Paragon Technologies at a Crossroads: Governance Battles Threaten Shareholder Value

Paragon Technologies (OTC: PGNT) finds itself at a pivotal moment, as a fierce governance battle between its incumbent board and major shareholder Hesham "Sham" Gad threatens to derail shareholder value. The stakes are high: the board's defensive tactics, excessive legal spending, and governance missteps risk locking in long-term underperformance, while Gad's slate of candidates offers a path to fiscal discipline and accountability. With the 2025 Annual Meeting looming, shareholders face an urgent decision to vote BLUE for Gad's slate—or risk compounding irreversible damage.

Entrenchment Tactics: Poison Pill and Dilutive Stock Grants

The board's first major misstep was the adoption of a poison pill in March 2025, which triggers at just a 10% stake acquisition. While framed as a defense against "creeping takeovers," the pill's low threshold is widely seen as a tool to entrench the board's control and deter potential buyers. Kevin Ting, a 11.7%-stake shareholder, calls it a "shareholder disenfranchisement" tactic that stifles market accountability.

Compounding this, the board approved stock grants totaling 10,000 shares in 2025 to directors and executives, including non-employee directors and the interim CEO. These grants, critics argue, dilute existing shareholders' stakes without aligning directors' incentives with long-term value creation. Ting insists directors should instead buy shares in the open market to demonstrate confidence—a stark contrast to the board's "free equity" approach.

Financial Bleeding: Legal Costs and Governance Failures

The governance disputes have already taken a toll on Paragon's financial health. In Q1 2025, revenue rose 10% to $34.6 million, driven by growth at subsidiaries SI Systems and SEDC. However, net losses more than doubled to $790,000 due to $1.1 million in legal expenses tied to litigation with Gad. The board warns of $2 million+ in additional legal costs by Q2, with no end in sight.

These costs are a direct result of the board's confrontational stance toward Gad, who is now threatening new litigation and demanding a $4 million tail Directors & Officers (D&O) liability policy—a move that will further drain shareholder resources. Meanwhile, the company's debt stands at $12.49 million, with negative free cash flow of -$1.44 million (TTM), underscoring operational strain.

The Proxy Battle: Gad's Slate vs. Entrenched Leadership

Gad's BLUE proxy slate offers a stark alternative. His candidates pledge to:
- Terminate the poison pill immediately, restoring market discipline.
- Separate the chairman and CEO roles to curb overreach.
- Halt dilutive stock grants, aligning director interests with shareholders.
- Focus on core operations, including expanding SEDC's success beyond Colombia and cutting non-essential costs.

The board, however, has launched smear campaigns against Gad's nominees, claiming they lack experience and harbor "vindictive" motives. This is a classic entrenchment play: attacking opponents while ignoring their valid governance reforms.

Why Vote BLUE? The Case for Accountability

The board's actions reveal a pattern of self-preservation over shareholder value:
1. Wasted Resources: Legal battles, not operational improvements, dominate the agenda.
2. Dilution Risk: Stock grants prioritize insiders over long-term equity value.
3. Entrenched Leadership: The poison pill and bylaw changes (now repealed) signal a refusal to face accountability.

Gad's slate, by contrast, prioritizes transparency and fiscal discipline. SEDC's growth—a subsidiary where Gad's influence was instrumental—suggests his vision could unlock value. Voting BLUE is not just a vote for governance reform but a last chance to reverse the board's costly missteps before they permanently erode Paragon's prospects.

Investment Implications: Act Now or Risk Irrelevance

For investors, the path forward is clear:
- Vote BLUE by June 29 to install a board committed to shareholder alignment.
- Monitor legal costs: If litigation spending continues unchecked, the stock's $13.4 million market cap could shrink further.
- Watch for operational improvements: Look for signs of cost-cutting, SEDC expansion, and debt management post-slate change.

Conclusion: A Crossroads for Shareholder Value

Paragon stands at a critical juncture. The board's entrenchment tactics and governance failures have already cost shareholders dearly. Gad's slate represents a rare opportunity to pivot toward accountability, operational focus, and value creation. The clock is ticking: shareholders who fail to vote BLUE risk ceding control to a leadership that prioritizes its own survival over their interests. This is not just a governance fight—it's a battle for the company's soul.

Act now. The future of Paragon hangs in the balance.