (CIP of JBD 2 and JBD 25) U.S. Patent 4,540,454 JBD 78 (Weyco #-18682) - --------------------- (Div. of JBD 2 and JBD 25) U.S. Patent 5,100,397 JBD 153 (Weyco #16698) - --------------------- U.S. Patent 5,171,237 JBD 153 (Weyco #16698A) - --------------------- U.S. Patent 5,246,429 JBD 153 (Weyco #16698B) - --------------------- SCHEDULE B ---------- Patent B-1 - ------ JBD 8 U.S. Patent 4,413,995 (Weyco #16949) --------------------- Canada 1,192,456 Singapore 860/85 - -------------------------------------------------------------------------------- Patents B-2 - ------- JBD 11 U.S. 4,540,415 (Weyco #16950) -------------- - -------------------------------------------------------------------------------- Patents JBP 22 (Weyco #14022) B-3 - ------- U.S. 4,084,592 -------------- Patents JBD 76 (Weyco #16960) - ------- U.S. 4,880,420 -------------- Brazil P18503818 Canada 1257751 Patent Application - ------------------ Japan 180071/85 - -------------------------------------------------------------------------------- Patent B-4 - ------ JBD 70 (Design) Canada 55968 (Weyco #16955) Patent B-6 - ------ JBD 47/103 U.S. Patent 4,985,025 (Weyco #16952) --------------------- Canada 1241503 Patent B-7 - ------ JBD 75/106/129/149 U.S. 4,883,480 (Weyco #16964) -------------- Canada 1252952 Patents B-8 - ------- JBD 29/JBD 130 Canada 1236074 (Weyco #18828) Singapore 611/90 Trinidad 25/90 Patent B-9 - ------ JBD 107/JBD 128 U.S. 4,813,947 (Weyco #14107) -------------- Patent Application - ------------------ Canada 526378-6 Patents B-10 - ------- U.S. 3,779,246 J&J 665 (Weyco #14665) -------------- Canada 977,268 U.S. 4,464,217 JBP 177 (Weyco #14177) -------------- Canada 1,186,288 U.S. 4,084,592 JBP 22 (Weyco #14022) -------------- U.S. 4,573,991 JBD 50 (Weyco #14050) -------------- U.S. 4,479,836 JBD 43 (Weyco #14043) -------------- U.S. 4,576,598 JBD 41 (Weyco #14041) -------------- U.S. 4,552,560 JBD 48 (Weyco #14048) -------------- U.S. 4,723,954 JBD 104 (Weyco #16963) -------------- U.S. 4,662,874 JBD 105 (Weyco #14105) -------------- U.S. 4,731,066 JBD 131 (Weyco #14131) -------------- U.S. 4,886,511 JBD 144 (Weyco #14144) -------------- U.S. 4,941,933 JBD 146 (Weyco #14146) -------------- - ------------------------------------------------------------------------------- Recent Inventions: B-11 - ----------------- File 1047.142 Disposable Diaper with Center Gathers: Filed October 27, 1988; - ------------- S.N. 263,260 (JBD 159) U.S. Patent 4,935,021 issued 6/19/90; Weyco #16696 Canada S.N. 614682 9/29/89 File 1047.153 Low Bulk Disposable Diaper: Filed October 27, 1988; S.N. - ------------- 263,529 JBD 157) Now U.S. Patent No. 5,098,423 issued 3/24/92. Weyco #16700 SCHEDULE C ---------- Patents C-1 - ------- JBD 7/JBP 98/JBP 158 U.S. 4,450,026 (Weyco #14098) -------------- U.S. 4,337,771 -------------- Australia 528,814 Brazil 7900459 - Expired 1/25/94 Canada 1,195,804 Japan 1,591,935 South Africa 79/0351 - ------------------------------------------------------------------------------- Patents C-2 - ------- JBD 44/JBP 97/JBP 159 U.S. RE 31,922 (Weyco #s 14044, 16696 -------------- U.S. 4,324,245 -------------- Argentina 221074 Australia 526338 Canada 1153152 Chile 31273 Guatemala 3295 Venezuela 40765 - Expired 1/17/93 Patent Application - ------------------ Ecuador 210 - ------------------------------------------------------------------------------- Patent JBP 120/JBP 166 - ------ Weyco #s 19070, 19147, 17914 Australia 533635 Patent C-3 - ------ JBP 157/JBP 100 U.S. 4,336,803 (Weyco #18226) -------------- - ------------------------------------------------------------------------------- Patent C-5 - ------ U.S. 4,381,783 JBP 210 (Weyco #14210) -------------- U.S. RE 32,957 JBD 90 (Weyco #14090) -------------- SCHEDULE D ---------- 4,938,754 4,300,562 3,965,904 4,662,877 4,293,367 3,938,522 4,522,874 4,285,747 3,934,588 4,507,163 4,285,342 3,903,890 4,464,217 4,282,874 3,867,940 4,449,979 4,279,369 3,848,598 4,430,086 4,274,318 3,838,694 4,425,126 4,259,387 3,837,343 4,417,676 4,240,866 3,779,246 4,413,623 4,235,237 3,777,758 4,409,049 4,233,345 3,768,480 4,407,284 4,216,687 3,763,863 4,353,491 4,186,165 3,730,184 4,352,355 4,103,062 3,683,916 4,349,140 4,077,410 3,663,348 4,337,821 4,073,852 3,612,055 4,337,771 4,044,768 3,572,342 4,333,463 4,024,867 3,563,243 4,333,462 4,010,752 4,324,245 3,993,820 ASSIGNMENT ---------- WHEREAS,________________________________________________________________ (Name of J&J owning corporation for the patents assigned) (hereinafter "Assignor") is the sole and exclusive owner by assignment of the following patents and patent applications: WHEREAS, Paragon Trade Brands, Inc., a corporation of the State of Delaware (hereinafter "Paragon") is desirous of acquiring the entire right, title and interest in, to and under said patents and patent applications and the inventions covered thereby. NOW, THEREFORE, in consideration of and in exchange for the sum on One Dollar ($1.00) to it in hand paid by Paragon and other good and valuable consideration, the receipt of which is hereby acknowledged, Assignor has sold, assigned, transferred and set over, and does hereby sell, assign, transfer and set over to Paragon, the inventions, patents and patent applications aforesaid, and any reissue or reissues of said patents and patent applications and any re- examinations thereof, the same to be held and enjoyed by Paragon for its own use and enjoyment, and for the use and enjoyment of its successors, assigns, or other legal representatives, to the end of the term for which the said patent is granted or reissued as fully and entirely as the same would have been held and enjoyed by Assignor, if this assignment and sale had not been made; together with all claims for damages by reason of past infringement of said patent, with the right to sue for, and collect the same for its own use and enjoyment, and for the use and enjoyment of its successors, assigns or other legal representatives. And Assignor hereby covenants that it has full right to convey the entire interest herein assigned, and that it has not executed, and will not execute, any agreements inconsistent herewith. ____________________________ (Assignor) By__________________________ (Signature) ____________________________ (Print Name and Title) Date:_______________________ ATTEST:_____________________ ____________________________ Assistant Secretary Attachment E ASSIGNMENT ---------- WHEREAS, McNeil-PPC, Inc., of New Brunswick, New Jersey, a corporation of the State of New Jersey (hereinafter "McNeil-PPC") is the sole and exclusive owner by assignment of the following patents: United States Patent 5,100,397 issued March 31, 1992; United States Patent 5,171,237 issued December 15, 1992; and United States Patent 5,246,429 issued September 21, 1993. WHEREAS, Weyerhaeuser Company of Tacoma, Washington 98477, a corporation of Washington State (hereinafter "Weyerhaeuser") is desirous of acquiring the entire right, title and interest in, to and under said patents and the inventions covered thereby. NOW, THEREFORE, in consideration of and in exchange for the sum on One Dollar ($1.00) to it in hand paid by Weyerhaeuser and other good and valuable consideration, the receipt of which is hereby acknowledged, McNeil-PPC has sold, assigned, transferred and set over, and does hereby sell, assign, transfer and set over to Weyerhaeuser, the inventions, patents aforesaid, and any reissue or reissues of said patents and any re-examinations thereof, the same to be held and enjoyed by Weyerhaeuser for its own use and enjoyment, and for the use and enjoyment of its successors, assigns, or other legal representatives, to the end of the term for which the said patent is granted or reissued as fully and entirely as the same would have been held and enjoyed by McNeil-PPC, if this assignment and sale had not been made; together with all claims for damages by reason of past infringement of said patents, with the right to sue for, and collect the same for its own use and enjoyment, and for the use and enjoyment of its successors, assigns or other legal representatives. And McNeil-PPC hereby covenants that it has full right to convey the entire interest herein assigned, and that it has not executed, and will not execute, any agreements inconsistent herewith. McNEIL-PPC, INC. By__________________________ (Signature) ____________________________ (Print Name and Title) Date:_______________________ ATTEST:_____________________ ____________________________ Assistant Secretary Attachment F TECHNOLOGY AGREEMENT Johnson & Johnson, a corporation organized and existing under the law of New Jersey and its subsidiaries and affiliates which it controls by majority ownership, including Johnson & Johnson Skillman, a division of Personal Products Corporation, (hereinafter called "J&J") and Weyerhaeuser Company, a corporation organized and existing under the law of the State of Washington, and its subsidiaries and affiliates which it controls by majority ownership (hereinafter called "Weyerhaeuser"), in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, do hereby covenant and agree as follows: 1.0 Background and Premises ----------------------- 1.1. J&J is a major manufacturer of absorbent products and has a worldwide reputation for product innovation and a growing base of related technology. 1.2 Weyerhaeuser is a major manufacturer of absorbent products including diapers which are sold in Canada and in the United States. 1.3 In May 1985 Uni-Charm Corporation of Japan entered into an agreement with Johnson & Johnson Skillman (hereinafter called "JJS") to use certain confidential information and patents relating to processes and equipment for making novel absorbent products. 1.4 In August 1986 JJS contacted Weyerhaeuser to determine its interest in acquiring the tangible assets of JJS and certain rights in patents and information relating to absorbent product technology subject to previously granted rights to Uni-Charm set forth in the May 1985 JJS agreement and any current amendments thereto. 1.5 In the event Weyerhaeuser enters into a corresponding technology development and patent license agreement with Uni-Charm, Weyerhaeuser is interested in hiring key J&J employees and in acquiring the tangible assets and obtaining access to and the rights to use absorbent product technology developed by J&J. 1 1.6 For their mutual benefit, each party desires to obtain from the other the certain rights to use absorbent product technology improvements made during a period defined herein. 2. Definitions ----------- 2.1 "Licensed Technology" shall mean all information relating to the processes, materials, equipment, designs, operation, performance, controls, or structures of or for making Infant Diapers, which information is known by J&J employees, who have been involved with JJS developments relating to the C-C Patents, as of the Effective Date. 2.2 "C-C Patents" shall mean each and every unexpired patent right of J&J as listed in Schedule A and Schedule A' attached hereto and made a part hereof, including patents which result from the issuance, re-examination, reissue, extension, or foreign equivalent of any so listed patents or applications and shall further include all patents based on inventions conceived prior to the Effective Date by one or more J&J employee(s) while working in support of the JJS developments relating to the so-listed patent rights. Presently identified inventions conceived prior to the Effective Date are identified in Schedule A'. 2.3 "Improvement Patents" shall mean each and every patent obtained by Weyerhaeuser or J&J based on invention(s) conceived by their employees between the Effective Date and ten years after such date, whenever the practice of such patent will infringe at least one Valid Claim of a C-C Patent. 2.4 "Valid Claim" shall mean a claim in a patent which has not lapsed or become abandoned and which claim has not been declared null or invalid by an irrevocable or unappealed decision or judgment of a patent office or a court of competent jurisdiction. 2.5 "Diaper Patents" shall mean each and every unexpired patent right of J&J as listed in Schedule B, Schedule B' and Schedule C attached hereto and made a part hereof, including patents which result from the issuance, re-examination, reissue, extension, or foreign equivalent of any so-listed patents or patent applications and shall further include all patents based on inventions conceived 2 prior to the Effective Date by one or more J&J employee(s) while working in support of the JJS developments relating to the patent rights listed in Schedule B and Schedule B'. Presently identified inventions conceived prior to the Effective Date are identified in Schedule B'. 2.6 "Other Patents" shall mean each and every unexpired patent right of J&J issued or pending as of the Effective Date, other than C-C Patents and Diaper Patents, Including patents which result from the issuance, re-examination, reissue, extension, or foreign equivalent of such patent or patent application. 2.7 "Infant Diaper" shall mean any product sold for absorbing body wastes and fluids, other than human blood and/or menstrual fluid, and designed for use on a person having a weight of less than fifty (50) pounds. 2.8 "Adult Diaper" shall mean any product sold for absorbing body wastes and fluids, other than human blood and/or menstrual fluid, and designed for use on a person having a weight of at least fifty (50) pounds. 2.9 "Consumer Product" shall mean a final product intended to be sold at retail, other than Infant Diaper, Adult Diaper or any other product to be used for absorbing human body exudates such as sanitary protection products and wound care products. 2.10 "Industrial Product" shall mean a product sold for industrial use and excludes products to be used or sold for absorbing human body exudates. 2.11 "Body Exudate Product" shall mean a product used for absorbing a human body exudate other than Infant Diaper or Adult Diaper. 2.12 "Royalty Products" shall mean any Infant Diaper, Adult Diaper, Consumer Product or Industrial Product, the manufacture, use or sale of such product being within the scope of a Valid Claim of a C-C Patent. 2.13 "Net Sales" shall mean the aggregate of sales by Weyerhaeuser or its sublicensees of Royalty Products calculated using generally accepted accounting principles as the total price invoiced customers, less trade-in or cash discounts 3 actually allowed, credits for temporary price reduction by special consumer pricing activities, returns and allowances, prepaid transportation charges, duties and sales taxes added to the face of the invoice. Sales shall be considered made when invoiced. 2.14 "Uni-Charm Territory" shall mean the territory of Japan. 2.15 "Non-Exclusive Territory" shall mean the territory of Hong Kong, the People's Republic of China, the Republic of Korea, the Republic of Singapore and Taiwan. 2.16 "Weyerhaeuser Territory" shall mean the territory of Earth less Uni-Charm Territory and less Non-Exclusive Territory. 2.17 "Effective Date" shall mean July 1, 1987. 3.0 Grants ------ 3.1 J&J hereby grants to Weyerhaeuser an exclusive license, with the right to grant sublicenses, in Weyerhaeuser Territory and a non-exclusive license in Non-Exclusive Territory to utilize Licensed Technology to manufacture, have manufactured, use and sell Infant Diapers. 3.2 J&J hereby grants to Weyerhaeuser a sole license-in Weyerhaeuser Territory and a non-exclusive license in Non-Exclusive Territory to utilize Licensed Technology to manufacture, have manufactured, use and sell Adult Diapers, Consumer Product and Industrial Products. 3.3 J&J hereby grants to Weyerhaeuser an exclusive license, with the right to grant sublicenses, in Weyerhaeuser Territory and a non-exclusive license in Non-Exclusive Territory to manufacture, have manufactured, use and sell Infant Diapers within the scope of any Valid Claim of a C-C Patent, a Diaper Patent or an Improvement Patent owned by J&J, however, J&J reserves the right to practice the inventions claimed in the patents and patent applications listed in Schedule C in the manufacture and sale of private label and control label Infant Diapers in the United States and Canada and in the manufacture and sale of Infant Diapers outside the United States and Canada. 4 3.4 J&J hereby grants to Weyerhaeuser a sole license in Weyerhaeuser Territory and a non-exclusive license in Non-Exclusive Territory to manufacture, have manufactured, use and sell Adult Diapers, Consumer Products and Industrial Products within the scope of any Valid Claim of a C-C Patent, a Diaper Patent or an Improvement Patent owned by J&J. 3.5 J&J hereby covenants not to sue Weyerhaeuser or its sublicensees for infringement of any Valid Claim of any Other Patents as long as the Infant Diaper is Made, used or sold exercising the licenses of Grants 3.1 or 3.3. 3.6 J&J hereby covenants not to sue Weyerhaeuser for infringement of any Valid Claim of any Other Patents as long as the Adult Diaper, Consumer Product or Industrial Product is made, used or sold exercising the licenses of Grants 3.2 or 3.4. 3.7 Weyerhaeuser hereby grants to J&J a non-exclusive license worldwide except for the countries within Asia, Oceania and Middle East regions to Manufacture, have Manufactured, use and sell any products except Infant Diapers within the scope of any Valid Claim of an Improvement Patent owned by Weyerhaeuser. 3.8 J&J hereby assigns to Weyerhaeuser to the extent it is assignable the license J&J obtained from the Interference Settlement Agreement of February 17, 1983, a copy is set forth in Schedule D attached hereto and made a part hereof. 4.0 Compensation ------------ 4.1 Weyerhaeuser agrees to pay to J&J Four Million Two Hundred Seventy- Five Thousand Dollars ($4,275,000) in cash at closing in payment for fully paid up rights for all licenses and other J&J obligations set forth in this Technology Agreement with the exception that the licenses for Royalty Products are only paid up for the sale of Royalty Products by Weyerhaeuser or its sublicensees through December 31, 1988. 4.2 In addition, Weyerhaeuser agrees to pay J&J for Royalty Products sold by Weyerhaeuser or its sublicensees the following royalty: 5 a. Nine tenths of one percent (0.9%) of Net Sales of Infant Diapers and Consumer Products sold between January 1, 1989 and December 31, 1996; b. Six tenths of one percent (0.6%) of Net Sales of Infant Diapers and Consumer Products sold between January 1, 1997 and February 19, 2002; c. One and one half percent (1.5%) of Net Sales of Adult Diapers sold between January 1, 1989 and December 31, 1996; d. Eight tenths of one percent (0.8.%) of Net Sales of Adult Diapers sold between January 1, 1997 and February 19, 2002; and e. One percent (1.0%) of the variable cost of manufacturing that portion within the scope of a Valid Claim of a C-C Patent of Industrial Products sold between January 1, 1989 and February 19, 2002. 4.3 Weyerhaeuser agrees to send written royalty reports to J&J within forty- five (45) days after the end of each fiscal half-year report period between January 1989 and December 2001 and after the final report period ending February 19, 2002. Such reports will set forth the Net Sales of Royalty Products sold during the report period by Weyerhaeuser and its sublicensees. Concurrently with such reports Weyerhaeuser shall pay to J&J the royalties in accordance with Section 4.2 4.4 Weyerhaeuser agrees and shall require its sublicensees to keep adequate records for three (3) years showing the Net Sales of Royalty Products sold in sufficient detail to enable the royalties payable hereunder to be determined. Weyerhaeuser further agrees and shall require its sublicensees to permit its applicable books and records to be examined from time to time to the extent necessary to verify the reports and royalties due and payable hereunder. 4.5 All payments to be made to J&J under this Agreement shall be made in United States Dollars using the exchange rate published in the U.S. Wall Street Journal on the last day of the fiscal half-year for which the royalty is being paid or 6 on the date payment is due for all other payments hereunder. All such royalties and payments shall be net of all taxes and shall be deposited to the account of J&J at a bank designated from time to time in writing by J&J. 4.6 In the event the royalties paid by Weyerhaeuser under Section 4.2 are less than Five Hundred Thousand Dollars ($500,000) for Royalty Products sold during each of the years 1989, 1990, 1991, 1992 or 1993 and Weyerhaeuser fails to pay to J&J the difference between such royalties paid and Five Hundred Thousand Dollars ($500,000), J&J shall have the option of terminating this Technology Agreement by providing written notice to Weyerhaeuser exercising such option within sixty (60) days after the due date for royalties for the year in question. That notice shall not be effective to terminate this Technology Agreement if Weyerhaeuser pays to J&J such difference within thirty (30) days after receipt of J&J's notice. 4.7 In the event the royalties paid by Weyerhaeuser under Section 4.2 are less than Five Hundred Thousand Dollars ($500,000) for Royalty Products sold during each of the years 1994, 1995, 1996, 1997, 1998, 1999, 2000 and 2001 and Weyerhaeuser fails to pay to J&J the difference between such royalties paid and Five Hundred Thousand Dollars ($500,000), J&J shall have the option to terminate all rights of Weyerhaeuser and its sublicensees to practice any C-C Patents with all other rights being deemed irrevocable and paid up. J&J may exercise this option by providing written notice to Weyerhaeuser of such exercise within sixty (60) days after the due date for royalties for the year in question. That notice shall not be effective to terminate such rights if Weyerhaeuser pays to J&J such difference within thirty (30) days after receipt of J&J's notice. 4.8 Weyerhaeuser may purchase irrevocable and paid up rights provided in this Technology Agreement and supersede all future obligations of Sections 4.2, 4.3, 4.6 and 4.7 by paying to J&J Twenty-Five Million Dollars ($25,000,000) in cash on or before January 1, 1989 or by paying J&J on or before any succeeding January 1 a Paid-Up License Amount equal to Twenty-Five Million Dollars ($25,000,000) on January 1, 1989 compounded at the rate of Twelve Percent (12%) per annum providing said Paid-Up License Amount shall be reduced by the total amount of all royalty payments made by Weyerhaeuser under Sections 4.2, 4.6 and 4.7 compounded at the rate of Twelve Percent (12%) per annum. 7 5.0 Transfer of Technology ---------------------- 5.1 During the first one hundred and twenty (120) days after the Effective Date of this Agreement, the parties shall prepare a mutually acceptable plan for making available to Weyerhaeuser in a useful and understandable form the Licensed Technology. Such plan will identify the areas of technology, the names of the individuals who will be presenting and receiving such information, the form of the documentation and the timing for conducting the necessary instruction and training so that the objective of developing a full understanding on the part of Weyerhaeuser's designated employees of the Licensed Technology can be achieved. 5.2 Any individual listed on Schedule E who has not accepted employment with Weyerhaeuser and remains in the employment of J&J shall be made available to consult with Weyerhaeuser, at JJS facilities in Skillman, N.J., for a period of up to five (5) days for each employee during the first one hundred and eighty (180) days after the Effective Date of this Agreement. 5.3 Each party agrees to indemnify and save the other party harmless from and against any claims, suits, damages and expenses incurred as a result of injuries to, or the death of, any employee of that party when visiting the facilities of the other pursuant to this Technology Agreement, except that such other party shall be responsible for injuries caused to the extent of its own willful conduct or negligence. 6.0 Confidentiality --------------- 6.1 All Licensed Technology supplied or received by the parties under the terms of this Agreement shall be protected as follows: (a) To the extent that as of the Effective Date the Licensed Technology is of a confidential nature J&J shall clearly mark such information as "Proprietary" or "Confidential" if in written form or, if not in written form, by clearly characterizing it as "Proprietary" or "Confidential" so that Weyerhaeuser is aware that it is to be protected under the terms hereof. 8 (b) Without prior written consent of Weyerhaeuser, J&J shall not disclose Proprietary or Confidential Licensed Technology information to any third party without first obtaining from said third party an agreement to maintain the confidential status and to strictly limit the use of such information to that permitted J&J under this Agreement. (c) Weyerhaeuser shall only disclose such Proprietary or Confidential Licensed Technology information to those of its consultants, contractors, employees, or to its sublicensees' employees who shall reasonably need to know such information and then only upon such consultant's, contractor's and employees' agreement to maintain the confidentiality and restrict the uses to those permitted under this Technology Agreement. 6.2 The obligations of paragraph 6.1 shall not deprive the parties of the right to use or disclose any information: (a) Which is, at the time of first disclosure to recipient, generally known to the trade or public; (b) Which becomes at a later date generally known to the trade or public through no fault of recipient and then only after such later date; (c) Which is possessed by recipient, as shown by recipient's written or other tangible evidence, before its first disclosure by the disclosing party or by anyone confidentially bound to the disclosing party as to such information; (d) Which is disclosed to recipient in good faith by a third party who has an independent right to such information; or (e) After December 31, 1996. 6.3 J&J and Weyerhaeuser each agree that the other is not restricted from the disclosure of any Licensed Technology information as is reasonably necessary in the effort to obtain patents and to commercially exploit the rights granted and retained in the Licensed Technology. 9 7.0 Patents ------- 7.1 J&J shall retain the responsibility and cost of preparing, prosecuting and maintaining C-C Patents of Schedule A, Diaper Patents of Schedules B and C and Improvement Patents owned by J&J. Weyerhaeuser, at its sole discretion, shall have the responsibility and costs of preparing, filing on a worldwide basis, prosecuting and maintaining the patents resulting from the inventions identified in Schedules A' and B'. 7.2 J&J shall keep Weyerhaeuser fully informed by the transfer of copies of patent applications and other documents, including correspondence with the patent offices involved, of all matters relating to C-C Patents, Diaper Patents and Improvement Patents owned by J&J. At the minimum to carry this out, J&J shall provide to Weyerhaeuser a written report by the end of February of each year during the term hereof indicating the status of such patents as of the end of the prior year. 7.3 In the event J&J, in its sole discretion, decides not to continue the prosecution and/or maintenance of any C-C Patent, Diaper Patent or Improvement Patent in any country, J&J will so notify Weyerhaeuser of J&J's decision in such regard and Weyerhaeuser shall have thirty (30) days in which to notify J&J that Weyerhaeuser desires to continue the prosecution and/or maintenance of such patent or patent applications at Weyerhaeuser's direction and cost. Such notification by J&J pursuant to this paragraph 7.3 shall relieve J&J of any further responsibility with regard to such patent or patent application under this Article 7.0. Should Weyerhaeuser notify J&J that it desires to continue the prosecution and/or maintenance of a C-C Patent, Diaper Patent or Improvement Patent, that J&J has notified Weyerhaeuser pursuant to this paragraph 7.3, J&J shall assign said patent or patent application to Weyerhaeuser and the further prosection and/or maintenance of the same shall be at the sole discretion and cost of Weyerhaeuser. 8.0 Indemnities ----------- 8.1 In the event that Weyerhaeuser or its sublicensee receives notice of any claim from a third party that the practice of any C-C Patent is or may be an infringement of a patent right of such third party, J&J will respond to that notice, 10 undertake the defense and save Weyerhaeuser and its sublicensee harmless from any cost and damage based on such claim. This indemnity specifically includes but is not limited to any infringement of U.S. Patents 4,340,057; 4,429,001; and 4,610,678. If as a result Weyerhaeuser or its sublicensee is enjoined from the practice of any C-C Patent, all royalties under Sections 4.2, 4.6 and 4.7 shall be waived from the date of the injunction forward for all Royalty Products to which the injunction applies. 8.2 Each party agrees to indemnify and hold the other party harmless with respect to any product liability claims, suits, damages and expenses arising out of the manufacture, use or sale of products licensed under this Technology Agreement made, used, or sold by the indemnifying party or its sublicensees, or by any third party. 9.0 Infringement ------------ 9.1 In the event that Weyerhaeuser notifies J&J of an infringement by any third party of any C-C Patent, Weyerhaeuser shall provide J&J concurrently with said notice, evidence of at least Two Million Dollars ($2,000,000) lost sales of Royalty Products due to the conduct by any said third party. J&J shall have a period of ninety (90) days after receipt of said notice and the furnishing of such evidence in which to advise Weyerhaeuser in writing whether J&J wishes to institute a suit for infringement against any such third party. Should J&J elect to institute such suit for infringement, it shall do so promptly after the expiration of said ninety-day period and diligently prosecute same to abate such infringement and all damages, proceeds and other recoveries resulting from any such litigation shall be retained by J&J. If J&J does not give Weyerhaeuser written notice of its election to institute such suit within said ninety-day period, Weyerhaeuser shall have the right, at its own cost and expense, to institute such suit for infringement and all damages, proceeds and other recoveries resulting from any such litigation shall be retained by Weyerhaeuser. J&J, at its own expense, shall have the right to be represented in a noncontrolling capacity by counsel in any such proceedings instituted by Weyerhaeuser. During such suit conducted by Weyerhaeuser, it may withhold fifty percent (50%) of the royalties due J&J under Sections 4.2, 4.6 and 4.7 with respect to the applicable Royalty Product in each country in which such suit is being diligently prosecuted by Weyerhaeuser. If Weyerhaeuser settles the 11 suit or is successful in such suit and obtains an injunction and/or is awarded damages as against such third party, then the withheld royalties less two times the Weyerhaeuser out-of-pocket suit costs not otherwise paid by such third party shall become due and payable to J&J and further royalties will again be due and payable in accordance with this Technology Agreement with eight percent (8%) interest per annum. 9.2 In the event that Weyerhaeuser notifies J&J of an infringement by any third party of any Diaper Patent, Weyerhaeuser shall provide J&J concurrently with said notice, evidence of at least Two Million Dollars ($2,000,000) lost sales of Royalty Products due to the conduct by any said third party. J&J shall have a period of ninety (90) days after receipt of said notice and the furnishing of such evidence in which to advise Weyerhaeuser in writing whether J&J wishes to institute a suit for infringement against any such third party. Should J&J elect to institute such suit for infringement, it shall do so promptly after the expiration of said ninety-day period and diligently prosecute same to abate such infringement and all damages, proceeds and other recoveries resulting from any such litigation shall be retained by J&J. If J&J does not give Weyerhaeuser written notice of its election to institute such suit within said ninety-day period, Weyerhaeuser shall have the right, at its own cost and expense, to institute such suit for infringement and all damages, proceeds and other recoveries resulting from any such litigation shall be retained by Weyerhaeuser. J&J, at its own expense, shall have the right to be represented in a noncontrolling capacity by counsel in any such proceedings instituted by Weyerhaeuser. During the pendency of such suit conducted by Weyerhaeuser, Weyerhaeuser may withhold twenty-five percent (25%) of the royalties due J&J under sections 4.2, 4.6 and 4.7 with respect to the applicable Royalty Product in each country in which suit is being diligently prosecuted by Weyerhaeuser. If Weyerhaeuser settles the suit or is successful in such suit and obtains an injunction and/or is awarded damages as against such third party, then the withheld royalties less two times the Weyerhaeuser out-of-pocket suit costs not otherwise paid by such third party shall become due and payable to J&J and further royalties will again be due and payable in accordance with this Agreement with eight percent (8%) interest per annum. 12 10.0 Warranties and Representations ------------------------------ 10.1 J&J warrants that it has full title and all rights necessary to support the grants and other obligations set forth herein, including but not limited to the Licensed Technology, C-C Patents and Diaper Patents. 10.2 J&J does not warrant the validity of the C-C Patents but J&J does represent that it has no information which would invalidate that such patents. 10.3 J&J does not warrant the completeness or total usefulness of the Licensed Technology but J&J does represent that it shall use reasonable care to provide accurate and complete information to Weyerhaeuser. 11.0 Related Agreements ------------------ 11.1 This Technology Agreement supersedes the Confidentiality Agreements between Weyerhaeuser and J&J relating to the subject matter of the Licensed Technology. 11.2 J&J agrees to monitor and enforce as needed confidentiality agreements between J&J and third parties relating to the subject matter of the Licensed Technology. Further, J&J shall provide copies of all of such agreements to Weyerhaeuser within sixty (60) days after the Effective Date. 11.3 No other prior agreements between J&J and Weyerhaeuser relating to the subject matter of the Licensed Technology shall have any effect inconsistent with the terms of this Technology Agreement. 11.4 In the event Weyerhaeuser has facilities to commercially manufacture an absorbent core product within the scope of a claim of a C-C Patent and in Weyerhaeuser's sole discretion it determines that it has excess capacity of such core product, J&J will have the right to purchase the same on mutually agreeable terms. 11.5 If J&J desires to purchase an absorbent core product within the scope of a claim of a C-C Patent from Weyerhaeuser, the parties agree to negotiate in 13 good faith a mutually acceptable agreement whereby Weyerhaeuser will manufacture such product for sale to J&J. Should the parties fail to agree on such an arrangement, Weyerhaeuser agrees to grant J&J a license to practice Weyerhaeuser technology in order to allow J&J to manufacture for its own use such an absorbent core product on terms mutually acceptable to the parties. 12.0 Term and Termination -------------------- 12.1 The term of this Agreement shall extend from the Effective Date until the expiration of the last to expire C-C Patents, Diaper Patents, Other Patents and Improvement Patents and the rights to use Licensed Technology shall continue without limitation, provided that this Technology Agreement may terminate earlier by operation of Section 4.6 and the license under C-C Patents may terminate earlier by operation of Section 4.7. 12.2 In view of the rights and obligations involved in this Agreement, it is not anticipated that a termination with notice provision would be an adequate remedy for any material breach. It is expected that the parties will in such circumstance be diligent in trying to resolve their differences in a manner which would allow the mutual benefits foreseen for this relationship to continue. It is, however, agreed by Weyerhaeuser and J&J that upon mutual terms, a termination prior to the expiration of this Agreement could be effective. 13.0 Miscellaneous Provisions ------------------------ 13.1 Any notice or request with reference to this Agreement shall be by letter, cable or telex followed by a confirming letter mailed within seven (7) days, and shall be directed by one party to the other at its respective address as follows: To J&J: Johnson & Johnson Office of General Counsel One Johnson & Johnson Plaza New Brunswick, New Jersey 08933-7003 To Weyerhaeuser: Weyerhaeuser Company Attn: Vice President, Personal Care Products Tacoma, Washington 98477 14 Each party may by written notice to the other party change the address to which requests or notices shall be directed. Notices shall be effective when received. 13.2 This Technology Agreement shall be construed and the legal relations between the parties determined in accordance with the law of the State of Washington. 13.3 This Technology Agreement, and the rights and obligations hereunder, are personal as between the parties hereto and shall not be assigned by either of the parties to any third party without the prior written consent of the other party except to the successor by way of purchase or otherwise of a substantial part of the business relating to absorbent products of that party. In such event, prior written consent is not required but prompt notification of such an assignment with an assurance by the acquiring party of its willingness and ability to fully perform the rights of the party acquired are necessary for such assignment to be effective. 13.4 Any failure of either party to enforce any of the provisions of this Technology Agreement or to require at any time performance by the other party of any of the provisions hereof, shall in no way effect the validity of this Technology Agreement or any part thereof, or the right of the first party thereafter to enforce each and every such provision. 13.5 Any provision, other than those relating to compensation, of this Technology Agreement which in any way contravenes the law of any territory in which it is effective shall in such territory to the extent of such contravention of the law be deemed severable and shall not effect any other provision of this Technology Agreement. If for any reason any such provision is held by any competent authority or court to be invalid, illegal or unenforceable, such provision shall, to the extent of such invalidity, illegality or enforceability be deleted from this Technology Agreement and the parties shall, within thirty (30) days of such decision negotiate in good faith to agree upon a valid, binding and enforceable provision or provisions so as to restore, so far as practicable, the balance of the interest of the parties. 13.6 Each party agrees that it shall not without the written consent of the other, directly or indirectly, use or refer to the trademarks or trade name of the 15 other. Each party may state, however, that its products are manufactured under licenses granted to it by the other party to the extent that such is, in fact, the case. 13.7 Neither J&J nor Weyerhaeuser shall be liable for a delay or failure to perform under the provisions of this Technology Agreement to the extent that such delay or failure is attributable to acts of God, of governmental authority, of third parties not in the control of such party and other causes out of the control such party. In such event the party delayed shall promptly notify the other party of such event and as soon as conditions are brought under control fully perform as agreed. 13.8 Except as otherwise expressly provided, this Technology Agreement may not be released, discharged, changed or modified in any manner, except by a document of concurrent or subsequent date, in writing, signed by duly authorized officers of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, by their duly authorized officers as of the date indicated. AGREED TO AND ACCEPTED THIS AGREED TO AND ACCEPTED THIS 15th day of October, 1987 15th day of October, 1987 JOHNSON & JOHNSON WEYERHAEUSER COMPANY By /s/ R.S. Larson By /s/ R.J. Gummell ------------------------ ------------------------ (Signature) (Signature) Vice Chairman, Member, Executive Committee Group V.P. ------------------------ ------------------------ (Print Name and Title) (Print Name and Title) 16 SCHEDULE A ---------- A-1 JBD-2/25 Patents - ------- U.S. 4,500,315 and 4,537,590 - ---------------------------- Bolivia - B-4737 Canada - 1,209,752 Chile - 34798 Ecuador - PI-86-187 Great Britain - 2,131,346 Greece- 78755 Guatemala - 3775 New Zealand - 206055 Peru - 3814 Portugal - 77627 South Africa - 83/8282 Spain - 527081, 280301, 280302, 280303, 280304, 280305, 280306 Trinidad - 24/1987 Patent Applications - ------------------- Argentina - 294742 Australia - 21042/83 Brazil - 8306016 Columbia - 227109 Denmark - 5095/83 Egypt- 691/1983 Eire - 2595/83 E.P.O. - 83306764.8 (Austria, Belgium, France, Germany, Italy, Luxembourg, Netherlands, Sweden, Switzerland) Finland - 834068 India- 1288/83 Mexico - 199331 Norway - 834060 Venezuela - 1774 A-2 JBD-54 Patents - ------- U.S. 4,676,784 - -------------- Greece - 851053 Portugal - 80373 South Africa - 85/3230 Patent Applications - ------------------- Argentina - 300267 Australia - 41885/85 Brazil - 8502058 Canada - 480539-9 Columbia - 244098 Denmark - 1933/85 E.P.O. - 85303075.7 (Austria, Belgium, France, Great Britain, Germany, Italy, Luxembourg, Netherlands, Sweden, Switzerland) Mexico - 205183 Norway - 851723 New Zealand - 211936 Spain - 292871 Venezuela - 632/85 A-3 JBD-62 Patents - ------- U.S. 4,560,372 - -------------- Greece - 851052 Portugal - 80374 South Africa - 85/3229 Patent Applications - ------------------- Argentina - 300268 Australia - 41886/85 Brazil - 8502060 Canada - 480455-4 Columbia - 244099 Denmark - 1934/85 Ecuador - 85-038 E.P.O. - 85303061.7 (Austria, Belgium, France, Great Britain, Germany, Italy, Luxembourg, Netherlands, Sweden, Switzerland) Mexico - 205184 New Zealand - 211935 Spain - 292872 Venezuela - 630/85 A-4 JBD-7?? Patents - ------- U.S. 4,559,050 - -------------- South Africa - 85/6250 Spain - 546180 Patent Applications - ------------------- Argentina - 301308 Australia - 46279/85 Brazil - 8503822 Canada - 488817-1 Greece - 851976 India - 574/85 Mexico - 206324 New Zealand - 212996 Portugal - 80968 Venezuela - 1264/85 A-5 JBD-73 Patents - ------- U.S. 4,596,567 - -------------- South Africa - 85/6251 Spain - 546181 Patent Applications - ------------------- Argentina - 301309 Australia - 46278/85 Brazil - 8503817 Canada - 488874-0 Columbia - 247670 Eire - 2026/85 E.P.O. - 85305843.6 (Austria, Belgium, France, Great Britain, Germany, Italy, Luxembourg, Netherlands, Sweden, Switzerland) Greece - 851978 India - 573/85 Mexico - 206325 New Zealand - 212995 Portugal - 80971 Venezuela - 1258/85 A-6 JBD-74 Patents - ------- U.S. 4,605,402 - -------------- South Africa - 85/6252 Spain - 546182 Patent Applications - ------------------- Argentina - 301310 Australia - 46277/85 Brazil - 8503820 Canada - 488873-1 Columbia - 247671 Eire - 2039/85 E.P.O. - 85305844.4 (Austria, Belgium, France, Great Britain, Germany, Italy, Luxembourg, Netherlands, Sweden, Switzerland) Greece - 851979 India - 589/85 Mexico - 206326 New Zealand - 213029 Portugal - 80970 Venezuela - 1259/85 A-7 ABTK-1 Patents - ------- Australia - 71759/81 Canada - 1,163,599 E.P.O. - 8130206.4 (France, Great Britain, Germany, Netherlands, South Africa) - 81/3131 Patent Applications - ------------------- Brazil - 8108591 Mexico - 187583 A-8 ABT-009 Patents - ------- U.S. 4,381,320 - -------------- Argentina - 229126 Australia - 551832 Canada - 1203772 Great Britain - 2099828 New Zealand - 200725 Portugal - 74987 South Africa - 82/3882 Patent Applications - ------------------- Brazil - 8203234 Germany - 3220735.2 A-9 Patents - ------- U.S. 4,573,988 JBD 66 - -------------- (CIP of JBD-2 and 25) no international filing U.S. 4,540,454 JBD-78 - -------------- (DIV of JBD-2 and 25) no international filing SCHEDULE A' ----------- A'-1 Recent Inventions: File 1047.141 - The incorporation of plasticizers and copolasticizers in - ------------- superabsorbent polymers File 1047.143 - Incorporating certain co-monomers in the system to - ------------- improve absorbent characteristics File 1047.145 - Combination of fibers, free superabsorbents and bound - ------------- superabsorbents File 1047.148 - SaH resistant swellable polymers - ------------- File 1047.153 - An ultrathin breathable diaper having improved fit - ------------- SCHEDULE B ---------- B-1 JBD-8 Patents - ------- U.S. 4,413,995 - -------------- Australia - 556,670 Canada - 1,192,456 Chile - 34786 Ecuador - 85-060 Great Britain - 2,122,658 Greece - 78447 Guatemala - 3773 New Zealand - 20417 Peru - 3387 Portugal - 76724 South Africa - 83/3667 Spain - 522,535 Trinidad - 71/1985 Patent Applications - ------------------- Argentina - 293,117 Brazil - 8301876 Eire - 1192/83 E.P.O. - 833,02903.6 (Austria, Belgium, France, Italy, Netherlands, Sweden, Switzerland) Mexico - 197379 Norway - 831809 Venezuela - 748 B-2 JBD-11 Patents - ------- U.S. 4,540,415 - -------------- Ecuador - 85-059 Egypt - 15119 Great Britain - 2114449 Guatemala - 3700 New Zealand - 203227 Peru - 3783 Portugal - 76233 South Africa - 83/0958 Trinidad - 18/1985 Uruguay - 12622 Patent Applications - ------------------- Argentina - 292097 Australia - 11366/83 Brazil - 8300665 Chile - 89/83 Columbia - 219654 Mexico - 196256 Venezuela - 239/83 B-3 JBP-22 Patent - ------ U.S. 4,084,592 - -------------- No international filing --------------------------- JBD 76 Patents - ------- South Africa 85/6254 Patent Applications - ------------------- U.S. 641,665 Argentina - 301307 Australia - 46275/85 Brazil - 8503818 Canada - 488814-6 E.P.O. - 85305846.9 (Austria, Belgium, France, Great Britain, Germany, Italy, Luxembourg, Netherlands, Sweden, Switzerland) Greece - 851980 New Zealand - 212997 Portugal - 80967 Spain - 546183 Venezuela - 1261/85 B-4 JBD-70 (Design) Patents - ------- Argentina - 47510 Australia - 92166 Canada - 55968 Great Britain - 1024806 New Zealand - 19625 Portugal - 18223 Patent Applications - ------------------- Brazil - 4,500,109 Ecuador - 85-006 Mexico - 5833 Uruguay - 2226 Venezuela - 204/85 B-5 JBD-96 Patent Applications - ------------------- Argentina - 305026 Australia - 61786/86 Brazil - 8630993 Canada - 516675-6 New Zealand - 217087 Portugal - 83222 Venezuela - 1335-86 B-6 JBD-47/103 Patents - ------- Argentina - 232676 Chile - 35204 Portugal - 79697 Patent Applications - ------------------- U.S. 824,928 Australia - 36859/84 Brazil - 8406441 Canada - 470342-1 Columbia - 239941 Ecuador - 84/254 Great Britain - 8431949 Mexico - 203813 New Zealand - 210642 Venezuela - 2126/84 B-7 JBD-75/106/129 Patents - ------- South Africa - 85/6253 Spain - 546184 Patent Applications - ------------------- U.S. 838878 Australia - 46276/85 Canada - 488816-2 E.P.O. - 85305845.1 (Austria, Belgium, France, Great Britain, Italy, Luxembourg, Netherlands, Sweden, Switzerland) Greece - 851977 New Zealand - 212994 Portugal - 80969 B-8 Patents - ------- U.S. 3,779,246 J&J 665 Canada - 977,268 U.S. 4,573,991 JBD 50 U.S. 4,479,836 JBD 43 U.S. 4,576,598 JBD 41 U.S. 4,552,560 JBD 48 Patent Application - ------------------ U.S. 828,073 JBD 104 B-9 Patents - ------- U.S. 4,464,217 - -------------- Canada 1,186,288 Patent Applications - ------------------- Germany 8,211,227.4 SCHEDULE B' ----------- B'-1 Recent Inventions: File 1047.142 - An improved fitting diaper where the improvement is - ------------- obtained by specific positioning of the elastic members SCHEDULE C ---------- C-1 JBD-7/JBP-98/JBP-158 Patents - ------- U.S. 4,450,026 - -------------- U.S. 4,337,771 Australia 528,814 Austria 372,825 Brazil 7900459 Canada 1,195,804 Mexico 149941 New Zealand 189523 Portugal 69142 South Africa 79/0351 Patent Applications - ------------------- Columbia 179383 C-2 JBD-44/JBP-97/JBP-59 Patents - ------- U.S. Re 31,922 - -------------- U.S. 4,324,245 Argentina 221074 Australia 526338 Canada 1153152 Chile 31273 Great Britain 2,010,682 Guatemala 3295 Hong Kong 80/1983 Jamaica 2831 Malaysia 22/84 Mexico 150635 Philippines 16555 Portugal 68941 Saban 63 South Africa 78/7112 Sarawak 1816 Singapore 551/82 Trinidad 113 Venezuela 40765 Patent Applications - ------------------- Brazil 7808292 Columbia 178661 Ecuador 210 C-3 JBP-157/JBP-100 Patents - ------- U.S. 4,336,803 Australia 522382 Canada 1,100,706 Patent Applications - ------------------- Brazil 7808293 C-4 JBP-169 Patents - ------- Australia 538624 Chile 32636 Ecuador 82-069 India 154935 Taiwan 15625 C-5 JBP-175 Patents - ------- Canada 1,180,173 Chile 33744 Panama 037829 41 South Africa 82/2500 Patent Applications - ------------------- Brazil 8202486 Germany 82110557 Patent JBP-210 - ------ U.S. 4,381,783 Patent Application JBD-90 - ------------------ Reissue SN 729,678 SCHEDULE D INTERFERENCE SETTLEMENT AGREEMENT ---------------------------------- THIS AGREEMENT, made and entered into as of the 17th day of February , 1983, between JOHNSON & JOHNSON (hereinafter referred to as "J&J"), a corporation of New Jersey, and having a place of business at 501 George Street, New Brunswick, New Jersey 08903; and RIEGEL TEXTILE CORPORATION (hereinafter referred to as "RIEGEL"), a corporation of the State of Delaware, and having a place of business at Suite 800, Green Gate Park, 25 Woods Lake Road, Greenville, South Carolina 29607; WITNESSETH; ---------- WHEREAS, J&J is the owner of the entire right, title and interest in and to United States Patent Application Serial No. 150,515, filed May 16, 1980, by Dickover et al.; WHEREAS, RIEGEL is the owner of the entire right, title and interest in and to United States Patent 4,239,578 issued to Gore, and an application for United States Letters Patent Serial No. 202,943, filed November 3, 1980, by Teed; WHEREAS, the aforesaid patent and applications are now involved in interference proceedings in the United States Patent Office, Numbers 100,913 and 100,914 (hereinafter referred to as the "INTERFERENCES"); WHEREAS, J&J and RIEGEL wish to effect amicable settlement of the matters in controversy in said INTERFERENCES, and other matters pertaining thereto, without incurring the delays and expenses incidental to prosecution of said INTERFERENCES to final conclusion; WHEREAS, each of the Parties hereto desire to practice inventions which may fall within the scope of the aforesaid patent and applications in the United States; WHEREAS, the parties hereto desire to acquire, each from the other, a license to practice the inventions of the aforesaid patent and applications in the United States on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and obligations herein expressed, it is agreed by and between the parties as follows: (1) Within sixty (60) days after the date of this Agreement, the patent counsel for the parties shall meet at a mutually convenient location and each shall explain and disclose to each other its evidence, including the notebooks and other documentation in support thereof bearing upon the issue of priority of invention. Such evidence shall initially be presented in an informal manner and may be supplemented if necessary on another occasion. If, on the basis of a review of all such evidence, patent counsel for the parties mutually agree upon a proper disposition of all questions of priority of invention in accord with the applicable laws of the United States and Rules of Practice of the U.S. Patent Office with respect to any of the counts of the INTERFERENCES, an appropriate formal concession of priority, abandonment of the contest, and/or disclaimer under 37 CFR 1.262 in conformance with such evidence as to each such count shall be filed by the losing party in the Patent and Trademark Office, along with (1) a paper signed by the respective patent counsel stating the basis for their determination of priority, and (2) copies of documentary evidence in support of such determination. -2- In the event counsel for the parties are unable to agree upon the issue of priority of invention as to any count of the INTERFERENCES, the Board of Patent Interferences shall be allowed to determine priority in the customary fashion. The respective counsel shall stipulate to all facts on which they do agree under 37 CFR 1.272(c). Thereafter each party shall present whatever pertinent evidence remains in dispute by deposition under 37 CRF 1.272(a), by affidavit under 37 CFR 1.272(c), or by stipulation under 37 CFR 1.272(c), with the other party having the opportunity to cross-examine by oral deposition or written interrogatories. Opposing counsel shall cooperate to facilitate the presentation of such disputed evidence to the Board. The parties reserve the right to argue ancillary matters. The decision of said Board shall be final and may not be appealed beyond the Patent and Trademark Office. (2) Each of the parties to this Agreement hereby grants to the other party hereto and its affiliated companies a royalty-free, irrevocable, nonexclusive license to make, have made, use, and sell only the subject matter defined by all claims of (a) the said United States Patent to Gore or any reissue thereof, or (b) any United States patent or any reissue thereof which is granted on the said applications of Teed and Dickover et al. For purposes of this Agreement, an affiliated company shall be one of the following: (a) any corporation or organization fifty percent (50%) or more of whose voting shares are owned by a party hereto; -3- (b) any corporation or organization fifty percent (50%) or more of whose voting shares are owned by a corporation, individual or group of individuals which also owns fifty percent (50%) or more of the voting shares of a party hereto; or any subsidiary of such corporation or organization all of whose voting share, with the exception of such directors' shares as may be required by statute, are owned by such corporation or organization. (3) The licenses granted by this Agreement shall not extend to any patent of the parties other than those specified herein and shall be unassignable except to the successor of the major part of the business of the party relating to the subject matter hereof or affiliated companies as previously defined. (4) This Agreement shall become effective upon execution and shall continue in effect for the life of the patent or patents, respectively, licensed hereunder. (5) Failure of the parties to agree on the issue of priority or matters ancillary thereto shall not affect the license rights conferred by this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed in duplicate by their respective representatives, duly authorized, and their respective corporate -4- seals to be hereunto affixed as of the day and date first hereinabove written. JOHNSON & JOHNSON By John J. ^illegible^ -------------------- Authorized Officer RIEGEL TEXTILE CORPORATION By Roger W. Chastain -------------------- Authorized Officer -5- SCHEDULE E ---------- Benjamin, Humberto Kuehne, Michael Chappelear, Dave Lingertat, Arnold Cook, John Nguyen, Hlen Czekanski, Robert Parrish, Grant Erdman, Ed Paul, Rajendra Fink, Richard Piantek, Tom Groseneek, Albert Pieniak, Heinz Hall, Joseph Raymond, Stanley Hodul, George Rega, John Huffman, Gloria Reilly, Eugene Iskra, Mike Swieringa, Morris Jackson, Joe Tibbitt, William Korpman, Ralf Witte, Larry [LOGO OF WEYERHAEUSER] Law Department Tacoma, Washington 98477 Writers Direct Dial Number (206) 924-2061 July 25, 1988 Johnson & Johnson Office of General Counsel One Johnson & Johnson Plaza New Brunswick NJ 08933-7003 Attn: Robert L. Minier, Esq. Re: Amendment to Technology Agreement of October 15, 1987 Gentlemen: This letter is to amend the above-noted Technology Agreement to substitute the enclosed replacement page C2 of Schedule C for page C2 originally in the agreement. It is understood that some patents and patent applications were left off the original C2 and this has been remedied by the enclosed amendment. To indicate your acceptance and agreement to this amendment, please sign and return one copy of this letter. Very truly yours, /s/ Patrick D. Coogan Patrick D. Coogan Corporate Patent Counsel Assistant General Counsel jw2/822/e1 Enclosure AGREED TO AND ACCEPTED THIS AGREED TO AND ACCEPTED THIS 26th day of July, 1988 21st day of August, 1988 WEYERHAEUSER COMPANY JOHNSON & JOHNSON By B.V. Abraham By James R. Utaski ------------------------- -------------------------- (Signature) (Signature) B.V. Abraham President, James R. Utaski Personal Care Products Group Company Chairman ------------------------- -------------------------- (Print Name and Title) (Print Name and Title) C-2 JBD-44/ JBP-97/ JBP-159 JBP-120/ JBP 166 Patents - ------- U.S. Re 31,922 - -------------- U.S. 4,324,245 U.S. 4,388,075 Argentina 221074 Australia 525338-533635 Canada 53152-1154901-1181201 Chile 31273 Great Britain 2,010,682 Guatemala 3295 Hong Kong 80/1983 Jamaica 2831 Malaysia 22/84 Mexico 150635 Philippines 16555 Portugal 68941 Saban 63 South Africa 78/7112 Sarawak 1816 Trinidad 113 Venezuela 40765 Patent Applications - ------------------- Brazil 7808292 Columbia 178661 Ecuador 201 [LETTERHEAD OF WEYERHAEUSER APPEARS HERE] July 17, 1989 Johnson & Johnson Office of General Counsel One Johnson & Johnson Plaza New Brunswick NJ 08933-7003 Attn: Robert L. Minier, Esq. Re: Amendment to Technology Agreement of October 15, 1987 Gentlemen: This letter is to amend the above-noted Technology Agreement as follows: 1. Replace page C2 of Schedule C accepted on August 21, 1988. This amendment is necessary to delete reference to U.S. patent 4,388,075 and corresponding Canadian patents 1,154,901 and 1,181,201 which have been assigned to Weyerhaeuser by Johnson & Johnson Baby Products Company under the terms of an ASSIGNMENT, a copy of which is attached. 2. In view of the assignment of U.S. patent 4,388,075 and Canadian patents 1,154,901 and 1,181,201 from Johnson & Johnson to Weyerhaeuser, Weyerhaeuser hereby grants to J&J the nonexclusive paid up, irrevocable right and license to practice the invention claimed in U.S. patent 4,388,075 and in Canadian patents 1,154,901 and 1,181,201 in the manufacture, use and sale of Adult Diapers, Consumer Products, Industrial Products and of private label and control label Infant Diapers in the United States and Canada. Weyerhaeuser agrees to reimburse J&J for any outside costs incurred in responding to Weyerhaeuser's requests for cooperation in support of any litigation involving these assigned patents. 3. In the event that J&J exercises its option in Section 4.6 of terminating the Technology Agreement, Weyerhaeuser hereby agrees to reassign to J&J U.S. patent 4,388,075 and Canadian patents 1,154,901 and 1,181,201. 4. Replace page B-8 to include U.S. Patent 4,731,066 which issued March 15, 1988. Johnson & Johnson July 17, 1989 Page 2 To indicate your acceptance and agreement to this amendment and the attached assignment, please have these documents signed and return one copy of this letter and the assignment to me. Very truly yours, /s/ Patrick D. Coogan Patrick D. Coogan Corporate Patent Counsel & Assistant General Counsel jw2/626/e6 AGREED TO AND ACCEPTED THIS AGREED TO AND ACCEPTED THIS 18th day of July, 1989 24th day of August, 1989 WEYERHAEUSER COMPANY JOHNSON & JOHNSON BABY PRODUCTS COMPANY By /s/ B.V. Abraham By /s/ James R. Utaski --------------------------- ----------------------- (Signature) (Signature) B.V. Abraham, James R. Utaski, President PCP Company Group Chairman --------------------------- ----------------------- (Print Name and Title) (Print Name and Title) C-2 JBD-44/JBP-97/JBP-159 Patents - ------- U.S. Re 31,922 - -------------- U.S. 4,324,245 Argentina 221074 Australia 525338 -533635 Canada 1,153,152 Chile 31273 Great Britain 2,010,682 Guatamala 3295 Hong Kong 80/1983 Jamaica 2831 Malaysia 22/84 Mexico 150635 Philippines 16555 Portugal 68941 Saban 63 South Africa 78/7112 Sarawak 1816 Trinidad 113 Venezuala 40765 Patent Applicants - ----------------- Brazil 7808292 Columbia 178661 Ecuador 201 B-8 REVISED ------- Patents - ------- U.S. 3,779,246 J&J 665 Canada - 977,268 U.S. 4,573,991 JBD 50 U.S. 4,479,836 JBD 43 U.S. 4,576,598 JBD 41 U.S. 4,552,560 JBD 48 U.S. 4,731,066 JBD 131 Patent Application - ------------------ U.S. 828,073 JBD 104 [JOHNSON&JOHNSON LOGO] ONE JOHNSON & JOHNSON PLAZA OFFICE OF NEW BRUNSWICK, N.J. 08933-7003 GENERAL COUNSEL September 8, 1989 Mr. Patrick D. Coogan Assistant General Counsel Weyerhaeuser Corporation Tacoma, Washington Dear Pat: Re: Amendment to Technology Agreement Of October 15, 1987 - -------------------------------------- This letter is to further amend the above-noted Technology Agreement as follows: 1. Replace Schedules A, B and C with the attached revised Schedules A, B and C. This Amendment is necessary to delete reference to various patents and patent applications which have been assigned to Weyerhaeuser by Johnson & Johnson under the terms of the Assignments, copies of which are attached hereto. This Amendment is also to add various patents and patent applications to Schedules A, B and C which inadvertently had been omitted in the original Schedules. 2. In view of the attached Assignments, Weyerhaeuser hereby grants to J&J a non-exclusive, paid-up, irrevocable right and license to practice the inventions claimed in all of said assigned patents and patents issuing on the assigned patent applications in the manufacture, use and sale of Adult Diapers, Consumer Products, Industrial Products, and of private label and control label Infant Diapers. Weyerhaeuser agrees to reimburse J&J for any outside costs incurred in responding to Weyerhaeuser's request for cooperation and support of any litigation involving these assigned patents. Page 2 September 8, 1989 Patrick D. Coogan 3. In the event that J&J exercises its option in Section 4.6 of terminating the Technology Agreement, Weyerhaeuser hereby agrees to re-assign the patents and patent applications included in the attached Assignments. To indicate your acceptance and agreement to this Amendment and the attached Assignments, please have this document signed and return one copy of this letter to me. Very truly yours, /s/ Robert L. Minier -------------------- Robert L. Minier Agreed to and Accepted this 1st day of November, 1989. WEYERHAEUSER CORPORATION By /s/ B.V. Abraham ---------------------------- V.P. Personal Care Products - ------------------------------- Title Agreed to and Accepted this 11th day of September, 1989 JOHNSON & JOHNSON BY /s/ James R. Utaski ---------------------------- Company Group Chairman - ------------------------------- Title RLM/rak Attachments [WEYERHAEUSER LETTERHEAD] Corporate Headquarters Tacoma, Washington 98477 Tel (206) 924 2345 March 14, 1991 Johnson & Johnson Robert L Minier, Esq. Office of General Counsel Johnson & Johnson Plaza Brunswick NJ 08933-7003 Amendment to Technology Agreement Having an Effective Date of July 1, 1987 and Amendment to Asset Agreement of October 16, 1987 (#15956) Gentlemen: [COPY MISSING] result of our recent discussion about current circumstances relating to the subject matter of the agreements noted above and in consideration of our mutual exchange of amendments set forth herein, this letter is to further amend these agreements as follows: 1. Delete paragraph 7.01 Covenant Not to Compete in the Asset Agreement. 2. Delete paragraph 7.02 Right of First Offer in the Asset Agreement. 3. Delete paragraph 2.13 "Net Sales" in the Technology Agreement and replace it with the following: 2.13 "Prime Line Raw Material Costs" shall mean the actual costs incurred by Weyerhaeuser or its sublicensees for all of the raw materials used on the prime line to manufacture any Royalty Products. 4. Delete paragraph 3.1 in the Technology Agreement and replace it with the following: 3.1 J&J hereby grants to Weyerhaeuser an exclusive license in Weyerhaeuser Territory, with the right to grant sublicenses and a non-exclusive license in Non-Exclusive Territory, with the right to grant sublicenses to utilize Licensed Technology to manufacture, have manufactured, use and sale Infant Diapers, Consumer Products, Industrial Products and Adult Diapers. It is understood, however, that each sublicense relating to Adult Diapers must be approved by J&J before being effective and J&J will not unreasonably delay or deny such approval. Johnson & Johnson March 14, 1991 Page 2 5. Delete paragraph 3.2 in the Technology Agreement and replace it with the following: 3.2 Weyerhaeuser hereby grants to J&J a paid-up, non-exclusive license in Weyerhaeuser Territory to utilize Licensed Technology to manufacture, have manufactured, use and sell Consumer Products, Industrial Products and Adult Products. 6. Delete paragraph 3.3 in the Technology Agreement and replace it with the following: 3.3 J&J hereby grants to Weyerhaeuser an exclusive license in Weyerhaeuser Territory, with the right to grant sublicensees and a non-exclusive license in Non-Exclusive Territory, with the right to grant sublicensees to manufacture, have manufactured, use and sell Infant Diapers, Consumer Products, Industrial Products and Adult Diapers within the scope of any Valid Claim of a C-C Patent, a Diaper Patent or an Improvement Patent owned by J&J. It is understood, however, that each sublicense relating to Adult Diapers must be approved by J&J before being effective and J&J will not unreasonably delay or deny such approval. 7. Delete paragraph 3.4 in the Technology Agreement and replace it with the following: 3.4 Weyerhaeuser hereby grants to J&J a paid-up non-exclusive license in Weyerhaeuser Territory to manufacture, have manufactured, use and sell Adult Diapers, Consumer Products and Industrial Products within the scope of any Valid Claim of a C-C Patent or Diaper Patent. 8. Delete paragraph 3.5 in the Technology Agreement and replace it with the following: 3.5 Weyerhaeuser grants to J&J a paid-up nonexclusive license in Weyerhaeuser Territory to manufacture, have manufactured, use and sell Infant Diapers within the scope of any Valid Claim of the patents and patent applications listed in Schedule C. 9. Delete paragraph 3.6 in the Technology Agreement and replace it with the following: 3.6 J&J hereby covenants not to sue Weyerhaeuser or its sublicensees for infringement of any Other Patent as long as the Infant Diaper, Adult Diaper, Consumer Product or Johnson & Johnson March 14, 1991 Page 3 Industrial Product is made, used or sold exercising the licenses of Grants 3.1 or 3.3. 10. Amend the last line of paragraph 4.1 in the Technology Agreement to read as follows: ... December 31, 1990. 11. Delete paragraph 4.2 in the Technology Agreement and replace it with the following: 4.2 In addition, Weyerhaeuser agrees to pay J&J a royalty of Two Percent (2%) of the Prime Line Raw Material Costs for all the Royalty Products sold by Weyerhaeuser and its sublicensees: a. in 1991, but such royalty total shall be not less than One Hundred Thousand Dollars ($100,000); b. in 1992, but such royalty total shall be not less than Two Hundred Thousand Dollars ($200,000); c. in 1993, but such royalty total shall be not less than Three Hundred Thousand Dollars ($300,000; and d. in 1994 and each year thereafter until 2001, but such royalty total for each year shall be not less than Four Hundred Thousand Dollars ($400,000). 12. Delete paragraph 4.3 in the Technology Agreement and replace it with the following: 4.3 Weyerhaeuser agrees to send written royalty reports to J&J within forty-five (45) days after the end of each fiscal half-year report period between January 1991 and December 2001 and after the final report period ending February 19, 2002. Such reports will set forth the Prime Line Raw Material Costs for the Royalty Products sold during the report period by Weyerhaeuser and its sublicensees. Concurrently with such reports Weyerhaeuser shall pay J&J the royalties in accordance with paragraph 4.2. 13. Amend line two (2) of paragraph 4.4 of the Technology Agreement by replacing "Net Sales" with "Prime Line Raw Material Costs." Johnson & Johnson March 14, 1991 Page 4 14. Delete paragraphs 4.6, 4.7 and 4.8 in the Technology Agreement and replace them as follows: 4.6 The minimum royalties as provided in paragraph 4.2 for the years 1991, 1992, 1993 and 1994 shall be considered guaranteed minimums. In the event that Weyerhaeuser fails to pay such minimum royalties, J&J shall have the option of terminating this Technology Agreement by providing written notice to Weyerhaeuser exercising such option within sixty (60) days after the due date for the payment of such royalties for the year in question. This notice shall not be effective to terminate this Technology Agreement if Weyerhaeuser pays to J&J the balance due within thirty (30) days after receipt of J&J's notice. 4.7 In the event the royalties paid by Weyerhaeuser under paragraph 4.2 are less than the amount specified for the years 1995 to 2001, J&J shall have the option to terminate all rights of Weyerhaeuser and its sublicensees to practice any C-C Patents with all other rights being deemed irrevocable and paid up as provided in paragraph 4.1. To exercise this option J&J shall provide written notice thereof to Weyerhaeuser within sixty (60) days after the due date for royalty payment for the year in question. The notice shall not be effective to terminate such rights if Weyerhaeuser pays to J&J the balance due within thirty (30) days after receipt of J&J's notice. 15. Delete paragraph 13.3 in the Technology Agreement and replace it as follows: 13.3 This Technology Agreement may be assigned by either party hereto under the following conditions: a. If the assignee is Procter & Gamble, Kimberly-Clark, or any entity which is controlled by or controls either entity then any amendments made to the Compensation Section 4.0 shall be ineffective and the original paragraphs restored; b. If the prime line for producing Royalty Products is offered for sale before December 31, 1994, Weyerhaeuser must promptly notify J&J and J&J shall have twenty one (21) days in which to accept such offer before Weyerhaeuser can accept any offer from a third party. However, Weyerhaeuser shall not accept a third party offer for a price less than a price Johnson & Johnson March 14, 1991 Page 5 equivalent in value to the price offered to J&J; provided, however, notwithstanding anything to the contrary, this paragraph 13.3 b shall not apply in the event the prime line (i) is offered for sale as part of the sale by Weyerhaeuser of other assets in which the fair market value of the prime line is less than one-half the fair market value of such other assets or (ii) sold, contributed or otherwise transferred to a joint venture or other entity in which Weyerhaeuser retains a financial interest of any kind; and c. Before any assignment of this Technology Agreement is effective, prompt notification of such assignment with a written assurance by the acquiring party of its willingness and ability to fully perform all obligations of the selling party are required. To indicate your acceptance and agreement to this amendment, please have these duplicate copies signed and return one copy to me. Very truly yours, Patrick D. Coogan Assistant General Counsel & Corporate Patent Counsel jw2/414/d4 AGREED TO AND ACCEPTED THIS AGREED TO AND ACCEPTED THIS 18 day of March, 1991 19 day of June, 1991 WEYERHAEUSER COMPANY JOHNSON & JOHNSON By: /s/ John W. Creighton, Jr. By: /s/ C.D. Simonds -------------------------- ----------------------- (Signature) (Signature) John W. Creighton, Jr., President C.D. Simonds, Pres. JJCPI - --------------------------------- --------------------------- (Print Name and Title) (Print Name and Title) [LETTERHEAD OF JOHNSON & JOHNSON] OFFICE OF ONE JOHNSON & JOHNSON PLAZA GENERAL COUNSEL NEW BRUNSWICK. N.J. 08933-7003 May 12, 1992 Patrick Coogan, Esq. Weyerhaeuser Company Tacoma, Washington 98477 Dear Pat: This will confirm my telephone request of a couple of months ago, soliciting Weyerhaeuser's consent for McNeil-PPC Inc. to grant non-exclusive licenses under U.S. Patent 4,388,075, if and to the extent that such licenses are granted together with an express license under our U.S. Patent 4,938,754. By countersignature and return of this letter, please confirm your agreement. It is understood that in such licenses, royalties attributable solely to U.S. Patent 4,388,075 shall be equally divided between us, but that royalties attributed solely to U.S. Patent 4,938,754, or jointly to patents 4,388,075 and 4,938,754, shall be solely the right and property of McNeil-PPC Inc. Pursuant to paragraph 3.5 of the Technology Agreement between Weyerhaeuser and Johnson & Johnson dated July, 1, 1987, Weyerhaeuser has a covenant not to sue from Johnson & Johnson on U.S. Patent 4,938,754. Please signify your agreement by attending to the authorized execution of this letter at the space provided below, retaining the enclosed duplicate original for your own records. Thank you for your cooperation. Sincerely, /s/ Bob Minier --------------------------- Robert L. Minier RLm/rak WEYERHAEUSER BY /s/ B.V. Abraham ------------------- Title Vice President ---------------- Date May 22, 1992 ---------------- [LETTERHEAD OF JOHNSON & JOHNSON] OFFICE OF ONE JOHNSON & JOHNSON PLAZA GENERAL COUNSEL NEW BRUNSWICK. N.J. 08933-7003 May 20, 1992 Weyerhauser Company Tacoma Washington 98477 Gentlemen: Re: Amendment to Technology Agreement Having An Effective Date of July 1, 1987 - ------------------------------------------------ This letter is to amend the subject Technology Agreement as follows: 1. Delete paragraph 2.14. 2. Delete paragraph 2.15. 3. Replace paragraph 2.16 with the following: ""Weyerhaeuser Territory" shall mean the territory of Earth." 4. Replace Schedules A, B and C with the attached Schedules A, B and C, each dated April 20, 1992. 5. In the Amendment dated March 14, 1991, to the subject Technology Agreement in: a. Paragraph 3.1 delete the phrase "and a non-exclusive license in Non- Exclusive Territory, with the right to grant sublicenses." b. Paragraph 3.3 delete the phrase "and a non-exclusive license in Non-Exclusive Territory, with the right to grant sublicenses". May 20, 1992 [COPY MISSING] indicate your acceptance and agreement to this Amendment, please [COPY MISSING] return one copy of this letter. Very truly yours, Robert L. Minier [COPY MISSING] AGREED AND ACCEPTED THIS AGREED AND ACCEPTED THIS __ day of May, 1992 20th day of May, 1992 WEYERHAEUSER COMPANY JOHNSON & JOHNSON By /s/ B.V. Abraham By /s/ Stephen J. Cosgrove -------------------- --------------------------------- (signature) B.V. Abraham Stephen J. Cosgrove, VP Finance JJCPI - ----------------------- ------------------------------------- (Print name and title) (Print name and title) Law Department Tacoma, Washington 98477 [LETTERHEAD OF WEYERHAEUSER] Air Express: 33663 Weyerhaeuser Way South Federal Way, Washington 98003 Writers Direct Dial Number TEL (206) 924-2061 FAX (206) 924-3253 June 10, 1992 Robert L. Minier, Esq. Office of General Counsel Johnson & Johnson One Johnson & Johnson Plaza New Brunswick NJ 08933-7003 Re: Amendment to Technology Agreement, Effective Date July 1, 1987 Dear Bob: This letter is to amend the above-noted Technology Agreement as follows: 1. Replace the word "Products" with "Diapers" in the last line of Paragraph 3.2 of the amendment accepted June 19, 1991. 2. In Paragraph 13.3b, last line before "and" insert - or (iii) is offered for sale, sold, contributed or otherwise transferred to a third party with the limitation that until February 19, 2002 the products of the prime line will be sold to J&J for any uses, to Scott Health Care for use only in Adult Diapers while a sublicensee hereunder and to others for use only in Infant Diapers -. 3. Replace Schedules A, A', B, B' and C with the attached Schedules A, A', B, B' and C each dated June 5, 1992. To indicate your acceptance and agreement to this Amendment, please sign and return one copy of this letter. Very truly yours, Patrick D. Coogan Assistant General Counsel & Corporate Patent Counsel AGREED AND ACCEPTED THIS AGREED AND ACCEPTED THIS day of June, 1992 day of June, 1992 - ---- ---- WEYERHAEUSER COMPANY JOHNSON & JOHNSON By By --------------------- ----------------------- (Signature) (Signature) - ------------------------ ------------------------- (Print Name and Title) (Print Name and Title) REVISED JUNE 5, 1992 -------------------- Schedule A ---------- A-1 JBD 2/25 (Weyco #16951) Patents - ------- U.S. Patent 4,500,315 and 4,537,590 ----------------------------------- Argentina 234479 Austria 0108637 Australia 558202 Belgium 0108637 Bolivia B-4737 Brazil P-18306016 Canada 1,209,752 Chile 34798 Denmark 161,664 Ecuador PI-86-187 Eire 54695 EPO 0108637 France 0108637 Germany P-3378952.5.08 Great Britain 2,131,346 Greece 78755 Guatemala 3775 Hong Kong 419/1987 India 161085 Italy 0108637 Japan 1,586,799 Korea 42835 Luxembourg 0108637 Mexico 157756 REVISED JUNE 5, 1992 -------------------- A-1 Continued JBD 2/25 (Weyco #16951) Netherlands 0108637 New Zealand 206055 Norway 167,760 Peru 3814 Philippines 19243 Portugal 77627 Sarawak 3208 Singapore 242/87 South Africa 83/8282 Spain 527081, 280301, 280302, 280303, 280304, 280305, 280306 Sweden 0108637 Switzerland 0108637 Taiwan 22229 Trinidad 24/1987 Venezuela 47305 Patent Applications - ------------------- Colombia 227109 Egypt 691/1983 Malaysia 8801552 Thailand 001958 REVISED JUNE 5, 1992 -------------------- A-2 JBD 54 (Weyco #16953) Patents - ------- U.S. Patent 4,676,784 --------------------- Canada 1239012 Singapore 187/91 Trinidad 16/1991 - -------------------------------------------------------------------------------- A-3 JBD 62 (Weyco #16954) Patents - ------- U.S. 4,560,372 -------------- Canada 1245004 Hong Kong 305/1991 Singapore 164/91 Trinidad 15/1991 REVISED JUNE 5, 1992 -------------------- A-4 JBD 72 (Weyco #16956) Patents - ------- U.S. Patent 4,559,050 --------------------- Canada 1252953 Patent Applications - ------------------- Japan 180067/85 - -------------------------------------------------------------------------------- A-5 JBD 73 (Weyco #16957) Patents - ------- U.S. 4,596,567 -------------- Canada 1251902 Patent Applications - ------------------- Japan 180068/85 - -------------------------------------------------------------------------------- A-6 JBD 74 (Weyco #16958) Patents - ------- U. S. 4,605,402 --------------- Canada 1251901 Hong Kong 1076/1991 Singapore 955/91 Trinidad 61/1991 Patent Applications - ------------------- Brazil 8503820 Japan 180069/85 REVISED JUNE 5, 1992 -------------------- A-7 ABTK I (Weyco #16946) Patents - ------- Australia 543970 Brazil PI 8108591 Canada 1,163,599 EPO 0040087 France 0040087 Great Britain 0040087 Germany 3165831.8 Hong Kong 291/1985 Malaysia 1115/1985 Mexico 154820 Netherlands 0040087 Singapore 928/84 South Africa 81/3131 Patent Applications - ------------------- Japan 501802/81 - ------------------------------------------------------------------------------- A-8 ABTK 009 (Weyco #16947) Patents - ------- U.S. 4,381,320 -------------- Argentina 229126 Australia 551832 Brazil PI 8203234 Canada 1203772 Great Britain 2099828 New Zealand 200725 Portugal 74987 South Africa 82/3882 Patent Applications - ------------------- Germany 3220735.2 Japan 94149/82 REVISED JUNE 5, 1992 -------------------- U.S. Patent 4,573,988 A-9 - --------------------- JBD 66 (Weyco #18681) (CIP of JBD 2 and JBD 25) U.S. Patent 4,540,454 JBD 78 (Weyco #18682) - --------------------- (Div. of JBD 2 and JBD 25) REVISED JUNE 5, 1992 -------------------- A'-1 Recent Inventions: - ------------------ File 1047.141 Relatively Soft Pliable Water-Swellable Polymer: Filed June 21, - ------------- 1989; S.N. 07/365,206 QBD 154) ABANDONED May 1991 Weyco #16635 File 1047.143 Hydrocolloid Polymer: Filed June 12, 1989; S.S. 365,224 - ------------- (JBD 155) Weyco #16697 File 1047.145 Absorbent Mixture, Method of Making Same and Absorbent Article - ------------- Including Same: Filed June 14, 1989; S.N. 365,967 (JBD 153) Weyco #16698 now U.S. Patent No. 5,100,397 issued 3/31/92.* File 1047.148 Hydrocolloid Polymer with Improved Sorption: Filed June 12, - ------------- 1989; S.N. 07/365,979 QBD 156) ABANDONED 5/1/91. Weyco #16699 File 1047.153 Low Bulk Disposable Diaper: Filed October 27, 1988; S.N. - ------------- 263,529 (JBD 157) Now U.S. Patent No. 5,098,423 issued 3/24/92. Weyco #16700 Weyco #16888 Highly Swellable Absorbent Polymers. No application filed. Weyco #16889 Highly Swellable Absorbent Polymer via U.V. No application filed. Weyco #16898 Manufacture of Composite Web Having Absorbent Properties: Filed April 10, 1989; S.N. 335,764 (JBD 158) ABANDONED May 1991. 6698: Also pending in Canada 2016733, Europe Pub. 402650, Japan 115021/90 and U.S. (Divisional) Serial No. 772,772 filed October, 1991 REVISED JUNE 5, 1992 -------------------- SCHEDULE B ---------- B-1 JBD 8 (Weyco #16949) Patents - ------- U.S. Patent 4,413,995 --------------------- Canada 1,192,456 Singapore 860/85 - -------------------------------------------------------------------------------- B-2 JBD 11 (Weyco #16950) Patents - ------- U. S. 4,540,415 --------------- - -------------------------------------------------------------------------------- B-3 Patents JBP 22 (Weyco #14022) - ------- U.S. 4,084,592 -------------- Patents JBD 76 (Weyco #16960) - ------- U.S. 4,880,420 -------------- Brazil P18503818 Canada 1257751 Patent Applications - ------------------ Japan 180071/85 REVISED JUNE 5, 1992 -------------------- B-4 JBD 70 (Design) (Weyco #16955) Patents - ------- Canada 55968 - -------------------------------------------------------------------------------- B-6 JBD 47/103 (Weyco #16952) Patents - ------- U.S. Patent 4,985,025 --------------------- Canada 1241503 - -------------------------------------------------------------------------------- B-7 JBD 75/106/129/149 (Weyco #16964) Patents - ------- U.S. 4,883,48 ------------- Canada 1252952 - -------------------------------------------------------------------------------- B-8 JBD 29/JBD 130 (Weyco #18828) Patents - ------- Canada 1236074 Singapore 611/90 Trinidad 25/90 REVISED JUNE 5, 1992 -------------------- B-9 JBD 107/JBD 128 (Weyco #14107) Patents - ------- U.S. 4,813,947 -------------- Patent Applications - ------------------- Canada 526378-6 - -------------------------------------------------------------------------------- B-10 Patents - ------- U.S. 3,779,246 J&J 665 (Weyco #14665) Canada 977,268 U.S. 4,464,217 JBP 177 (Weyco #14177) Canada 1,186,288 U.S. 4,084,592 JBP 22 (Weyco #14022) U.S. 4,573,991 JBD 50 (Weyco #14050) U.S. 4,479,836 JBD 43 (Weyco #14043) U.S. 4,576,598 JBD 41 (Weyco #14041) U.S. 4,552,560 JBD 48 (Weyco #14048) U.S. 4,723,954 JBD 104 (Weyco #16963) U.S. 4,662,874 JBD 105 (Weyco #14105) U.S. 4,731,066 JBD 131 (Weyco #14131) U.S. 4,886,511 JBD 144 (Weyco #14144) U.S. 4,941,933 JBD 146 (Weyco #14146) REVISED JUNE 5, 1992 -------------------- SCHEDULE B' ----------- B'-I Recent Inventions: - ----------------- File 1047.142 Disposable Diaper with Center Gathers: Filed October 27, 1988; - ------------- S.N. 263,260 (JBD 159) U.S. Patent 4,935,021 issued 6/19/90; Weyco #16696 Canada S.N. 614682 9/29/89 REVISED JUNE 5, 1992 -------------------- SCHEDULE C ---------- C-1 JBD 7/JBP 98/JBP 158 (Weyco #14098) Patents - ------- U.S. 4,450,026 ------------- U.S. 4,337,771 -------------- Australia 528,814 Brazil 7900459 Canada 1,195,804 Japan 1,591,935 South Africa 79/0351 - -------------------------------------------------------------------------------- C-2 JBD 44/JBP 97/JBP 159/JBP 120/JBP 166 (Weyco #s 14044, 16696, 19070, 19147, 17914) Patents - ------- U.S. RE 31,922 -------------- U.S. 4,324,245 -------------- Argentina 221074 Australia 526338 - 533635 Canada 1153152 Chile 31273 Guatemala 3295 Venezuela 40765 Patent Application - ------------------ Ecuador 210 REVISED JUNE 5, 1992 -------------------- C-3 JBP 157/JBP 100 (Weyco #18226) Patents - ------- U.S. 4,336,803 -------------- - -------------------------------------------------------------------------------- C-5 Patent - ------ U.S. 4,381,783 JBP 210 (Weyco #14210) -------------- U.S. RE 32,957 JBD 90 (Weyco #14090) -------------- EX-10.5 9 0009.txt AGREEMENT FOR THE PURCHASE/SALE OF PULP EXHIBIT 10.5 Contract No. ----------- AGREEMENT FOR THE SALE AND PURCHASE OF PULP ------------------------------------------- Agreement made as of the 28" day of November, 2000, by and between WEYERHAEUSER COMPANY, a Washington Corporation ("Seller"), and Paragon Trade Brands, a Delaware Corporation ( "Buyer"). Seller hereby agrees to sell to Buyer and Buyer hereby agrees to purchase in each year during the term of this Agreement, the following: DESCRIPTION Southern Bleached Softwood Kraft Fluff Woodpulp produced at Seller's Southern United States mills, as described in exhibit B, hereinafter referred to as "Woodpulp." QUANTITY Subject to reductions contemplated below under, "DURATION", 100% of Buyer's Woodpulp requirements for Buyer's North American operations that seller is able to provide in a timely manner, such requirements being estimated to be approximately * Dry Metric Tons ("DMT") in each contract year. Any volume greater than * DMT for a contract year must be mutually agreed upon in writing by October 1st of the year prior to the year in which the increase will occur. DURATION This Agreement shall become effective on January 1, 2001, and shall terminate on December 31, 2003; provided, however, that if either party materially defaults in the performance of this Agreement and such default or noncompliance shall not have been remedied, or steps initiated to remedy the same, to the other party's reasonable satisfaction, within ninety (90) days (or ten (10) days in the case of non-payment) after receipt by the defaulting party or a written notice thereof from the other party, the party not in default may terminate this Agreement on written notice of termination. Buyer and Seller shall begin negotiations to renew this Agreement no later than January 1, 2003. In the event Buyer and Seller have not agreed in writing on renewal by June 30, 2003, either party may elect to reduce purchases and sales in the last six-month period of this Agreement (July 1, 2003 through December 31, 2003), in accordance with the following schedule, using normal two (2) month volume as the base quantity for reductions (the "Base"): PERIOD QUANTITY TO BE PURCHASED AND SOLD July 1, 2003 - August 31, 2003 75% of Base Sept. 1, 2003 - Oct. 31, 2003 50% of Base Nov. 1, 2003 - Dec. 31, 2003 25% of Base No reduction pursuant to this Section shall be effective unless the party electing the * Material omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Commission. reduction shall have notified the other party in writing prior to June 30, 2003 that it desires to make such a reduction. SHIPMENTS Shipments will be made in approximately equal monthly shipments to buyer's plants as described in exhibit A. The volume to be shipped to each of buyer's plants in a quarter shall be mutually agreed upon prior to the beginning of each quarter. QUANTITY AND Unless a specific number of car load lots are specified in GRADE any order under this agreement, the quantity described in ADJUSTMENTS any such order may be increased or decreased by not more than 5%. In the event that either Seller or Buyer shall propose a change in the quantity or grade of pulp covered by this agreement, Seller and Buyer agree to negotiate in good faith in response to such proposal, but neither party is obligated to agree to the other party's proposal. VALUE If at any time during the term of this Agreement Buyer notifies COMPETITIVENESS Seller in writing of its intention to convert its manufacturing process to a technology which is not compatible with the then current form of Woodpulp being supplied by Seller to Buyer hereunder, Seller shall have 90 days from the date Seller receives Buyer's notice to provide a fluff pulp product compatible with Buyer's new technology. In the event that Seller is unable to provide a compatible product within such time period, Buyer shall have the right to purchase varieties of fluff pulp, or other material, compatible with its new technology from other suppliers, and Buyer's obligations to purchase Woodpulp from Seller shall be reduced to the Buyer's requirements of Woodpulp produced by Seller which remain compatible with Buyer's technology and which Seller is able to provide in a timely manner, subject to reductions contemplated above under, "DURATION". The parties shall work together in reducing purchases from Seller so as to minimize disruptions to either party. PRICE* The price per ADMT for Woodpulp invoiced by Seller in a month for Buyer's locations in North America shall be the price as published by Resource Information Systems, Inc. ("RISI") for * delivered to United States for the month preceding the month to which the price relates (the "RISI NA Price") plus, if applicable, a treatment or semi-treatment upcharge as specified by Seller. By way of example, for Woodpulp for Buyer's locations in North America invoiced by Seller in May, the RISI price used in the price calculation would be the RISI price published for the preceding April. Prices are delivered to Buyer's locations in North America, and all prices shall be in U.S. dollars. * * Material omitted pursuant to request for confidential treatment. The omitted material has been filed separately with the Commission. 2 * In the event that RISI ceases to publish a RISI NA Price or changes the methodology of calculation of such prices such that their use in calculating the price of Woodpulp would no longer reflect the intent of the parties at the time of entering into this Agreement, the parties shall promptly agree on a substitute method of determining Woodpulp prices. FORCE MAJEURE Fire, flood, strikes, lock-out, epidemic, accident, shortage of customarily used transportation equipment (or suitable substitute), or other causes beyond the reasonable control of the parties, which prevent Seller from delivering or Buyer from receiving and/or using the commodity covered by this Agreement, shall operate to reduce or suspend deliveries during the period required to remove such cause. In the event of reduced deliveries by Seller under the provisions of this paragraph, Seller shall allocate its available supply of commodity, component raw materials, and related manufacturing facilities at the designated producing mill among purchasers and Seller's divisions, departments, and affiliates on such basis that Buyer's percentage reduction will not be greater than the overall percentage reduction in total quantity of commodity, component raw materials and related manufacturing facilities at the designated producing mill Seller has available for supply. Any deliveries suspended under this paragraph shall be canceled without liability, and the Agreement quantity shall be reduced by the quantities so omitted. CONTINUOUS As resources permit, Buyer and Seller agree to work together to IMPROVEMENT improve product quality and total delivered cost. Seller also plans to work on the development of new products for use by its customers. SPECIFICATIONS Woodpulp purchased and sold hereunder will be suitable for Buyer's use as determined by Buyer's specifications as agreed to by Seller. This includes any treatments added to the Woodpulp. The Woodpulp shall be of merchantable quality and any subsequent additions and alterations shall be mutually agreed to by Buyer and Seller. COMPLIANCE Seller warrants that all goods and services sold hereunder shall have been produced, sold, delivered and furnished in strict compliance with all applicable laws and regulations, including the Federal Toxic Substances Control Act of 1976, and the Federal Occupational Safety and Health Act of 1970, to which they are subject. Seller shall execute and deliver such documents as may be required to effect or evidence compliance. All laws and regulations required in agreements of this character are hereby incorporated by reference, including but not limited to (a) provisions of Executive Orders 10925, 11141, 11246, 11375 and 11598, as * Material omitted pursuant to request for confidential treatment. The omitted material has been filed separately with the Commission. 3 amended, and any subsequent Executive Orders relating to equal opportunity for employment on government contracts and all rules and regulations of the President's Committee on Equal Employment Opportunity, and (b) the rehabilitation Act of 1973 and the Viet Nam Era Veterans Readjustment Assistance Act of 1974 and regulations issued thereunder. ASSIGNMENT This Agreement may not be assigned, nor any obligations delegated, in whole or in part, by operation of law or otherwise, by one party without the prior written consent of the other party. Seller may terminate this Agreement on not less than sixty (60) days written notice in the event of a change of control of Buyer. FINAL AGREEMENT This Agreement is the final and complete Agreement of the parties with respect to the purchase and sale of Woodpulp, superseding and merging all prior writings and communications. This Agreement may be modified or amended only in writing signed by both parties. OTHER TERMS This Agreement is also subject to the General Terms of Sale as attached. PARAGON TRADE BRANDS, (Buyer) WEYERHAEUSER COMPANY, (Seller) By /s/ Stanley Littman By /s/ Jim Campbell ------------------------- --------------------------- Title V.P. Materials and Technology Title GSM General Sales Manager ------------------------------ -------------------------- 4 GENERAL TERMS OF SALE --------------------- 1. MOISTURE, WEIGHT, AND DEFINITIONS This contract is made and the pulp covered thereby is to be invoiced on the basis of air-dry fiber containing by weight 90% bone-dry fiber and 10% moisture. "Short ton" means 2,000 pounds, "metric ton" means 2,204.6 pounds of wood pulp on an air-dry basis. Unless otherwise specified, all references to tonnage shall mean metric tons, dimensions shall mean the International Metric System (SI), and monetary amounts shall be in U.S. dollars. 2. TAXES Any and all taxes or charges of any nature (other than taxes imposed on the gross or net income of Seller), imposed by any governmental authority, which shall become payable by reason of the sale, delivery and/or use of Pulp hereunder shall be deemed for Buyer's account, and Seller may either bill the same to Buyer, separately, or add the same to the price of Pulp shipped hereunder. Seller will notify Buyer in writing of the nature of any such tax or charge and of the law imposing same. 3. DELAYS Seller may suspend performance of this agreement when its manufacture or delivery of products is prevented, and Buyer may suspend performance of this contract when its receipt or consumption of products is prevented, in either case to the extent caused by act of God, labor difficulty, shortage of transportation facilities, governmental acts or orders, the public enemy, or any like or different circumstance beyond reasonable control of such party, provided that goods specially manufactured or in transit must be accepted by the Buyer. If suspension by either party continues for sixty days or more, the other party may elect to cancel this agreement. 4. TERMS OF PAYMENT Net cash 30 days from date of invoice, subject to continued compliance with Seller's normal credit standards. A late payment charge of 1.75% per month on the unpaid balance will be made on all past due accounts. Should this rate exceed the maximum rate that is lawful under the circumstances, that maximum rate shall apply. The maximum rate shall be governed by the law of the state of the Buyer's designated billing office. Buyer also agrees to pay reasonable attorney's fees and other costs incurred at collection. 5. WARRANTY AND LIMITATIONS Seller warrants that its products are of good, merchantable quality, in accordance with specifications and tolerances published by it or adopted by reference in this order. If Buyer gives written notice to Seller of any failure to meet the foregoing standards within 30 days after delivery of the products, and if such failure of any article is established under procedures customary in the industry or otherwise established to Seller's satisfaction, then at Seller's option Seller will furnish a replacement product conforming to this warranty, make a fair allowance therefor, or refund the purchase price. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THE FOREGOING, AND SELLER'S SOLE RESPONSIBILITY THEREUNDER IS AS STATED. SELLER SHALL NOT BE LIABLE FOR CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES, OR FOR ANY AMOUNT IN EXCESS OF THE PRICE FOR THE SHIPMENT INVOLVED, UNDER THE FOREGOING WARRANTY OR ANY OTHER PART OF THIS AGREEMENT, ANY LEGAL ACTION AGAINST SELLER FOR BREACH OF 5 THIS AGREEMENT, INCLUDING ANY WARRANTIES HEREUNDER, MUST BE INSTITUTED WITHIN ONE YEAR AFTER DELIVERY. 6. TRANSPORTATION COSTS AND SHORTAGES When prices include any costs of transportation from point of manufacturer, any increase in such costs greater than $5.00 ADMT becoming effective after the applicable price is quoted or established by Seller, and any costs greater than $50.00 ADMT for service beyond those provided by the carrier at no charge other than the applicable freight rate for tariff, may, at Seller's option, be for Buyer's account. Any extra costs of utilizing substitute methods of delivery, including when the intended type of carrier, vehicle or loading or unloading facilities become unavailable, may also at Seller's option, be for Buyer's account. 7. CLAIMS All claims of whatever nature applying upon any shipment made under this Agreement must be made within thirty (30) days after arrival at Buyer's plant; and Buyer shall hold not less than one half the shipment in dispute, pending examination by Seller or its nominee for this purpose. Seller shall examine the goods with 10 days of notification by Buyer, and shall immediately advise disposition of the goods. 8. SHIPMENT AND TITLE PASSAGE Unless Seller expressly guarantees an indicated or scheduled shipping date, all advance information as to date of shipment is an approximation only based on Seller's best judgment at the time. Irrespective of any provision concerning freight or price, title and risk of loss or damage shall pass to buyer upon delivery of goods to any carrier, except a motor vehicle operated by Seller, at Seller's plant or other shipping point. Seller reserves the right to route all shipments, and may assist Buyer in processing claims against carriers without incurring liability therefor. When a mill or other point is specified in this agreement, or when an order is scheduled for shipment from such a place, it shall be the exclusive source of supply. 9. WAIVER No right of either party hereunder shall be deemed to have been waived by any failure of such party to exercise any right in any prior instance or instances. 10. GOVERNING LAW The law of the State of Washington, including the Uniform Commercial Code as in force therein, shall govern all aspects of this agreement including its validity, interpretation, performance, operation and enforcement. 6 EXHIBIT A BUYER'S PLANTS Harmony, PA Macon, GA Waco, TX Tijuana, Mexico 7 EXHIBIT B SELLER'S SOUTHERN UNITED STATES MILLS Plymouth, NC New Bern, NC Flint River, GA Columbus, MS 8 EX-10.9 10 0010.txt NOVATION AGREEMENT EXHIBIT 10.9 NOVATION AGREEMENT AND GENERAL RELEASE This Novation Agreement and General Release ("Agreement") is made and entered into by and between Robert McClain ("McClain") an individual, on the one hand, and Paragon Trade Brands, Inc. ("Paragon"), on the other hand (jointly, McClain and Paragon shall be referred to as the "Parties"). RECITALS A. McClain is employed by Paragon as its Executive Vice President of Marketing, pursuant to an Employment Agreement entered into on August 11, 1998. Pursuant to the Employment Agreement, McClain is entitled to participate in Paragon's Confirmation Retention Plan for Top Eight Executives ("Confirmation Retention Plan"), approved by the U. S. Bankruptcy Court on August 7, 1998. B. McClain has advised Paragon that he intends to terminate his employment at Paragon, and that he believes he is entitled to full benefits and severance pay under the Employment Agreement and Confirmation Retention Plan. Paragon has advised McClain that it believes he is not entitled to those benefits and severance pay. C. The Parties desire to resolve all differences between them, to terminate McClain's employment amicably, and to provide McClain with a portion of the benefits under the Employment Agreement and Confirmation Retention Plan. They intend this Agreement to replace all obligations Paragon may have to McClain under the Employment Agreement and Confirmation Retention Plan. NOW, THEREFORE, in consideration of the terms, conditions, and promises set forth herein, it is agreed as follows: TERMS AND SETTLEMENT 1. Nonadmission of Liability. This Agreement is entered into in compromise of disputed claims. McClain acknowledges that the execution of this Agreement and the agreed-upon consideration hereunder are not and shall not be construed in any way as an admission of wrongdoing or liability on the part of Paragon. The Parties intend by their actions pursuant to this Agreement merely to avoid the expense, delay, and burden of further proceedings and disputes. 2. Monetary Consideration from Paragon. Paragon shall pay to McClain as Severance Pay, in replacement of any and all Severance Pay that might be due under the Employment Agreement or under the Confirmation Retention Plan, an amount equal to the annual base salary of McClain. This Severance Pay shall be paid in a lump sum promptly upon 1 the expiration of the Revocation Period described below, if this Agreement remains unrevoked. Paragon shall deduct applicable tax and other authorized withholdings from the Severance Pay. 3. Benefits. Pursuant to obligations under COBRA, McClain shall remain eligible to participate in Paragon's health and dental insurance plans for eighteen (18) months following the effective date of this Agreement, unless eligibility is earlier terminated under COBRA regulations. For the first twelve (12) months of such COBRA eligibility (the "Benefit Period"), Paragon shall pay the premium amounts it pays for other employees, and McClain shall be responsible for paying any amounts paid by employees for coverage under the terms of the benefit plans. If McClain shall fail to pay timely the portion of the premium for which he is responsible Paragon shall be entitled to terminate his coverage for the remainder of the Benefit Period. Further, if McClain becomes eligible for alternative health insurance coverage or dental insurance coverage during the Benefit Period, Paragon's obligations to pay any premiums for him shall cease on the first of the month following his eligibility for other coverage, provided such coverage is relatively equivalent to the benefit coverage provided under the Paragon plans. McClain agrees that he shall promptly notify Paragon if and when he becomes eligible for alternative health insurance coverage or dental insurance coverage. 4. Release. McClain releases all rights and claims he has, or claims to have, against Paragon arising on or before the execution of this Agreement. This release specifically includes, but is not limited to, all rights and claims that arose or may have arisen in connection with McClain's employment by Paragon or the termination thereof, and any acts or omissions by Paragon during the period of that employment, including, but not limited to, any defamation, libel and slander claims, breach of contract claims, claims of conversion, interference with contractual relationships, fraud, intentional or negligent misrepresentation, discrimination of any kind, retaliation of any kind, tortious interference with business relations or expectancy, negligence, intentional or negligent infliction of emotional distress, claims for wrongful termination in violation of public policy, and claims for breach of covenant of good faith or fair dealing, whether arising under statute or common law. This release also includes, but is not limited to, claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and all other federal, state and local statutes and regulations. Further, this release includes, but is not limited to, any claims or rights McClain may have under the Employment Agreement and the Confirmation Retention Plan. This release covers all of McClain's rights against Paragon, as well as its successors, predecessors, officers, directors, trustees, managers, creditors, servants, heirs, agents, employees, representatives, attorneys, and insurers, past or present (collectively, the "Paragon Releasees"). As used herein, the "Paragon Releasees" includes all of Paragon's related or affiliated entities. 5. Release of Unknown Claims. For the purpose of implementing a full and complete release and discharge of the Paragon Releasees, McClain expressly acknowledges that, except as provided herein, this Agreement is intended to include in its effect, without limitation, all claims that McClain did not know or suspect to exist in his favor at the time of execution hereof, regardless of whether the knowledge of such claims, or the facts upon which they might be based, would materially have affected the settlement of this matter, and that the consideration received from Paragon was also for the release of those claims and contemplates the 2 extinguishment of any such claims. McClain acknowledges that he intends and expressly agrees that, except as provided herein, this Agreement shall be effective as a bar to each and every claim, demand and cause of action McClain has against the Paragon Releasees. 6. Confidentiality. McClain agrees to keep the fact and amount of this settlement and the terms and contents of this Agreement completely confidential, and agrees that he will not publicize or disclose the conditions, terms, or contents of this Agreement in any manner, whether in writing or orally, to any person, directly or indirectly, or by or through any agent, representative, attorney, or any other person unless compelled to do so by law or except as necessary to effectuate the terms of this Agreement. Under no circumstances may McClain state or indicate to persons not authorized herein that he has received any financial payment from Paragon as a part of this settlement. McClain may acknowledge that his employment at Paragon ended amicably. McClain may discuss this Agreement with his attorneys, his financial advisor and accountant as long as he informs each that the terms of this Agreement are confidential and direct that they maintain the same. 7. No Disparagement. The Parties agree that each will not disparage the character, conduct, or abilities of any of the others with regard to the circumstances surrounding McClain's employment with Paragon or his separation from that employment. 8. No Filings. McClain represents that he has not filed any action, lawsuit, claim, charge, or complaint against any of the Paragon Releasees with any local, state, or federal agency or court, and covenants that he will not do so at any time hereafter based upon events or omissions occurring prior to the date of execution of this Agreement. In the event that any such agency or court assumes jurisdiction of any lawsuit, claim, charge or complaint, or purports to bring any legal proceedings against the Paragon Releasees on McClain's behalf, he will request that such an agency or court withdraw from and/or dismiss the lawsuit, claim, charge, complaint or any such proceeding with prejudice. 9. Novation and Continuing Terms. The Parties hereby cancel and rescind the Employment Agreement between McClain and Paragon, except that McClain hereby reaffirms his obligations under Sections 6 "Restrictive Covenant" and 7 "Non- Disclosure of Confidential Information" of the Employment Agreement, and agrees that such obligations are incorporated herein as set forth in full. Likewise, McClain agrees that Section 8 of the Employment Agreement shall continue in effect as though set forth in here in full. McClain specifically disavows and renounces any rights he may have under the Confirmation Retention Plan. 10. Successors. This Agreement shall be binding upon the Parties, and their heirs, spouses, representatives, executors, administrators, successors, and assigns, and shall inure to the benefit of each and all of the Paragon Releasees, and to their heirs, representatives, executors, administrators, successors, and assigns. 11. No Costs. Each side shall bear its own attorneys' fees and costs incurred in the negotiation of this Agreement. 3 12. Full and Independent Knowledge. McClain represents and agrees that he has thoroughly discussed all aspects of this Agreement with his attorney, that he has carefully read and fully understands all the provisions of the Agreement, and that he is voluntarily entering into this Agreement. 13. No Representations. McClain acknowledges that, except as expressly set forth herein, no representation of any kind or character have been made to him by any of the Paragon Releasees to induce the execution of this Agreement. 14. Ownership of Claims. McClain represents that he has not transferred or assigned, or purported to transfer or assign, to any person or entity any claim, or any portion thereof or interest therein, related in any way to the Paragon Releasees. McClain further agrees to indemnify and hold harmless the Paragon Releasees against any and all claims based upon, arising out of, or in any way connected with any such actual or purported transfer or assignment. 15. Notices. All notices, requests, demands and other communications in connection with this Agreement shall be made in writing and shall be deemed to have been given when delivered by hand or facsimile transmission, or 48 hours after mailing at any general or branch United States Post Office, by registered or certified mail, postage prepaid, addressed as follows, or to such other address as shall have been designated in writing by the addressee: (a) If to the Company: Paragon Trade Brands, Inc. Attn: Corporate Secretary 180 Technology Parkway Norcross, Georgia 30092 Facsimile: (770) 300-3959 (b) If to Employee: Robert McClain 196 N. Salem Rd Cross River, NY 10518 16. Miscellaneous. a. This Agreement is made and entered into in the State of Georgia and shall in all respects be interpreted, enforced, and governed under the laws of that State. The language of all parts in this Agreement shall be construed as a whole, according to its fair meaning, and not strictly for or against either party. b. Should any provision in this Agreement be declared or determined to be illegal or invalid, the validity of the remaining parts, terms, or provisions shall not be affected thereby, and the illegal or invalid part, term, or provision shall be deemed not to be part of this Agreement, and all remaining provisions shall remain valid and enforceable. However, should 4 the releases contained in paragraph 4 and 5 of this Agreement be declared unenforceable, in whole or in any part, Paragon shall have the option of rescinding this Agreement. If Paragon elects to rescind this Agreement, McClain shall immediately repay all monies paid to him pursuant to this Agreement. c. The Parties may execute this Agreement in one or more counterparts. All counterparts shall be construed together and shall constitute one agreement. d. McClain has a period of twenty-one (21) days in which to consider this Agreement, but may sign it in less than twenty-one (21) days at his option. e. McClain shall have a period of seven (7) days after he signs this Agreement in which to revoke it (the "Revocation Period"). This Agreement shall not become effective or enforceable until the Revocation Period has expired. f. This Agreement sets forth the entire agreement between the Parties and fully supersedes any and all prior agreements and understandings between the Parties pertaining to the subject matter of this Agreement. * * * * * PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES THE RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. PARAGON TRADE BRANDS, INC. Dated: August 1, 2000 By: /s/ Michael T. Riordan -------------------------------- ___________ TITLE:______________ ROBERT McCLAIN, An Individual Dated: July 18, 2000 By: /s/ Robert McClain --------------------------------- Robert McClain 5 EX-10.10 11 0011.txt EMPLOYMENT AGREEMENT EXHIBIT 10.10 Agreement THIS AGREEMENT is entered into as of the 14th day of November, 2000, by and between Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), Stanley Littman (the "Executive"). WHEREAS, the Company has offered to continue to employ the Executive, and the Executive desires to accept such continued employment, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. EFFECTIVENESS OF AGREEMENT This Agreement shall become effective as of the date first written above (the "Effective Date"). 2. EMPLOYMENT AND DUTIES 2.1 GENERAL. The Company hereby employs the Executive, and the Executive agrees to serve, as Vice President Technology and Materials of the Company, upon the terms and conditions herein contained. The Executive shall have such duties and responsibilities as are reasonably assigned by the Company's Chairman, President and Chief Executive Officer. The Executive agrees to serve the Company faithfully and to the best of his ability under the direction of the Company's Chairman, President and Chief Executive Officer or such other person or persons as he may designate. 2.2 EXCLUSIVE SERVICE. Except as may otherwise be approved in advance by the Company's Chairman, President and Chief Executive Officer, the Executive shall devote his full working time throughout the Employment Term (as defined in Section 2.3) to the services required of him hereunder. The Executive shall render his services exclusively to the -1 of 14- Company during the Employment Term, and shall use his best efforts, judgment and energy to improve and advance the business interests of the Company in a manner consistent with the duties and responsibilities of his position. Notwithstanding the foregoing, but subject to the provisions of Section 10, the Executive may serve on civic or charitable boards and engage in civic and charitable activities, PROVIDED that none of the foregoing activities interferes with the performance of the Executive's duties and responsibilities under this Agreement. 2.3 TERM OF EMPLOYMENT. The Executive's employment under this Agreement shall commence as of the Effective Date and shall terminate on the earlier of (i) the third anniversary of the Effective Date, or (ii) the termination of the Executive's employment pursuant to Section 6 or Section 7 of this Agreement; PROVIDED, HOWEVER, that the term of the Executive's employment shall be extended automatically without further action of either party for additional one year periods, unless written notice of either party's intention not to extend has been given to the other party hereto at least ninety (90) days prior to the expiration of the then effective term. The period commencing as of the Effective Date and ending on the third anniversary of the Effective Date or such later date to which the term of the Executive's employment under this Agreement shall have been extended is hereinafter referred to as the "Employment Term." 3. COMPENSATION 3.1 BASE SALARY. From the Effective Date, the Executive shall be entitled to receive a base salary ("Base Salary") at the rate of $165,000 per annum, payable in arrears in equal installments in accordance with the Company's payroll practices, with such increases as may be provided in accordance with the terms hereof. Once increased, such higher amount shall constitute the Executive's Base Salary. 3.2 ANNUAL REVIEW. The Executive's Base Salary shall be reviewed by the Company, based upon the Executive's performance, not less often than annually, and may be increased but not decreased. In addition to any increases effected as a result of such review, the Company at any time may in its sole discretion increase the Executive's Base Salary. -2 of 14- 3.3 BONUS. Each fiscal year the Executive will be eligible to participate in a bonus plan under which the Executive may earn a bonus equal to from zero to 200% of his target bonus of 35 percent, based on performance targets established by the Company's Board of Directors (hereinafter referred to as the "Board"). 3.4 STOCK OPTIONS. Subject to all of the terms and conditions of the Paragon Trade Brands, Inc. Stock Option Plan (Effective as of January 28, 2000), hereinafter referred to as the "Stock Option Plan," the Executive will be granted options (the "Options") to purchase 50,000 shares of the Company's common stock, par value $.01 per share, at a price of Ten Dollars ($10.00) per share. Executive acknowledges that, pursuant to the terms and conditions of the Stock Option Plan, he will be required to enter into a "Stock Option Agreement" (as defined in the Stock Option Plan) with the Company as a condition of receiving the Options and that the Date of Grant of the Options will be established in accordance with the terms of the Stock Option Plan. 4. OTHER EMPLOYEE BENEFITS The Executive's eligibility to participate in other employee compensation or benefit plans or programs sponsored by the Company, as in effect now or from time to time hereafter, will be governed solely by the terms and provisions of such plans and programs. Nothing in this Agreement shall require the Company to establish, or preclude the Company from amending or terminating, any such plan or program. 5. WITHHOLDING The payment of any amount pursuant to this Agreement shall be subject to the applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans, if any. -3 of 14- 6. TERMINATION OF EMPLOYMENT BY COMPANY OR EXECUTIVE 6.1 TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. Subject to the provisions of Section 6.2 and Section 10.6, if, prior to the expiration of the Employment Term, the Company terminates the Executive's employment without Cause (as defined in Section 6.5), or the Executive terminates his employment by resignation for Good Reason (as defined in Section 6.6), the Company shall pay to the Executive within sixty (60) days after the date of termination an amount equal to two times the Executive's annual Base Salary (at the rate in effect on the date of such termination). In addition, if the Executive and/or any of the Executive's dependents are eligible for, and timely elect, continuation of medical and/or dental coverage under the Company's group heath care plan pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, the Company will pay the applicable premium(s) for that coverage for the statutorily required duration of that coverage, not to exceed eighteen months. The Executive shall have no further right to receive any other compensation or benefits after such termination of employment except as determined in accordance with the terms of the employee benefit plans of the Company. 6.2 GENERAL RELEASE REQUIRED. The Company shall not be obligated to make any payment or to provide any benefit specified in Section 6.1 unless the Executive first executes a legally binding and effective General Release and Separation Agreement satisfactory to the Company in form, substance and scope of persons and entities released. Said General Release and Separation Agreement will include, but not be limited to, a release of any and all claims the Executive may have, or claim to have, arising out of or relating in any way to the Paragon Trade Brands, Inc. Severance Pay Plan established effective February 2, 1993, and restated February 28, 2000, or any other plan or program of the Company that provides severance benefits. 6.3 TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. If, prior to the expiration of the Employment Term, the Company terminates the Executive's employment for Cause (as defined in Section 6.5), or the Executive terminates his -4 of 14- employment by resignation without Good Reason (as defined in Section 6.6), the Executive shall be entitled only to payment of his Base Salary and other compensation and benefits through and including the date of termination, except as determined in accordance with the terms of the employee benefit plans and programs of the Company. 6.4 DATE OF TERMINATION. The date of termination of employment without Cause shall be the later of (i) the date specified in a written notice of termination from the Company to the Executive, or (ii) the receipt by the Executive of such written notice (as determined under Section 12). The date of termination of employment in the event of the Executive's resignation for Good Reason shall be the tenth business day following the date on which the Executive's written notice of resignation is received by the Company (as determined under Section 12), unless the Company terminates the Executive's employment with or without Cause prior to said tenth business day. 6.5 CAUSE DEFINED. Termination for "Cause" shall mean termination of the Executive's employment because of: (i) any material breach by the Executive of any of his material obligations under this Agreement; (ii) any failure or refusal of the Executive to substantially perform the duties and responsibilities reasonably required of him as an employee of the Company which the Executive fails to cure to the reasonable satisfaction of the Company within thirty days of receiving written notice of the failure or refusal from the Company; (iii) the Executive's conviction of, or plea of no contest to, any misdemeanor involving dishonesty or moral turpitude or any felony; or (iv) any willful misconduct by the Executive which is injurious to the financial condition or business reputation of the Company or any of the Company's affiliates or subsidiaries. 6.6 GOOD REASON DEFINED. Termination by resignation for "Good Reason" shall mean the Executive's resignation of employment because of: -5 of 14- (i) any material breach by the Company of any of its material obligations under this Agreement; or (ii) a substantial and material diminution of the duties, responsibilities or title of the Executive from those specified in this Agreement or in effect immediately prior to the Effective Date of this Agreement; or (iii) the Company's permanent relocation of the Executive's assigned office to a place more than fifty miles from the Company's current headquarters at 180 Technology Parkway, Norcross, Georgia. 7. TERMINATION OF EMPLOYMENT BY DEATH OR DISABILITY If not previously terminated, the Executive's employment shall terminate upon the Executive's death or permanent disability. In the case of the Executive's death, termination of this Agreement shall be immediate and automatic. In the case of the Executive's permanent disability, termination of the Executive's employment shall be effective upon receipt by the Executive (as determined under Section 12) of the Company's written notice of termination due to the Executive's permanent disability. As used herein, the term "permanent disability" means a physical or mental impairment which renders the Executive unable to perform one or more of the essential functions of his position and which reasonably can be expected to continue either for 180 days, or until death. 8. TERMINATION DUE TO NON-EXTENSION BY COMPANY 8.1 PAYMENT TO EXECUTIVE. If the Executive's employment by the Company is terminated solely as a result of the Company giving written notice of its intention not to extend the Executive's term of employment, as provided for in Section 2.3 above, the Company shall pay to the Executive within sixty (60) days after the date of termination an amount equal to the Executive's annual Base Salary (at the rate in effect on the date of such termination). The Executive shall have no further right to receive any other compensation or benefits after such termination of employment except as determined in accordance with the terms of the employee benefit plans of the Company. -6 of 14- 8.2 GENERAL RELEASE REQUIRED. The Company shall not be obligated to make any payment or to provide any benefit specified in Section 8.1 unless the Executive first executes a legally binding and effective General Release and Separation Agreement satisfactory to the Company in form, substance and scope of persons and entities released. Said General Release and Separation Agreement will include, but not be limited to, a release of any and all claims the Executive may have, or claim to have, arising out of or relating in any way to the Paragon Trade Brands, Inc. Severance Pay Plan established effective February 2, 1993, and restated February 28, 2000, or any other plan or program of the Company that provides severance benefits. 9. NO MITIGATION OR OFFSET The Executive shall not be required to mitigate the amount of any payment or benefit provided for herein by seeking other employment or otherwise, and no such payment or benefit will be reduced in the event such other employment is obtained, except as provided in Section 6.1 concerning continuation of benefits under a group health plan or in Section 10.6. 10. SPECIAL COVENANTS 10.1 NONSOLICITATION OF CUSTOMERS. For so long as the Executive is employed by the Company and continuing for two years thereafter, the Executive shall not on behalf of himself or any other Person, directly or otherwise, communicate with any Customer for the purpose of providing, or offering to provide, any product or service that is identical to or substantially similar to any product or service offered or provided by the Company or any of the Company's affiliates or subsidiaries. 10.2 NONSOLICITATION OF EMPLOYEES. For so long as the Executive is employed by the Company and continuing for two years thereafter, the Executive shall not on behalf of himself or any other Person, directly or otherwise, take any action for the purpose of causing any Co-Employee to leave the employment of the Company or provide any assistance to any other Person for such purpose. As used in this Section, the term "Co-Employee" means any -7 of 14- individual who was an employee of the Company or any of the Company's affiliates or subsidiaries at any time during the last six months of the Executive's employment by the Company. 10.3 NO CONFLICTING EMPLOYMENT. For so long as the Executive is employed by the Company and continuing for two years thereafter, the Executive shall not within the United States or Canada render to any Competitor any service that is the same as or substantially similar to any service that formed a material part of the Executive's employment with the Company. As used in this Section, the term "Competitor" means any Person engaged in the business of manufacturing infant disposable diapers and disposable pants products who reasonably could be expected to benefit from knowledge of Confidential Information (as defined in Section 10.8.1), including, but not limited to, any of the following companies: Kendall Confab Retail Group, Drypers Corporation, Arquest Inc., DSG International, LTD, The Procter & Gamble Company, Kimberly- Clark Corporation and Hospital Specialty Company. 10.4 PROTECTION OF CONFIDENTIAL INFORMATION. The Executive shall forever hold in a fiduciary capacity for the exclusive benefit of the Company all Confidential Information which has been, or hereafter is, obtained by the Executive by reason of his association with the Company or any of its affiliates or subsidiaries. Except as otherwise stated in this Subsection 10.4, the Executive shall always safeguard all such Confidential Information and shall never use or disclose any such Confidential Information, except in the performance of his obligations to the Company. The Executive may otherwise disclose Confidential Information only to the extent that disclosure is required by force of law (such as by subpoena, court order or civil investigative demand), but then only if he both notifies the Company in writing of the required disclosure and furnishes the Company with a copy of each instrument purporting to require disclosure as far in advance of the date for disclosure as the circumstances permit so that the Company and/or the Company's affiliates or subsidiaries may take such action as any of them deems proper to obviate the requirement for disclosure or otherwise protect its interests. -8 of 14- 10.5 EXCLUSIVE PROPERTY. The Executive confirms that all Confidential Information is and shall remain the exclusive property of the Company. All business records, papers and documents (regardless of form) kept or made by the Executive relating to the business of the Company or to the business of any of the Company's affiliates or subsidiaries shall be and remain the property of the Company, except for such papers customarily deemed by the Company to be the personal copies of the Executive and such other papers as the Company's Chief Executive Officer may, in his sole discretion, authorize in writing. 10.6 CESSATION OF COMPANY OBLIGATIONS. If the Executive violates any of the provisions under this Section 10, the Company shall have no further obligation under this Agreement except to pay any portion of Base Salary earned by him but unpaid as of the date of such violation. 10.7 RELIEF. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 10 would result in material and irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to seek a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 10 or such other relief as may be required specifically to enforce any of the covenants in this Section 10. If for any reason, it is held that the restrictions under this Section 10 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted or modified to include as much of the duration and scope identified in this Section 10 as will render such restrictions valid and enforceable. The provisions of this Agreement do not in any way limit or abridge the Company's rights under the laws of unfair competition, trade secret, copyright, patent, or trademark, or under any other applicable law(s), all of which are in addition to and cumulative of the Company's rights under this Agreement. The Executive further agrees that the existence of any claim by him against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to enforcement by the Company of any or all of such provisions. -9 of 14- 10.8 DEFINITIONS. The following definitions apply to this Section 10: 10.8.1 CONFIDENTIAL INFORMATION. The term "Confidential Information" means information, regardless of form, that (i) the Company, including the Company's affiliates and subsidiaries, keeps confidential from competitors and the general public; (ii) relates to one or more businesses in which the Company, including the Company's affiliates and subsidiaries, are engaged; and (iii) either derives actual or potential economic value from not being generally known by competitors of the Company, including the Company's affiliates and subsidiaries, or the public, or might result in harm to the Company, including the Company's affiliates and subsidiaries, if disclosed to competitors or the public. Confidential Information does not include information that is generally available to or known by the public other than as a result of a breach of this Agreement. From and after the third anniversary of the termination of the Executive's employment with the Company, the term "Confidential Information" does not include any information that is not a Trade Secret. Whether any particular information constitutes Confidential Information shall be determined as of the time of any alleged violation of any provision of this Agreement. 10.8.2 CUSTOMER. The term "Customer" means any customer of the Company or any of the Company's affiliates or subsidiaries (i) with whom the Executive dealt on behalf of the Company or any of the Company's affiliates or subsidiaries, (ii) whose dealings with Company or any of the Company's affiliates or subsidiaries were coordinated or supervised directly or otherwise by the Executive, or (iii) about whom the Executive obtained Confidential Information during the two (2) years immediately prior to the termination of the Executive's employment with the Company. 10.8.3 PERSON. The term "Person" means any natural person and any firm, partnership, corporation, organization or other legal entity. 10.8.4 TRADE SECRET. The term "Trade Secret" means any information, regardless of form, constituting a trade secret of the Company or any of the Company's affiliates or subsidiaries under applicable state law. Whether any particular -10 of 14- information constitutes a Trade Secret shall be determined as of the time of any alleged violation of any provision of this Agreement. 11. ARBITRATION Except as provided in Section 10.7, any controversy or claim arising out of or relating to any employment relationship between the parties hereto or to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association (the "AAA") under its National Rules for the Resolution of Employment Disputes (the "AAA Rules"), and judgment upon the award rendered by a majority of arbitrators may be entered by any court having jurisdiction thereof. A panel of three arbitrators shall be selected in accordance with the AAA Rules for any arbitration conducted under this Agreement. The Company shall advance any fees or costs of arbitration imposed by the AAA and any fees of the arbitrators, and the allocation of such fees and costs shall be included in any award of the arbitrators. 12. NOTICES All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Paragon Trade Brands, Inc. 180 Technology Parkway Norcross, GA 30092 Telephone No.: (678) 969-5000 Attention: Vice President Human Resources To the Executive: Mr. Stanley Littman 160 Saddlebrook Court Roswell, GA 30075 -11 of 14- All such notices shall be conclusively deemed to be received and shall be effective, (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission or (iii) if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed. 13. SEVERABILITY Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 14. ASSIGNMENT The Company's rights and obligations under this Agreement shall not be assignable by the Company except as incident to a reorganization, merger or consolidation, or transfer of all or substantially all of the Company's business and properties. The Company shall require any permitted successor or assign to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it had no such succession or assignment taken place. This Agreement shall not be assignable or otherwise subject to hypothecation by the Executive without the prior written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 15. ENTIRE AGREEMENT This Agreement and the Employee Invention Agreement signed by the Executive and accepted on or about April 16, 1996 by the Company or the Company's Majority Owned Subsidiary contains the entire understanding between the Company and the Executive and -12 of 14- supersedes any and all prior understandings, agreements and arrangements between the Company and the Executive (whether or not in writing). 16. MODIFICATION AND WAIVER This Agreement may not be modified or amended except in a writing signed by the parties. No term or condition of this Agreement will be deemed to have been waived unless the waiver is specifically stated in a writing signed by the party charged with the waiver. A waiver shall operate only as to the specific term or condition waived and will not constitute a waiver for the future or affect anything other than that which is specifically waived. 17. SURVIVAL The restrictions and obligations set forth in Section 10 of this Agreement shall survive any expiration, termination or cancellation of this Agreement and shall continue to bind the parties forever. 18. HEADINGS The headings of sections and subsections of this Agreement are merely for the convenience of the parties and form no part of this Agreement. 19. GOVERNING LAW This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of Georgia without reference to rules relating to conflicts of law. -13 of 14- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Executive has hereunto set his hand, as of the date first written above. PARAGON TRADE BRANDS, INC. By: /s/ Michael T. Riordan ----------------------------------------------- Michael T. Riordan Chairman, President and Chief Executive Officer EXECUTIVE /s/ Stanley Littman ----------------------------------------------- Stanley Littman -14 of 14- EX-10.11 12 0012.txt EMPLOYMENT AGREEMENT, 11/4/200--SCHOEN EXHIBIT 10.11 Agreement THIS AGREEMENT is entered into as of the 14th day of November, 2000, by and between Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), Jeffrey S. Schoen (the "Executive"). WHEREAS, the Company has offered to continue to employ the Executive, and the Executive desires to accept such continued employment, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. EFFECTIVENESS OF AGREEMENT This Agreement shall become effective as of the date first written above (the "Effective Date"). 2. EMPLOYMENT AND DUTIES 2.1 GENERAL. The Company hereby employs the Executive, and the Executive agrees to serve, as Vice President Manufacturing of the Company, upon the terms and conditions herein contained. The Executive shall have such duties and responsibilities as are reasonably assigned by the Company's Chairman, President and Chief Executive Officer. The Executive agrees to serve the Company faithfully and to the best of his ability under the direction of the Company's Chairman, President and Chief Executive Officer or such other person or persons as he may designate. 2.2 EXCLUSIVE SERVICE. Except as may otherwise be approved in advance by the Company's Chairman, President and Chief Executive Officer, the Executive shall devote his full working time throughout the Employment Term (as defined in Section 2.3) to the services required of him hereunder. The Executive shall render his services exclusively to the -1 of 14- Company during the Employment Term, and shall use his best efforts, judgment and energy to improve and advance the business interests of the Company in a manner consistent with the duties and responsibilities of his position. Notwithstanding the foregoing, but subject to the provisions of Section 10, the Executive may serve on civic or charitable boards and engage in civic and charitable activities, PROVIDED that none of the foregoing activities interferes with the performance of the Executive's duties and responsibilities under this Agreement. 2.3 TERM OF EMPLOYMENT. The Executive's employment under this Agreement shall commence as of the Effective Date and shall terminate on the earlier of (i) the third anniversary of the Effective Date, or (ii) the termination of the Executive's employment pursuant to Section 6 or Section 7 of this Agreement; PROVIDED, HOWEVER, that the term of the Executive's employment shall be extended automatically without further action of either party for additional one year periods, unless written notice of either party's intention not to extend has been given to the other party hereto at least ninety (90) days prior to the expiration of the then effective term. The period commencing as of the Effective Date and ending on the third anniversary of the Effective Date or such later date to which the term of the Executive's employment under this Agreement shall have been extended is hereinafter referred to as the "Employment Term." 3. COMPENSATION 3.1 BASE SALARY. From the Effective Date, the Executive shall be entitled to receive a base salary ("Base Salary") at the rate of $180,000 per annum, payable in arrears in equal installments in accordance with the Company's payroll practices, with such increases as may be provided in accordance with the terms hereof. Once increased, such higher amount shall constitute the Executive's Base Salary. 3.2 ANNUAL REVIEW. The Executive's Base Salary shall be reviewed by the Company, based upon the Executive's performance, not less often than annually, and may be increased but not decreased. In addition to any increases effected as a result of such review, the Company at any time may in its sole discretion increase the Executive's Base Salary. -2 of 14- 3.3 BONUS. Each fiscal year the Executive will be eligible to participate in a bonus plan under which the Executive may earn a bonus equal to from zero to 200% of his target bonus of 40 percent, based on performance targets established by the Company's Board of Directors (hereinafter referred to as the "Board"). 3.4 STOCK OPTIONS. Subject to all of the terms and conditions of the Paragon Trade Brands, Inc. Stock Option Plan (Effective as of January 28, 2000), hereinafter referred to as the "Stock Option Plan," the Executive will be granted options (the "Options") to purchase 60,000 shares of the Company's common stock, par value $.01 per share, at a price of Ten Dollars ($10.00) per share. Executive acknowledges that, pursuant to the terms and conditions of the Stock Option Plan, he will be required to enter into a "Stock Option Agreement" (as defined in the Stock Option Plan) with the Company as a condition of receiving the Options and that the Date of Grant of the Options will be established in accordance with the terms of the Stock Option Plan. 4. OTHER EMPLOYEE BENEFITS The Executive's eligibility to participate in other employee compensation or benefit plans or programs sponsored by the Company, as in effect now or from time to time hereafter, will be governed solely by the terms and provisions of such plans and programs. Nothing in this Agreement shall require the Company to establish, or preclude the Company from amending or terminating, any such plan or program. 5. WITHHOLDING The payment of any amount pursuant to this Agreement shall be subject to the applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans, if any. -3 of 14- 6. TERMINATION OF EMPLOYMENT BY COMPANY OR EXECUTIVE 6.1 TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON. Subject to the provisions of Section 6.2 and Section 10.6, if, prior to the expiration of the Employment Term, the Company terminates the Executive's employment without Cause (as defined in Section 6.5), or the Executive terminates his employment by resignation for Good Reason (as defined in Section 6.6), the Company shall pay to the Executive within sixty (60) days after the date of termination an amount equal to two times the Executive's annual Base Salary (at the rate in effect on the date of such termination). In addition, if the Executive and/or any of the Executive's dependents are eligible for, and timely elect, continuation of medical and/or dental coverage under the Company's group heath care plan pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, the Company will pay the applicable premium(s) for that coverage for the statutorily required duration of that coverage, not to exceed eighteen months. The Executive shall have no further right to receive any other compensation or benefits after such termination of employment except as determined in accordance with the terms of the employee benefit plans of the Company. 6.2 GENERAL RELEASE REQUIRED. The Company shall not be obligated to make any payment or to provide any benefit specified in Section 6.1 unless the Executive first executes a legally binding and effective General Release and Separation Agreement satisfactory to the Company in form, substance and scope of persons and entities released. Said General Release and Separation Agreement will include, but not be limited to, a release of any and all claims the Executive may have, or claim to have, arising out of or relating in any way to the Paragon Trade Brands, Inc. Severance Pay Plan established effective February 2, 1993, and restated February 28, 2000, or any other plan or program of the Company that provides severance benefits. 6.3 TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON. If, prior to the expiration of the Employment Term, the Company terminates the Executive's employment for Cause (as defined in Section 6.5), or the Executive terminates his -4 of 14- employment by resignation without Good Reason (as defined in Section 6.6), the Executive shall be entitled only to payment of his Base Salary and other compensation and benefits through and including the date of termination, except as determined in accordance with the terms of the employee benefit plans and programs of the Company. 6.4 DATE OF TERMINATION. The date of termination of employment without Cause shall be the later of (i) the date specified in a written notice of termination from the Company to the Executive, or (ii) the receipt by the Executive of such written notice (as determined under Section 12). The date of termination of employment in the event of the Executive's resignation for Good Reason shall be the tenth business day following the date on which the Executive's written notice of resignation is received by the Company (as determined under Section 12), unless the Company terminates the Executive's employment with or without Cause prior to said tenth business day. 6.5 CAUSE DEFINED. Termination for "Cause" shall mean termination of the Executive's employment because of: (i) any material breach by the Executive of any of his material obligations under this Agreement; (ii) any failure or refusal of the Executive to substantially perform the duties and responsibilities reasonably required of him as an employee of the Company which the Executive fails to cure to the reasonable satisfaction of the Company within thirty days of receiving written notice of the failure or refusal from the Company; (iii) the Executive's conviction of, or plea of no contest to, any misdemeanor involving dishonesty or moral turpitude or any felony; or (iv) any willful misconduct by the Executive which is injurious to the financial condition or business reputation of the Company or any of the Company's affiliates or subsidiaries. 6.6 GOOD REASON DEFINED. Termination by resignation for "Good Reason" shall mean the Executive's resignation of employment because of: -5 of 14- (i) any material breach by the Company of any of its material obligations under this Agreement; or (ii) a substantial and material diminution of the duties, responsibilities or title of the Executive from those specified in this Agreement or in effect immediately prior to the Effective Date of this Agreement; or (iii) the Company's permanent relocation of the Executive's assigned office to a place more than fifty miles from the Company's current headquarters at 180 Technology Parkway, Norcross, Georgia. 7. TERMINATION OF EMPLOYMENT BY DEATH OR DISABILITY If not previously terminated, the Executive's employment shall terminate upon the Executive's death or permanent disability. In the case of the Executive's death, termination of this Agreement shall be immediate and automatic. In the case of the Executive's permanent disability, termination of the Executive's employment shall be effective upon receipt by the Executive (as determined under Section 12) of the Company's written notice of termination due to the Executive's permanent disability. As used herein, the term "permanent disability" means a physical or mental impairment which renders the Executive unable to perform one or more of the essential functions of his position and which reasonably can be expected to continue either for 180 days, or until death. 8. TERMINATION DUE TO NON-EXTENSION BY COMPANY 8.1 PAYMENT TO EXECUTIVE. If the Executive's employment by the Company is terminated solely as a result of the Company giving written notice of its intention not to extend the Executive's term of employment, as provided for in Section 2.3 above, the Company shall pay to the Executive within sixty (60) days after the date of termination an amount equal to the Executive's annual Base Salary (at the rate in effect on the date of such termination). The Executive shall have no further right to receive any other compensation or benefits after such termination of employment except as determined in accordance with the terms of the employee benefit plans of the Company. -6 of 14- 8.2 GENERAL RELEASE REQUIRED. The Company shall not be obligated to make any payment or to provide any benefit specified in Section 8.1 unless the Executive first executes a legally binding and effective General Release and Separation Agreement satisfactory to the Company in form, substance and scope of persons and entities released. Said General Release and Separation Agreement will include, but not be limited to, a release of any and all claims the Executive may have, or claim to have, arising out of or relating in any way to the Paragon Trade Brands, Inc. Severance Pay Plan established effective February 2, 1993, and restated February 28, 2000, or any other plan or program of the Company that provides severance benefits. 9. NO MITIGATION OR OFFSET The Executive shall not be required to mitigate the amount of any payment or benefit provided for herein by seeking other employment or otherwise, and no such payment or benefit will be reduced in the event such other employment is obtained, except as provided in Section 6.1 concerning continuation of benefits under a group health plan or in Section 10.6. 10. SPECIAL COVENANTS 10.1 NONSOLICITATION OF CUSTOMERS. For so long as the Executive is employed by the Company and continuing for two years thereafter, the Executive shall not on behalf of himself or any other Person, directly or otherwise, communicate with any Customer for the purpose of providing, or offering to provide, any product or service that is identical to or substantially similar to any product or service offered or provided by the Company or any of the Company's affiliates or subsidiaries. 10.2 NONSOLICITATION OF EMPLOYEES. For so long as the Executive is employed by the Company and continuing for two years thereafter, the Executive shall not on behalf of himself or any other Person, directly or otherwise, take any action for the purpose of causing any Co-Employee to leave the employment of the Company or provide any assistance to any other Person for such purpose. As used in this Section, the term "Co-Employee" means any -7 of 14- individual who was an employee of the Company or any of the Company's affiliates or subsidiaries at any time during the last six months of the Executive's employment by the Company. 10.3 NO CONFLICTING EMPLOYMENT. For so long as the Executive is employed by the Company and continuing for two years thereafter, the Executive shall not within the United States or Canada render to any Competitor any service that is the same as or substantially similar to any service that formed a material part of the Executive's employment with the Company. As used in this Section, the term "Competitor" means any Person engaged in the business of manufacturing infant disposable diapers and disposable pants products who reasonably could be expected to benefit from knowledge of Confidential Information (as defined in Section 10.8.1), including, but not limited to, any of the following companies: Kendall Confab Retail Group, Drypers Corporation, Arquest Inc., DSG International, LTD, The Procter & Gamble Company, Kimberly- Clark Corporation and Hospital Specialty Company. 10.4 PROTECTION OF CONFIDENTIAL INFORMATION. The Executive shall forever hold in a fiduciary capacity for the exclusive benefit of the Company all Confidential Information which has been, or hereafter is, obtained by the Executive by reason of his association with the Company or any of its affiliates or subsidiaries. Except as otherwise stated in this Subsection 10.4, the Executive shall always safeguard all such Confidential Information and shall never use or disclose any such Confidential Information, except in the performance of his obligations to the Company. The Executive may otherwise disclose Confidential Information only to the extent that disclosure is required by force of law (such as by subpoena, court order or civil investigative demand), but then only if he both notifies the Company in writing of the required disclosure and furnishes the Company with a copy of each instrument purporting to require disclosure as far in advance of the date for disclosure as the circumstances permit so that the Company and/or the Company's affiliates or subsidiaries may take such action as any of them deems proper to obviate the requirement for disclosure or otherwise protect its interests. 10.5 EXCLUSIVE PROPERTY. The Executive confirms that all Confidential Information is and shall remain the exclusive property of the Company. All business records, papers and documents (regardless of form) kept or made by the Executive relating to the business of the Company or to the business of any of the Company's affiliates or subsidiaries shall be and remain the property of the Company, except for such papers customarily deemed by the Company to be the personal copies of the Executive and such other papers as the Company's Chief Executive Officer may, in his sole discretion, authorize in writing. 10.6 CESSATION OF COMPANY OBLIGATIONS. If the Executive violates any of the provisions under this Section 10, the Company shall have no further obligation under this Agreement except to pay any portion of Base Salary earned by him but unpaid as of the date of such violation. 10.7 RELIEF. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 10 would result in material and irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to seek a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 10 or such other relief as may be required specifically to enforce any of the covenants in this Section 10. If for any reason, it is held that the restrictions under this Section 10 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted or modified to include as much of the duration and scope identified in this Section 10 as will render such restrictions valid and enforceable. The provisions of this Agreement do not in any way limit or abridge the Company's rights under the laws of unfair competition, trade secret, copyright, patent, or trademark, or under any other applicable law(s), all of which are in addition to and cumulative of the Company's rights under this Agreement. The Executive further agrees that the existence of any claim by him against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to enforcement by the Company of any or all of such provisions. -9 of 14- 10.8 DEFINITIONS. The following definitions apply to this Section 10: 10.8.1 CONFIDENTIAL INFORMATION. The term "Confidential Information" means information, regardless of form, that (i) the Company, including the Company's affiliates and subsidiaries, keeps confidential from competitors and the general public; (ii) relates to one or more businesses in which the Company, including the Company's affiliates and subsidiaries, are engaged; and (iii) either derives actual or potential economic value from not being generally known by competitors of the Company, including the Company's affiliates and subsidiaries, or the public, or might result in harm to the Company, including the Company's affiliates and subsidiaries, if disclosed to competitors or the public. Confidential Information does not include information that is generally available to or known by the public other than as a result of a breach of this Agreement. From and after the third anniversary of the termination of the Executive's employment with the Company, the term "Confidential Information" does not include any information that is not a Trade Secret. Whether any particular information constitutes Confidential Information shall be determined as of the time of any alleged violation of any provision of this Agreement. 10.8.2 CUSTOMER. The term "Customer" means any customer of the Company or any of the Company's affiliates or subsidiaries (i) with whom the Executive dealt on behalf of the Company or any of the Company's affiliates or subsidiaries, (ii) whose dealings with Company or any of the Company's affiliates or subsidiaries were coordinated or supervised directly or otherwise by the Executive, or (iii) about whom the Executive obtained Confidential Information during the two (2) years immediately prior to the termination of the Executive's employment with the Company. 10.8.3 PERSON. The term "Person" means any natural person and any firm, partnership, corporation, organization or other legal entity. 10.8.4 TRADE SECRET. The term "Trade Secret" means any information, regardless of form, constituting a trade secret of the Company or any of the Company's affiliates or subsidiaries under applicable state law. Whether any particular -10 of 14- information constitutes a Trade Secret shall be determined as of the time of any alleged violation of any provision of this Agreement. 11. ARBITRATION Except as provided in Section 10.7, any controversy or claim arising out of or relating to any employment relationship between the parties hereto or to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association (the "AAA") under its National Rules for the Resolution of Employment Disputes (the "AAA Rules"), and judgment upon the award rendered by a majority of arbitrators may be entered by any court having jurisdiction thereof. A panel of three arbitrators shall be selected in accordance with the AAA Rules for any arbitration conducted under this Agreement. The Company shall advance any fees or costs of arbitration imposed by the AAA and any fees of the arbitrators, and the allocation of such fees and costs shall be included in any award of the arbitrators. 12. NOTICES All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Paragon Trade Brands, Inc. 180 Technology Parkway Norcross, GA 30092 Telephone No.: (678) 969-5000 Attention: Vice President Human Resources To the Executive: Jeffrey S. Schoen 410 Chapel Saint Leon Ct. Alpharetta, GA 30022 -11 of 14- All such notices shall be conclusively deemed to be received and shall be effective, (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission or (iii) if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed. 13. SEVERABILITY Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 14. ASSIGNMENT The Company's rights and obligations under this Agreement shall not be assignable by the Company except as incident to a reorganization, merger or consolidation, or transfer of all or substantially all of the Company's business and properties. The Company shall require any permitted successor or assign to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it had no such succession or assignment taken place. This Agreement shall not be assignable or otherwise subject to hypothecation by the Executive without the prior written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 15. ENTIRE AGREEMENT This Agreement and the Employee Invention Agreement signed by the Executive and accepted on or about January 11, 1993 by the Company or the Company's Majority Owned Subsidiary contains the entire understanding between the Company and the Executive and -12 of 14- supersedes any and all prior understandings, agreements and arrangements between the Company and the Executive (whether or not in writing). 16. MODIFICATION AND WAIVER This Agreement may not be modified or amended except in a writing signed by the parties. No term or condition of this Agreement will be deemed to have been waived unless the waiver is specifically stated in a writing signed by the party charged with the waiver. A waiver shall operate only as to the specific term or condition waived and will not constitute a waiver for the future or affect anything other than that which is specifically waived. 17. SURVIVAL The restrictions and obligations set forth in Section 10 of this Agreement shall survive any expiration, termination or cancellation of this Agreement and shall continue to bind the parties forever. 18. HEADINGS The headings of sections and subsections of this Agreement are merely for the convenience of the parties and form no part of this Agreement. 19. GOVERNING LAW This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of Georgia without reference to rules relating to conflicts of law. -13 of 14- IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Executive has hereunto set his hand, as of the date first written above. PARAGON TRADE BRANDS, INC. By: /s/ Michael T. Riordan ----------------------------------------------- Michael T. Riordan Chairman, President and Chief Executive Officer EXECUTIVE /s/ Jeffrey S. Schoen ----------------------------------------------- Jeffrey S. Schoen -14 of 14- EX-10.13 13 0013.txt PARAGON STOCK OPTION PLAN EXHIBIT 10.13 PARAGON TRADE BRANDS, INC. Stock Option Plan for Non-Employee Directors 1. Name of Plan. This plan shall be known as the "Paragon Trade Brands, ------------ Inc. Stock Option Plan for Non-Employee Directors" and is hereinafter referred to as the "Plan." 2. Purpose of Plan. The purpose of the Plan is to enable Paragon Trade --------------- Brands, Inc. a Delaware corporation (the "Company"), to attract and retain individuals of exceptional ability to serve as directors and to promote alignment of the common interests of its directors and stockholders in enhancing the value of the Company's common stock ("Common Stock"). 3. Effective Date and Term. The Plan shall be effective as of the date it ----------------------- is adopted by a favorable vote of majority of the outstanding shares of Common Stock, and shall remain in effect, as amended from time to time, until terminated as provided in the Plan. 4. Eligible Participants. Each member of the Board of Directors of the --------------------- Company (the "Board") from time to time who is not concurrently an employee of the Company or any of its subsidiaries shall be a participant ("Participant") in the Plan. 5. Shares Available Under the Plan. The aggregate number of shares ------------------------------- which may be issued or delivered and as to which grants of stock options may be made under the Plan is 100,000 shares of Common Stock, subject to adjustment and substitution as set forth in Section 8. If any stock option granted under the Plan is canceled by mutual consent or terminates or expires for any reason without having been exercised in full, the number of shares subject thereto and not exercised shall again be available for purposes of the Plan. The shares which may be issued or delivered under the Plan may be either authorized but unissued shares or reacquired shares or a combination of previously unissued shares and reacquired shares. 6. Grant of Stock Options. (a) On the first business day following the ---------------------- day of each annual meeting of the stockholders of the Company, each person who is then a member of the Board and who is not then an employee of the Company or any of its subsidiaries ( a "non-employee Director") shall automatically and without further action by the Board or the Committee be granted a stock option to purchase 3,000 shares of Common Stock, subject to adjustment and substitution as set forth in Section 8. If the number of shares then remaining available for the grant of stock options under the Plan is not sufficient for each non- employee Director to be granted an option for such number of shares (or the number of adjusted or substituted shares pursuant to Section 8), then each such non-employee Director shall be granted an option for a number of whole shares equal to the number of shares then remaining available divided by the number of non-employee Directors, disregarding any fractions of a share. (b) A stock option to purchase 3,000 shares of Common Stock, subject to adjustment and substitution as set forth in Section 8, shall automatically and without further action by the Board or the Committee be granted to each non- employee Director on the first business day following his or her initial election as a director of the Company. (c) Nothing contained in the Plan or in any option granted pursuant to the Plan shall in itself confer upon the individual to whom the option is granted any right to continue to serve as a director of the Company or interfere in any way with any right of the Board or the stockholders of the Company to remove such director pursuant to the Certificate of Incorporation or By-Laws of the Company or applicable law. 7. Terms and Conditions of Stock Options. Stock options granted under the ------------------------------------- Plan shall be subject to the following terms and conditions: (A) The purchase price at which each stock option may be exercised (the "option price") shall be one hundred percent (100%) of the Fair Market Value per share of the Common Stock covered by the stock option on the date of grant; provided, however that the initial grant of options under the Plan on the day following the 2000 annual meeting of stockholders shall have an option price of $10.00 per share. (B) The option price for each stock option shall be paid in full upon exercise and shall be payable in cash in United States dollars (by check, bank draft, money order or electronic bank transfer) or with shares of Common Stock. The date of exercise of a stock option shall be determined under procedures established by the Secretary of the Company. Payment of the option price with shares shall not increase the number of shares of the Common Stock which may be issued or delivered under the Plan. (C) No stock option shall be exercisable during the first twelve (12) months of its term except in case of death as provided in Section 7(E). No stock option shall be exercisable after the earlier of (i) the expiration of five (5) years from the date of grant and (ii) the applicable expiration date as provided in Section 7(E). A stock option to the extent exercisable at any time may be exercised in whole or in part. (D) No stock option shall be transferable by the grantee otherwise than by will, or if the grantee dies intestate, by the laws of descent and distribution of the state of domicile of the grantee at the time of death. All stock options shall be exercisable during the lifetime of the grantee only by the grantee or the grantee's personal representative. (E) If a grantee ceases to be a director of the Company, any outstanding stock options held by the grantee shall be exercisable and shall terminate according to the following provisions: (i) If a grantee ceases to be a Director of the Company for any reason other than resignation, removal for cause or death, any then outstanding stock option held by such grantee shall be exercisable by the grantee (but only to the extent exercisable by the grantee immediately prior to ceasing to be a Director) at any time prior to the expiration date of such stock option or within one year after the date the grantee ceases to be a Director, whichever is the shorter period (for purposes of the Plan, "cause" shall mean any act of (a) fraud or intentional misrepresentation or (b) embezzlement, misappropriation, conversion of assets or opportunities of the Company or any direct or indirect majority-owned subsidiary of the Company); (ii) If during his or her term of office as a Director a grantee resigns from the Board or is removed from office for cause, any outstanding stock option held by the grantee which is not exercisable by the grantee immediately prior to resignation or removal shall terminate as of the date of resignation or removal, and any outstanding stock option held by the grantee which is exercisable by the grantee immediately prior to resignation or removal shall be exercisable by the grantee at any time prior to the expiration date of such stock option or within 90 days after the date of resignation or removal, whichever is the shorter period; (iii) Following the death of a grantee during service as a Director of the Company, any outstanding stock option held by the grantee at the time of death (whether or not exercisable by the grantee immediately prior to death) shall be exercisable by the person entitled to do so under the will of the grantee, or by such personal representative, at any time prior to the expiration date of such stock option or within 90 days after the date of death, whichever is the shorter period; -2- (iv) Following the death of a grantee after ceasing to be a Director and during a period when a stock option is exercisable, any outstanding stock option held by the grantee at the time of death shall be exercisable by such person entitled to do so under the will of the grantee, or by such personal representative, at any time prior to the expiration date of such stock option or within one year after the date of death, whichever is the shorter period. (F) Each stock option granted under the Plan prior to the date of a Change in Control shall be immediately exercisable in full beginning on such date, notwithstanding any contrary or inconsistent provisions of the Plan. (G) All stock options shall be confirmed by an agreement, or an amendment thereto, which shall be executed on behalf of the Company by the Chief Executive Officer (if other than the President), the President or any Vice President and by the grantee. (H) Fair Market Value of the Common Stock, as of any given date, means (i) if the Common Stock is listed on a securities exchange or is traded over the Nasdaq National Market, the mean between the high and low sales prices on such exchange or over such system on such date or, in the absence of reported sales on such date, the mean between the high and low sales prices on the immediately preceding date on which sales were reported, or (ii) if the Common Stock is not listed on a securities exchange or traded over the Nasdaq National Market, the mean between the bid and offered prices as quoted by Nasdaq for such date, provided that if it is determined that the fair market value is not properly reflected by such Nasdaq quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable. (I) The obligation of the Company to issue or deliver shares of Common Stock under the Plan shall be subject to (i) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to such shares, if deemed necessary or appropriate by counsel for the Company; and (ii) all other applicable laws, regulations, rules and orders which may be in effect. Subject to the foregoing provisions of this Section and the other provisions of the Plan, any stock option granted under the Plan may be subject to such restrictions and other terms and conditions, if any, as shall be determined, in its discretion, by the Committee and set forth in the agreement referred to in Section 7(G), or an amendment thereto. 8. Adjustment and Substitution of Shares. (a) If a dividend or ------------------------------------- other distribution shall be declared upon the Common Stock payable in shares of Common Stock the number of shares of Common stock set forth in Sections 5 and 6, the number of shares of Common Stock then subject to any outstanding stock options and the number of shares of Common Stock which may be issued or delivered under the Plan but which are not then subject to outstanding stock options shall be adjusted by adding thereto the number of shares of Common Stock which would have been distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend or distribution. (b) If the outstanding shares of Common Stock shall be changed into or exchangeable for a different number or kind of shares of stock or other securities of the Company or another corporation, whether through reorganization, reclassification, recapitalization, stock split-up, combination of shares, statutory stock exchange, merger or consolidation, then there shall be substituted for the numbers of shares of Common Stock set forth in Sections 5 and 6, for the number of shares of Common Stock subject to then outstanding stock options, and for shares of Common Stock which may be issued or delivered under the Plan but which are not then subject to outstanding stock options, the numbers and kind of shares of stock or other securities into which such outstanding shares of Common Stock shall be so changed or for which such shares shall be exchangeable. -3- (c) In case of any adjustment or substitution as provided for in this Section 8, the aggregate option price for all shares subject to each outstanding stock option prior to such adjustment or substitution shall be the aggregate option price for all shares of stock or other securities (including any fraction) to which such shares shall have been adjusted or which shall have been substituted for such shares. Any new option price per share shall be carried to at least three decimal places with the last decimal place rounded upwards to the nearest whole number. (d) No adjustment or substitution provided for in this Section 8 shall require the Company to issue or deliver or sell a fraction of a share or other security. Accordingly, all fractional shares or other securities which result from any such adjustment or substitution shall be eliminated and not carried forward to any subsequent adjustment or substitution. 9. Change in Control. "Change in Control" means any of the following: ----------------- (i) The acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act)), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the then outstanding shares of Common Stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, but excluding for this purpose, any such acquisition by the Company or any of its subsidiaries, or any employee benefit plan (or related trust) of the Company or its subsidiaries, or any corporation with respect to which, following such acquisition, more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners, respectively of the common stock and voting securities of the company immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding shares of Common Stock or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, as the case may be; or (ii) individuals who, as of the effective date of the Plan, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the effective date of the Plan whose election or nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial election as a Director of the Company is in connection with an actual or threatened election contest relating to the election of the Directors of the Company (as such terms are used in Rule 4a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the Common Stock and voting securities of the Company immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation, or a complete liquidation or dissolution of the Company or its sale or other disposition of all or substantially all of the assets of the Company. 10. Administration. (a) The Plan shall be administered by the -------------- Compensation Committee of the Board, unless the Board shall appoint another committee of the Board to administer the Plan (in either case, the "Committee"), which shall have full authority to construe and interpret the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to take all such actions and make all -4- such determinations in connection with the Plan as it may deem necessary or desirable. The Board may, at any time and from time to time, amend, modify or terminate the Plan without stockholder approval; provided, however that the Board may condition any amendment or modification on the approval of stockholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations. (b) Notwithstanding the provisions of Section 10(a), the selection of Directors to whom stock options are to be granted, the timing of such grants the number of shares subject to any stock option, the exercise price of any stock option, the periods during which any stock option may be exercised and the term of any stock option shall be as provided in the Plan, and the Committee shall have no discretion as to such matters. 11. Governing Law. The Plan and all actions taken thereunder shall be ------------- governed and construed in accordance with the laws of the State of Delaware. 12. Termination of Plan. The Plan shall terminate on the second day following the 2005 annual meeting of stockholders of the Company or on such date as there are no further shares available for issuance under the Plan, but the Board may terminate the Plan at any time prior to either such time. -5- EX-10.31 14 0014.txt AMENDED AND RESTATED BY-LAWS Exhibit 10.31 ESTATUTOS --------- CAPITULO I ---------- NOMBRE, DOMICILIO, NACIONALIDAD, OBJETO Y DURACION -------------------------------------------------- Articulo 1 La Sociedad se denomina "Grupo P.I. Mabe" que ira seguida por las palabras "Sociedad Anonima de Capital Variable" o de su abreviatura, "S.A. de C.V." Articulo 2 El domicilio social de la Sociedad es la ciudad de Puebla, Puebla, pero la Sociedad podra establecer agencias, sucursales, oficinas e instalaciones en cualquier lugar de los Estados Unidos Mexicanos y del extranjero y pactar domicilios convencionales, sin que por ello se entienda cambiado su domicilio. Articulo 3 La Sociedad esta constituida de conformidad con las leyes de los Estados Unidos Mexicanos. Todo extranjero que en el acto de la constitucion o en cualquier tiempo ulterior, adquiera un interes o participacion social en la Sociedad se obliga con la Secretaria de Relaciones Exteriores a considerarse como mexicano respecto de las acciones de la Sociedad, asi como de los bienes, derechos, concesiones, participaciones o intereses de que sea titular la misma, o de los derechos y obligaciones que deriven de los contratos de los que sea parte la propia Sociedad y por lo mismo conviene en no invocar la proteccion de su Gobierno al respecto, bajo la pena, en caso de faltar a su convenio, de perder dicho interes o participacion en beneficio de la Nacion Mexicana. Articulo 4 La Sociedad tendra por objeto: (a) Promover, construir y administrar todo tipo de unidades industriales y comerciales, en los Estados Unidos Mexicanos o en el extranjero y prestar servicios de todas clases, incluyendo servicios tecnicos de mantenimiento, instalacion y reparacion por cuenta propia o ajena. (b) La elaboracion, procesamiento, comercializacion, distribucion, compraventa y en general la realizacion de todos los actos relativos a la elaboracion de productos destinados al consumo humano o animal. (c) Adquirir o participar en el capital o patrimonio de otras sociedades mercantiles o civiles, formando parte en su 1 constitucion o adquiriendo acciones o participaciones en las ya constituidas, asi como enajenar o transmitir tales acciones o participaciones. (d) Comprar, vender, disenar, fabricar, ensamblar, contratar, arrendar, subarrendar, instalar, importar, exportar, distribuir, recibir en consignacion o entregar en comision todo tipo de maquinaria, equipo, partes, refacciones, productos y demas bienes y servicios, ya sea directamente o a traves de terceros, necesarios para cumplir con lo dispuesto en el inciso (a) anterior. (e) Proporcionar todo tipo de servicios, incluyendo de manera enunciativa mas no limitativa, servicios de asistencia tecnica, de mantenimiento, de ingenieria, administrativos, laborales, de asesoria, venta, publicidad, consultoria, facturacion y cobranza, ya sea directa o indirectamente a traves de terceros, en los Estados Unidos Mexicanos o en el extranjero, y sujeto a las disposiciones legales correspondientes. (f) Participar en el comercio y la industria en general, en los Estados Unidos Mexicanos o en el extranjero, en la medida que lo permitan las leyes y reglamentos aplicables, ya sea directa o indirectamente, para beneficio propio o para beneficio de terceros. (g) Actuar como mandatario o agente de personas fisicas o morales, ya sea como representante, intermediario o de cualquier otra manera. (h) Adquirir, vender, arrendar, subarrendar, usar, disfrutar, poseer y disponer bajo cualquier titulo legal de cualquier tipo de bienes muebles o inmuebles. (i) Emitir, aceptar, endosar, certificar, garantizar o por cualquier otro concepto suscribir, toda clase de titulos de credito. (j) Sujeto a las disposiciones legales aplicables, la obtencion, adquisicion, posesion, uso y disposicion de todo tipo de concesiones, permisos, licencias, autorizaciones, franquicias, patentes, marcas, nombres comerciales y derechos de autor, asi como de otros derechos de propiedad industrial o intelectual. (k) Solicitar, obtener y negociar con cualquier autoridad gubernamental ya sea federal, estatal o municipal todo tipo de permisos, concesiones, licencias y autorizaciones de cualquier tipo que puedan ser necesarias o convenientes para el cumplimiento del objeto social de la Sociedad. (l) Obtener y otorgar prestamos de dinero y celebrar todo tipo de contratos de credito y otorgar cualquier tipo de garantia, incluyendo el otorgamiento y la constitucion de garantias reales y fideicomisos. 2 (m) Celebrar y/o llevar a cabo, en los Estados Unidos Mexicanos o el extranjero, por cuenta propia o de terceros, toda clase de actos principales o accesorios, civiles y comerciales o de cualquier otra indole (inclusive de dominio), contratos o convenios civiles, mercantiles, principales o de garantia, o de cualquier otra indole que esten permitidos por la legislacion aplicable, pudiendo ademas, bien sea como garante, fiador, aval o con cualquier otro caracter, inclusive el de deudor solidario o mancomunado, garantizar obligaciones y adeudos de terceros. (n) Realizar todos aquellos actos y operaciones que resulten necesarios o convenientes para la consecucion de los fines anteriores. Articulo 5 La duracion de la Sociedad es de noventa y nueve (99) anos contados a partir de la fecha de constitucion de la Sociedad. CAPITULO II ----------- CAPITAL SOCIAL Y ACCIONES ------------------------- Articulo 6 El capital de la Sociedad es variable, y estara representado por acciones ordinarias, nominativas, sin expresion de valor nominal. El capital minimo fijo sin derecho a retiro es de $50,000 (cincuenta mil pesos 00/100) M.N., y el capital variable autorizado sera por una cantidad ilimitada. El capital sera susceptible de aumento por: (i) aportaciones posteriores de los accionistas, (ii) aportaciones en efectivo o en especie por admision de nuevos socios o (iii) capitalizaciones de reserva de valuacion de activos reconocidos en los estados financieros y soportados por el avaluo correspondiente. El capital social podra disminuirse por (i) absorcion de perdidas o (ii) reembolso a los accionistas en forma proporcional o no a su tenencia accionaria, segun lo acuerde la Asamblea de Accionistas; los aumentos o disminuciones se realizaran de acuerdo con lo estipulado en este capitulo y con las disposiciones aplicables del Capitulo VIII de la Ley General de Sociedades Mercantiles. Todo aumento o disminucion al capital social sera debidamente registrado en el Registro de Variaciones de Capital que la Sociedad debera llevar de acuerdo con lo dispuesto en el Articulo 219 de la Ley General de Sociedades Mercantiles. Los aumentos o disminuciones al capital social en su parte fija o en su parte variable seran consecuencia de una resolucion adoptada por la Asamblea General Extraordinaria de Accionistas. Articulo 7 Las acciones representativas del capital social de la Sociedad conferiran iguales derechos y obligaciones a sus titulares. Las 3 acciones deberan dividirse en dos series: (i) acciones Serie "A", las cuales podran ser suscritas y pagadas unicamente por inversionistas mexicanos de conformidad con lo establecido en la Ley de Inversion Extranjera y demas aplicables; y (ii) acciones Serie "B", las cuales seran de libre suscripcion, y por lo tanto podran ser suscritas y pagadas tanto por inversionistas mexicanos como por inversionistas extranjeros. Articulo 8 Respecto a las acciones que sean propiedad de extranjeros, ademas de las inscripciones procedentes en el Libro de Registro de Acciones que menciona el Articulo 11 de estos Estatutos, deberan hacerse en el Registro Nacional de Inversiones Extranjeras las inscripciones que procedan conforme a lo dispuesto por la Ley de Inversion Extranjera y su Reglamento. Solamente las personas fisicas o morales cuyos nombres esten inscritos en el Libro de Registro de Acciones podran ejercer los derechos societarios y economicos derivados de los titulos de acciones y de los cupones de los titulos que amparen las acciones emitidas por la Sociedad. Articulo 9 Los certificados provisionales y los titulos definitivos de acciones cumpliran con las disposiciones establecidas en el Articulo 125 de la Ley General de Sociedades Mercantiles y deberan contener el texto integro del Articulo 3 de estos Estatutos y la leyenda prevista en el Articulo 13 de los mismos. Los titulos definitivos contendran cupones numerados consecutivamente para el pago de dividendos. Articulo 10 Mientras se emitan los titulos definitivos, podran expedirse certificados provisionales que amparen una o varias acciones. Los certificados provisionales y los titulos definitivos de acciones llevaran la firma de un miembro del Consejo de Administracion designado por la mayoria de los titulares de acciones de la Serie "A" y un miembro designado por la mayoria de los titulares de acciones de la Serie "B". Articulo 11 La Sociedad contara con un Libro de Registro de Acciones que sera llevado por la propia Sociedad, en el que se inscribiran todas las operaciones de suscripcion, adquisicion y transmision de acciones, con expresion del suscriptor o poseedor anterior y del cesionario o adquirente. La Sociedad considerara como duena de las acciones representativas del capital social, a las personas registradas como tales en el Libro de Registro de Acciones a que se refiere este Articulo 11. 4 Articulo 12 En caso de que el capital social sea aumentado por nuevas aportaciones, los titulares de acciones tendran derechos preferentes para suscribir las nuevas acciones que se emitan en proporcion al numero de las acciones de que sean titulares al momento de ejercitar su derecho. Los accionistas deberan ejercer su derecho de preferencia dentro del termino y bajo las condiciones establecidas que fije para tal objeto la Asamblea de Accionistas que resolviere el aumento de capital, en el entendido, de que el termino no podra ser menor de 15 (quince) --------------- dias contados a partir de la fecha de publicacion del aviso correspondiente en uno de los periodicos de mayor circulacion del domicilio social de la Sociedad respecto de los accionistas que no participaron en la Asamblea y de 15 (quince) dias a partir de la fecha de la Asamblea respecto a los accionistas que si participaron en la misma. Articulo 13 Excepto por lo previsto en estos Estatutos, los accionistas no podran, directa o indirectamente, vender, ceder, transmitir o de cualquier otra forma disponer de (en lo sucesivo indistintamente "Transferir" o "Transferencia"), todas o parte de sus acciones, sin el consentimiento previo y por escrito del Consejo de Administracion de la Sociedad, en el entendido de que dicho organo debera otorgar su consentimiento a cualquier Transferencia que sea llevada a cabo de conformidad con lo dispuesto en este Articulo 13. I. Derecho de Preferencia ---------------------- Si en cualquier tiempo un accionista recibe una oferta de compra de buena fe hecha por un tercero no relacionado y dicho accionista desea aceptar la venta de toda o parte de sus acciones, la venta estara sujeta a los siguientes terminos y condiciones: (a) El accionista que desee vender sus acciones debera en un plazo de 15 (quince) dias habiles de recibir la oferta dar aviso por escrito a los accionistas y al Presidente del Consejo de Administracion de la Sociedad, mencionando el nombre del comprador (el "Comprador"), asi como los terminos, condiciones y elementos esenciales (incluyendo el precio por accion) bajo los cuales el Comprador esta interesado y desea comprar las acciones. (b) El Presidente del Consejo de Administracion notificara por escrito y por mensajeria con acuse de recibo a los demas accionistas en el domicilio que tengan registrado en los libros sociales respecto del aviso de la venta propuesta, dentro de los 7 (siete) dias naturales siguientes, contados a partir de la fecha en que reciban el aviso mencionado en el parrafo (a) anterior. 5 (c) Los accionistas tendran un derecho de preferencia, en proporcion al numero de acciones de que sean titulares, para adquirir las acciones ofrecidas en terminos no menos favorables que los ofrecidos por el tercero no relacionado de buena fe. Para ejercitar dicho derecho de preferencia, deberan dar aviso por escrito a los accionistas Presidente del Consejo de Administracion de la Sociedad, dentro de los 15 (quince) dias habiles siguientes, contados a partir de la fecha en que el aviso por escrito del accionista de la venta propuesta haya sido recibido, expresando si desean comprar las acciones en los mismos terminos y condiciones que el Comprador. (d) Si los accionistas no ejercitan su derecho de preferencia para comprar dichas acciones en los terminos y condiciones que se especifican arriba, o si el accionista no responde al aviso de venta dentro del plazo previsto en el parrafo precedente, el accionista vendedor tendra derecho a vender sus acciones al Comprador dentro de los 30 (treinta) dias habiles siguientes al vencimiento del termino de 15 (quince) dias habiles mencionados en el parrafo (c) precedente a un precio igual o mayor al precio del aviso. Si dicha venta no se consuma dentro de dicho termino de 30 (treinta) dias naturales, este Articulo se aplicara nuevamente a cualquier Transmision de acciones. II. Derecho de Primera Oferta ------------------------- Si en cualquier tiempo un accionista desea transmitir todas o parte de sus acciones sin haber recibido una oferta de compra de buena fe hecha por un tercero no relacionado, dicho accionista estara sujeto a lo siguiente: (a) El accionista que desee vender todas o parte de sus acciones (el "Vendedor") debera notificar al Presidente del Consejo de Administracion de la Sociedad respecto de su intencion de vender dichas acciones, indicando los terminos, condiciones y elementos esenciales (incluyendo el precio por accion) bajo los cuales esta dispuesto a vender dichas acciones (la "Oferta"). (b) Los otros accionistas tendran el derecho, en proporcion al numero de acciones de que sean titulares, para adquirir las acciones ofrecidas por el Vendedor en los terminos y condiciones establecidos en la Oferta. Para ejercitar dicho derecho estos deberan, dentro de los 30 (treinta) dias naturales siguientes a la fecha en que recibieron la notificacion de la venta propuesta, notificar por escrito al Presidente del Consejo de Administracion de la Sociedad si desean o no adquirir las acciones en los terminos y condiciones establecidos en la Oferta. (c) Si los accionistas no desean ejercitar su derecho para adquirir las acciones o si no responden al aviso correspondiente, el Vendedor podra transmitir sus acciones a un tercero no relacionado en los mismos terminos y condiciones que aquellos establecidos en la Oferta, pero en ningun caso en terminos o condiciones menos favorables para el Vendedor que 6 aquellos contenidos en la Oferta; en el entendido, sin embargo, de que --------------- ----------- dicha venta de acciones al tercero no relacionado debera consumarse en un plazo maximo de 60 (sesenta) dias naturales contados a partir de la expiracion del termino de 30 (treinta) dias naturales a que se refiere el parrafo (b) que antecede y debera cumplir con el requisito establecido en el primer parrafo de este Articulo 13. En caso de que la venta de acciones al tercero no relacionado no sea consumada dentro de dicho plazo de 60 (sesenta) dias naturales, entonces las disposiciones de esta Clausula II volveran a ser aplicadas. III. Derecho de Co-venta - ---- ------------------- En caso de que cualquiera de las accionistas de la Sociedad (el "Accionista Receptor") reciba una oferta de compra hecha de buena fe (la "Oferta del Tercero") por un tercero no relacionado (el "Tercero Oferente") para comprar las acciones propiedad del Accionista Receptor y en caso de que el derecho de preferencia otorgado en este Articulo no sea ejercido, entonces las siguientes reglas aplicaran: (a) El Accionista Receptor debera notificar inmediatamente por escrito a los otros accionistas de la Sociedad (los "Otros Accionistas") sobre la Oferta del Tercero, cuya notificacion debera ir acompanada de una copia de la Oferta del Tercero. (b) Los Otros Accionistas, al recibir la notificacion a que se refiere el punto (a) anterior, tendran el derecho, mediante notificacion por escrito al Accionista Receptor (la "Notificacion de Co-venta") dentro de los 15 (quince) dias naturales siguientes a la recepcion de la notificacion a que se refiere el punto (a) anterior, para hacer que el Accionista Receptor incluya, en cualquier venta hecha al Tercero Oferente por el Accionista Receptor, todas las acciones de los Otros Accionistas (las "Acciones de los Otros Accionistas"). (c) Inmediatamente despues de recibir la Notificacion de Co-venta, el Accionista Receptor debera avisar al Tercero Oferente de lo anterior y, por cuenta propia y de los Otros Accionistas, ofrecera vender al Tercero Oferente las Acciones de los Otros Accionistas sujetas a la Notificacion de Co-venta (la "Oferta Conjunta de los Accionistas"), en los mismos terminos y condiciones establecidos en la Oferta del Tercero, junto con las Acciones del Accionista Receptor objeto de la Oferta del Tercero. (d) En caso de que el Tercero Oferente acepte adquirir todas las Acciones de los Otros Accionistas sujetas a la Oferta Conjunta de los Accionistas, dicha venta sera hecha de acuerdo con los terminos y condiciones establecidos en la Oferta del Tercero como si la Oferta del Tercero fuera hecha a, y aceptada por, los Otros Accionistas y fuera respecto de todas las Acciones de los Otros Accionistas sujetas a la Oferta Conjunta de los Accionistas, excepto que los Otros Accionistas y el Tercero Oferente convengan algo distinto por escrito. 7 (e) En caso de que el Tercero Oferente informe al Accionista Receptor que no acepta la Oferta Conjunta de los Accionistas, entonces el Accionista Receptor podra elegir entre: (i) transmitir al Tercero Oferente las acciones que este esta dispuesto a adquirir, en el entendido de que las acciones que seran transmitidas incluiran acciones del Accionista Receptor y acciones de los Otros Accionistas, en forma proporcional al numero de acciones que el Accionista Receptor y los Otros Accionistas sean propietarios, o (ii) no aceptar la Oferta del Tercero. Cualquier Transferencia de Acciones en contravencion a lo dispuesto en este Articulo 13 sera nula. Los certificados provisionales y titulos definitivos de acciones representativas del capital social de la Sociedad deberan contener la siguiente leyenda: "La transmision de las acciones representadas por el presente [certificado][titulo definitivo] se encuentra sujeta a las restricciones contenidas en el Articulo 13 de los estatutos de la Sociedad y debera ser aprobada por el Consejo de Administracion de la Sociedad. Cualquier transmision de acciones en contravencion a dichas restricciones sera nula y no se registrara en los libros de la sociedad." CAPITULO III ------------ ASAMBLEAS DE ACCIONISTAS ------------------------ Articulo 14 Las Asambleas de Accionistas seran Generales y Especiales. La Asamblea General de Accionistas es el organo supremo de la Sociedad. Las Asambleas Generales de Accionistas seran Ordinarias y Extraordinarias; las cuales deberan siempre de celebrarse en el domicilio social, salvo caso fortuito o causa de fuerza mayor. Las que se reunan para tratar cualquiera de los asuntos a que se refiere el Articulo 182 de la Ley General de Sociedades Mercantiles y los asuntos establecidos en el inciso (c) del Articulo 21 de estos Estatutos Sociales, seran Asambleas Extraordinarias; todas las demas seran Asambleas Ordinarias de Accionistas. Seran Asambleas Especiales de Accionistas aquellas que se reunan en los terminos y para afectos del Articulo 195 de la Ley General de Sociedades Mercantiles. Articulo 15 La Asamblea Ordinaria de Accionistas se reunira por lo menos una vez al ano dentro de los cuatro meses siguientes a la clausura del ejercicio social, para tratar los asuntos incluidos en el Orden del Dia y los asuntos mencionados en el articulo 181 de la Ley General de Sociedades Mercantiles, excepto por lo que se 8 refiere al Presidente del Consejo de Administracion, respecto del cual se debera estar al Contrato Marco. Articulo 16 Las Asambleas de Accionistas seran convocadas por cualquier miembro del Consejo de Administracion, mediante solicitud por escrito dirigida al Presidente o al Secretario de la Sociedad, o tambien a solicitud de los accionistas en los terminos de los Articulos 184 y 185 de la Ley General de Sociedades Mercantiles, o por el(los) Comisario(s) de conformidad con el Articulo 166 fraccion VI de dicha ley. Articulo 17 Las convocatorias para las Asambleas de Accionistas deberan publicarse en uno de los periodicos de mayor circulacion del domicilio social por lo menos 15 (quince) dias antes de la fecha fijada para la Asamblea. No se requerira publicacion de convocatoria alguna cuando al momento de las votaciones se encuentre representada la totalidad de las acciones ordinarias que integren el capital social. Articulo 18 Los accionistas podran hacerse representar en las Asambleas por un apoderado que cuente con poder general o especial o mediante simple carta poder firmada ante dos testigos. Para ser admitidos en las Asambleas de Accionistas, los accionistas deberan estar debidamente inscritos en el Libro de Registro de Acciones que la Sociedad debe llevar de acuerdo a lo establecido en el Articulo 128 de la Ley General de Sociedades Mercantiles y el Articulo 11 de estos Estatutos. Articulo 19 Las Asambleas Ordinarias y Extraordinarias de Accionistas, seran presididas por el Presidente del Consejo de Administracion y en su ausencia por el accionista o representante de accionistas que designe la Asamblea por mayoria de votos de las acciones presentes. El Secretario de la Sociedad actuara como Secretario de las Asambleas de Accionistas, y en su ausencia, lo hara la persona designada por la Asamblea por mayoria de votos de las acciones presentes. El Presidente de la Asamblea designara un Escrutador de entre los accionistas y representantes de accionistas presentes, quien determinara la existencia o falta de quorum, y contara los votos emitidos. Articulo 20 Las Asambleas Generales Ordinarias de Accionistas se consideran legalmente instaladas en virtud de primera convocatoria si se 9 encuentran representadas cuando menos la acciones que representen la mayoria de las acciones ordinarias representativas del capital social, y en virtud de segundo o ulterior convocatoria, cualquiera que sea el numero de acciones ordinarias representadas en la Asamblea de que se trate. Sujeto a lo previsto en el Articulo 21 de estos Estatutos Sociales, las Asambleas Generales Extraordinarias de Accionistas se consideran legalmente instaladas en virtud de primera, segunda o ulterior convocatoria, si se encuentran representadas cuando menos el setenta y cinco por ciento (75%) de las acciones ordinarias representativas del capital social. Articulo 21 (a) Los acuerdos tomados en Asamblea General Ordinaria de Accionistas celebrada en virtud de primera, segunda o ulterior convocatoria seran considerados validos si se aprueban por el voto de las acciones que representan cuando menos la mayoria de las acciones ordinarias representadas en la Asamblea. (b) Sujeto a lo previsto en el parrafo inmediato siguiente, los acuerdos tomados en Asamblea General Extraordinaria de Accionistas celebrada en virtud de primera, segunda o ulterior convocatoria, seran considerados validos si se aprueban por el voto de las acciones que representan cuando menos el cincuenta y uno por ciento (51%) de las acciones ordinarias representativas del capital social. (c) No obstante cualquier estipulacion en contrario establecida en estos Estatutos Sociales, para que la Asamblea General Extraordinaria resuelva o tome cualquier acuerdo o resolucion respecto de cualquiera de los asuntos o materias listadas a continuacion (los "Asuntos Importantes"), se requerira siempre del voto afirmativo de los accionistas titulares de la mayoria de las acciones de la Serie "B": (i) Sujeto a lo dispuesto en este articulo, en caso de que no se obtenga el voto afirmativo del la mayoria de (i) las acciones con derecho a voto de la Sociedad (incluyendo el voto afirmativo de no menos de la mayoria de las acciones Serie "B" con derecho a voto), en asambleas de generales extraordinarias de accionistas de la Sociedad, o (ii) el Consejo de Administracion (incluyendo el voto afirmativo del Consejero de la Serie "B" (o su suplente)), la Sociedad no debera (y la Sociedad se asegurara, en relacion con alguna de sus subsidiarias, que dichas subsidiarias no deberan), en una transaccion o serie de transacciones, tomar acciones en relacion con cualquiera de los siguientes asuntos (los "Asuntos de Supermayoria"): (1) El nombramiento o sustitucion del Presidente del Consejo de Administracion de la Sociedad (en el entendido de que PTB International, Inc. 10 conviene que Gilberto Marin Quintero sera el Presidente del Consejo de Administracion de la Sociedad a partir de esta fecha); (2) La adopcion o modificacion de las politicas contables a ser seguidas por la Sociedad (o cualquier subsidiaria de ella), en la medida de que la Sociedad tenga discrecion de acuerdo con los Principios de Contabilidad Generalmente Aceptados en Mexico, en cuanto a la adopcion o modificacion de dichas politicas, y en la seleccion y contratacion de los auditores de La Sociedad (y cualquier subsidiaria ), que deberan ser una de las "Grandes Cinco" firmas de contadores; (3) La emision de cualesquier acciones del capital social de la Sociedad o de cualquier subsidiaria de la Sociedad, o cualquier cambio en el capital social de la Sociedad de tiempo en tiempo o de cualquiera de sus subsidiarias, o el otorgamiento de una opcion sobre, o emision de cualquier derecho sobre titulos o valores, convertibles en acciones del capital social de la Sociedad o de cualquier subsidiaria, o el listado de cualquier intercambio publico u ofrecimiento o colocacion publica de venta de cualquier accion del capital social de la Sociedad o cualquier subsidiaria o cualquier capital u otro valor de la Sociedad o cualquier subsidiaria. (4) Cualquier cambio en, o variacion de, la politica en relacion a los Dividendos de la Sociedad, tal y como se establece en el Articulo 37 de estos estatutos; (5) Cualquier modificacion en el numero de miembros del Consejo de Administracion de la Sociedad; (6) Cualquier modificacion o reforma a los Estatutos Reformados y Modificados de la Sociedad; (7) La decision de adquirir cualquier negocio, propiedad (real o personal) o activo (tangible o intangible), en una transaccion o una serie de transacciones, con un valor agregado que exceda de los U.S.$30 millones de dolares moneda de curso legal en los Estados Unidos de America ("Dolares") en un ano fiscal, o la aprobacion de cualquier contrato que prevea la reorganizacion, fusion o escision de la Sociedad (o de alguna de sus subsidiarias) con o en otra entidad o cualquier otro negocio, transformacion, disolucion, liquidacion, reorganizacion o venta 11 de todos o parte de los activos de la Sociedad (o de alguna de sus Subsidiarias); y (8) El que la Sociedad incurra, dentro del mismo ano fiscal, en deuda, este o no garantizada y en una o mas de una transaccion, en una cantidad principal conjunta total que exceda de U.S.$30 millones de Dolares el otorgar dentro del mismo ano fiscal una prenda, hipoteca o garantia real sobre cualquier activo de la Sociedad (o de cualquiera de sus subsidiarias), o cualquier otro tipo de gravamenes sobre los activos de la Sociedad (o de sus subsidiarias), cuando el valor de los activos afectados exceda, en el agregado, de dos veces la cantidad principal de cualquier deuda garantizada en esa transaccion. (ii) Las cantidades establecidas en los numerales 7 y 8 deberan ser ajustadas cada ano de conformidad con el Indice de Precios al Consumidor emitido por el Departamento del Trabajo de los Estados Unidos de America. No obstante, en el caso de que ocurre un Cambio de Control (segun se define dicho termino a continuacion) respecto de Paragon Trade Brands, Inc. o PTB International, Inc., la Asamblea General Extraordinaria podra validamente adoptar resoluciones respecto de los asuntos listados en los incisos (c)(i)1, 4, 7 y 8 anteriores, sin el voto afirmativo de los accionistas titulares de la mayoria de las acciones de la Serie "B". Para efectos de estos Estatutos Sociales "Cambio de Control" significara o se entendera que ocurra, respecto a PTB International,Inc. o Paragon Trade Brands, Inc (cualquiera de ellos referidos como la "Sociedad" para efectos unicamente de esta definicion) cuando ocurra cualquiera de lo siguiente: (a) una adquisicion, a partir de esta fecha, por un individuo, entidad o grupo ("grupo" significara dos o mas personas actuando como socios, una sociedad de responsabilidad limitada, sindicato u otro grupo con el objeto de adquirir, retener o disponer valores) de la propiedad (de conformidad a lo dispuesto en la Regla 13d-3 del Decreto de Intercambio de Valores de 1934 de los Estados Unidos de America (U.S. Securities Exchange Act of 1934), segun sea este modificado (el "Decreto de Intercambio")), directa o indirectamente, en uno o mas operaciones relacionadas, ya sea de mas del 50% (i) de las acciones comunes en circulacion de la Sociedad (las "Acciones Comunes"), o (ii) de la combinacion de las acciones con derecho a voto de la Sociedad que votan generalmente en la designacion de los miembros del Consejo de Administracion de la Sociedad (las "Acciones de Voto"); 12 (b) individuos que, a partir de esta fecha, constituyan el Consejo de Administracion (el "Consejo Existente") de la Sociedad, cesen por cualquier razon de constituir la mayoria del Consejo de Administracion (el "Consejo") de la Sociedad; en el entendido, sin embargo, que cualquier individuo que sea designado subsecuentemente como miembro del consejo cuya designacion, o nominacion para designacion por los accionistas de la Sociedad, sea aprobada por el voto de cuando menos la mayoria de los miembros del consejo en funciones a esa fecha que constituyan el Consejo Existente sera considerado como si dicho individuo fuera un miembro del Consejo Existente, pero excluyendo para estos efectos a cualquier individuo cuyo inicio de funciones ocurra como resultado ya sea la amenaza de o la reclamacion por la designacion o por la amenaza de la solicitud de cartas poder o consentimientos; (c) la venta o cualquier otra disposicion de todos o substancialmente todos los activos de la Sociedad; (d) (i) la reorganizacion, (ii) la fusion, o (iii) la consolidacion, distinta al reorganizacion, fusion o la consolidacion en las que todos o substancialmente todos los individuos y entidades que eran los propietarios, inmediatamente antes de dicha reorganizacion, fusion o consolidacion, de las Acciones Comunes y las Acciones de Voto sean los propietarios, directa o indirectamente, inmediatamente despues de dicha reorganizacion, fusion o consolidacion de mas del 51% de las entonces Acciones Comunes en circulacion y las Acciones de Voto (con derecho a voto generalmente en la eleccion de los miembros del consejo) de la entidad que resulte de dicha reorganizacion, fusion o consolidacion en substancialmente las mismas proporciones a las de su participacion como propietarios, inmediatamente antes de dicha reorganizacion, fusion o consolidacion de las Acciones Comunes o de las Acciones de Voto; o (e) aprobacion por parte de los accionistas de la Sociedad de una completa o substancialmente completa liquidacion o disolucion de la Sociedad. Los acuerdos tomados fuera de Asamblea, por unanimidad de votos de los accionistas que representen la totalidad de las acciones ordinarias, o de la categoria especial de acciones de que se trate en su caso, tendran para todos los efectos legales, la misma validez que si hubieren sido adoptados reunidos en Asamblea General o Especial, respectivamente, siempre que se confirmen por escrito y sean firmados por todos los accionistas. 13 Articulo 22 Las actas de las Asambleas de Accionistas seran transcritas en el Libro de Actas respectivo. De cada Asamblea se formara un expediente en el que se conservaran ejemplares del acta, la lista de asistencia, las cartas poder, copia de las publicaciones en que haya aparecido la convocatoria para la Asamblea, en su caso, y los documentos que fueran presentados a consideracion de la Asamblea, tales como informes del Consejo de Administracion y Comisarios, y estados financieros de la Sociedad. Cuando la transcripcion de alguna acta de Asamblea no pudiera ser registrada en el Libro de Actas correspondiente, la misma sera protocolizada ante Notario Publico. Las actas de Asambleas Generales Extraordinarias de Accionistas deberan ser protocolizadas ante Notario Publico. Las actas de las Asambleas de Accionistas, asi como las constancias respecto de las que no se hubieran podido celebrar por falta de quorum, seran firmadas por aquellas personas que fungieron como Presidente y Secretario de la Asamblea, asi como por los Comisarios que hubieren asistido. CAPITULO IV ----------- ADMINISTRACION Y VIGILANCIA --------------------------- Articulo 23 La administracion de la Sociedad estara a cargo de un Consejo de Administracion, integrado por 5 (cinco) miembros propietarios y sus respectivos suplentes, de los cuales 4 (cuatro) miembros propietarios y sus respectivos suplentes seran designados por la mayoria de los titulares de acciones de la Serie "A" y sus respectivos suplentes (los "Consejeros Serie A"), y 1 (un) miembro propietario y su respectivo suplente sera designados por la mayoria de los titulares de acciones de la Serie "B" (el "Consejero Serie B"). Los Consejeros suplentes Serie A unicamente podran suplir a los Consejeros propietarios Serie A, y el Consejero suplente Serie B unicamente podra suplir al Consejero propietario Serie B. Los Consejeros Propietarios y los Suplentes, en su caso, podran o no ser accionistas; duraran en su cargo un ano, y podran ser reelectos indefinidamente, pero en todo caso continuaran en funciones hasta que las personas designadas para sustituirlos tomen posesion de sus cargos. Para tales efectos, se entendera por un ano el periodo transcurrido entre la fecha de celebracion de una Asamblea Anual y la fecha de la celebracion de la siguiente Asamblea del mismo tipo. Articulo 24 No obstante lo previsto en el Articulo 23 de estos Estatutos Sociales, cualquier accionista o grupo de accionistas tenedores de por lo menos el veinticinco por ciento (25%) del capital 14 social tendran el derecho de nombrar uno de los cinco Consejeros Propietarios y, en su caso, al respectivo Suplente. Articulo 25 La Asamblea de Accionistas designara de entre sus miembros al Presidente de dicho Consejo excepto por lo que se refiere al Presidente del Consejo de Administracion, respecto del cual se debera de estar al Contrato Marco. Ademas, el Consejo de Administracion o la Asamblea de Accionistas designara un Secretario quien podra o no ser miembro del propio Consejo. El Presidente vigilara que se cumplan los acuerdos tomados tanto por la Asamblea de Accionistas como por el Consejo de Administracion. El Presidente del Consejo de Administracion no tendra voto de calidad. Si el Secretario fuese designado tambien Consejero, no se alterara el numero de miembros del Consejo a mas de cinco. El Secretario debera entregar copias autentificadas de todos las actas de sesiones del Consejo de Administracion y/o de las Asambleas de Accionistas, y copias de todos los asientos en los libros de Registro de Actas de sesiones del Consejo de Administracion, Registro de Actas de Asambleas de Accionistas, Registro de Variaciones de Capital y Registro de Acciones y cualesquiera otros que mantenga la sociedad a cada uno de los accionistas dentro de los 5 (cinco) dias siguientes a la fecha de la Asamblea, de la Sesion del Consejo de Administracion o del asiento de que se trate debidamente autentificado por dicho Secretario. Articulo 26 El Consejo de Administracion celebrara sus Sesiones cuando sea convocado por el Presidente del Consejo . Cualquier Consejero podran solicitar al Presidente del Consejo de Administracion o al Secretario de la Sociedad que se convoque a una sesion del Consejo de Administracion, en cuyo caso, el Presidente del Consejo de Administracion o el Secretario tendra la obligacion de convocar a una sesion de dicho consejo dentro de los siguientes 5 (cinco) dias naturales a la fecha en la que reciba la solicitud por escrito del Consejero interesado. El Consejo de Administracion podra determinar, en la primera sesion que celebre despues de la clausura de cada ejercicio social, las fechas para la celebracion de las sesiones que hayan de verificarse durante el ejercicio social de que se trate. Salvo que se opongan por lo menos un Consejero de la Serie A (o su suplente) y por un Consejero de la Serie B (o su suplente), lo permitan, el Consejo de Administracion de la Sociedad debera sesionar por lo menos trimestralmente, durante cada ano fiscal. La notificacion de cada sesion del Consejo de Administracion, junto con la orden del dia por escrito para dicha sesion y los materiales y reportes, a ser sometidos en dicha sesion, deberan de entregarse a cada consejero y a los comisarios de la Sociedad (y, si el puesto de un consejero esta vacante, a la parte con derecho a nombrar a dicho consejero del Consejo de 15 Administracion de la Sociedad) con por lo menos tres (3) Dias Habiles de anticipacion a la fecha en que se celebrara la sesion y con por lo menos un (1) Dia Habil antes de cualquier sesion especial o urgente del Consejo de Administracion. Los accionistas acuerdan que ninguna resolucion se tomara en una sesion del Consejo de Administracion (o cualquier comite ejecutivo o similar del Consejo de Administracion, en donde participe una de la personas nombradas por los accionistas) salvo que cada Consejero (o miembro de un comite o parte, segun el caso) haya recibido notificacion de la sesion, de acuerdo con el tiempo senalado en el enunciado anterior o renuncia por escrito a dicha notificacion. La notificacion sera emitida, despues de que esfuerzos razonables hayan sido realizados, para consultar con los Consejeros (o miembro de un comite o Consejero de una serie de las acciones , segun el caso) para determinar su disponibilidad y para coordinar sus agendas, en la medida de lo posible, por el Secretario de la Sociedad o a peticion de dos (2) Consejeros propietarios. Las Sesiones del Consejo de Administracion de la Sociedad se celebraran en las oficinas corporativas de la Sociedad o en Mexico (o en cualquier lugar fuera o dentro de Mexico, segun lo convenido por los consejeros). Todas la sesiones del Consejo de Administracion podran celebrarse en persona, por conferencia telefonica, video conferencia o equipo de comunicacion similar, en donde cada consejero que participe en dicha sesion pueda oir y ser oido por todos los demas consejeros que participen en dicha sesion. En caso de una sesion del Consejo de Administracion de la Sociedad en la que los consejeros participen en dicha sesion del Consejo de Administracion por medio de una conferencia telefonica, video conferencia o equipo de comunicacion similar, cualquier resolucion del Consejo de Administracion en dicha sesion debera de constar por escrito, firmada por cada uno de los consejeros. Los Consejeros Suplentes podran asistir (sin embargo, salvo que esten sustituyendo a un consejero debidamente nombrado, no podran votar) en las sesiones del Consejo de Administracion. Habra quorum en las sesiones del Consejo de Administracion, si por lo menos tres (3) de los consejero propietarios (o sus suplentes) estan presentes; en el entendido, sin --------------- --- embargo, que con relacion a los asuntos a que se refiere el Articulo 21 de estos - ------- estatutos en la medida de que sean tratados en el Consejo de Administracion, dicho quorum incluira a los Consejeros de la Serie B (o su suplente). Una resolucion por escrito firmada por todos los consejeros sera valida y tendra los mismos efectos como si se hubiera tomado en una sesion del Consejo de Administracion debidamente convocada y celebrada. Dicha resolucion podra constar en un solo documento o en varios documentos. No sera necesaria convocatoria alguna cuando todos los Consejeros Propietarios o sus Suplentes se encuentren presentes. Articulo 27 El Consejo de Administracion celebrara sus sesiones en el domicilio social o fuera de este incluyendo el extranjero. 16 Las actas de las Sesiones del Consejo de Administracion seran transcritas en el Libro de Actas respectivo, y seran firmadas por el Presidente, el Secretario y, en su caso, los Comisarios que hubieren asistido. De cada Sesion de Consejo de Administracion se formara un expediente en el que se conservaran ejemplares del acta, asi como toda documentacion relevante en relacion con la misma. Articulo 28 (a) Salvo en los casos previstos en el inciso (b) inmediato siguiente, para que las Sesiones del Consejo de Administracion se consideren legalmente instaladas, debera estar presente la mayoria de los Consejeros Propietarios o sus respectivos Suplentes, y el Consejo de Administracion adoptara sus resoluciones por mayoria de votos de los Consejeros, ya sean estos Propietarios o sus respectivos Suplentes. (b) No obstante lo previsto en el inciso (a) anterior, para que el Consejo de Administracion adopte cualquier resolucion respecto algun Asunto Importante, se requerira en todos los casos del voto afirmativo del Consejero Serie B (o su respectivo suplente). No obstante, en el caso de que ocurra un Cambio de Control respecto de Paragon Trade Brands, Inc. o PTB International, Inc., el Consejo de Administracion podra validamente adoptar resoluciones respecto de los asuntos listas en los incisos 1, 4, 7 y 8 del inciso (c) del Articulo 21 de estos Estatutos Sociales, sin requerirse el voto afirmativo del Consejero de la Serie B (o su respectivo suplente). (c) Las resoluciones tomadas fuera de la Sesion de Consejo de Administracion por unanimidad de sus miembros Propietarios, tendran para todos los efectos legales, la misma validez que si hubieren sido adoptadas en Sesion de Consejo, siempre que se confirmen por escrito por todos los Consejeros Propietarios de dicho organo. Articulo 29 Sujeto a los requerimientos y limitaciones establecidas en el Articulo 28 y las demas disposiciones previstas en estos Estatutos Sociales o bajo la legislacion aplicable, el Consejo de Administracion en su caso, tendra todas las facultades comprendidas en los poderes generales para pleitos y cobranzas, para administrar bienes y para ejercer actos de dominio, con todas las facultades generales y las especiales que requieren clausula especial conforme a la ley, en los terminos del articulo 2554 del Codigo Civil para el Distrito Federal y de las disposiciones correlativas de los Codigos Civiles de los Estados de los Estados Unidos Mexicanos; por lo tanto, representaran a la Sociedad ante toda clase de autoridades administrativas y judiciales, federales, estatales o municipales, ante las Juntas de Conciliacion y Arbitraje y demas autoridades de trabajo y ante arbitros. Los poderes antes mencionados incluyen, de manera enunciativa y no limitativa, facultades para: 17 (a) Interponer y desistirse toda clase de juicios y recursos, incluyendo juicios de amparo, para transigir, comprometer en arbitros, articular y absolver posiciones, hacer cesion de bienes, recusar y recibir pagos, para discutir, para recibir pagos, para negociar, celebrar y revisar contratos colectivos o individuales de trabajo; (b) Realizar todas las operaciones y celebrar, modificar y rescindir contratos inherentes a los objetos de la Sociedad; (c) Manejar cuentas bancarias; (d) Constituir y retirar toda clase de depositos; (e) Nombrar y remover al Director General y a cualquiera otros funcionarios y gerentes, subgerentes, agentes y empleados de la Sociedad y determinar sus facultades, obligaciones y remuneraciones; (f) Para otorgar y revocar poderes generales y especiales; (g) Para establecer y clausurar sucursales, agencias y dependencias; (h) Para ejecutar los acuerdos tomados por la Asamblea de Accionistas; (i) Para representar a la Sociedad en caso de que sea accionista de otras sociedades o entidades, asi como para comprar o suscribir acciones o partes sociales de las mismas, en el momento de su constitucion o en cualquier tiempo ulterior; y (j) Para presentar quejas y denuncias de caracter penal, para otorgar perdon y constituirse en colaborador del Ministerio Publico y aceptar y ejercitar en nombre de la Sociedad poderes y representaciones de personas de nacionalidad mexicana o extranjera, ya sea para contratar en nombre de ellas o para comparecer en juicio. El Consejo de Administracion tendra ademas en los terminos del articulo 9 de la Ley General de Titulos y Operaciones de Credito, poder general para girar, aceptar y endosar titulos de credito, asi como para protestarlos. Articulo 30 El Secretario autorizara copias o extractos de las actas de las Sesiones del Consejo de Administracion, Asambleas de Accionistas y de los demas documentos de la Sociedad, y llevara el archivo y correspondencia del Consejo. 18 Articulo 31 El Director General o cualquiera otros directores y gerentes en su caso, tendran las facultades que les fueran conferidas al ser designados como tales y que en todo caso podran ampliarselas o restringirselas por resolucion expresa del Consejo de Administracion de conformidad con lo establecido en el Articulo 29 de estos Estatutos. Articulo 32 La vigilancia de la Sociedad estara a cargo de un Comisario, el cual podra tener su respectivo Suplente si asi lo acuerda la Asamblea General Ordinaria de Accionistas. El Comisario y su Suplente podra o no ser accionistas de la Sociedad, durara(n) en su puesto un ano y podra(n) ser reelegido(s) indefinidamente, pero en todo caso, continuara(n) en funciones hasta que las persona(s) designada(s) para sustituirlo(s) tome(n) posesion de su(s) cargo(s). Para este efecto se entendera un ano el periodo transcurrido entre la fecha de celebracion de una Asamblea General Ordinaria Anual de Accionistas y la fecha de celebracion de la siguiente Asamblea del mismo tipo. El Comisario podra en cualquier tiempo solicitar al Secretario del Consejo de Administracion, una copia certificada por notario publico del acta de cualquier Asamblea de Accionistas o Sesiones del Consejo de Administracion. Todo accionista de la Sociedad podra instruir al Comisario respecto a asuntos o areas especificas que desea sean vigiladas por dicho accionista. Articulo 33 El Comisario tendra las facultades y obligaciones impuestas por el Articulo 166 de la Ley General de Sociedades Mercantiles y demas disposiciones aplicables. Articulo 34 Los miembros del Consejo de Administracion, y el (los) Comisario(s) no tendran la obligacion de garantizar el desempeno de sus cargos. CAPITULO V ---------- EJERCICIO SOCIAL; DIVIDENDOS E INFORMCION FINANCIERA ----------------------------------------------------- Articulo 35 Sin perjuicio de lo que al respecto establezcan las leyes, los ejercicios sociales comprenderan doce meses y se iniciaran el 1 de enero de cada ano y terminaran el 31 de diciembre del mismo ano. 19 Articulo 36 Dentro de los cuatro meses siguientes a la fecha de cierre de cada ejercicio social, el Consejo de Administracion preparara un reporte que incluya la informacion prevista en el Articulo 172 de la Ley General de Sociedades Mercantiles, el cual sera sometido a la aprobacion de la Asamblea General Ordinaria Anual de Accionistas. Articulo 37 Con sujecion a las disposiciones legales aplicables, incluyendo aquellas relativas a la participacion de los trabajadores en las utilidades, cada ano se separara de las utilidades netas el porcentaje que la Asamblea de Accionistas senale, que no debera ser menor al cinco por ciento (5%), para formar el Fondo de Reserva Legal, hasta que dicho fondo sea equivalente a por lo menos la quinta parte del capital social. Este fondo sera reconstituido de la misma manera cuando sea disminuido por cualquier razon. La aplicacion del resto de las ganancias netas se hara de acuerdo con lo siguiente:. Desde y despues de la fecha de cierre del Contrato Marco y sujeto a las disposiciones legales aplicables de Mexico y principios contables, la Sociedad declarara y pagara dividendos (los "Dividendos"), de tiempo en tiempo (pero cuando menos anualmente), hasta una cantidad equivalente al 75% de su Flujo de Efectivo Excedente (respecto al periodo que haya culminado en el mas reciente fin de mes antes de la declaracion de dicho Dividendo, y el inicio de lo ultimo que ocurra entre (x) la fecha del Contrato Marco, o (y) la fecha del Dividendo mas reciente) en favor de los accionistas en proporciones respectivas a sus participacion en el capital social de la Sociedad, al momento de ocurrir dicho pago de Dividendos. Para efectos de estos Estatutos: (1) "Flujo de Efectivo Excedente" significa, por cualquier periodo, el --------------------------- excedente (en su caso) del (aa) Flujo de Efectivo sobre (bb) la Reserva Requerida (tal como se definen mas adelante); (2) "Flujo de Efectivo" significa, por cualquier periodo: ----------------- (i) EBITDA consolidado (tal como se define mas adelante) desde el primero hasta el ultimo dia de dicho periodo (incluyendo el primero y el ultimo), mas (ii) Reducciones en el Capital de Trabajo Consolidado Neto (tal como se define mas adelante) desde el primero hasta el ultimo dia de dicho periodo (incluyendo el primero y el ultimo), menos (iii) Gastos Consolidados de Capital (tal como se define mas adelante) desde el primero hasta el 20 ultimo dia de dicho periodo (incluyendo el primero y el ultimo), menos (iv) Aumentos en el Capital de Trabajo Consolidado Neto (tal como se define mas adelante) desde el primero hasta el ultimo dia de dicho periodo (incluyendo el primero y el ultimo), menos (v) Gastos Consolidados del Interes (tal como se define mas adelante) desde el primero hasta el ultimo dia de dicho periodo (incluyendo el primero y el ultimo), menos (vi) Restituciones de Principal de la Deuda Consolidada (tal como se define mas adelante) desde el primero hasta el ultimo dia de dicho periodo (incluyendo el primero y el ultimo); (3) "EBITDA consolidado" significa, sobre una base consolidada, la suma de (1) -------------------- el ingreso neto (excluyendo los elementos extraordinarios que no sean en efectivo), calculados despues de los gastos del interes, impuesto sobre la renta y depreciacion y amortizacion, mas (2) la cantidad que, en el calculo que se haga del ingreso neto, haya sido deducida, sin que haya sido duplicada, (A) los gastos del interes, (B) impuestos federales, estatales, locales y otros impuestos de conformidad con la legislacion mexicana y (C) depreciacion y amortizacion, todo esto calculadas de conformidad con los Principios de Contabilidad Generalmente Aceptados en los Mexico; (4) "Capital de Trabajo Consolidado" significa, sobre una base consolidada, una -------------------------------- cantidad igual a (i) los activos actuales, con excepcion del efectivo y lo equivalente en efectivo, menos (ii) las obligaciones actuales, todas estas determinadas de conformidad con los Principios de Contabilidad Generalmente Aceptados en los Mexico. En cualquier momento, el Capital de Trabajo Consolidado puede ser un numero positivo o negativo; (5) "Gastos Consolidados de Capital" significa, sobre una base consolidada, ------------------------------ todos los gastos de capital de la Sociedad, de (e incluyendo) desde el primero hasta el ultimo dia de dicho periodo (incluyendo el primero y el ultimo) tal y como se determine de conformidad con los Principios de Contabilidad Generalmente Aceptados en Mexico; (6) "Gastos Consolidados de Interes" significa, sobre una base consolidada, ------------------------------ todos los gastos de interes de la Sociedad, desde el primero hasta el ultimo dia de dicho periodo, tal y como se requiera que sea pagado a terceros no relacionados por la Sociedad por dicho periodo; 21 (7) "Restituciones de Principal de la Deuda Consolidada" significa, sobre una -------------------------------------------------- base consolidada, la suma de todos los pagos, y los pagos obligados del principal de una deuda por dinero prestado de la Sociedad a terceros no relacionados; (8) "Reserva Requerida" significa, en el caso de la cantidad del Flujo en ------------------ Efectivo, que el Consejo de Administracion de la Sociedad, por decision unanime, de vez en cuando, (pero en un periodo no menor a un ano) estime razonablemente necesario, mantener, para que la Sociedad lleven a cabo sus operaciones y cumplan con sus obligaciones; y (9) "Principios de Contabilidad Generalmente Aceptados en los Mexico" Significa --------------------------------------------------------------- aquellos principios de contabilidad aceptados en los Estados Unidos de Mexicanos y que son consistentemente aplicados. Articulo 38 Los accionistas pagaran integramente el valor nominal las acciones que suscriban. Los accionistas no tendran responsabilidad alguna por las obligaciones de la Sociedad. CAPITULO VI ----------- DISOLUCION Y LIQUIDACION ------------------------ Articulo 39 La Sociedad se disolvera al concluir el plazo fijado en el Articulo 5 de estos Estatutos, a menos de que este sea previamente prorrogado y en cualquiera de los casos previstos en las fracciones II a V del Articulo 229 de la Ley General de Sociedades Mercantiles. Articulo 40 Declarada la disolucion de la Sociedad, esta sera puesta en estado de liquidacion, la cual estara a cargo de uno (1) o mas liquidadores, quienes en este ultimo caso deberan obrar conjuntamente segun acuerde la Asamblea de Accionistas. La Asamblea de Accionistas tambien fijara el plazo para el ejercicio de su(s) cargo(s) asi como la retribucion que habra de corresponderle(s). El (los) liquidador(es) procedera(n) con la liquidacion y distribucion del remanente, en su caso, en proporcion a las acciones de que sean titulares los accionistas, de conformidad con lo estipulado en la Ley General de Sociedades Mercantiles. 22 CAPITULO VII ------------ DISPOSICIONES GENERALES ----------------------- Articulo 41 Los accionistas en este acto de manera irrevocable convienen que cualquier disputa, controversia o Demanda (la "disputa") derivada de (o en relacion a) estos estatutos deberan primero ser resultas de manera amigable entre los accionistas, y, en caso de que los accionistas no puedan resolver dicha disputa en el termino de treinta (30) Dias Habiles despues de la notificacion , que un accionista le haya dado a la otra u otros accionistas, los accionistas convienen que la disputa sera sometida a los entonces Directores Generales (Chief Executive Officers) de Paragon y PTBI y Marin (o su executor) para discusiones y resoluciones de buena fe y, si los accionistas no pueden resolver dicha disputa dentro de un periodo de veinte (20) Dias Habiles a partir de la fecha en que fue sometida, a la mencionada mediacion, cualquier disputa que permaneciere entre los accionistas debera ser sometida a, y resuelta por, un arbitraje final y vinculante celebrado en Nueva York, Nueva York, U.S.A. (u otra ciudad, segun los accionistas de la disputa convengan) de acuerdo con las reglas vigentes de la Camara Internacional de Comercio (International Chamber of Commerce) (el "Arbitraje CIC"). Cualquier Arbitraje CIC en relacion con cualquier disputa - -------------- debera ser en Ingles. Los accionistas irrevocablemente convienen que cualquier aviso o notificacion en relacion con cualquier Arbitraje CIC debera ser enviado a las direcciones establecidas en el Inciso 9.9. del Convenio Marco. Articulo 42 En todo lo no previsto especificamente en estos Estatutos se aplicaran las disposiciones conducentes de la Ley General de Sociedades Mercantiles. 23 EX-10.31.1 15 0015.txt ENGLISH SUMMARY OF AMEND BY-LAWS Exhibit 10.31.1 Summary of the Material Provisions of the Amended and Restated By-laws (Estatutos Sociales) of Grupo P.I. Mabe, S.A. de C.V. ------------------ I. Composition of the Board of Directors. -------------------------------------- Article 23 of the Amended and Restated By-laws (the "By-Laws") of ------- Grupo P.I. Mabe, S.A. de C.V. ("Mabesa") provides that Mabesa shall be governed ------ and managed by a Board of Directors (the "Mabesa Board") as follows: ------------ (i) Four (4) principal directors and their respective alternates will be designated collectively by the holders of a majority of the Series A Mabesa Voting Stock (collectively, the "Series A Mabesa --------------- Directors");/1/ and --------- (ii) One (1) principal director and his alternate will be designated by the holders of a majority of the Series B Mabesa Voting Stock (the "Series B Mabesa Director")./2/ ------------------------ II. Appointment of Chairman. ------------------------ Subject to the provisions of the provisions of Article 21 of the By- Laws, the Chairman (Presidente del Consejo) of the Mabesa Board shall be elected ---------------------- by a majority of the directors of the Mabesa Board. III. Supermajority Matters. ---------------------- (a) Under the provisions set forth in Article 21 of the By-Laws, without the affirmative vote of the majority of (i) the shares of voting stock of Mabesa (including the affirmative vote of not less than the majority of the Series B Mabesa Voting Stock), in a general extraordinary meeting of the shareholders of Mabesa (asamblea general extraordinaria de accionistas), or ---------------------------------------------- (ii) the Mabesa Board (including the affirmative vote of the Series B Mabesa Director (or his alternate)), Mabesa shall not (and Mabesa shall ensure, with respect to any of its Subsidiaries, that such Subsidiaries shall not), in a single or series of related transactions, take action with respect to any of the following matters (the "Mabesa Supermajority -------------------- Matters"): ------- (1) The appointment or replacement of the Chairman (Presidente del -------------- Consejo) of the Mabesa Board (in the understanding that ------- - ---------------------- /1/ On and as of the date hereof, Gilberto Marin Quintero holds a majority of the Series A Voting Stock of Mabesa. /2/ On and as of the date hereof, PTB International Inc. holds a majority of the Series B Voting Stock of Mabesa. 1 PTBI hereby agrees that Marin shall be the initial Chairman (Presidente del Consejo) of the Mabesa Board); ---------------------- (2) The adoption or modification of material accounting policies to be followed by Mabesa (or any Subsidiary of Mabesa), to the extent Mabesa has any discretion under Mexican GAAP as to the adoption or modification of such policies, and the selection and engagement of auditors for Mabesa (and any such Subsidiary), who will be one of the "Big-Five" accounting firms; (3) The issuance of any shares of capital stock of Mabesa or of any Subsidiary of Mabesa, or any change in the share capital from time to time of Mabesa or of any such Subsidiary, or the grant of any option over, or issuance of any security carrying rights of conversion into, shares of capital stock of Mabesa or any Subsidiary, or the listing in any public exchange or the public offering for sale of any shares of capital stock of Mabesa or any such Subsidiary or any equity or other securities of Mabesa or any such Subsidiary; (4) Any change in, or variation from, the policy with respect to Mabesa dividends; (5) Any modification of the number of directors on the Mabesa Board; (6) Any modification or amendment to the Amended and Restated Mabesa By-laws (estatutos); ---------- (7) The decision to acquire any business, property (real or personal) or asset (tangible or intangible), in a single or a series of related transactions, with an aggregate value in excess of US$30 million in any single fiscal year, or the approval of any agreement providing for the reorganization, merger or splitting-off of Mabesa (or any Subsidiary of Mabesa) with or into any other entity or any other business transformation, dissolution, liquidation, reorganization or sale of all or substantially all of the assets of Mabesa (or any such Subsidiary); and (8) The incurrence in any single fiscal year by Mabesa of any indebtedness, whether or not secured and in one or more related transactions, with an aggregate principal amount in excess of US$30 million or the grant in any single fiscal year of any pledge, mortgage or security interest in any assets of Mabesa (or of its subsidiaries), or any other encumbrance of the assets of Mabesa (or of such subsidiary), where the value of the assets affected thereby exceeds, in the aggregate, twice the aggregate principal amount of any indebtedness secured thereby. (b) The threshold amounts set forth in items 7 and 8 above shall be adjusted each fiscal year in accordance with the Consumer Price Index. 2 IV. Governance of Mabesa Upon a Change of Control. ---------------------------------------------- Pursuant to Article 21 of the By-Laws, if a Change of Control with respect to PTB International, Inc. or Paragon Trade Brands, Inc. occurs, the affirmative vote of a majority of (i) the shares of voting stock of Mabesa, or (ii) the Mabesa Board will be required to approve any action by Mabesa (or any Subsidiary of Mabesa) with respect to any of the matters described in items 1, 4, 7 and 8 of Article 21 of the By-Laws, without requiring the affirmative vote of the Series B Director or a majority of the Series B Mabesa Voting Stock, as the case may be. A "Change of Control" is defined in Article 21 of the By-Laws as follows: (a) a "Change of Control" means and shall be deemed to occur, with respect to ----------------- PTB International, Inc. or Paragon Trade Brands, Inc. (any of them being referred to as the "Company" for purposes of this definition only), if any ------- of the following occurs: (b) an acquisition, after the date hereof, by an individual, entity or group ("group" meaning two or more persons acting as a partnership, limited ----- partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities) of beneficial ownership (within the meaning of Rule 13d-3 under the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, in one or more related ------------ transactions, of more than 50% either (i) the outstanding shares of common stock of the Company (the "Common Stock"), or (ii) the combined voting ------------ power of the voting securities of the Company entitled to vote generally in the election of directors (the "Voting Securities"); ----------------- (c) individuals who, on the date hereof, constituted the Board of Directors (the "Incumbent Board") of the Company, cease for any reason to constitute --------------- at least a majority of the Board of Directors (the "Board") of the Company; ----- provided, however, that any individual becoming a director subsequent to -------- ------- the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then serving and comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents; (d) the sale or other disposition of all or substantially all of the assets of the Company; (e) (i) a reorganization, (ii) a merger, or (iii) a consolidation, other than a reorganization, merger or consolidation with respect to which all or 3 substantially all of the individuals and entities who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of the Common Stock and Voting Securities beneficially own, directly or indirectly, immediately after such reorganization, merger or consolidation, more than 51% of the then outstanding Common Stock and Voting Securities (entitled to vote generally in the election of directors) of the entity resulting from such reorganization, merger or consolidation in substantially the same proportions as their respective ownership, immediately prior to such reorganization, merger or consolidation, of the Common Stock or the Voting Securities; or (f) approval by the Company's stockholders of a complete or substantially complete liquidation or dissolution of the Company. 4 EX-21.1 16 0016.txt SUBSIDIARIES OF PARAGON TRADE BRANDS, INC. Exhibit 21 PARAGON TRADE BRANDS, INC. Subsidiaries of the Company SUBSIDIARY JURISDICTION OF INCORPORATION ---------- ----------------------------- Juliette Research S.A. Uruguay Paragon Trade Brands (Canada) Inc. Canada Paragon Trade Brands FCS, Inc. U.S. Virgin Islands PTB International, Inc. State of Delaware PTB Acquisition Sub, Inc. State of Delaware PTB Holdings, Inc. State of Ohio Paragon-Mabesa International, S.A. de C.V. (51%) Mexico -----END PRIVACY-ENHANCED MESSAGE-----