8-K 1 f8k1.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 19, 2003 PARAGON TECHNOLOGIES, INC. (Exact name of issuer as specified in charter) DELAWARE 1-15729 22-1643428 State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation or File Identification Organization) Number) Number) 600 KUEBLER ROAD EASTON, PENNSYLVANIA 18040 (Address of principal executive offices) (610) 252-3205 (Registrant's telephone number, including area code) Item 2. Acquisition and Disposition of Assets ------- ------------------------------------- As previously reported, on September 19, 2003 (the "Closing Date"), Paragon Technologies, Inc. ("Paragon") sold (the "Sale") its entire ownership interest in SI/BAKER, INC. ("SI/BAKER"), a Delaware corporation and joint venture of Paragon and McKesson Automation Systems Inc., a Louisiana corporation formerly known as Automated Prescription Systems, Inc. ("McKesson"), to McKesson pursuant to the terms of that certain Stock Purchase Agreement dated September 19, 2003 by and among Paragon, McKesson and SI/BAKER (the "Agreement"). Pursuant to the Agreement, Paragon (a) sold 100 shares of common stock of SI/BAKER to McKesson and (b) made certain other covenants, in consideration for (x) the payment by McKesson to Paragon of $5,600,000 in cash and (y) certain other covenants of McKesson and SI/BAKER. The terms of the Sale did not provide for any contingent consideration payable to Paragon. The amount of consideration was determined by arms-length negotiations between Paragon and McKesson. Immediately prior to the Sale, (a) 1 of the 2 members of the board of directors of SI/BAKER was also a director and officer of Paragon, (b) one of the officers of SI/BAKER was an officer of Paragon, and (c) Paragon was a major stockholder of SI/BAKER, holding 50% of SI/BAKER's outstanding voting equity. Additionally, Paragon has a business relationship with SI/BAKER, as certain of Paragon's products and services are offered to SI/BAKER and have been used in SI/BAKER products sold to SI/BAKER's customers. Prior to the Sale, there were no other material relationships between Paragon and its affiliates, and SI/BAKER. Pursuant to the Agreement, (a) the Investment Agreement dated January 27, 1993, as amended, between Paragon and McKesson governing the joint venture relationship was terminated as of the Closing Date; (b) Paragon and SI/BAKER entered into a Master Purchase Agreement (the "Supply Agreement") whereby Paragon will supply automated dispensing products and related software services to SI/BAKER at agreed upon prices and pursuant to agreed upon terms and conditions; and (c) Paragon granted McKesson a license to certain intellectual property. Pursuant to the Agreement and as more specifically set forth therein, Paragon agreed, for a period of three (3) years following the Closing Date, not to (a) engage in the manufacture, use or sale of "integrated prescription fulfillment systems" (as defined in the Agreement, the "Business"), (b) provide any person with any information with respect to the Business or otherwise developing products or services that would compete with the Business, (c) own any interest in, manage or lend money to, any person or enterprise that owns or is engaged in the Business, (d) request or advise any customers of SI/BAKER to curtail their dealings with SI/BAKER or engage in any trade disparagement with respect to McKesson or SI/BAKER, (e) refer any customers of Paragon to, or otherwise endorse any competitor of, SI/BAKER with respect to the Business, and (f) solicit for employment or hire any employee of SI/BAKER. Each of SI/BAKER and McKesson agreed to certain non-competition and non-solicitation covenants for the benefit of Paragon. Paragon used the proceeds of the Sale to prepay (a) $1,225,000 of its outstanding term debt with its principal bank, (b) $1,500,000 of its outstanding subordinated debt, thereby eliminating Paragon's outstanding long-term debt, and (c) $330,000 of liability associated with the fair value of the interest rate swap agreement for the term debt with Paragon's principal bank. The Agreement is filed as an exhibit to this Current Report on Form 8-K and is incorporated herein by reference. The brief summary of certain of the material provisions of the Agreement does not purport to be complete and is qualified in its entirety by reference to the Agreement filed as an exhibit hereto. Item 7. Financial Statements and Exhibits ------- --------------------------------- (b) Pro Forma Financial Information (c) Exhibits- 2.2 Stock Purchase Agreement by and among McKesson Automation Systems Inc., Paragon Technologies, Inc., and SI/BAKER, INC. dated September 19, 2003. 99.1 News Release dated September 22, 2003 * Certain exhibits and the schedules to Exhibits 2.2 are not filed herewith pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request. 2 PARAGON TECHNOLOGIES, INC. SELECTED UNAUDITED PRO FORMA FINANCIAL DATA The following unaudited pro forma condensed consolidated balance sheet includes the historical condensed balance sheet of Paragon Technologies, Inc. ("Paragon" or the "Company") at June 30, 2003 and the pro forma adjustments to reflect the sale of Paragon's Investment in the SI/BAKER, INC. ("SI/BAKER") joint venture as if the transaction occurred on June 30, 2003. The pro forma information should be read in conjunction with the Company's historical financial statements previously filed with the U.S. Securities and Exchange Commission. PARAGON TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2003 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Historical Consolidated Pro Forma Pro Forma 6/30/2003 Adjustments Consolidated --------- ----------- ------------ Assets ------ Current assets: Cash and cash equivalents $ 4,501 - (A) (B) (C) 4,501 Receivables 5,985 5,985 Costs and estimated earnings in excess of billings 666 666 Inventories 1,512 1,512 Deferred income tax benefits 1,410 1,410 Prepaid expenses and other current assets 510 510 ---------------------------------- -------------------- Total current assets 14,584 - 14,584 ---------------------------------- -------------------- Property, plant and equipment, at cost 4,022 4,022 Less: accumulated depreciation 2,498 2,498 ---------------------------------- -------------------- Net property, plant and equipment 1,524 - 1,524 ---------------------------------- -------------------- Investment in joint venture 576 (576) (A) 0 Goodwill 17,657 17,657 Other assets 28 (17) (C) 11 ---------------------------------- -------------------- Total assets $34,369 (593) 33,776 ================================== ====================
3 PARAGON TECHNOLOGIES, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2003 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Historical Consolidated Pro Forma Pro Forma 6/30/2003 Adjustments Consolidated --------- ----------- ------------ Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Current installments of long-term debt $ 1,150 (1,150) (C) - Accounts payable 3,217 3,217 Customers' deposits and billings in excess of costs and estimated earnings 1,817 1,817 Accrued salaries, wages, and commissions 463 463 Income taxes payable 445 26 (C) 471 Accrued royalties payable 110 110 Accrued product warranties 946 946 Accrued pension and retirement savings plan liabilities 42 42 Accrued restructuring expenses 182 182 Deferred gain on sale-leaseback 165 165 Accrued other liabilities 1,084 (84) (C) 1,000 ---------------------------------- -------------------- Total current liabilities 9,621 (1,208) 8,413 ---------------------------------- -------------------- Long-term liabilities: Long-term debt, excluding current installments: Term loan 575 (575) (C) - Subordinated notes payable 2,000 (1,720) (C) 280 ---------------------------------- -------------------- Total long-term debt 2,575 (2,295) 280 Other long-term liability 335 335 Deferred gain on sale-leaseback 605 605 Deferred income taxes payable 1,595 (184) (B) 1,411 Deferred compensation 33 33 ---------------------------------- -------------------- Total long-term liabilities 5,143 (2,479) 2,664 ---------------------------------- -------------------- Stockholders' equity: Common stock 4,277 4,277 Additional paid-in capital 7,583 7,583 Retained earnings 7,949 3,094 (A) (B) (C) 11,043 Accumulated other comprehensive loss (204) (204) ---------------------------------- -------------------- Total stockholders' equity 19,605 3,094 22,699 ---------------------------------- -------------------- Total liabilities and stockholders' equity $ 34,369 (593) 33,776 ================================== ====================
4 NOTES: (A) To reflect the sale of Paragon's Investment in the SI/BAKER joint venture. The selling price was $5,600,000, the pre-tax gain on the sale was $4,974,000, and the after-tax gain on the sale was $3,053,000. (B) To reflect income taxes expensed of $1,921,000 and income taxes paid of $2,105,000 at an effective income tax rate of 38.62% relating to the sale of Paragon's Investment in the SI/BAKER joint venture. (C) To reflect the long-term debt reduction of senior and subordinated debt with cash available of $3,445,000, net of taxes paid, relating to the sale of Paragon's Investment in the SI/BAKER joint venture. The adjustment includes the elimination of deferred debt fees of $17,000 associated with the senior debt and the reversal of previously accrued interest of $84,000 on the subordinated notes payable, and the related impact on income taxes at an effective rate of 38.62%. 5 PARAGON TECHNOLOGIES, INC. SELECTED UNAUDITED PRO FORMA FINANCIAL DATA The following selected unaudited pro forma consolidated statements of operations data gives effect to the sale of Paragon Technologies, Inc.'s ("Paragon" or the "Company") Investment in the SI/BAKER, INC. ("SI/BAKER") joint venture as if the transaction occurred at the beginning of the 2002 fiscal year and at the beginning of the 2003 fiscal year. The pro forma data presented below should be read in conjunction with the Company's financial statements previously filed with the U.S. Securities and Exchange Commission and pro forma condensed consolidated financial information and accompanying assumptions previously included elsewhere herein. Such data is not necessarily indicative of the results of operations that would have been achieved had the transaction described above occurred on the date indicated or that may be expected to occur in the future as a result of such transaction.
Paragon Technologies, Inc. Paragon Technologies, Inc. Unaudited Pro Forma Condensed Consolidated Unaudited Pro Forma Condensed Consolidated Statement Of Operations Statement Of Operations For The Year Ended December 31, 2002 For The Six Months Ended June 30, 2003 (In Thousands, Except Share And Per Share Data) (In Thousands, Except Share And Per Share Data) ------------------------------------------------ -------------------------------------------------- Historical (1) Pro Forma Historical (1) Pro Forma Consolidated Pro Forma Consolidated Consolidated Pro Forma Consolidated 12/31/2002 Adjustments Results 6/30/2003 Adjustments Results ---------- ----------- ------- --------- ----------- ------- Net sales $ 38,224 38,224 $ 19,547 19,547 Cost of sales 28,951 28,951 14,419 14,419 ---------------------------- -------------- ------------------------- ------------- Gross profit on sales 9,273 - 9,273 5,128 - 5,128 ---------------------------- -------------- ------------------------- ------------- Selling, general and administrative expenses 8,558 8,558 3,871 3,871 Productive development costs 358 358 302 302 Restructuring charges (credits) (859) (859) (170) (170) Interest expense 1,046 (22) (F) 1,024 369 (165) (F) 204 Interest income (112) (112) (46) (46) Equity in income of joint venture (58) 58 (D) - (251) 251 (D) - Other income, net (590) 167 (E) (423) (1,620) 168 (E) (1,452) ---------------------------- -------------- ------------------------- ------------- 8,343 203 8,546 2,455 254 2,709 ---------------------------- -------------- ------------------------- ------------- Earnings before income taxes 930 (203) 727 2,673 (254) 2,419 Income tax expense 267 (78) (G) 189 1,045 (98) (G) 947 ---------------------------- -------------- ------------------------- ------------- Net earnings $ 663 (125) 538 $ 1,628 (156) 1,472 ============================ ============== ========================= ============= Basic earnings per share $ 0.16 0.13 $ 0.38 0.35 =============== ============== ================ ============= Diluted earnings per share $ 0.15 0.13 $ 0.38 0.34 =============== ============== ================ ============= Weighted average shares outstanding 4,231,878 4,231,878 4,262,213 4,262,213 Dilutive effect of stock options 64,706 64,706 78,021 78,021 Dilutive effect of phantom stock units 3,609 3,609 - - ---------------------------- -------------- ------------------------- ------------- Weighted average shares outstanding assuming dilution 4,300,193 - 4,300,193 4,340,234 - 4,340,234 ============================ ============== ========================= =============
6 NOTES: (1) The following sale of the Investment in the SI/BAKER joint venture adjustments reflect results of operations as if the sale of the Investment in the SI/BAKER joint venture, which was concluded on September 19, 2003, had occurred on January 1, 2002 and January 1, 2003. The results of operations are derived from the Company's historical statement of operations for the year ended December 31, 2002 and the Company's historical statement of operations for the six months ended June 30, 2003. (D) To reflect the elimination of Paragon's equity in income of the SI/BAKER joint venture representing the Company's proportionate share (50%) of its Investment in the SI/BAKER joint venture that is being accounted for under the equity method. (E) To reflect the elimination of royalty income from the SI/BAKER joint venture. Paragon received royalty income from the SI/BAKER joint venture based on 2% of SI/BAKER's sales. (F) To reflect the reduction of interest expense on senior and subordinated debt as a result of the long-term debt reduction of senior and subordinated debt with cash available of $3,445,000, net of taxes paid, from the sale of Paragon's Investment in the SI/BAKER joint venture. The adjustment includes the amortization of deferred debt fees and the accounting for the interest rate swap agreement associated with the term debt with the Company principal bank. (G) To reflect the adjustment to record income tax expense at an effective rate of 38.62%. 7 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 hereunto duly authorized. PARAGON TECNOLOGIES, INC. /s/ William R. Johnson ------------------------------------------ William R. Johnson President and Chief Executive Officer Dated: October 1, 2003 ----------------------------------- 8 PARAGON TECHNOLOGIES, INC. FORM 8-K EXHIBIT INDEX Exhibit No. 2.2 Stock Purchase Agreement by and among McKesson Automation Systems Inc., Paragon Technologies, Inc., and SI/BAKER, INC. dated September 19, 2003. 99.1 News Release dated September 22, 2003. * Certain exhibits and the schedules to Exhibits 2.2 are not filed herewith pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request. 9