-----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, GNAwtBvHgAKWZni+zUSZK0a3jowsPB9Xi89ZpqzoIw+66uRjFUcGBgM1on0VisKv FTNhHknDL1PPKt16/cjs4w== 0000090045-03-000010.txt : 20030514 0000090045-03-000010.hdr.sgml : 20030514 20030514162850 ACCESSION NUMBER: 0000090045-03-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARAGON TECHNOLOGIES INC CENTRAL INDEX KEY: 0000090045 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION, MINING & MATERIALS HANDLING MACHINERY & EQUIP [3530] IRS NUMBER: 221643428 STATE OF INCORPORATION: PA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15729 FILM NUMBER: 03699489 BUSINESS ADDRESS: STREET 1: 600 KUEBLER ROAD CITY: EASTON STATE: PA ZIP: 18040 -929 BUSINESS PHONE: 6102523205 MAIL ADDRESS: STREET 1: 600 KUEBLER RD CITY: EASTON STATE: PA ZIP: 18040-9295 FORMER COMPANY: FORMER CONFORMED NAME: SI HANDLING SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-Q 1 f10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 2003 Commission File No. 1-15729 PARAGON TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (Exact Name Of Registrant As Specified In Its Charter) Delaware 22-1643428 - --------------------------------------------------- --------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 600 Kuebler Road, Easton, PA 18040 - --------------------------------------------------- --------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: 610-252-3205 --------------------- Indicate by checkmark 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 checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- Number of shares of common stock, par value $1.00 per share, outstanding as of April 30, 2003: 4,266,377. --------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Consolidated Balance Sheets March 31, 2003 and December 31, 2002 (In Thousands, Except Share Data)
(UNAUDITED) March 31, December 31, 2003 2002 ------------------- ------------------ Assets - ------ Current assets: Cash and cash equivalents...................... $ 8,221 5,385 Restricted cash................................. 969 865 Receivables: Trade (net of allowance for doubtful accounts of $251 as of March 31, 2003 and $221 as of December 31, 2002)................................... 3,085 4,285 Notes and other receivables................... 85 940 ------ ------ Total receivables........................... 3,170 5,225 ------ ------ Costs and estimated earnings in excess of billings................................... 197 128 Inventories: Raw materials................................. 1,436 975 Work-in-process............................... 83 109 Finished goods................................ 174 291 ------ ------ Total inventories........................... 1,693 1,375 ------ ------ Deferred income tax benefits.................... 1,489 1,771 Prepaid expenses and other current assets....... 665 695 ------ ------ Total current assets........................ 16,404 15,444 ------ ------ Property, plant and equipment, at cost: Land - 27 Buildings and improvements...................... 228 3,768 Machinery and equipment......................... 3,775 4,291 ------ ------ 4,003 8,086 Less: accumulated depreciation................. 2,364 5,877 ------ ------ Net property, plant and equipment............. 1,639 2,209 ------ ------ Investment in joint venture........................ 1,487 1,325 Goodwill........................................... 17,657 17,657 Other assets, at cost less accumulated amortization of $160 as of March 31, 2003 and $143 as of December 31, 2002........... 51 68 ------ ------ Total assets....................................... $ 37,238 36,703 ====== ======
See accompanying notes to consolidated financial statements. 2 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Consolidated Balance Sheets March 31, 2003 and December 31, 2002 (In Thousands, Except Share Data)
(UNAUDITED) March 31, December 31, 2003 2002 ------------------- ------------------ Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Current installments of long-term debt.......... $ 1,725 1,437 Accounts payable................................ 2,787 2,403 Customers' deposits and billings in excess of costs and estimated earnings ........................... 2,146 2,271 Accrued salaries, wages, and commissions................................... 415 544 Income taxes payable............................ 634 154 Accrued royalties payable....................... 110 114 Accrued product warranties...................... 901 894 Accrued pension and retirement savings plan liabilities...................... 22 170 Accrued restructuring expenses.................. 188 216 Deferred gain on sale-leaseback................. 187 - Accrued other liabilities....................... 1,031 1,269 ------ ------ Total current liabilities................... 10,146 9,472 ------ ------ Long-term liabilities: Long-term debt, excluding current installments: Term loan................................... 2,300 4,263 Subordinated notes payable.................. 3,000 3,000 ------ ------ Total long-term debt...................... 5,300 7,263 Other long-term liability....................... 357 401 Deferred gain on sale-leaseback................. 623 - Deferred income taxes payable................... 1,828 1,713 Deferred compensation........................... 29 25 ------ ------ Total long-term liabilities................... 8,137 9,402 ------ ------ Stockholders' equity: Common stock, $1 par value; authorized 20,000,000 shares; issued and outstanding 4,266,377 shares as of March 31, 2003 and 4,256,098 shares as of December 31, 2002.............. 4,266 4,256 Additional paid-in capital.................... 7,393 7,313 Retained earnings............................. 7,515 6,504 Accumulated other comprehensive loss.......... (219) (244) ------ ------ Total stockholders' equity.................. 18,955 17,829 ------ ------ Total liabilities and stockholders' equity.. $ 37,238 36,703 ====== ======
See accompanying notes to consolidated financial statements. 3 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Consolidated Statements of Operations (Unaudited) For the Three Months Ended March 31, 2003 and 2002 (In Thousands, Except Share And Per Share Data)
Three Months Ended ------------------------------------ March 31, March 31, 2003 2002 ---------------- ----------------- Net sales................................................... $ 8,564 10,752 Cost of sales............................................... 6,360 7,863 ------ ------ Gross profit on sales....................................... 2,204 2,889 ------ ------ Selling, general and administrative expenses................................................. 1,997 2,341 Product development costs.................................................... 163 66 Restructuring charges (credits)........................................ (170) - Interest expense............................................ 218 272 Interest income............................................. (24) (36) Equity in income of joint venture............................................ (162) (6) Other income, net........................................... (1,496) (321) ------ ------ 526 2,316 ------ ------ Earnings before income taxes............................................. 1,678 573 Income tax expense.......................................... 667 230 ------ ------ Net earnings................................................ $ 1,011 343 ====== ====== Basic earnings per share................................................ $ .24 .08 ====== ====== Diluted earnings per share................................................ $ .23 .08 ====== ====== Weighted average shares outstanding....................................... 4,256,098 4,222,885 Dilutive effect of stock options............................................ 62,067 101,255 Dilutive effect of phantom stock units...................................... - 11,730 --------- --------- Weighted average shares outstanding assuming dilution........................................ 4,318,165 4,335,870 ========= =========
See accompanying notes to consolidated financial statements. 4 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Consolidated Statements of Comprehensive Income (Unaudited) For the Three Months Ended March 31, 2003 and 2002 (In Thousands)
Three Months Ended ------------------------------------ March 31, March 31, 2003 2002 ---------------- ----------------- Net earnings...................................................... $ 1,011 343 Other comprehensive income (loss), net of tax: Interest rate swap: Change in fair value of derivative, net of tax................................................. (8) (10) ------ ------ Total other comprehensive income (loss).................................... (8) (10) ------ ------ Comprehensive income........................................... $ 1,003 333 ====== ======
See accompanying notes to consolidated financial statements. 5 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2003 and 2002 (In Thousands, Except Share Data)
Three Months Ended ---------------------------------------- March 31, March 31, 2003 2002 ------------------- ------------------- Cash flows from operating activities: Net earnings ........................................ $ 1,011 343 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of plant and equipment.............. 147 160 Amortization of intangibles...................... 17 10 Gain on disposition of property, plant and equipment, net of unearned profit on sale-leaseback....................... (1,363) (108) Amortization of deferred gain on sale- leaseback...................................... (16) - Restructuring credit............................. (170) - Equity in income of joint venture................ (162) (6) Issuance of common shares as interest payment on subordinated notes.................. 90 - Change in operating assets and liabilities: Receivables.................................. 2,055 (331) Costs and estimated earnings in excess of billings........................ (69) (1,093) Inventories.................................. (318) 334 Deferred income tax benefits................. 282 - Prepaid expenses and other current assets............................ 30 280 Accounts payable............................. 384 176 Customers' deposits and billings in excess of costs and estimated earnings for completed and uncompleted contracts..................... (125) 602 Accrued salaries, wages, and commissions............................... (129) (90) Income taxes payable......................... 480 6 Accrued royalties payable.................... (4) 3 Accrued pension and retirement savings plan liabilities.................. 22 23 Accrued product warranties................... 7 80 Accrued restructuring expenses............... (28) (100) Accrued other liabilities.................... (238) 42 Deferred income taxes payable ............... 96 - Deferred compensation........................ 4 (130) ------ ------ Net cash provided by operating activities............ 2,003 201 ------ ------ Cash flows from investing activities: Proceeds from the disposition of property, plant and equipment ..................... 2,734 198 Proceeds from the divestment of a joint venture...................................... - 125 Additions to property, plant and equipment........... (122) (72) ------ ------ Net cash provided by investing activities............ 2,612 251 ------ ------
See accompanying notes to consolidated financial statements. 6 Item 1. Financial Statements (Continued) Paragon Technologies, Inc. and Subsidiary Consolidated Statements of Cash Flows (Unaudited) (Continued) For the Three Months Ended March 31, 2003 and 2002 (In Thousands, Except Share Data)
Three Months Ended ---------------------------------------- March 31, March 31, 2003 2002 ------------------- ------------------- Cash flows from financing activities: Sale of common shares in connection with employee incentive stock option plan............. - 33 Increase in restricted cash........................ (104) - Repayment of long-term debt........................ (1,675) (578) ------ ------ Net cash used by financing activities.......... (1,779) (545) ------ ------ Increase (decrease) in cash and cash equivalents................................. 2,836 (93) Cash and cash equivalents, beginning of period.............................. 5,385 6,114 ------ ------ Cash and cash equivalents, end of period.................................... $ 8,221 6,021 ====== ====== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest..................................... $ 114 809 ====== ====== Income taxes................................. $ (1,061) 471 ====== ======
See accompanying notes to consolidated financial statements. 7 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Notes To Consolidated Financial Statements Three Months Ended March 31, 2003 and 2002 (1) The information contained in this Form 10-Q report is unaudited. In the opinion of the management of Paragon Technologies, Inc. ("Paragon" or the "Company"), the interim financial statements furnished reflect all adjustments and accruals that are necessary to present a fair statement of results for the interim periods. The financial statements include the accounts of the Company and Ermanco Incorporated ("Ermanco"), a wholly owned subsidiary company, after elimination of intercompany balances and transactions. Results for interim periods are not necessarily indicative of results expected for the fiscal year. This quarterly report should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company and the related Notes thereto appearing in our annual report on Form 10-K, as amended, for the year ended December 31, 2002, as filed with the Securities and Exchange Commission. Refer to the Company's Form 10-K for the year ended December 31, 2002 for more complete financial information. (2) Restructuring ------------- In 2001, the Company restructured its business operations, including curtailment of a defined benefit plan, and recorded a charge of $1,538,000 for restructuring costs. The Company received approval from the Pension Benefit Guaranty Corporation in 2002 to terminate the defined benefit plan. In December 2002, the Company partially settled its obligations by making lump-sum distributions to those participants who elected that payment option and correspondingly recorded a restructuring credit of $859,000. In February 2003, the Company settled its remaining obligations by purchasing annuities for those participants who elected that payment option and correspondingly recorded a restructuring credit of $170,000. A roll-forward of restructuring activities is as follows (in thousands):
Beginning Ending Balance Charge/ Cash Balance January 1 (Credit) Spending Reclassification March 31 ------------ ------------- ------------ ------------------- ------------ 2003............ $ 216 (170) (28) 170 188 2002............ $ 494 - (100) - 394
The $188,000 restructuring accrual at March 31, 2003 relates to severance and other personnel costs and professional fees for the 2001 restructuring that are still expected to be paid. The amount reclassified out of the restructuring accrual was previously included in accrued pension and retirement savings plan liabilities. (3) Warranty -------- The Company's products are warranted against defects in materials and workmanship for a specified period. The Company provides an accrual for estimated future warranty costs and potential product liability claims based upon a percentage of cost of sales and warranty experience. 8 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Notes To Consolidated Financial Statements Three Months Ended March 31, 2003 and 2002 A roll-forward of warranty activities is as follows (in thousands):
Additions Beginning Charged to Ending Balance Costs and Balance January 1 Expenses (1) Deductions (2) March 31 ------------- ------------------ ----------------- -------------- 2003.................. $ 894 74 (67) 901 2002.................. $ 863 124 (44) 943 (1) Costs include materials and incidental costs, but exclude any services. (2) Payments of warranty costs and reversal of unused expired warranty accruals.
(4) Major Segments of Business -------------------------- Operating segments are defined as components of an enterprise in which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company identified such segments based on both management responsibility and types of products offered for sale. The Company operates in two major market segments. SI Systems ---------- The Company's Easton, Pennsylvania operations (hereafter referred to as "SI Systems") is a specialized systems integrator supplying SI Systems' branded automated material handling systems to manufacturing, assembly, order selection, and distribution operations. The systems are marketed, designed, sold, installed, and serviced by its own staff or agents, generally as labor-saving devices to improve productivity, quality, and reduce costs. SI Systems also operates as a project manager in connection with the installation, integration, and service of its products generally utilizing subcontractors. SI Systems' branded products are utilized to automate the movement or selection of products and are often integrated with other automated equipment such as conveyors and robots. SI Systems' branded integrated material handling solutions involve both standard and specially designed components and include integration of non-proprietary automated handling technologies so as to provide turnkey solutions for its customers' unique material handling needs. SI Systems' staff develops and designs computer control programs required for the efficient operation of its systems and for optimizing distribution operations. SI Systems' branded products are sold to customers located primarily in North America, including the U.S. government. Ermanco ------- The Company's Spring Lake, Michigan operations (hereafter referred to as "Ermanco") is a manufacturer of Ermanco branded light to medium duty unit handling conveyor and sortation products, serving the material handling industry through a worldwide network of approximately 100 experienced material handling equipment distributors and licensees. Ermanco also provides complete conveyor systems for a variety of applications, including distribution and manufacture of computers and electronic products, utilizing primarily its own manufactured conveyor products, engineering services by its own staff or subcontractors, and subcontracted installation services. Ermanco supplies material handling systems and equipment to both national and international markets. Ermanco offers services ranging from the delivery of basic transportation conveyors to turnkey installations of complex, fully 9 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Notes To Consolidated Financial Statements Three Months Ended March 31, 2003 and 2002 automated work-in-process production lines and distribution centers, utilizing sophisticated, custom-designed controls software. Many of Ermanco's sales are to distributors who have non-exclusive agreements with the Company. ------------------------------------ The Company's systems vary in configuration and capacity. Historically, system prices across the Company's product lines have ranged from $100,000 to several million dollars per system. Systems and aftermarket sales by brand during the three months ended March 31, 2003 and 2002 are as follows (in thousands): For the three months ended March 31, 2003:
% of Total SI Systems Ermanco Total Sales --------------- -------------- -------------- -------------- Systems sales................ $ 2,607 4,777 7,384 86.2% Aftermarket sales............ 765 415 1,180 13.8% ------ ------ ------ ----- Total sales.................. $ 3,372 5,192 8,564 100.0% ====== ====== ====== ===== As a % of total sales........ 39.4% 60.6% 100.0%
For the three months ended March 31, 2002:
% of Total SI Systems Ermanco Total Sales --------------- -------------- -------------- -------------- Systems sales................ $ 3,040 6,389 9,429 87.7% Aftermarket sales............ 859 464 1,323 12,3% ------ ------ ------ ----- Total sales.................. $ 3,899 6,853 10,752 100.0% ====== ====== ====== ===== As a % of total sales........ 36.3% 63.7% 100.0%
The Company's products are sold worldwide through its own sales personnel, along with a network of independent distributors and licensees. Domestic and international sales by brand during the three months ended March 31, 2003 and 2002 are as follows (in thousands): For the three months ended March 31, 2003:
% of Total SI Systems Ermanco Total Sales --------------- -------------- -------------- -------------- Domestic sales............... $ 3,283 4,966 8,249 96.3% International sales.......... 89 226 315 3.7% ------ ------ ------ ----- Total sales.................. $ 3,372 5,192 8,564 100.0% ====== ====== ====== =====
For the three months ended March 31, 2002:
% of Total SI Systems Ermanco Total Sales --------------- -------------- -------------- -------------- Domestic sales............... $ 3,809 6,487 10,296 95.8% International sales.......... 90 366 456 4.2% ------ ------ ------ ----- Total sales.................. $ 3,899 6,853 10,752 100.0% ====== ====== ====== =====
10 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Notes To Consolidated Financial Statements Three Months Ended March 31, 2003 and 2002 The Company also engages in sales with the U.S. government, which is one of the Company's major customers. Sales to the U.S. government during the three months ended March 31, 2003 and 2002 are as follows (in thousands):
As a % of Total Sales ----------------- For the three months ended March 31, 2003.............. $ 124 1.4% For the three months ended March 31, 2002.............. 1,641 15.3%
The Company identifies operating segments based on the types of products offered for sale as follows:
For the Three Months Ended March 31, 2003 (In Thousands): SI Systems Ermanco Total - ------------------------------------------- ---------------- ----------- ----------- Sales..................................... $ 3,372 5,192 8,564 Earnings before interest expense, interest income, equity in income of joint venture, and income taxes......... 1,586 124 1,710 Total assets.............................. 8,620 28,618 37,238 Capital expenditures...................... 26 96 122 Depreciation and amortization expense................................. 47 100 147
For the Three Months Ended March 31, 2002 (In Thousands): SI Systems Ermanco Total - ------------------------------------------- ---------------- ----------- ----------- Sales..................................... $ 3,899 6,853 10,752 Earnings before interest expense, interest income, equity in income of joint venture, and income taxes......... 697 106 803 Total assets.............................. 10,300 31,453 41,753 Capital expenditures...................... 15 57 72 Depreciation and amortization expense................................. 60 100 160
All of the Company's sales originate in the United States, and there are no long-lived assets existing outside the United States. International sales were $315,000 and $456,000 for the three months ended March 31, 2003 and 2002, respectively. (5) New Accounting Pronouncements ----------------------------- In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS 146") which addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement nullifies Emerging Issues Task Force Issue 94-3. "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and establishes that fair value is the objective for initial measurement of the liability. The Statement is effective for exit or disposal activities that are initiated after December 31, 2002. 11 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Notes To Consolidated Financial Statements Three Months Ended March 31, 2003 and 2002 In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others." This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002 and did not have an effect on the Company's financial statements. The disclosure requirements were effective for our 2002 financial statements. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," which addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interests in variable interest entities entered into after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of this interpretation did not have an effect on the Company's financial statements. (6) Other Comprehensive Loss ------------------------ The Company is exposed to market risk from changes in interest rates, and uses an interest rate swap to hedge this risk. The interest rate swap has a notional amount of $4,025,000, expires in 2006, and is classified as a cash flow hedge of forecasted variable rate interest payments on a portion of the Company's term loan. Gains and losses on the interest rate swap are deferred in other comprehensive income (loss). The fair value of the interest rate swap at March 31, 2003 was a liability of approximately $357,000. The Company estimates that approximately $240,000 of the interest rate swap will be reclassified into earnings in the next 12 months.
Gross Tax Effect Net ----- ---------- --- Accumulated other comprehensive loss at December 31, 2002.................. $ (401) (157) (244) Loss reclassified from other comprehensive income....................... 58 25 33 Change in fair value of derivative............ (14) (6) (8) --- --- --- Accumulated other comprehensive loss at March 31, 2003..................... $ (357) (138) (219) === === ===
The Company uses derivative financial instruments as risk management tools and not for speculative purposes. 12 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Notes To Consolidated Financial Statements Three Months Ended March 31, 2003 and 2002 (7) Sale-Leaseback -------------- In February 2003, the Company sold its Easton, Pennsylvania facility. Significant terms of the agreement of sale include a sales price of $2,925,000 and a leaseback of 25,000 square feet of office space for five years by the Company. The sale-leaseback resulted in a gain of $2,189,000, of which $1,363,000 of the gain was recorded in Other income in the Statement of Operations for the three months ended March 31, 2003. The remaining gain of $826,000 is deferred and will be recognized as a reduction in rent expense over the term of the lease. During the three months ended March 31, 2003, $16,000 of the deferred gain was recognized. Future contractual obligations over the remaining term of the lease are as follows: 2003............................... $ 155,000 2004............................... 211,000 2005............................... 218,000 2006............................... 224,000 2007............................... 231,000 2008............................... 34,000 --------- Total............................ $ 1,073,000 =========
(8) Long-Term Debt -------------- The Company was in violation of the covenant related to its Funds Flow Coverage Ratio and received waivers from its principal bank for the covenant violation for the quarters ended June 30, 2002 and September 30, 2002. During August 2002, the Company entered into an arrangement to amend its credit agreements with its principal bank relative to future covenant requirements and the maintenance of a minimum cash balance covenant. In August 2002, the line of credit agreement was amended to extend the expiration date of the facility to June 30, 2003 and decrease the amount available under the facility. During November 2002, the Company prepaid, without penalty, $1,200,000 of the term loan reducing the balance of the term loan to $5,987,500 and placed $1,150,000 in escrow with the Company's principal bank. Beginning with the quarter ended December 31, 2002, the escrow amount will be reduced by $287,500 every quarter and applied to the principal portion of the term loan until the escrow amount reaches zero. The Company will resume making equal quarterly payments of $575,000 plus accrued interest beginning with the quarter ended December 31, 2003. The Company also amended its credit agreements relative to future covenant requirements, the minimum cash balance covenant was reduced to $4,000,000, and certain conditions were added regarding the sale of the Company's Easton facility. In November 2002, the line of credit agreement was also amended to decrease the amount available under the facility to $1,000,000. In accordance with the loan agreement in connection with the sale-leaseback, the Company prepaid, without penalty, $1,387,500 of the term loan, reducing the balance of the term loan to $4,312,500, and increased the escrow amount by $387,500 to $1,252,500. As of March 31, 2003, the balance of the term loan was $4,025,000, and the escrow amount was $969,000. The Company remains prohibited from making any cash payments of subordinated debt and interest through the quarter ended September 30, 2003, and beginning with the quarter ended December 31, 2003 interest payments on the subordinated debt may be made in the form of cash if the Company is in full compliance with all the financial covenants set forth in the Loan Agreement, as amended, with the Company's principal bank. The Company issued 10,279 shares of common stock in the three months ended March 31, 2003. The Company intends to satisfy its quarterly interest obligations on subordinated debt with the issuance of the Company's common stock in the event the Company's principal bank does not grant waivers regarding the making of cash payments of interest on subordinated debt. 13 Item 1. Financial Statements (Continued) - ------- -------------------- Paragon Technologies, Inc. and Subsidiary Notes To Consolidated Financial Statements Three Months Ended March 31, 2003 and 2002 (9) Stock-Based Compensation ------------------------ In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure" ("FAS 148"), which amends SFAS No. 123, to provide alternative methods of accounting for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, FAS 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements. The Company grants stock options for a fixed number of shares to employees and non-employee directors with an exercise price equal to the fair value of the shares at the date of grant. The Company has elected to continue to account for its stock-based compensation plans under the guidelines of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense on options granted to employees for the stock option grants. The Company recognizes compensation expense on options granted to non-employee directors. To date, the effect of options granted to non-employee directors has been immaterial. Additional disclosure as required under the guidelines of SFAS No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), is included below. If the Company had elected to recognize stock-based compensation expense for options granted to employees based on the fair value of granted options at the grant date (as determined under FAS 123), net earnings (in thousands) and basic earnings per share for the three months ended March 31, 2003 and 2002, would have been as follows:
For the Three For the Three Months Ended Months Ended March 31, March 31, 2003 2002 ---------------- ---------------- Net earnings, as reported................................. $ 1,011 343 Deduct: total stock-based employee compensation determined under fair value method, net of related tax effects............................................ (72) (71) ----- ----- Pro forma net earnings.................................... $ 939 272 ===== ===== Earnings per share: Basic-- as reported.................................... $ .24 .08 === === Basic-- pro forma...................................... $ .22 .06 === === Diluted-- as reported.................................. $ .23 .08 === === Diluted-- pro forma.................................... $ .22 .06 === ===
The above pro forma net earnings and basic and diluted earnings per share were computed using the fair value of granted options at the date of grant as calculated by the Black-Scholes option pricing method. No options were granted to employees during the three months ended March 31, 2003 and the year ended December 31, 2002. The Company also grants phantom stock units to its directors as deferred compensation. Such awards are redeemable in cash or the Company's common stock at the director's option and are accounted for in accordance with APB Opinion No. 25 as stock appreciation rights. Expense for the phantom stock unit plan was $0 and $2,000 for the three months ended March 31, 2003 and 2002, respectively. ------------------------------------ 14 Item 2. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations --------------------- Liquidity and Capital Resources - ------------------------------- The Company's cash and cash equivalents increased to $8,221,000 at March 31, 2003 from $5,385,000 at December 31, 2002. The increase resulted from cash provided by operating activities totaling $2,003,000, and proceeds of $2,734,000 from the disposition of property, plant and equipment. Partially offsetting the increase in cash and cash equivalents from these sources was the repayment of long-term debt of $1,675,000, purchases of capital equipment of $122,000, and an increase of $104,000 in restricted cash as an escrow deposit on current installments of long-term debt. Funds provided by operating activities during the three months ended March 31, 2002 were $201,000. Acquisition of Ermanco Incorporated - ----------------------------------- On September 30, 1999, the Company acquired all of the outstanding common stock of Ermanco. Under the terms of the Stock Purchase Agreement, the Company acquired all of the outstanding common stock of Ermanco for a purchase price of $22,801,000 consisting of $15,301,000 in cash, $3,000,000 in promissory notes payable to the fourteen stockholders of Ermanco, and 481,284 shares of the Company's common stock with a value of $4,500,000 based on the average closing price of $9.35 of the Company's common stock for the five trading days immediately preceding the date of the Stock Purchase Agreement, August 6, 1999. In order to complete the Ermanco acquisition, the Company obtained financing from its principal bank. The Company entered into a line of credit facility which may not exceed the lesser of $1,000,000, as amended, or an amount based on a borrowing base formula tied principally to accounts receivable, inventory, fair market value of the Company's property and plant, and liquidation value of equipment. This amount will be reduced by the unpaid principal balance of the term loan described below. The line of credit facility is to be used primarily for working capital purposes. As of March 31, 2003, the Company did not have any borrowings under the line of credit facility, and the facility expires effective June 30, 2003. The line of credit facility is not critical to the Company's operations. The Company financed $14,000,000 of the acquisition through a seven-year term loan from its bank. During the first two years of the term loan, the Company was obligated to repay equal quarterly payments of $312,500 plus accrued interest. After September 30, 2001, the Company commenced making equal quarterly payments of $575,000 plus interest, continuing until the loan is fully repaid. In connection with an amendment entered into in November 2002, the Company prepaid, without penalty, $1,200,000 of the term loan reducing the balance of the term loan to $5,987,500 and placed $1,150,000 in escrow with the Company's principal bank. Beginning with the quarter ended December 31, 2002, the escrow amount will be reduced by $287,500 every quarter and applied to the principal portion of the term loan until the escrow amount reaches zero. The Company will resume making quarterly payments of $575,000 plus accrued interest beginning with the quarter ended December 31, 2003. The interest rate on the term loan is variable at a rate equal to the three-month LIBOR Market Index Rate plus 3%, which was 4.29% as of March 31, 2003. The Company also entered into an interest rate swap agreement for a portion of the term loan to hedge the floating interest rate. At March 31, 2003, the notional amount of the seven-year interest rate swap was $4,025,000, and it fixes interest at a rate of 9.38%. As of March 31, 2003, the liability associated with the fair value of the cash flow hedge was approximately $357,000. In February 2003, the Company sold its Easton, Pennsylvania facility. Significant terms of the agreement of sale include a sales price of $2,925,000 and also a leaseback of 25,000 square feet of office space for five years by the Company. In accordance with the loan agreement in connection with the sale, the Company prepaid, without penalty, $1,387,500 of the term loan, reducing the balance of the term loan to $4,312,500, and increased the escrow amount by $387,500 to $1,252,500. As of March 31, 2003, the balance of the term loan was $4,025,000, and the escrow amount was $969,000. 15 Item 2. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations --------------------- Acquisition of Ermanco Incorporated (Continued) - ----------------------------------- To obtain the line of credit and term loan, the Company granted the bank a security interest in all personal property, including, without limitation, all accounts, deposits, documents, equipment, fixtures, general intangibles, goods, instruments, inventory, letters of credit, money, securities, and a first mortgage on all real estate. The line of credit facility and term loan contain various restrictive covenants relating to additional indebtedness, asset acquisitions or dispositions, investments, guarantees, payment of dividends, maintenance of certain financial ratios, and as amended, maintenance of a minimum cash balance covenant of $4,000,000, inclusive of restricted cash. The Company was in compliance with all covenants as of March 31, 2003. On September 30, 1999, the Company also issued promissory notes to fourteen stockholders of Ermanco, two of which are directors of the Company (Messrs. Shulman and Kirschner), in the aggregate principal amount of $3,000,000. The notes have a term of seven years and bear interest at an annual rate of 10% through September 30, 2002, 12% from October 1, 2002 through September 30, 2004, and 14% from October 1, 2004 through September 30, 2006. The weighted average interest rate on the promissory notes is 11.714% over the term of the notes. Interest shall be payable quarterly, in cash or under certain conditions, in the Company's common stock upon approval of the Company's Board of Directors. The promissory notes may be prepaid prior to the end of the seven-year term provided that there is no debt outstanding under the Company's line of credit facility and term loan. Since July 1, 2001 through September 30, 2003, the Company has been and will be prohibited from making any cash payments on subordinated debt and interest. However, the bank waived the restriction from paying interest on the subordinated debt in the form of cash for the fourth quarter ended December 31, 2001 and the quarter ended March 31, 2002. Beginning with the quarter ended December 31, 2003, interest payments on the subordinated debt may be made in the form of cash if the Company is in full compliance with all the financial covenants set forth in the Loan Agreement, as amended, with the Company's principal bank. The Company intends to satisfy its quarterly interest obligations with the issuance of the Company's common stock in the event the Company's principal bank does not grant waivers regarding the making of cash payments of interest on subordinated debt. Commitments and Contingencies - ----------------------------- Ermanco's operations are located in a 94,000 square foot steel building in Spring Lake, Michigan. The building is leased from a limited liability company that is affiliated with the Company through a common director and officer of the Company, Messrs. Shulman and Kirschner. The leasing agreement requires fixed monthly rentals of $32,858 (with annual increases of 2.5%), which includes a variable portion based on the lessor's borrowing rate and the unpaid mortgage balance. The terms of the lease require the payment of all taxes, insurance, and other ownership related costs of the property. The lease expires on September 30, 2004. The current collective bargaining agreement for manufacturing employees at the Company's Spring Lake, Michigan facility expires on May 31, 2003. The Company has opened negotiations with the collective bargaining group and anticipates a successful conclusion. In connection with the February 2003 sale of the Company's Easton, Pennsylvania facility, the Company entered into a leaseback arrangement for 25,000 square feet of office space. The leasing agreement requires fixed monthly rentals of $17,188 (with annual increases of 3%). The terms of the lease also require the payment of a proportionate share of the facility's operating expenses. The lease expires on February 21, 2008. The Company also leases certain automobiles and office equipment, office space, computer equipment, and software under various operating leases with terms extending through September 2007. 16 Item 2. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations --------------------- Commitments and Contingencies (Continued) - ----------------------------- On March 4, 1996, SI/BAKER established a $3,000,000 line of credit facility (the "Facility") with its principal bank (the "bank"). Under the terms of the Facility, SI/BAKER's parent companies, Paragon Technologies, Inc. and McKesson Automation Systems Inc., have each provided a limited guarantee and surety in an amount not to exceed $1,000,000 for a combined guarantee of $2,000,000 to the bank for the payment and performance of the related note, including any further renewals or modifications of the facility. As of March 31, 2003, SI/BAKER did not have any borrowings under the Facility, and the Facility expires effective June 30, 2003. Other Liquidity and Capital Resource Matters - -------------------------------------------- The Company anticipates that its financial resources, consisting of cash generated from operations, will be adequate to satisfy its future cash requirements through the next year. If the Company is unable to meet the terms of its financial covenants relating to its outstanding indebtedness and is unable to receive a waiver from its lender, a default could result under the Company's borrowing agreements. A default may result in the acceleration of the Company's indebtedness and cause the Company's debt to become immediately due and payable. If acceleration occurs, the Company may not be able to repay its debt, and the Company may not be able to borrow sufficient additional funds to refinance such debt. Sales volume, as well as cash liquidity, may experience fluctuations due to the unpredictability of future contract sales and the dependence upon a limited number of large contracts with a limited number of customers. The Company plans to consider all strategic alternatives to increase shareholder value, including expansion opportunities as they arise, although the ongoing operating results of the Company, the restrictive covenants associated with the financing obtained from the Company's principal bank, the economics of the expansion, and the circumstances justifying the expansion will be key factors in determining the amount of resources the Company will devote to further expansion. Results Of Operations - --------------------- Three Months Ended March 31, 2003 Versus Three Months Ended March 31, 2002 - -------------------------------------------------------------------------- The Company's net earnings for the three months ended March 31, 2003 were $1,011,000 compared to net earnings of $343,000 for the three months ended March 31, 2002. Contributing to the net earnings for the three months ended March 31, 2003 was other income from the sale-leaseback of the Company's Easton, Pennsylvania facility of $1,363,000, and a restructuring credit of $170,000 pertaining to the final settlement of the remaining pension obligations associated with the Company's terminated pension plan. Contributing to net earnings for the three months ended March 31, 2002 was other income from the short-term licensing of certain real property of $150,000, and a gain on the sale of excess fixed assets of $108,000. Net Sales and Gross Profit on Sales - ----------------------------------- Net sales of $8,564,000 for the three months ended March 31, 2003 decreased 20.3% compared to net sales of $10,752,000 for the three months ended March 31, 2002. The sales decrease of $2,188,000 was primarily attributable to a smaller backlog of orders entering fiscal 2003 ($6,924,000 versus a $13,342,000 backlog beginning fiscal 2002) associated with the economic slowdown. The sales decrease was comprised of a decrease in Ermanco's branded sales of $1,661,000 and a decrease in SI Systems' branded sales of $527,000 for the three months ended March 31, 2003, when compared to the three months ended March 31, 2002. The Company's business is largely dependent upon a limited number of large contracts with a limited number of customers. This dependence can cause unexpected fluctuations in sales volume. Various external factors affect the customers' decision-making process on expanding and upgrading their 17 Item 2. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations --------------------- Results Of Operations - --------------------- Three Months Ended March 31, 2003 Versus Three Months Ended March 31, 2002 - -------------------------------------------------------------------------- Net Sales and Gross Profit on Sales (Continued) - ----------------------------------- current production or distribution sites. The customers' timing and placement of new orders is often affected by factors such as the current economy, current interest rates, and future expectations. The Company believes that its business is not subject to seasonality, although the rate of new orders can vary substantially from month to month. Fluctuations in the Company's sales and earnings occur with increases or decreases in major installations, since the Company recognizes sales on a percentage of completion basis for its system contracts. Gross profit, as a percentage of sales, was 25.7% for the three months ended March 31, 2003 compared to 26.9% for the three months ended March 31, 2002. Gross profit, as a percentage of sales, for the three months ended March 31, 2003 was favorably impacted by approximately 1% due to a reduction in overhead costs during the first quarter of 2003 as compared to the first quarter of 2002. Gross profit, as a percentage of sales, for the three months ended March 31, 2002 was favorably impacted by approximately 2% as a result of the reversal of previously established contract accruals due to changes in cost estimates. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses of $1,997,000 were lower by $344,000 for the three months ended March 31, 2003 than in the three months ended March 31, 2002. The decrease of $344,000 was comprised of cost savings of approximately $360,000 attributable to the Company's restructuring of its business operations in the prior fiscal year and an emphasis on cost reduction. Also contributing to the higher selling, general and administrative expenses in the three months ended March 31, 2002, were approximately $70,000 in professional fees primarily associated with enhancing operational efficiency. Partially offsetting the aforementioned favorable variance was approximately $125,000 in marketing expenses associated with the Company's participation in a biannual industry trade show in the first quarter of 2003. Product Development Costs - ------------------------- Product development costs, including patent expense, of $163,000 were higher by $97,000 for the three months ended March 31, 2003 than in the three months ended March 31, 2002. Development programs in the three months ended March 31, 2003 included the new NBA-23(TM) narrow belt accumulation conveyor, computer software for warehousing and distribution center operations, and improvements to the Company's Order Picking, Fulfillment, and Replenishment systems. Development programs in the three months ended March 31, 2002 were aimed at enhancements to the Company's sortation and accumulation conveyor technologies. Restructuring Charges (Credits) - ------------------------------- In 2001, the Company restructured its business operations, including curtailment of a detailed benefit plan, and recorded a charge of $1,538,000 for restructuring costs. The Company received approval from the Pension Benefit Guaranty Corporation in 2002 to terminate the defined benefit plan. In December 2002, the Company partially settled its obligations by making lump-sum distributions to those participants who elected that payment option and correspondingly recorded a restructuring credit of $859,000 during the fourth quarter of 2002. In February 2003, the Company settled its remaining obligations by purchasing annuities for those participants who elected that payment option and correspondingly recorded a restructuring credit of $170,000 during the three months ended March 31, 2003. 18 Item 2. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations --------------------- Results Of Operations - --------------------- Three Months Ended March 31, 2003 Versus Three Months Ended March 31, 2002 - -------------------------------------------------------------------------- (Continued) Interest Expense and Interest Income - ------------------------------------ Interest expense of $218,000 was lower by $54,000 for the three months ended March 31, 2003 than for the three months ended March 31, 2002. The decrease in interest expense was attributable to the reduced level of term debt due to principal payments and lower interest rates. Interest income of $24,000 for the three months ended March 31, 2003 decreased by $12,000, when compared to the three months ended March 31, 2002. The decrease in interest income was attributable to a reduction in the level of interest rates pertaining to short-term investments. Equity in Income of Joint Venture - --------------------------------- Equity in income of joint venture represents the Company's proportionate share (50%) of its investment in the SI/BAKER joint venture that is being accounted for under the equity method. The favorable variance of $156,000 for the three months ended March 31, 2003 in the equity in income of the SI/BAKER joint venture was primarily due to its sales of $4,169,000 as compared to the three months ended March 31, 2002 of $2,421,000, plus a reduction of $237,000 in product development expenses. The increase in sales for the three months ended March 31, 2003 compared to the three months ended March 31, 2002 was due to a significant amount of progress made on orders received during the first quarter of 2003. Partially offsetting the favorable variance was SI/BAKER's increases of (1) $36,000 in selling, general and administrative expenses, and (2) $70,000 in revenue-based royalty costs due to the parent companies. Other Income, Net - ----------------- The favorable variance of $1,175,000 in other income, net for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002 was primarily attributable to the gain on the sale-leaseback of the Company's Easton, Pennsylvania facility of approximately $1,363,000, and an increase in revenue-based royalty income from the Company's SI/BAKER joint venture of $35,000. Partially offsetting the favorable variance in other income, net was the prior year comparable period containing income from the short-term licensing of certain real property relating to the Company's Easton, Pennsylvania facility of $150,000, and a gain on the sale of excess fixed assets associated with the Company's Easton, Pennsylvania facility of $108,000. Income Tax Expense - ------------------ The Company recognized income tax expense of $667,000 during the three months ended March 31, 2003, compared to income tax expense of $230,000 in the comparable prior year period. Income tax expense was generally recorded at statutory federal and state tax rates. Backlog of Orders - ----------------- The total backlog of orders at March 31, 2003 was approximately $10,100,000. During the three months ended March 31, 2003, the Company received orders totaling approximately $11,740,000. ------------------------------------ 19 Item 2. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations --------------------- Cautionary Statement - -------------------- Certain statements contained herein are not based on historical fact and are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission rules, regulations, and releases. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. Among other things, they regard the Company's acquisition activities, earnings, liquidity, financial condition, and certain operational matters. Words or phrases denoting the anticipated results of future events, such as "anticipate," "believe," "estimate," "expect," "may," "will," "will likely," "are expected to," "will continue," "should," "project," and similar expressions that denote uncertainty, are intended to identify such forward-looking statements. The Company's actual results, performance, or achievements could differ materially from the results expressed in, or implied by, such "forward-looking statements": (1) as a result of risks and uncertainties identified in connection with those forward-looking statements, including those factors identified herein, and in the Company's other publicly filed reports; (2) as a result of risks associated with the Company's restructuring, including the failure to achieve anticipated operating savings, and the possibility that the restructuring charges will be greater than anticipated; (3) as a result of factors over which the Company has no control, including the strength of domestic and foreign economies, sales growth, competition, and certain costs increases; or (4) if the factors on which the Company's conclusions are based do not conform to the Company's expectations. Quantitative and Qualitative Disclosures - ---------------------------------------- The Company's primary market risk exposure is from changes in interest rates. The Company's policy is to manage interest rate exposure through the use of a combination of fixed and floating rate debt instruments, and since September 30, 1999, an interest rate swap agreement. Generally, the Company seeks to match the terms of its debt with its purpose. The Company has available a variable rate line of credit facility to provide working capital for operations. On September 30, 1999, the Company entered into an interest rate swap agreement for 50% of its new term loan from its principal bank to effectively convert half of the term loan from a variable rate note to a fixed rate note. A standard interest rate swap agreement involves the payment of a fixed rate times a notional amount by one party in exchange for a floating rate times the same notional amount from another party. The counterpart to the swap agreement is the Company's principal bank. The Company does not believe that its exposures to interest rate risk or foreign currency exchange risk, risks from commodity prices, equity prices and other market changes that affect market risk sensitive instruments, including the interest rate swap agreement, are material to its results of operations. Item 4. Controls and Procedures - ------- ----------------------- (a) Evaluation Of Disclosure Controls And Procedures ------------------------------------------------ The Company's Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c)) as of a date within 90 days of filing date of the quarterly report (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this quarterly report was being prepared. (b) Changes in Internal Controls ---------------------------- There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls and procedures subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such internal controls and procedures requiring corrective actions. 20 PART II -- OTHER INFORMATION ---------------------------- Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits: 10.27 Agreement of Sale between J. G. Petrucci Company, Inc. or its Assigns and Paragon Technologies, Inc. dated November 8, 2002 (filed herewith). 10.28 Amendment I to Agreement of Sale between J. G. Petrucci Company, Inc. and Paragon Technologies, Inc. dated January 2, 2003 (filed herewith). 10.29 Amendment II to Agreement of Sales between Triple Net Investments XIII, L.P. and Paragon Technologies, Inc. dated January 13, 2003 (filed herewith). 10.30 Amendment III to Agreement of Sale between Triple Net Investments, XIII, L.P. and Paragon Technologies, Inc. dated January 17, 2003 (filed herewith). 10.31 Lease Agreement between Triple Net Investments XIII, L.P. and Paragon Technologies, Inc. dated February 21, 2003 (filed herewith). 99 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by William R. Johnson, President and CEO, and Ronald J. Semanick, Chief Financial Officer and Vice President - Finance and Treasurer (filed herewith). (b) The following report on Form 8-K was filed during the quarter ended March 31, 2003: On February 21, 2003, Paragon Technologies, Inc. completed the sale of its Easton, Pennsylvania building to Triple Net Investments XIII, L.P. Significant terms of the agreement of sale include a sales price of $2,925,000 and also a leaseback of approximately 25,000 square feet of office space for five years by Paragon Technologies. A Form 8-K was filed on March 3, 2003 regarding this sale-leaseback transaction. 21 Paragon Technologies, Inc. and Subsidiary SIGNATURE --------- Pursuant to the requirements 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. PARAGON TECHNOLOGIES, INC. /S/ William R. Johnson ------------------------------ William R. Johnson President & CEO /S/ Ronald J. Semanick ------------------------------ Ronald J. Semanick Chief Financial Officer Dated: May 14, 2003 ------------ 22 SECTION 302 CERTIFICATION I, William R. Johnson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Paragon Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 ----------------------------------- /s/ William R. Johnson - ------------------------------------------ William R. Johnson President and CEO 23 SECTION 302 CERTIFICATION I, Ronald J. Semanick, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Paragon Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 ----------------------------------- /s/ Ronald J. Semanick - ------------------------------------------ Ronald J. Semanick Chief Financial Officer, and Vice President - Finance and Treasurer 24 EX-10 3 ex10-27.txt EXHIBIT 10-27 Exhibit 10.27 ------------- AGREEMENT OF SALE THIS AGREEMENT OF SALE ("Agreement") is made this 8th day of November, 2002, --- between J.G. Petrucci Company, Inc. or its Assigns, a New Jersey corporation ("Buyer") and Paragon Technologies, Inc., a Delaware corporation, as successor in interest to SI Handling Systems, Inc. ("Seller"). This Agreement is to be effective as of the date on which Buyer receives this Agreement signed by Seller (the "Effective Date"). In consideration of the covenants and provisions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Agreement to Sell and Purchase. Seller agrees to sell to Buyer, and Buyer ------------------------------ agrees to purchase from Seller, subject to the terms and conditions of this Agreement, that certain tract or piece of land known as 600 Kuebler Road, consisting of an approximately 173,000 s/f building on approximately 20 acres located in Easton, Pennsylvania as more fully described by metes and bounds in the legal description attached hereto as Exhibit "A," being all of the property owned by Seller in that location, together with all right, title, and interest of Seller in and to any land lying in the bed of any highway, street, road, or piece of land and any easements and appurtenances pertaining thereto (the "Real Property") and all the buildings and other improvements situate thereon, including all fixtures, equipment, appliances, and other personal property attached or appurtenant to, located in or on, or used in connection with the Real Property (the "Personal Property") (the Real Property and the Personal Property are jointly called (the "Property"). 2. Purchase Price. The purchase price for the Property is Three Million and -------------- 00/XX Dollars ($3,000,000.00) (the "Purchase Price"), payable as follows: (a) a deposit of One Hundred Fifty Thousand and 00/XX ($150,000.00) Dollars ("Deposit") shall be held by Fidelity National Title Insurance Company located in Philadelphia, Pennsylvania ("Fidelity") in an interest bearing account for which Fidelity shall serve as the Escrow Agent and shall incur no liabilities other than for the Deposit pending the Settlement. The Deposit shall be applied against the Purchase Price at Settlement subject to the earlier termination of this Agreement as provided herein; and (b) the balance of Two Million Eight Hundred Fifty Thousand and 00/XX ($2,850,000.00) shall be paid in cash or wired funds to an account designated by Seller at Settlement. 3. Settlement. Settlement shall be held on the date which is fifteen (15) days ---------- after the expiration of the Due Diligence Period (as defined below) (or on the next business day thereafter if such date is not a business day), or on such earlier date as Buyer shall designate by at least five (5) days' advance written notice to Seller, at Buyer's office at 171 Route 173, Suite 201, Asbury, New Jersey 08802, at 10:00 a.m. or such other time and place mutually acceptable to Buyer and Seller ("Settlement"). It is agreed that the time of Settlement and delivery of the Purchase Price by Buyer and the obligation of Seller to deliver the Deed (as hereinafter defined) at Settlement are of the essence of this Agreement. 4. Condition of Title. ------------------- (a) Buyer shall within five (5) days from the Effective Date, order a title report for the Property from Buyer's chosen title company. Title to the Property shall be good and marketable (i) free and clear of all liens, restrictions, easements, encumbrances, claims or liens by contractors, subcontractors, mechanics and materialmen, leases, financing statements or other personal property liens or encumbrances and other title objections, other than title exceptions listed on Schedule B-II of the title report and such other title exceptions as may be approved by Buyer within fourteen (14) business days after Buyer receives its title report for the Property, (ii) affirmatively insured as contiguous with no gaps or gores, and (iii) insurable as aforesaid at ordinary rates by Commonwealth Land Title Insurance Company or any other title insurance company selected by Buyer. There shall be no exception for possible mechanics liens or possible unsettled taxes of any kind against Seller or the Property. Seller shall pay and discharge all monetary liens of an ascertainable amount at or before Settlement; if Seller fails to do so, Buyer shall have the option, at its election, to pay and discharge such monetary liens, and all such amounts paid by Buyer shall be a credit against the Purchase Price. Buyer shall promptly forward a copy of the title report to Seller upon Buyer's receipt of such report. (b) If title to the Property cannot be conveyed to Buyer at Settlement in accordance with the requirements of this Agreement for a reason other than the existence of any lien on the Property for an amount not in excess of the Purchase Price, Seller shall take appropriate action to cure the defect, and at Buyer's option Settlement may be postponed for a reasonable time, not exceeding thirty (30) days, to permit Seller to cure the title deficiency. If the title deficiency is of such a nature that it is not capable of being cured by Seller, Buyer shall have the option (i) of taking such title as Seller can convey without abatement of the Purchase Price, or (ii) of terminating Buyer's obligations under this Agreement, having the Deposit (with any accrued interest) returned to it and being reimbursed by Seller for all reasonable out-of pocket costs and expenses incurred by Buyer in connection with this Agreement and the Property, including but not limited to title company charges, consultant fees for due diligence tests, and other similar charges ("Buyer's Reasonable Costs"). 5. Representations and Warranties. Seller, to induce Buyer to enter into this ------------------------------ Agreement and to complete the sale and purchase of the Property hereunder, 2 represents, warrants, and covenants to Buyer as follows: (a) Seller has no actual knowledge of, and has received no notice from any governmental authority requiring any work, repairs, construction, alterations, or installations on or in connection with the Property, or ordinances, codes, orders, regulations, or requirements affecting any portion of the Property, including, without limitation, any applicable environmental laws or regulations. There is no action, suit, or proceeding pending or, to the knowledge of Seller, threatened against or affecting Seller or the Property or any portion thereof or relating to or arising of the ownership of the Property, in any court or before or by any federal, state, county, or municipal department, commission, board, bureau, or agency or other governmental instrumentality. (b) No assessments or charges for any public improvements have been made against the Property which remain unpaid, no improvements to the Property or any roads or facilities abutting the Property have been made or, to the actual knowledge of Seller, ordered for which a lien, assessment, or charge can be filed or made and Seller has no actual knowledge of any plans for improvements by any governmental or quasi-governmental authority which might result in a special assessment against the Property. Seller has incurred no obligations relating to the installation of or connection to any sanitary sewers or storm sewers which shall be enforceable against the Property, and all public improvements commenced, or completed prior to the Effective Date shall be paid in full by Seller prior to Settlement. (c) The Property has been duly subdivided in accordance with all applicable laws and constitutes an independent tract of land for all applicable zoning, subdivision, and taxation purposes. (d) The Property is serviced by public water, public sewer, gas, and electric. (e) Except as listed on Exhibit "B" attached hereto and made a part hereof, Seller has received no notice from any insurance company which has issued a policy with respect to the Property or by any board of fire underwriters (or other body exercising similar functions) claiming any defects for deficiencies or requesting the performance of any repairs, alterations or other work, and Seller will promptly notify Buyer of and comply with any such notice or requirement at Seller's cost if such notice is received prior to Settlement. (f) Except as listed on Exhibit "C", attached hereto and made a part hereof, there are no management, employment, service, equipment, supply, maintenance, water, sewer, or other utility or concession agreements escrows or bonds with respect to or affecting the Property which will burden the Property or Buyer after Settlement in any manner whatsoever, except for instruments of record. 3 (g) To Seller's actual knowledge all roads abutting the Property are dedicated public roads and the deed to be delivered to Buyer at Settlement hereunder is the only instrument necessary to convey to Buyer (i) full access to and right to freely use such roads, and (ii) all rights appurtenant to the Property in such roads. (h) To Seller's actual knowledge, the Property has not been registered or certified as "historic" by any local, state, or federal governmental entity or historic commission. (i) Except as disclosed on the Survey, there are no wetlands restrictions or riparian rights affecting the Property and no portion of the Property is within the boundaries of the 100 year flood plain. (j) Seller or the Easton Area Industrial Development, Inc. ("EAID"), holds fee simple title to the Property. Seller is a duly existing Delaware corporation and has the power and authority to enter in this Agreement and to consummate the transaction herein contemplated. (k) No representation, statement, or warranty by Seller contained in this Agreement or in any exhibit attached hereto contains or will contain any untrue statements or omits or will omit a material fact necessary to make the statement of fact therein recited not misleading. If, after Seller's execution hereof, any event occurs or condition exists which renders any of the representations contained herein untrue or misleading in any material way, Seller shall promptly notify Buyer. (l) No brokerage or leasing commissions or other compensation is or will be due or payable to any person, firm, corporation, or other entity with respect to or on account of any of the Leases or any extensions or renewals thereof, if any. (m) Except to the extent of the space to be occupied by Seller in accordance with the Lease attached hereto as Exhibit "D", the Property will be delivered to Buyer vacant and except for the Lease contemplated by Section 24 of this Agreement there will be no leases or other agreements in place affecting the Property. No former tenant, licensee or other occupant under any prior leases or other agreements has, nor does any other party have, any right or option to acquire the Property or any portion thereof. (n) Neither the execution and delivery of this Agreement, nor compliance with the terms and conditions of this Agreement by Seller, nor the consummation of the transaction contemplated herein, constitutes or will constitute a violation or breach of the articles of Incorporation or By-Laws of Seller, or of any agreement or other instrument to which it is a party, to which it is subject or by which it is bound. 4 (o) The execution and delivery of this Agreement have been approved by the authorized officers of Seller and no further corporate action is required on the part of Seller to consummate the transaction contemplated hereby. The officers executing this Agreement on behalf of Seller have all requisite authority to execute this Agreement, and this Agreement, as executed is valid, legal, and binding upon Seller. There are no proceedings pending or threatened by or against Seller in bankruptcy, insolvency, or reorganization in any state or federal court. 6. Representations and Warranties of Buyer. Buyer hereby represents --------------------------------------- and warrants to, and covenants with Seller, as follows: (a) Buyer is a New Jersey corporation, duly organized, validly existing and good standing under the laws of the State of New Jersey, is qualified to do business in Pennsylvania and has the authority to enter into and consummate its obligations under this Agreement. (b) Buyer has the power and authority to enter into this Agreement, and the execution, delivery and performance of this Agreement have been duly authorized by Buyer. (c) Neither its entering into this Agreement nor its consummation of the transactions contemplated hereby does or will violate any provision of Buyer's Articles of Incorporation or by-laws or any indenture, agreement or order by which Buyer is bound, or any rule, order or law applicable to Buyer. 7. Conditions of Buyer's Obligations. The obligation of Buyer under this --------------------------------- Agreement to purchase the Property from Seller is subject to the satisfaction at Settlement of each of the following conditions (any one of which my be waived in whole or in part by Buyer at or prior to Settlement): (a) All of the representations and warranties by Seller set forth in this Agreement shall be true and correct at and as of Settlement in all respects as though such representations and warranties were made at and as of Settlement, and Seller shall have performed, observed, and complied with all covenants, agreements, and conditions required by this Agreement to be performed on its part prior to or as of Settlement. (b) Due Diligence Period. (i) Buyer shall have a period from the Effective Date through the date, which is sixty (60) days thereafter (the "Due Diligence Period") to conduct due diligence investigations, including but not limited to soils testing and analysis of the Property and all information pertaining to the Property. If Buyer, in its sole discretion, determines that it does not desire 5 to acquire the Property, with or without reason, and notifies Seller in writing by 5:00 p.m. on the last day of the Due Diligence Period of its election to terminate, this Agreement thereupon shall become void, the Deposit shall be returned to Buyer with interest and there shall be no further obligation or liability on either of the parties hereto. If Buyer terminates this Agreement, Buyer shall promptly return to Seller all copies and originals of all due diligence reports obtained by Buyer and all copies of reports and other information given to Buyer by Seller. Buyer shall not be permitted to retain any copies of the foregoing information unless otherwise approved by Seller. (ii) Buyer acknowledges that all of Buyer's investigations and testing of the Property are undertaken by Buyer at Buyer's sole risk, cost and expense. Buyer shall indemnify, defend and hold harmless the Seller from and against any claim, loss, cost, liability, judgment settlement, damage or expense, including, without limitation, reasonable attorney's fees and legal costs, caused by Buyer or Buyer's designees conducting any investigations or testing which Buyer undertakes in connection with the Property. This indemnification shall survive any termination or expiration of this Agreement (c) Within twenty (20) days after the Effective Date, Seller shall deliver to Buyer copies of all of the following documents currently in Seller's possession, if available: (i) The latest as-built plans or surveys (the "Survey") of the Property prepared by a registered and licensed surveyor; (ii) Copies of the floor plans of all buildings on the Property; (iii) Copies of all service contracts with respect to the Property; (iv) Copies of the latest environmental reports with respect to the Property which are in Seller's possession; and (v) Copies of the latest title commitment and title policy with respect to the Property, which are in Seller's possession. (d) EAID Issues. Seller shall act in good faith to resolve any existing ----------- title issues concerning the Property with the EAID including, if necessary, filing a corrective deed in the Recorder of Deeds Office in and for Northampton County. Seller shall provide Buyer with weekly updates as to the status of this resolution. 6 (e) At Settlement, Seller shall deliver or caused to be delivered to Buyer duly executed originals of the following: (i) A Special Warranty Deed duly executed and acknowledged by Seller and in proper form for recording (the "Deed"); (ii) A valid bill of sale for the Personal Property as listed on Exhibit "G"; (iii) An assignment in form and substance mutually satisfactory to Seller and Buyer, duly executed by Seller, assigning to Buyer all of Seller's right, title, and interest in and to (A) any and all guaranties and warranties, if any, pertaining to the Property; and (B) any permits, licenses, plans authorizations, approvals relating to ownership, operation, or occupancy of the Property; (iv) Originals or copies, if available, of the following instruments, all certified by Seller as true and correct to the best knowledge of Seller: (A) All certificates of occupancy (and any required governmental approvals in connection with the transfer of the Property), licenses, plans, permits, authorizations, and approvals required by law and issued by all governmental authorities having jurisdiction over the Property (B) All building records in Seller's possession or control with respect to the Property; (C) Each bill of current real estate taxes, sewer charges and assessments, water charges, and other utilities; and (D) All assigned guarantees and warranties; (v) Except for any keys required to access Seller's leased space in which event copies of keys will be provided to Buyer, all keys and combinations to locks at the Property, all plans, specifications, as-built drawings, surveys, site plans, equipment manual, technical data, and other documentation relating to the building systems, equipment, and any other personal property forming part of the Property or any portion thereof in possession of Seller or any property manager(s); (vi) An affidavit of title in favor of Buyer and Buyer's title insurer in the form used by such title insurance company; (vii) A letter from the Township or other local governing body confirming the present zoning of the Property and stating that there are on outstanding 7 violations of laws, ordinances, or regulations issued against the Property, and otherwise in the form of Exhibit "E" attached hereto; (viii)Such other documents as reasonably may be required to consummate this transaction accordance with this Agreement. Unless all of the foregoing conditions contained in this Paragraph 7 are satisfied within the time period specified, or if no time period is specified, prior to or at Settlement, Buyer, at its election, may, either (i) extend the date for Settlement until such conditions are satisfied or (ii) waive in writing the satisfaction of any such conditions, in which event this Agreement shall be read as if such conditions no longer existed. 8. Conditions of Seller's Obligations. The obligation of Seller under this ---------------------------------- Agreement to convey title to the Property to Buyer is subject to the satisfaction at Settlement of each of the following conditions: (a) Delivery by Buyer of the Purchase Price; (b) Delivery of such other documents as reasonably may be required to consummate this transaction accordance with this Agreement. (c) The representations and warranties of Buyer in this Agreement shall be true and correct in all material respects as of Settlement and Buyer shall have performed all covenants and obligations required to be performed by Buyer under this Agreement. 9. Possession. Except for the portion of the Property to be leased by Seller ---------- pursuant to the provisions of Section 24 hereof, possession of the Property shall be given to Buyer at Settlement unoccupied and free of any liens. Prior to Settlement hereunder, Seller shall clean the Property of trash, debris, equipment (except equipment which Buyer and Seller agree shall remain on the Property, as listed on Exhibit "G" attached hereto and made a part hereof, vehicles, toxic waste, and billboards, whether on the surface or buried below. 10. Apportionments; Taxes. --------------------- (a) Real estate taxes, all utilities, operating expenses, and other apportionable income and expenses paid or payable by Seller shall be apportioned prorata on a per diem basis as of Settlement. Taxes, and additional rent paid on account thereof, shall be apportioned based on the fiscal year of the taxing authority. Seller shall cause any and all public utilities serving the Property to issue final bills to Seller on the basis of readings made as of Settlement, and all such bills shall be paid by Seller. (b) All realty transfer taxes imposed on or in connection with this transactions shall be shared equally by Seller and Buyer. 8 11. Condemnation. Seller covenants and warrants that Seller has not heretofore ------------ received any notice of any condemnation proceeding or other proceeding in the nature of eminent domain in connection with the Property. If prior to Settlement any such proceeding is commenced or any change is made, or proposed to be made, to the current means of ingress and egress to the Property or the roads or driveways adjoining the Property, or to change such ingress or egress or to change the grade thereof, Seller agrees immediately to notify Buyer thereof. Buyer then shall have the right, at Buyer's option, to terminate this Agreement by giving written notice to Seller within thirty (30) days after receipt of such notice. If Buyer does not so terminate this agreement, Buyer shall proceed to Settlement hereunder as if no such proceeding had commenced and will pay Seller the full Purchase Price in accordance with this Agreement; Seller shall assign to Buyer all of its right, title, and interest in and to any compensation for such condemnation, Seller shall not negotiate or settle any claims for compensation prior to Settlement, and Buyer shall have the sole right (in the name of Buyer or Seller or both) to negotiate for, to agree to, and to contest all offers and awards. 12. Default by Buyer. If Buyer, without the right to do so and in default of ---------------- its obligation hereunder, fails to complete Settlement, the Deposit and all accrued interest shall be paid to Seller. Such payment of the Deposit and all accrued interest to Seller shall be deemed to be liquidated damages for Buyer's default and the receipt of same shall be Seller's exclusive and sole remedy, and Seller hereby waives any right to recover the balance of the Purchase Price, or any part thereof, and the right to pursue any other remedy permitted at Law or in equity against Buyer. 13. Default by Seller. ----------------- If Seller, without the right to do so and in default of its obligations hereunder, fails to complete Settlement, the Deposit and all accrued interest shall be returned to Buyer or Buyer may sue for specific performance. 14. Risk of Loss. Seller shall bear the risk of all loss or damage to the ------------ Property from all causes, except for losses or damages caused by Buyer's or Buyer's agents performing any due diligence on behalf of Buyer, negligence or willful misconduct until Settlement. Seller represents that it has, and will maintain pending Settlement, a policy of fire and extended coverage insurance in at least the full amount of the replacement cost of all buildings and improvements located on the Property. Seller will deliver to Buyer within fifteen (15) days after the Effective Date a certificate issued by such insurer evidencing that such policy is in effect, that it will not be canceled without at least ten (10) days' prior notice to Buyer. If at any time prior to Settlement any portion of the Property is destroyed or damaged as a result of fire or any other casualty whatsoever, Seller shall promptly give written notice thereof to Buyer and Buyer shall have the right (i) to terminate this Agreement by written notice to Seller, whereupon Escrow Agent shall return the Deposit (with any accrued interest) to Buyer, and thereafter this Agreement shall be void and neither party shall have any further rights or 9 obligations hereunder; or (ii) to proceed with this Agreement and to notify Seller that, at Buyer's sole option, Seller either shall (A) use any available insurance proceeds to restore the Property prior to Settlement to its condition as of the Effective Date, and if there are any excess insurance proceeds after completion of such restoration, such proceeds shall be kept by Seller; or (B) in lieu of restoration, prior to Settlement, clear the site of debris and deposit all remaining insurance proceeds in escrow with Escrow Agent and such funds, together with interest thereon, shall be disbursed to Buyer at Settlement. All unpaid claims and rights in connection with any such losses shall be assigned to Buyer at Settlement without in any manner affecting the Purchase Price. 15. Signs. Seller hereby consents to the placing of signs upon the Property by ----- Buyer; provided, however, that such signs shall be in compliance with all zoning and other regulations governing the Property and the specifications for any such sign must first be submitted to Seller for its approval, which approval shall not be unreasonably withheld or delayed. If Settlement is not made hereunder, Buyer shall remove such signs at Buyer's expense and restore the Property to its condition existing prior to installation of the signs. The parties hereto agree that Seller's identification sign on the Property shall remain during the term of the lease as provided in Section 24 hereof. 16. Brokerage. Buyer represents and warrants to Seller and Seller represents --------- and warrants to Buyer that each dealt with no broker, agent, finder, or other intermediary in connection with this sale and purchase other than Gelcor GVA Worldwide for whose commission Seller shall be solely responsible if and when Settlement takes place out of the proceeds thereof and Beacon Commercial Real Estate for whose commission Buyer shall be solely responsible. The parties agree to indemnify, defend, and hold each other harmless from and against the claims of any and all brokers and other intermediaries claiming a commission through that party in connection with this sale. 17. Operation of the Property Prior to Settlement. Prior to Settlement: --------------------------------------------- (a) The Property shall be operated, managed, and maintained in a reasonable, professional, and prudent manner, and kept in reasonably good condition at all times, ordinary wear and tear excepted. (b) At reasonable times following reasonable notice, Buyer, its accountants, architects, attorneys, engineers, contractors, and other representatives shall be afforded reasonable access to the Property to inspect, measure, appraise, test, and make surveys of the Property. (c) Seller promptly shall notify Buyer of Seller's receipt of any notice from any party alleging that Seller is in default of its obligation under any permit or agreement affecting the Property, or any portion or portions thereof. 10 (d) No contract for or on behalf of or affecting the Property shall be negotiated or entered into which cannot be terminated by Seller prior to Settlement without charge, cost, penalty, or premium, without Buyer's prior consent. (e) Except with the prior written consent of Buyer, Seller shall not enter into any new leases for any portion of the Property; any new lease shall be on a form of lease supplied to Seller by Buyer. In the event Buyer approves any new leases, Seller shall deliver to Buyer an estoppel certificate from the tenant (s) and guarantor (s) thereunder as required hereunder for the leases and otherwise shall comply, as to such new leases and new guaranties, with the terms of this Agreement. Further, except with the prior written consent of Buyer, Seller shall not amend, extend, terminate, accept surrender of, or permit any assignments or subleases of, any of the leases nor accept any rental more than one (1) month in advance or accelerate the rent due to any tenant default under any of the leases. 18. Notice. All notices, requests, and other communications under this ------ Agreement shall be in writing and shall be delivered (i) in person, (ii) by registered or certified mail, return receipt requested, or (iii) by recognized overnight delivery service providing positive tracking of items (for example, Federal Express), addressed as follows or at such other address of which Seller or Buyer shall have given notice as herein provided: If intended for Seller: Paragon Technologies, Inc. 600 Kuebler Road Easton, PA 18040 Attention: William R. Johnson Telephone: 610-252-3205 with a copy to: Pepper Hamilton, LLP 400 Berwyn Park 899 Cassatt Road Berwyn, PA 19312 Attention: Cuyler H. Walker, Esquire Telephone: 610-640-7823 If intended for Buyer: J.G. Petrucci Company, Inc. 171 Route 173, Suite 201 Asbury, NJ 08802 11 Attention: Gregory T. Rogerson, Esq. Telephone: 908-730-6909 All such notices, requests, and other communications shall be deemed to have been sufficiently given for all purposes hereof only upon receipt by the party to whom which notice is sent. Notices by the parties may be given on their behalf by their respective attorneys. 19. AS-IS Condition of Property. Except as otherwise expressly provided in this --------------------------- Agreement or any documents to be delivered to Buyer at Settlement the Seller disclaims the making of any representations or warranties, express or implied, regarding the Property or matters affecting the Property, whether made by the Seller, on the Seller's behalf or otherwise, including, without limitation, the physical condition of the Property, title to or the boundaries of the Real Property, pest control matters, soil conditions, the presence, existence or absence of Hazardous Substances, hazardous wastes, toxic substances, or other environmental matters, compliance with environmental statues, building, health, safety, land use and zoning laws, regulations and orders, structural and other engineering characteristics, traffic patterns, market data, economic conditions or projections, and any other information pertaining to the Property. The Buyer acknowledges (a) that Buyer has entered into this Agreement with the intention of making and relying upon its own investigations or that of third parties selected by Buyer with respect to the physical, environmental, economic and legal condition of the Property, and (b) that the Buyer is not relying upon any statements, representation or warranties of any kind, other than those specifically set forth in this Agreement or in any document to be delivered to the Buyer at Settlement made (or purported to be made) by the Seller or any one acting or claiming to act on the Seller's behalf. The Buyer further acknowledges that it has not received from or on behalf of the Seller any accounting, tax, legal, architectural engineering, property management or other advice with respect to this transaction and is relying solely upon the advice of third party accounting, tax, legal, architectural engineering, property management and advisors of Buyer. Subject to the provisions of this Agreement, the Buyer shall purchase the Property in its "as is" condition and "with all faults" at Settlement. 20. Further Assurance. After Settlement, at Buyer's sole cost and expense, ----------------- Seller shall execute, acknowledge, and deliver, for no further consideration, all assignments, transfers, deeds, and other documents as Buyer may reasonably request to vest in Buyer and perfect Buyer's right, title, and interest in and to the Property. 21. Environmental Representations, Warranties and Covenants. Except as set ------------------------------------------------------- forth in Exhibit "F": 12 (a) The business of Seller is being conducted and has at all times prior to the date of Settlement been conducted in compliance with all applicable Environmental Laws. To Seller's actual knowledge and except as disclosed in the reports listed on Exhibit "F", Seller has not received any notice of any asserted violation of any Environmental Law, or any notice of any claim pursuant to the provisions of any Environmental Law, or any notice of any claim for contribution, trespass, nuisance, or damage or injury to persons, property or natural resources as a result of a release or threatened Release of a Hazardous Substance at, on or from the Property or any notice of any release of a Hazardous Substance which may effect the Property; (b) To Seller's actual knowledge and except as disclosed in the reports listed on Exhibit "F", there are no defects or conditions existing at, on or beneath the Property which could have a material adverse effect on the Property or, to Seller's knowledge, could interfere with the Buyer's continued use of the Property and there are no conditions, at, on, under or related to, the Property which pose a hazard to human health or the environment; (c) Seller has obtained and maintains in full force and effect, all permits, licenses and other authorizations required by law or issued pursuant to any Environmental Law for the operation of the business of Seller. Seller is in compliance with all of the terms and conditions of such permits, licenses and other authorizations, has not received any notice or other communication concerning any alleged violation of any such permits, licenses and other authorizations, and there are no capital expenses or increases in operating costs anticipated in order for Seller not to remain in compliance with any Environmental Law and such permits, licenses and other authorizations; (d) There exists no writ, injunction, decree, order or judgment outstanding, nor any lawsuit, claim, proceeding, citation, directive, summons or investigation pending or threatened against Seller relating to (i) the occupation or use of the Property; (ii) any alleged violation of any Environmental Law, or (iii) the suspected presence, Release or threatened Release of any Hazardous Substance on, under, in or from the Property, nor, to the knowledge of Seller, does there exist any valid basis for any such lawsuit, claim, proceeding, citation, directive, summons or investigation; (e) No above, at grade or underground tanks or other impoundments are now or have ever been located on or under the Property, except for such tanks which have been removed in compliance with Environmental Laws as set forth in Exhibit "F", and except as set forth on Exhibit "F", no Hazardous Substances are, or to Seller's actual knowledge ever been stored at or on 13 the Property; (f) All friable asbestos located on the Property has been properly repaired and sealed to prevent any emission of asbestos fibers into the ambient air; (g) There is no PCB containing equipment or material located on the Property; (h) Seller has not produced, treated, disposed of or Released any Hazardous Substance, arranged for the disposal or Release of any Hazardous Substance or exposed any employee or other individual to any Hazardous Substance. (i) For the purposes of this Agreement: (i) Environmental Law shall mean all federal, state and ----------------- local laws, statutes, ordinances, regulations, rules, judicial and administrative orders and decrees, permits, licenses, approvals, authorizations and similar requirements of all federal, state and local governmental agencies or other governmental authorities, pertaining to the protection of human health and safety or the environment. (ii) Hazardous Substance shall mean any substance which is: 1) ------------------- defined as a hazardous substance, hazardous material, hazardous waste, pollutant or contaminant under any Environmental Law, (2) a petroleum hydrocarbon, including crude oil or any fraction thereof, (3) hazardous, toxic, corrosive, flammable, explosive, infectious, radioactive, carcinogenic, or a reproductive toxicant, or (4) regulated pursuant to any Environmental Law. (iii) Release shall mean any spilling, leaking, pumping, ------- pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discharging of barrels, containers and other closed receptacles containing any Hazardous Substance), other than in compliance with Environmental Law. (iv) Property shall mean the real property located at 600 Kuebler Road, Easton, PA and all buildings and improvements thereon. 14 22. Environmental Indemnification. The Seller agrees to indemnify and hold ----------------------------- harmless the Buyer and its directors, officers, employees, affiliates and assigns from and against any claims, losses, damages, liabilities and expenses (including reasonable legal expenses) which may be sustained, suffered or incurred by reason of or arising from: (a) a material breach of any representation, warranty, covenant or agreement of Seller contained in this Agreement or any document or any certificate furnished pursuant to or in connection with this Agreement, or a claim by an unaffiliated third party that, without regard to the merits of the claim, would constitute such a breach; and, or (i) the presence on, in under or having emanated from the Property of any Hazardous Substance on or before Settlement, any release or threatened release of any Hazardous Substance generated by Seller or any person or entity for whom Seller has legal liability, first occurring on, under or from the Property prior to the Settlement Date, or the use, generation, manufacturing, production, handling, storage, transport, discharge, disposal or arrangement for disposal of any Hazardous Substance on or before Settlement irrespective of whether any of such activities were undertaken in accordance with Environmental Law or other applicable laws and regulations, or (ii) any offsite disposition of wastes or recyclable materials generated by Seller prior to Settlement or any violation of Environmental Law prior to Settlement. 23. Miscellaneous. ------------- (a) The captions in this Agreement are inserted for convenience of reference only and in no way define, describe, or limit the scope or intent of this Agreement or any of the provisions hereof. (b) Formal tender of an executed deed and purchase money is hereby waived. (c) Buyer shall have the right to cause Seller to convey the Property directly to Buyer's nominee provided that Buyer has fulfilled Buyer's obligations under this Agreement. (d) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executor, administrators, legal representatives, successors, and assigns. (e) This Agreement, including the exhibits attached hereto, contains the whole agreement as to the Property between Seller and Buyer, and there are no other terms, obligations, covenants, representations, statements, or conditions, oral or otherwise of any kind whatsoever concerning this sale and purchase. This Agreement shall not be altered, amended, changed, or 15 modified except in writing executed by the parties hereto. (f) This Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania. (g) Both parties to this Agreement have participated fully and equally in the negotiation and preparation hereof, this Agreement shall not be more strictly construed, or any ambiguities within this Agreement resolved, against either party hereto. 24. Lease Execution. This Agreement is conditioned on the execution of the Lease Agreement between Buyer as landlord and Seller as tenant attached hereto and incorporated herein on substantially the terms and conditions listed in the Letter of Intent, a copy of such provisions attached hereto as Exhibit "D" on or before the Settlement as defined herein. Settlement shall not occur until the Lease Agreement is fully executed. IN WITNESS WHEREOF, intending to be legally bound, the parties have caused this Agreement to be duly executed, under seal, as of the day and year first written above. SELLER: Paragon Technologies, Inc. By: /s/ William R. Johnson ---------------------------- Name: William R. Johnson Title: President & CEO Witness:/s/ Ronald J. Semanick ---------------------------- BUYER: J.G. Petrucci Company, Inc. By: /s/ James G. Petrucci ---------------------------- Name: James G. Petrucci Title: President Witness:/s/ Gregory T. Rogerson ---------------------------- 16 Exhibit A Legal Description of Property Copy of Legal Description of Property as prepared by First American Title Insurance Company Exhibit B Insurance Claims Copy of Police Accident Report and Repair Proposal pertaining to damaged fire hydrant on Company property. Exhibit C Management Agreements Except as provided in Schedule C-1, to the best of Seller's knowledge, there are no existing Management Agreements. Schedule C-1 ------------ Copy of Maintenance Agreement pertaining to Snow Removal Services Exhibit D Lease To be delivered after the execution of this Agreement incorporating the terms as set forth in Schedule D-1 attached hereto. Schedule D-1 Lease-Back: Paragon Technologies, Inc. shall sign a lease for 25,000 s/f of office space for five (5) years at $8.25 per s/f with three percent increases per annum (space shall be leased "as-is"). Paragon Technologies, Inc. may break this lease at any time during the term of this lease to move to any of J.G. Petrucci Co., Inc.'s existing office buildings or build to suit land sites. Paragon Technologies, Inc. reserves the right to investigate other J.G. Petrucci Co. Inc.'s properties during the Due Diligence period for the purpose of exploring the possibility of exchanging Paragon's aforementioned lease commitment for its Easton, Pennsylvania facility with another J.G. Petrucci Co. Inc.'s property. Expenses: Tenant shall pay its pro-rata share of operating expenses on a monthly basis throughout the term of the Lease. Security: Tenant will post a letter of credit of $200,000 as security at the time of final execution of the Lease. Exhibit E Zoning Regulations To be provided by Buyer to Seller after execution of this Agreement but in no event later than five (5) days after the beginning of the Due Diligence Period. Exhibit F Environmental Reports 1. Phase 1 - Environmental Risk Assessment dated September 26, 2002 prepared by Barry Isett & Associates, Inc. 2. Phase 1 - Environmental Risk Assessment dated August 30, 2001 prepared by Barry Isett & Associates, Inc. 3. Phase 1 - Environmental Risk Assessment dated August 24, 1999 prepared by Barry Isett & Associates, Inc. 4. Phase 1 - Product Distribution Equipment Closure Report dated October 21, 1999 prepared by EMS Environmental, Inc. Exhibit G Personal Property To be agreed to by Buyer and Seller after execution of this Agreement but in no event later than five (5) days prior to Settlement. EX-10 4 ex10-28.txt EXHIBIT 10-28 Exhibit 10.28 ------------- AMENDMENT I OF AGREEMENT OF SALE This Amendment I of Agreement of Sale dated this 2nd day of January, 2003 by --- and between Paragon Technologies, Inc. (hereinafter "Seller") and J.G. Petrucci Company, Inc. (hereinafter "Buyer"). WITNESSETH: WHEREAS, Seller and Buyer entered into an Agreement of Sale on or about November 8, 2002; and WHEREAS, the Agreement of Sale went into effect on November 8, 2002; and WHEREAS, the Seller and Buyer wish to amend the Agreement of Sale. NOW, THEREFORE, in consideration of the premises, and the mutual undertakings of the parties set forth herein, and with the intention of being bound hereby, the parties agree as follows: 1. Section 7: The time period for the Buyer to conduct its due diligence --------- investigations shall be increased from sixty (60) days to one sixty-seven (67) days ("Extended Due Diligence Period") thereby making the final day of the due diligence period January 14, 2003. 2. Section 3: Settlement shall occur on or about January 29, 2003. --------- 3. No Other Modifications. Except as herein modified, the Agreement of ---------------------- Sale remains unmodified and in full force and effect. To the extent that there are any conflicts between the Agreement of Sale and this Amendment I this Amendment I shall govern. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly executed on the day and year first written. SELLER: BUYER: PARAGON TECHNOLOGIES, INC. J.G. PETRUCCI COMPANY, INC. By: /s/ William R. Johnson By: /s/ James G. Petrucci -------------------------- ---------------------------- Name: /s/ William R. Johnson Name: /s/ James G. Petrucci -------------------------- ---------------------------- Title: /s/ CEO Title: /s/ President -------------------------- ---------------------------- Witness: /s/ Ronald J. Semanick Witness: /s/ Gregory T. Rogerson -------------------------- ---------------------------- EX-10 5 ex10-29.txt EXHIBIT 10-29 Exhibit 10.29 ------------- AMENDMENT II OF AGREEMENT OF SALE This Amendment II of Agreement of Sale dated this 13th day of January, 2003 by ---- and between Paragon Technologies, Inc. (hereinafter "Seller") and Triple Net Investments XIII, L.P. (hereinafter "Buyer"). WITNESSETH: WHEREAS, Seller and Buyer entered into an Agreement of Sale on or about November 8, 2002; and WHEREAS, the Agreement of Sale went into effect on November 8, 2002; and WHEREAS, the Agreement of Sale was amended by Amendment I of Agreement of Sale dated on or about January 3, 2003; WHEREAS, the Seller and Buyer wish to amend the Agreement of Sale for a second time. NOW, THEREFORE, in consideration of the premises, and the mutual undertakings of the parties set forth herein, and with the intention of being bound hereby, the parties agree as follows: 1. Section 7: The time period for the Buyer to conduct its due diligence --------- investigations shall be increased from sixty-seven (67) days to one hundred four (104) days ("Extended Due Diligence Period") thereby making the final day of the due diligence period February 20, 2003. Notwithstanding the foregoing, after January 17, 2003, Buyer shall only be permitted to terminate the Agreement of Sale, as amended, and receive the Deposit back, if it fails to obtain zoning approval from Forks Township for its intended use of the Property in accordance with the plan dated November 21, 2002, prepared by Pany and Lentz ----------------- Engineering submitted to the Township. 2. Section 3: Settlement shall occur on or before February 21, 2003. --------- 3. No Other Modifications. Except as herein modified, the Agreement of ---------------------- Sale remains unmodified and in full force and effect. To the extent that there are any conflicts between the Agreement of Sale, Amendment I and this Amendment II this Amendment II shall govern. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly executed on the day and year first written. SELLER: BUYER: PARAGON TECHNOLOGIES, INC. TRIPLE NET INVESTMENTS XIII, L.P. By: /s/ William R. Johnson By: /s/ James G. Petrucci -------------------------- ---------------------------- Name: /s/ William R. Johnson Name: /s/ James G. Petrucci -------------------------- ---------------------------- Title: /s/ CEO Title: /s/ Op. Manager of The -------------------------- ---------------------------- General Partner ---------------------------- Witness: /s/ Ronald J. Semanick Witness: /s/ Gregory T. Rogerson -------------------------- ---------------------------- EX-10 6 ex10-30.txt EXHIBIT 10-30 Exhibit 10.30 ------------- AMENDMENT III OF AGREEMENT OF SALE This Amendment II of Agreement of Sale dated this 17th day of January, 2003 by and between Paragon Technologies, Inc. (hereinafter "Seller") and Triple Net Investments XIII, L.P. (hereinafter "Buyer"). WITNESSETH: WHEREAS, Seller and Buyer entered into an Agreement of Sale on or about November 8, 2002; and WHEREAS, the Agreement of Sale went into effect on November 8, 2002; and WHEREAS, the Agreement of Sale was amended by Amendment I of Agreement of Sale dated on or about January 3, 2003 and Amendment II of Agreement of Sale dated on or about January 13, 2003; WHEREAS, the Seller and Buyer wish to amend the Agreement of Sale for a third time. NOW, THEREFORE, in consideration of the premises, and the mutual undertakings of the parties set forth herein, and with the intention of being bound hereby, the parties agree as follows: 1. Section 2: The purchase price shall be reduced from Three Million and --------- 00/XX Dollar ($3,000,000.00) to Two Million Nine Hundred Twenty-Five Thousand and 00/XX Dollars ($2,925,000.00). 2. Section 2(a): Seventy-Five Thousand Dollars of the Deposit shall ------------ become non-refundable as of the date of this Amendment IIII. The balance of the Deposit shall be refundable to the Buyer through the final day of the Due Diligence Period as amended. 3. Section 7: The Due Diligence Period shall be extended to February 20, --------- 2003. Notwithstanding the foregoing, Buyer shall only be permitted to terminate the Agreement of Sale, as amended, and receive the Deposit back, if it fails to obtain Zoning Approval and Conditional Use Approval from Forks Township's Zoning Board and Board of Supervisors respectively for its intended use of the Property in accordance with the plan dated November 21, 2002, prepared by Pany and Lentz Engineering submitted to the Township. 4. Section 3: Settlement shall occur on or before February 21, 2003. --------- 5. No Other Modifications. Except as herein modified, the Agreement of ---------------------- Sale remains unmodified and in full force and effect. To the extent that there are any conflicts between the Agreement of Sale, Amendment I, Amendment II and this Amendment III this Amendment III shall govern. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly executed on the day and year first written. SELLER: BUYER: PARAGON TECHNOLOGIES, INC. TRIPLE NET INVESTMENTS XIII, L.P. By: /s/ William R. Johnson By: /s/ James G. Petrucci -------------------------- ---------------------------- Name: /s/ William R. Johnson Name: /s/ James G. Petrucci -------------------------- ---------------------------- Title: /s/ CEO Title: /s/ Op. Manager of The -------------------------- ---------------------------- General Partner ---------------------------- Witness: /s/ Susan Willey Witness: /s/ Gregory T. Rogerson -------------------------- ---------------------------- EX-10 7 ex10-31.txt EXHIBIT 10-31 Exhibit 10.31 ------------- LEASE AGREEMENT This Lease Agreement ("Lease") is entered into this 21st day of ---- February 2003 ("Effective Date"), by and between Triple Net Investments XIII, - ------------- L.P., a New Jersey limited partnership or its assigns ("Landlord"), whose mailing address is 171 Route 173, Suite 201, Asbury, NJ 08802 and Paragon Technologies, Inc., a Delaware corporation, ("Tenant"), whose mailing address is 600 Kuebler Road, Easton, PA 18040. 1. LEASE OF BUILDING; TERM. Landlord hereby leases to Tenant all that certain office space comprised of approximately 25,000 square feet ("Leased Premises") in that certain 173,000 square foot building ("Building") known as 600 Kuebler Road, Easton, Pennsylvania and further described on the attached Exhibit A, which is incorporated herein by reference (the "Property") (the - --------- Building and the Property are sometimes herein collectively called the "Premises") to be used and occupied for the purpose of operating a commercial office for Tenant's business for the term of five (5) years (the "Term"), commencing on the Effective Date of the Lease. The parties agree to execute a memorandum expressing the commencement and termination dates and the renewal term dates upon the determination thereof. 2. RENTAL. The rental to be paid by Tenant during the Term of this Lease (the "Rent") shall be payable, without any prior demand therefore, monthly as follows:
Lease Years Sq. Ft. Rate Annual Rent Monthly Rent Total Rent - ----------- ------- ---- ----------- ------------ ---------- Year 1 25,000 $8.25 $206,250.00 $17,187.50 $206,250.00 Year 2 25,000 $8.50 $212,437.50 $17,703.12 $212,437.50 Year 3 25,000 $8.75 $218,810.62 $18,234.21 $218,810.62 Year 4 25,000 $9.01 $225,374.94 $18,781.24 $225,374.94 Year 5 25,000 $9.28 $232,136.19 $19,344.68 $232,136.19 TOTAL $1,095,009.25
payable in advance on the first day of each month to Landlord, at the address set forth above, or to such other party or at such other place as Landlord may from time to time in writing designate. The Rent shall be adjusted upwards or downwards based upon the square footage leased hereunder. 3. OPERATING EXPENSES. a. In addition to Rent, Tenant shall pay to Landlord, commencing on the Effective Date and continuing throughout the Term, Tenant's Proportionate Share of Operating Expenses (as hereinafter defined), which payment shall otherwise be due and payable at the same time and in the same manner as Rent. Tenant shall pay monthly in advance an estimated Tenant's Proportionate Share of Operating Expenses, as determined by Landlord from time to time, in accordance with the balance of this Section. 1 b. "Tenant's Proportionate Share" shall mean a fraction, the numerator of which shall be the leasable floor area of the Leased Premises and the denominator of which shall be the leasable floor area of the Building. Tenant's Proportionate Share, based upon the square footage of the Leased Premises leased by Tenant, is currently 14.45%. c. "Operating Expenses" shall mean the following expenses incurred or paid by Landlord in connection with the operation, repair and/or maintenance of the Property, but not including expenses incurred or paid that benefit one particular tenant and no others: (i) real property taxes and other taxes and charges levied in lieu thereof, general and special public assessments, taxes or other non-capital charges imposed by any governmental authority pursuant to anti-pollution or environmental legislation, and taxes or other charges on rentals or the use, occupancy or renting of space; (ii) premiums and fees for fire and extended coverage insurance, insurance against loss or rentals for space and public liability insurance, all in amounts and coverages (with additional policies against additional risks) as may be reasonably required by Landlord or the holder of any mortgage encumbering the Property or any part thereof; (iii) water and sewer connection and service charges, common area electricity and other utility charges not separately metered to tenants of the Property; (iv) all maintenance and repair costs including, but not limited to, repairs and replacements of supplies and equipment, snow, ice and debris and rubbish removal, paving and striping, lawn and general grounds upkeep, maintenance, repair and replacement of all HVAC, electrical, plumbing and sprinkler systems and equipment, and the costs of all labor, materials and supplies incidental thereto; (v) management fees payable to the managing agent of the Property (such fee shall be capped at 4.5% of gross rents); and (vi) any and all other expenditures of Landlord incurred in connection with the operation, repair or maintenance of the Property which are properly expensed in accordance with generally accepted accounting principles consistently applied. All service related contracts shall be negotiated by Landlord at arms length. d. Within thirty (30) days of the date hereof, Landlord shall advise Tenant in writing of the estimated Operating Expenses for the first Lease Year (as hereinafter defined) and any interim period, if any, Tenant's Proportionate Share and Landlord's initial monthly estimate of Tenant's Proportionate Share of Operating Expenses for the first Lease Year. Tenant shall pay the first installment of the monthly estimated Tenant's Proportionate Share of Operating Expenses within thirty (30) days of notice of the amount thereof. e. Within ninety (90) days following the end of each Lease Year, Landlord shall advise Tenant in writing of the actual Operating Expenses for the preceding Lease Year. If the actual Tenant's Proportionate Share of Operating Expenses for any calendar year, or other period of twelve (12) months as may hereafter be adopted by Landlord as its fiscal year, during the Term (each a "Lease Year") are greater than the total estimated Tenant's Proportionate Share of Operating Expenses paid for such Lease Year, Tenant shall pay the difference to Landlord with the next installment of Base Rent. If the actual Tenant's Proportionate Share of Operating Expenses for such Lease Year are 2 less than the total estimated Tenant's Proportionate Share of Operating Expenses paid for such Lease Year, Tenant shall receive a credit in the amount of the difference which shall be applied against the next installment(s) of estimated Tenant's Proportionate Share of Operating Expenses until a credit for the full amount is received. If the term expires before credit for the full amount is received Landlord shall pay Tenant any remaining balance on the termination date. Landlord's failure to provide such statement within the time frame provided under this provision shall not constitute a waiver of Landlord's right to bill and collect Tenant's Proportionate Share of Operating Expenses for such Lease Year(s). If Tenant occupies the Leased Premises, or any portion thereof, for less than a full Lease Year, Tenant's liability for Tenant's Proportionate Share of Operating Expenses for such period shall be calculated in proportion to the amount of time in such Lease Year that Tenant occupied the Leased Premises. f. With respect to the annual determination by Landlord of Tenant's Proportionate Shared Operating Expenses, Tenant, or its designee shall have the one time annual right, pursuant to the terms and conditions herein, to review all of Landlord's bills, records and invoices related to the Operating Expenses. Such review shall occur at such reasonable location designated by Landlord during normal working hours. As a condition precedent to Tenant's right to review the Operating Expenses billed by Landlord pursuant to this Paragraph 3, Tenant must pay the total amount billed by Landlord. This paragraph shall not limit Tenant's right to review all of Landlord's bills, records and invoices for any extraordinary charges or capital expenditures not related to such calculation of Tenant's Proportionate Share of Operating Expenses or pursuant to subparagraph h herein. g. In the event that Tenant reviews an Operating Expenses Statement and discovers a discrepancy in its favor, the amount of the discrepancy shall be, at Landlord's election, either credited by Landlord against future Operating Expenses owed by Tenant until a credit for the full amount is received (if the term expires before credit for the full amount is received Landlord shall pay Tenant any remaining balance on the termination date) or reimbursed by Landlord directly to Tenant. In the event the discrepancy in Tenant's favor is greater than ten (10) percent of the total Operating Expense Statement for the year in question, then Landlord shall pay Tenant's reasonable costs for such review. h. Landlord shall have the right, two times per year including the annual adjustment, throughout the Term, and during any one or more Lease Years, to adjust, by written notice to Tenant, the monthly estimate of Tenant's Proportionate Share of Operating Expenses. Pending any such adjustment, Tenant shall continue to pay the then existing monthly estimate of Tenant's Proportionate Share of Operating Expenses, but shall pay the adjusted monthly estimate of Tenant's Proportionate Share of Operating Expenses upon receipt of notice thereof. 4. SECURITY DEPOSIT. The Tenant shall provide a security deposit of $200,000.00 in the form of a Letter of Credit to the Landlord when the Tenant signs this Lease. 3 5. LICENSES AND PERMITS. Tenant shall be responsible to obtain the licenses or permits that may be required by any governmental agency or authority in order for Tenant to lawfully occupy the Leased Premises and conduct its business, which Tenant shall obtain at its sole cost and expense. Tenant shall comply with all applicable laws, ordinances, rules, regulations and orders of all duly constituted authorities, present or future, with regard to Tenant's business being conducted in the Leased Premises. 6. LANDLORD'S SERVICES. (a) Landlord shall furnish cooled or heated air in season for comfortable occupancy of the Leased Premises under normal business operations; washroom facilities for use by Tenant in common with other tenants in the Building, snow and ice removal from all driveways parking areas and sidewalks and maintenance of landscaped areas. Landlord shall maintain the Premises, all structural elements of the Building and all Common Areas in good condition and repair, free from obstructions and safety hazards. In the event Landlord fails to maintain the Premises as provided above, Tenant may, at Tenant's option, but shall not be obligated to, perform such maintenance or repair to the Premises and shall deduct the cost of such expense from Rent. (b) Tenant Access. Landlord shall provide an oversized double-door or ------------- garage door for delivery and removal of demonstration machinery and equipment for Tenant's operations and access to Tenant's space. 7. DELIVERY OF POSSESSION. Except as provided for in Section 6(b) above, Landlord shall deliver possession of the Property to Tenant in "as-is" and "where-is" condition. 8. AFFIRMATIVE COVENANTS OF TENANT. Tenant covenants and agrees that it will without demand: a. Pay Rent, its proportionate share of Operating Expenses and all other charges herein on the days and times that the same are made payable without fail, and without setoff, deduction or counter-claim, except as hereinafter set forth. If Tenant defaults in the payment of Rent or any other financial obligation hereunder and such default continues for ten (10) days after Tenant receives Landlord's notice thereof, or if Tenant defaults in the prompt and full performance of any other provision of this Lease and such default continues for thirty (30) days after Tenant receives Landlord's written notice thereof to Tenant, Landlord may forthwith terminate this Lease and Tenant's right to possession of the Leased Premises, and may seek any legal remedies available. Tenant shall pay a late charge at the rate of two percent (2%) of each dollar of Rent, or any other sum collectible under this Lease, not paid within ten (10) days after the same is due. If Landlord shall at any time or times accept said Rent or Rent charges after the same shall have become due and payable, such acceptance shall not excuse any future delays, or 4 constitute, or be construed as a waiver of any of Landlord's rights. Tenant agrees that any charge or payment herein reserved, included or agreed to be treated or collected as Rent may be proceeded for and recovered by Landlord in the same manner as Rent due and in arrears. b. Comply with the reasonable rules and regulations from time to time made by Landlord for the safety, care, upkeep and cleanliness of the Leased Premises. Tenant agrees that such rules and regulations shall, when written notice thereof is given to Tenant, form a part of this Lease, effective upon receipt of same. c. Keep the Leased Premises in good order and condition, ordinary wear and tear, damage by fire or casualty and damages which are Landlord's obligation to repair excepted, and upon termination of this Lease to deliver up to Landlord the Leased Premises in the same condition as Tenant has herein agreed to keep them. d. Keep nothing which is explosive or which might increase the risk of fire or other casualty at the Leased Premises. e. Keep trash within covered dumpsters or containers. f. Give to Landlord prompt written notice of any accident, fire or damage occurring on or to the Leased Premises within ninety six (96) hours of occurrence thereof. g. Peaceably deliver up and surrender the Leased Premises to Landlord at the expiration or sooner termination of this Lease and promptly deliver to Landlord at its office all keys for the Leased Premises. h. Conduct its business in the Leased Premises during normal business hours or at Tenant's option twenty-four (24) hours each day, seven days a week and use the Leased Premises without disturbing the possessions or quiet enjoyment of any other occupants. 9. OCCUPANCY AND ASSIGNMENT. All assignments or subleases shall require the Landlord's prior written approval, which shall not be unreasonably withheld, conditioned or delayed. Notwithstanding anything to the contrary herein, Tenant shall be permitted to assign this Lease without Landlord's consent in the event Tenant is acquired or merges with another entity. For purposes herein, acquisition or merger shall be of more than fifty (50) percent of Tenant's assets or common stock. 10. NEGATIVE COVENANTS OF TENANT. Tenant covenants and agrees that it will do none of the following without the written consent of Landlord, which consent shall not be unreasonably withheld, or delayed. a. Except such signs as are in existence at the Effective Date, Tenant shall not place or allow to be placed a sign upon the Property or on the outside of the Building. 5 Signage that is permitted by local ordinance is excepted. In case of the breach of this covenant (in addition to all other remedies given to Landlord hereunder), Landlord shall have the right of removing such sign, projection or device and restoring the Premises to their former condition. b. Make any structural alterations, improvements or additions to the Building or Property without the written consent, not to be unreasonably withheld, conditioned or delayed, of the Landlord. Landlord shall designate ninety (90) days prior to the expiration of the then current lease term, whether said alterations, improvements, additions or fixtures and equipment shall remain on the Leased Premises or be removed by Tenant at the expiration or earlier termination of this Lease. c. Use, operate or maintain any machinery, equipment or fixture that, in Landlord's reasonable opinion, is harmful to the Building and appurtenances of which the Building is a part, or is disturbing to the other occupants of the Building, if any. d. Place any weights in any portion of the Building beyond the safe carrying capacity of the Building. 11. LANDLORD'S RIGHT TO ENTER. Tenant shall permit Landlord, Landlord's agents, cleaners or employees or any other person or persons authorized by Landlord, to inspect the Leased Premises during normal business hours upon reasonable notice, and if Landlord shall so elect, for making reasonable alterations, inspections, improvements or repairs to the Building or for any reasonable purpose in connection with the operation and maintenance of the Building. Notwithstanding the foregoing, in the event of an emergency Landlord shall not be obligated to notify Tenant of its intention to enter the Leased Premises. 12. RELEASE AND INDEMNIFICATION OF LANDLORD. (a) Tenant releases Landlord and agrees to defend, indemnify and hold Landlord harmless from any claim by any person for any injury, death, damage, loss, liability or expense which arises upon, about, or in connection with the Leased Premises due to an occurrence during the Term or any period of occupancy by the Tenant, and arises due to: (i) the gross negligence of Tenant, its employees, agents or invitees; or (ii) the willful misconduct or criminal acts of Tenant, its employees, agents or invitees; or (iii) a breach by Tenant, its employees, agents or invitees of any environmental law that applies at any time during the Lease Term; or (iv) the stoppage, malfunction or breakdown of any of the systems serving the Leased Premises or the Building, including without limitation, the water system, the plumbing system, the sewer system, the drainage system, the sprinkler system, the electric system, the lighting, the gas system, or the heating, ventilating and air system for less than forty-eight (48) hours, 6 unless said stoppage, malfunction or breakdown is due to improper installation or construction by Landlord, its contractors or is covered by contractors' warranties; or (v) the stoppage or reduction of utility service for less than forty-eight (48) hours, unless due to improper or faulty installation by Landlord or its contractors. (b) Notwithstanding anything to the contrary contained in this clause, Tenant's agreement to release, defend, indemnify and hold Landlord harmless shall not apply to the gross negligence or willful misconduct of the Landlord, its employees, or its agents. Landlord agrees to release, defend, indemnify and hold Tenant harmless from any claim by any person for any injury, death, damage, loss, liability or expense which arises from the gross negligence or willful misconduct of Landlord, its employees or agents. 13. FIRE OR OTHER CASUALTY. If during the term of this Lease or any renewal or extension thereof, the Building is totally destroyed or is so damaged by fire or other casualty that the same cannot be repaired or restored within two hundred seventy (270) days from the date such casualty occurs, then this Lease shall absolutely cease and terminate and the rent shall abate for the balance of the term. In such case, Tenant shall pay the rent apportioned to the date of damage and Landlord may enter upon and repossess the Leased Premises upon thirty (30) days written notice to Tenant. If the damage caused as above can be repaired or restored within the timeframe identified above, Landlord shall promptly restore the Leased Premises to the condition it was in prior to such casualty and all rent and Tenant's proportionate share of Operating Expenses shall be abated or apportioned during the time Landlord is in possession. If the damage caused as above is only slight, Landlord shall repair whatever portion, if any, of the Leased Premises that may have been damaged by fire or other casualty. During such repair, Tenant shall pay rent only for that portion of the Leased Premises that is undamaged by such fire or other casualty. 14. INSURANCE. Tenant shall provide property, business interruption and liability insurance throughout the Term as follows: (a) Tenant shall maintain in force with respect to the Leased Premises and the improvements Landlord and, or Tenant makes to the Leased Premises all risk property insurance. The policy by which Tenant provides that insurance shall name as an additional insured parties, Landlord and those of Landlord's mortgagees as Landlord designates to Tenant and must contain a mortgagee clause in favor of Landlord's designated mortgagees. (b) Tenant shall maintain in force all risk property insurance covering personal property Tenant places upon or installs within the Leased Premises in an amount equal to the replacement cost of that personal property. 7 (c) Tenant shall maintain in force with respect to the Leased Premises and to the improvements Tenant makes to the Leased Premises a policy of general liability insurance. The policy by which Tenant provides that insurance shall name, as additional insureds, the Landlord and Landlord's designated mortgagees against liability arising from Tenant's use, occupancy or maintenance of the Leased Premises and appurtenant areas. The limit of that insurance must be at least One Million Dollars ($1,000,000.00) per occurrence for bodily injury to or death of any persons or property damage. Tenant must cause the policy by which Tenant provides that general liability insurance to be endorsed to order to confirm that insurance is primary insurance. (d) Tenant shall maintain in force workmen's compensation insurance in accordance with the applicable laws and regulations. (e) Each policy of insurance that Tenant maintains in accordance with the terms of this Agreement must be written by insurance companies licensed to do business in the state where the Leased Premises are located, must be in form and substance reasonably satisfactory to Landlord and must provide that the insurer will cancel, terminate or materially change the policy only after it has given Landlord and Tenant written notice of the anticipated cancellation termination or material change at least thirty (30) days in advance of the time at which the cancellation, termination or material change becomes effective. (f) As soon as practicable but prior to occupancy, Tenant shall furnish to Landlord certificates of insurance reflecting that the policies Tenant has agreed to maintain are in force and it shall also provide certificates evidencing all renewals of those policies. (g) Each party waives and releases, to the extent of the proceeds that are or would be payable to it in respect of the policies of property insurance and business interruption insurance required by virtue of this Section, any and all rights of recovery, claim, action or cause of action that it may now or later have against the other or the other's agents, officers and employees by virtue of (i) any loss or damage that may occur to the Leased Premises, improvements to the Leased Premises or personal property within the Leased Premises or (ii) any diminution in the rent derived from the operation of the Leased Premises or in the revenue derived from the conduct of business within the Leased Premises, regardless of cause or origin, including, without limitation, the negligence of Landlord or Tenant or any of their respective representatives, agents, employees, contractors and invitees. 15. REPAIRS AND MAINTENANCE. a. Tenant, at its sole cost and expense and throughout the term of this Lease, shall keep and maintain the Leased Premises in good order and condition, free of accumulation of dirt and rubbish, and shall promptly make all repairs that are necessary to keep and maintain the Leased Premises in good order and condition. All repairs and replacements made by Tenant shall utilize materials and equipment that are equal in 8 quality and usefulness to those originally used in constructing the Building and the Leased Premises. b. Landlord shall have the right to inspect the Leased Premises from time to time as it deems, in its sole opinion, necessary, and request that Tenant comply with the terms of this provision. Landlord shall not unreasonably interfere with Tenant's use of the Leased Premises or interrupt Tenant's business operations during inspections. Within thirty (30) days of written notice from Landlord, Tenant shall make, or diligently pursue to completion, all repairs and replacements that are necessary to keep the Leased Premises in the condition provided in (a) above and that it is instructed to make pursuant to Landlord's notice. c. In the event Tenant fails to perform its obligations under this Section, Landlord may, after giving the appropriate written notice and cure period, perform on Tenant's behalf and recover the reasonable costs and expenses of said performance from Tenant within ten (10) business days of receipt of an invoice for such costs and expenses from Landlord. d. At the expiration or other termination of this Lease, Tenant shall leave the Leased Premises, and during the Term shall keep the same in good order and condition, ordinary wear and tear excepted, to the end that Landlord may again have and repossess the same not later than midnight on the date upon which this Lease or any renewal thereof or extension ends. 16. ADDITIONAL COSTS. Tenant shall pay, in addition to the Rent herein reserved, any and all sums which may become due by reason of the failure of Tenant to comply with any and all covenants of this Lease. 17. DEFAULTS AND REMEDIES. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant (each, an "Event of Default"): a. If Tenant fails to pay the Rent or make any other payment required to be made by Tenant under this Lease as and when due and such failure continues for ten (10) days after written notice thereof is received by Tenant; or b. If Tenant materially violates or fails to perform or otherwise materially breaks any covenant or agreement herein contained and does not cure said violation or failure within thirty (30) days after receipt of written notice or if said condition cannot reasonably be cured within such time period, commences said cure and proceeds diligently to completion; or c. If Tenant abandons the Leased Premises; or d. If Tenant fails to vacate and surrender the Leased Premises as required by this Lease upon the expiration of the Term or sooner termination of this Lease; or 9 e. If Tenant makes an assignment for the benefit of creditors; or whenever Tenant seeks or consents to or acquiesces in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties; or whenever permanent or temporary receiver of Tenant for substantially all of the assets of Tenant shall be appointed; or an order, judgment or decree shall be entered by any court of competent jurisdiction on the application of a creditor. 18. LANDLORD'S REMEDIES. If there shall occur an Event of Default, and after running of all notice and cure periods, then in addition to any other remedies available to Landlord at law or equity, Landlord may at its option: a. Declare due and payable and sue for recovery, all unpaid Rent for the unexpired period of the Term as if by the terms of this Lease the same were payable in advance, together with reasonable legal fees and other reasonable expenses incurred by Landlord in connection with the enforcement of any of Landlord's rights and remedies hereunder; and/or b. Distrain, collect or bring action for such Rent as being rent in arrears, or may enter a money judgment by confession or proceed by an action in ejectment as herein elsewhere provided for in case of rent in arrears, or may file a proof of claim in any bankruptcy or insolvency proceedings for such Rent and other sums due and payable hereunder, or institute any other proceedings, whether similar or dissimilar to the foregoing, to enforce payment thereof; and/or c. Landlord, or anyone acting on Landlord's behalf may, pursuant to legal process, and after giving reasonable prior notice to Tenant, enter the Leased Premises; and, (1) may remove from the Leased Premises all goods and chattels found therein to any other place or location as Landlord may desire and any cost incurred for said removal and any charges made for storage of said goods and chattels at the location to which they are removed Tenant agrees to pay; or (2) take immediate possession and may lease the Leased Premises or any part thereof to such person, company, firm or corporation as may in Landlord's reasonable business discretion seem best and Tenant shall be liable for the difference between any such Rents collected and the Rent for the then-current Term under this Lease. d. Collect or bring action for such Rent as being rent in arrears or proceed by an action in ejectment as herein elsewhere provided for in case of rent in arrears or institute any other proceedings, whether similar or dissimilar to the foregoing, to enforce payment thereof; and/or 10 e. Terminate this Lease and recover from Tenant upon demand therefor, unless Tenant has paid the whole of accelerated Rent, as liquidated and agreed upon final damages for Tenant's default and in lieu of all current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to the excess, if any, of (a) Rent which would be payable under this Lease for the remainder of the Term from the date of such demand for what would have been the then unexpired Term of this Lease in the absence of such termination, discounted at the rate of 5% per annum, over (b) the then fair market rental value of the Leased Premises as reasonably determined by an independent third party appraiser for the same period, discounted at a like rate. If any statute or rule of law shall validly limit the amount of such liquidated final damages to less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such statute or rule of law. 19. REMEDIES CUMULATIVE. All of the remedies hereinbefore given and all rights and remedies under law and equity shall be cumulative and concurrent. No termination of this Lease or the taking or recovering of the Leased Premises shall deprive Landlord of any of its remedies or actions against Tenant for any and all sums due at the time, or which under the terms hereof, would in the future become due, nor shall the bringing of any action for Rent or breach of covenant, or the resort to any other remedy herein provided for the recovery of Rent be construed as a waiver of the right to obtain possession of the Leased Premises. The rights and remedies given to Landlord in this Lease are distinct, separate and cumulative remedies, and not one of them, whether or not exercised by Landlord, shall be deemed to be in exclusion of any of the others. 20. RIGHT OF ASSIGNEE OF LANDLORD. The right to enforce all of the provisions of this Lease may be exercised by an assignee of all of Landlord's right, title and interest in this Lease in its, his, her or their own name, provided such assignee also agrees to perform and be responsible for all of the obligations imposed upon Landlord in this Lease. 21. ATTORNMENT. In the event of the sale or assignment of Landlord's interest in the Leased Premises or in the event of exercise of the power of sale under any mortgage made by Landlord covering the Leased Premises, Tenant shall attorn to the purchaser and recognize such purchaser as Landlord under this Lease, provided said Purchaser agrees to perform and be responsible for all of the obligations imposed upon Landlord in this Lease and agrees to enter into an Attornment, Subordination and Non-Disturbance Agreement. 22. SUBORDINATION. At the option of Landlord or Landlord's permanent lender, or both of them, this Lease and Tenant's interest hereunder shall be subject and subordinate at all times to any mortgage or mortgages, deed or deeds of trust, or such other security instrument or instruments, including all renewals, extensions, consolidations, assignments and refinances of the same, as well as all advances made upon the security thereof, which now or hereafter become liens upon the Landlord's fee and/or leasehold interest in the Leased Premises, and/or any and all of the buildings now and hereafter erected to be erected and/or any and all of the land comprising the Property, 11 provided, however, that in each such case, the holder of such other security, the trustee of such deed of trust or holder of such other security instrument shall agree that this Lease shall not be divested or in any way affected by foreclosure or other default proceedings under said mortgage, deed or trust, or other instrument or other obligations secured thereby, so long as Tenant shall not be in default under the terms of this Lease; and Tenant agrees that this Lease shall remain in full force and effect notwithstanding any such default proceedings. 23. EXECUTION OF DOCUMENTS. The above subordination shall be self-executing, but Tenant agrees upon demand to execute such other reasonable document or documents as may be required by a mortgagee, trustee under any deed of trust, or holder of similar security interest or any party to the types of documents enumerated herein for the purpose of subordinating this Lease in accordance with the foregoing. Tenant shall respond to all requests hereunder for Attornment and Subordination Agreements within ten (10) business days of its receipt of written request from Landlord. 24. ESTOPPEL AGREEMENTS. Tenant shall execute an estoppel agreement in favor of any mortgagee or purchaser of Landlord's interest herein, if requested to do so by any mortgagee. Such estoppel agreement shall be in a form reasonably satisfactory to Tenant. Landlord agrees to execute an estoppel agreement, in favor of any assignee or subtenant of Tenant's as permitted hereunder, if requested to do so by Tenant. Such estoppel shall be in the form reasonably requested by such assignee or subtenant and reasonably satisfactory to Landlord. 25. CONDEMNATION. If the whole of the Premises shall be acquired or condemned by eminent domain, or if part of the Leased Premises are taken so that it is impossible for Tenant, in its sole but reasonable opinion, to use the Leased Premises efficiently and economically for the conduct of its business, then the term of this Lease shall cease and terminate as of the date on which possession of the Premises is required to be surrendered to the condemning authority. All Rent shall be paid up to the date of termination. If part of the Leased Premises is taken so that the conduct of Tenant's business in Tenant's sole but reasonable opinion is not materially impaired, Landlord shall promptly restore the Building to a complete architectural unit and this Lease shall cease as to the part taken and shall continue as to the part not taken. In that event, the Rent shall be adjusted on a square footage basis to reflect the new size of the Leased Premises. Any award for the taking of all or any part of the Premises shall be the property of Landlord whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Tenant shall be entitled to any separate award paid by the condemning authority for loss of or damage to the value of Tenant's Leasehold Interest, Tenant's trade fixtures, removal of personal property, relocation expenses, loss of goodwill, and the value of any unamortized improvements made by Tenant on or to the Leased Premises. 12 26. NOTICES. All notices required to be given by either party to the other shall be in writing and addressed as indicated below. All such notices shall be deemed to have been properly given if either (i) served or delivered personally, (ii) if sent United States certified mail, return receipt requested, postage prepaid, or (iii) sent by Federal Express or other reputable and customarily used overnight delivery service, costs prepaid and deposited with such service prior to the deadline time for next day delivery. Any notice or demand shall be effective and deemed received on the actual day of receipt or refusal thereof. Notices must be addressed as follows: Landlord: Triple Net Investments XIII, L.P. c/o J.G. Petrucci Co, Inc. 171 Route 173, Suite 201 Asbury, NJ 08802 Phone: 908-730-6909 Attention: James G. Petrucci Fax: 908-730-6166 Tenant: Paragon Technologies, Inc. 600 Kuebler Road Easton, PA 18040 Phone: 610-252-3205 Attention: William R. Johnson Fax: 610-252-3102 with a copy to: Pepper Hamilton LLP 400 Berwyn Park 899 Cassatt Road Berwyn, PA 19312 Phone: 610-640-7823 Attention: Cuyler H. Walker Fax: 610-640-7835 or to such other address which either party may hereafter request in writing by notice given in a like manner. 27. RETURN OF LEASED PREMISES. By the end of the Term, or upon rightful termination of this Lease, the Tenant, at its own expense, shall return the Leased Premises to the Landlord in the same condition as at the beginning of the Term, excluding normal wear and tear and damages which result from a casualty or are the responsibility of Landlord. The Tenant shall perform all acts necessary to comply with the terms of this clause, including, without limitation: (a) removing all of the Tenant's property, (b) removing or leaving, in accordance with the Landlord's written instructions, changes or additions made by the Tenant, (c) repairing all interior partition walls, (d) removing all trash, and (e) leaving the Leased Premises in broom clean condition. The Tenant shall notify the Landlord two (2) weeks in advance of the termination of any utility service. If the Term ends, or if this Lease is rightfully terminated, and if the Tenant has not substantially complied with the terms of this clause, then the Tenant shall continue to pay rent at the rate of 1.75 times the Rent rate in effect when the Term expired until the 13 Tenant effects compliance, without any right to possession of the Leased Premises. If the Tenant leaves any of the Tenant's property at the Leased Premises after the end of the Term or after the rightful termination of this Lease, then such property shall be deemed to be abandoned. The Landlord may keep and use the Tenant's abandoned property or may sell, store, or dispose of that property, in which case the costs related hereto shall be payable to Landlord within ten (10) business days of receipt of an invoice therefore by Tenant. 28. BINDING EFFECT. All rights and liabilities herein given to, or imposed upon the respective parties hereto, shall extend to and bind the several and respective heirs, executors, administrators, successors and assigns of said parties. 29. QUIET ENJOYMENT. Landlord represents and warrants that it is legally empowered to enter into and to execute this Lease and that Tenant, upon paying the Rent, and other charges herein provided for, and observing the keeping all covenants, agreements and conditions of this Lease on its part to be kept, shall quietly have and enjoy the Leased Premises during the term of this Lease and any extension or renewal thereof with all rights, privileges and for the uses provided herein, subject, however, to the exceptions, reservations and conditions of this Lease. 30. NONEXCLUSIVE USE OF COMMON AREAS. Landlord hereby grants to Tenant the nonexclusive license to use all designated common areas, including, but not limited to, parking areas, kitchens, cafeterias, common hallways, restrooms, HVAC equipment rooms, telephone equipment rooms and telephone equipment and systems, security systems, halon systems, power panels and circuit breaker panels and equipment. 31. MECHANICS LIEN. Tenant shall promptly pay any contractors and materialmen who supply labor, work or materials to Tenant at the Leased Premises or the Property so as to minimize the possibility of a lien attaching to the Property. Tenant shall take all steps permitted by law in order to avoid the imposition of any mechanic's, laborer's or materialmen's lien upon the Property. Should any such lien or notice of lien be filed for work performed for Tenant, other than by Landlord, Tenant shall bond against or discharge the same within thirty (30) days after the lien or claim is filed or formal notice of said lien or claim has been issued regardless of the validity of such lien or claim. Nothing in this Lease is intended to authorize Tenant to do or cause any work or labor to be done or any materials to be supplied for the account of Landlord, all of the same to be solely for Tenant's account and at Tenant's risk and expense. 32. SEVERABLE TERMS. If any provision in this Lease is contrary to any law, declared unenforceable or unconstitutional, then the remainder of this Lease shall remain in effect. 33. ENTIRE AGREEMENT. This Lease and any riders and exhibits and addendum that may be attached hereto, set forth all the promises, agreements, conditions and understandings between Landlord or its agents and Tenant relative to the Premises and 14 the Leased Premises, and there are no promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by them. 34. MEMORANDUM OF LEASE. The parties hereto agree to execute a Memorandum of Lease Agreement in the form attached hereto as Exhibit B to set forth the legal --------- description of the Leased Premises, the Term, and Effective Date and no other terms or conditions of this Lease. Tenant shall at its option, record said Memorandum of Lease Agreement in the applicable jurisdiction at its own cost and expense. 35. REAL ESTATE BROKER'S COMMISSION. Landlord and Tenant represent to one another that there were no brokerage firms or other individuals claiming a commission for this lease transaction. The parties shall indemnify and hold each other harmless against any brokerage claims by any other broker or other person or entity who claims its services were utilized or consulted by the indemnifying party and who claims a commission for any reason. 36. TRASH REMOVAL, JANITORIAL SERVICE AND UTILITIES. Tenant shall contract with a certified hauler and assume all costs associated with trash removal and recycling for waste generated by Tenant at the Leased Premises. Tenant shall pay for all janitorial services furnished to the Leased Premises. If utilities are separately metered, Tenant shall pay for all such services to the Leased Premises, including, but not limited to electric, gas, oil, phone, cable, water and sewer. 37. COMPLIANCE WITH ENVIRONMENTAL LAWS. Landlord represents that to the best of its knowledge the Premises is in compliance with all federal, state and local environmental laws and regulations. Landlord will hold Tenant harmless from any liability, including clean up costs, resulting from environmental conditions that existed on the Premises prior to the Effective Date of the Lease including without limitation legal costs associated with defending itself against any action taken against it as a result of such condition. Tenant agrees that it shall not use, release, discharge, deposit or introduce any hazardous materials or substances including petroleum products or derivatives to the Premises except to the extent that such products are in compliance with all applicable laws, ordinances and regulations, and Tenant shall indemnify, defend and hold Landlord harmless from any loss, damage or liability resulting from Tenant's breach of the foregoing including legal costs associated with defending itself against any action taken against it pursuant to the acts or omissions of Tenant. Tenant shall immediately supply Landlord with any correspondence from any governing authority regarding environmental matters at the Premises. Prior to Tenant's execution of this Lease, Landlord has supplied Tenant with a copy of a recent Phase One Environmental Audit of the Premises by an environmental consultant reasonably 15 acceptable to Tenant that sets forth an evaluation of the property. 38. WAIVER OF TRIAL BY JURY In the event any issue related to this Lease between Landlord and Tenant results in litigation, both Landlord and Tenant waive the right to a trial by jury. 39. CONFESSION OF JUDGMENT. (a) CONFESSION OF JUDGMENT FOR RENT. TENANT HEREBY EMPOWERS ANY ------------------------------- PROTHONOTARY OR ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR TENANT AFTER AN EVENT OF DEFAULT IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT FOR RENT AND/OR THE CHARGES, PAYMENTS, COSTS AND EXPENSES HEREIN RESERVED AS RENT, OR HEREIN AGREED TO BE PAID BY TENANT AND TO SIGN FOR TENANT AN AGREEMENT FOR ENTERING IN ANY COMPETENT COURT AN ACTION OR ACTIONS FOR RECOVERY OF SUCH RENT OR OTHER CHARGES OR EXPENSES, AND IN SAID SUIT OR IN SAID ACTION OR ACTIONS TO CONFESS JUDGMENT AGAINST TENANT FOR ALL OR ANY PART OF THE RENT SPECIFIED IN THIS LEASE THEN DUE AND UNPAID, AND OTHER CHARGES, PAYMENTS, COSTS AND EXPENSES RESERVED AS RENT, TOGETHER WITH AN ATTORNEY'S COMMISSION OF FIVE (5%) PERCENT OF THE AMOUNT DUE (BUT NOT LESS THAN $5,000.00). SUCH AUTHORITY SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF BUT JUDGMENT MAY BE CONFESSED AS AFORSAID FROM TIME TO TIME AFTER SUBSEQUENT EVENTS OF DEFAULT. (b) CONFESSION OF JUDGMENT FOR POSSESSION. UPON AN EVENT OF DEFAULT OR ------------------------------------- THE EXPIRATION OF THE TERM, IT SHALL BE LAWFUL FOR ANY ATTORNEY OF ANY COURT OF RECORD TO APPEAR AS ATTORNEY FOR TENANT AS WELL AS FOR ALL PERSONS CLAIMING BY, THROUGH OR UNDER TENANT AND TO SIGN AN AGREEMENT FOR ENTERING IN ANY COMPETENT COURT AN ACTION IN EJECTMENT AGAINST TENANT AND ALL PERSONS CLAIMING BY, THROUGH OR UNDER TENANT AND THEREIN CONFESS JUDGMENT FOR THE RECOVERY BY LANDLORD OF POSSESSION OF THE LEASED PREMISES, FOR WHICH THIS LEASE SHALL BE ITS SUFFICIENT WARRANT, WHEREUPON, IF LANDLORD SO DESIRES, A WRIT OF POSSESSION OR OTHER APPROPRIATE WRIT UNDER THE PENNSYLVANIA RULES OF CIVIL PROCEDURE THEN IN EFFECT MAY ISSUE FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDINGS; PROVIDED, HOWEVER, IF THIS LEASE IS TERMINATED AND POSSESSION OF THE LEASED PREMISES REMAIN IN OR BE RESTORED TO TENANT, LANDLORD SHALL HAVE THE RIGHT FOR THE SAME EVENT OF DEFAULT AND UPON ANY SUBSEQUENT EVENT OF DEFAULT OR EVENTS OF DEFAULT, TO BRING 16 ONE OR MORE FURTHER ACTION OR ACTIONS AS HEREINBEFORE SET FORTH TO RECOVER POSSESSION OF THE LEASED PREMISES AND CONFESS JUDGMENT FOR THE RECOVERY OF POSSESSION OF THE LEASED PREMISES AS HEREINABOVE PROVIDED. (c) PROCEEDINGS. IN ANY ACTION OF EJECTMENT AND/OR RENT, LANDLORD SHALL ----------- FIRST CAUSE TO BE FILED IN SUCH ACTION AN AFFIDAVIT MADE BY IT OR SOMEONE ACTING FOR IT, SETTING FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT, AND, IF A TRUE COPY OF THIS LEASE (AND OF THE TRUTH OF THE COPY OF SUCH AFFIDAVIT SHALL BE SUFFICIENT EVIDENCE) BE FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINALS AS A WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING. TENANT RELEASES TO LANDLORD AND TO ANY AND ALL ATTORNEYS WHO MAY APPEAR FOR TENANT, ALL PROCEDURAL ERRORS IN SAID PROCEEDINGS AND ALL LIABILITY THEREOF. IF PROCEEDINGS SHALL BE COMMENCED BY LANDLORD TO RECOVER POSSESSION UNDER THE PENNSYLVANIA ACTS OF ASSEMBLY AND RULES OF CIVIL PROCEDURE UPON AN EVENT OF DEFAULT, TENANT SPECIFICALLY WAIVES THE RIGHT TO THE THREE (3) MONTHS' NOTICE AND TO THE FIFTEEN (15) OR THIRTY (30) DAYS, NOTICE REQUIRED BY THE PENNSYLVANIA LANDLORD AND TENANT ACT OF 1951, AND AGREES THAT FIVE (5) DAYS NOTICE SHALL BE SUFFICIENT IN EITHER OR ANY SUCH CASE. (d) ACKNOWLEDGEMENT OF CONFESSION OF JUDGMENT. TENANT CONFIRMS TO ----------------------------------------- LANDLORD THAT (i) THIS LEASE AND THE FOREGOING WARRANTS OF ATTORNEY HAVE BEEN NEGOTIATED AND AGREED UPON IN A COMMERCIAL CONTEXT; (ii) TENANT IS A BUSINESS ENTITY AND ITS PRINCIPALS ARE KNOWLEDGEABLE IN COMMERCIAL MATTERS; (iii) TENANT HAS CONSULTED WITH ITS OWN SEPARATE COUNSEL REGARDING THIS LEASE; (iv) ON THE ADVICE OF ITS OWN SEPARATE COUNSEL, TENANT HAS AGREED TO THE AFORESAID WARRANTS OF ATTORNEYS TO CONFESS JUDGMENT AGAINST TENANT; AND (v) TENANT UNDERSTANDS THAT IT IS WAIVING CERTAIN RIGHTS WHICH IT WOULD OTHERWISE POSSESS. 17 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound to the terms of this Lease, have caused this Lease to be executed the day and year first above written. TENANT: LANDLORD: PARAGON TECHNOLOGIES, INC. TRIPLE NET INVESTMENT XIII, L.P. By: /s/ William R. Johnson By: /s/ James G. Petrucci ------------------------------ --------------------------------- Name: William R. Johnson Name: /s/ James G. Petrucci Title: President & CEO ----------------------------- Title: /s/ Op. Manager of ----------------------------- The General Partner ----------------------------- Date: /s/ 2-21-03 Date: /s/ 2-21-03 ---------------------------- ----------------------------- Attest: /s/ Ronald J. Semanick Attest: /s/ Gregory T. Rogerson -------------------------- ----------------------------- Title: /s/ CFO Title: /s/ Counsel -------------------------- ----------------------------- 18 EXHIBIT A LEASED PREMISES Diagram of leased office space. 19 EXHIBIT B MEMORANDUM OF LEASE N/A 20 EX-99 8 ex99-1.txt EXHIBIT 99 Exhibit 99 ---------- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Paragon Technologies, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement required by Section 906 has been provided to Paragon Technologies, Inc. and will be retained by Paragon Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. /s/ William R. Johnson ----------------------------------------------------------- William R. Johnson President and Chief Executive Officer May 14, 2003 /s/ Ronald J. Semanick ----------------------------------------------------------- Ronald J. Semanick Chief Financial Officer and Vice President - Finance and Treasurer May 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----