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Despite subsidiaries' sales, Ontario struggles with debt: Lawsuit sheds light on tech holding company

October 27, 2008

Over the last five years, Daleville's Ontario Corp. has successfully divested two of central Indiana's larger high-tech firms. It's had less luck resolving its debts.

This month, a federal court in Indianapolis reopened a lawsuit filed three years ago by Charles Craig-one of Ontario's former executives-and his wife, Barbara. Their complaint alleges Ontario defaulted on $1.3 million in promissory notes.

According to court documents, the company east of Anderson provided the couple a series of 10-year notes in 2001 on Charles Craig's retirement, in exchange for their equity stake. But the Craigs allege the company stopped making payments in 2005. They've been seeking a settlement ever since.

In its filings, Ontario has argued it couldn't pay the Craigs' debt because it was already in default on loans from Fifth Third Bank and First Merchants Bank. Terms of those debts were not included in court documents.

Ontario's lack of cash is still the bottom line, said Krieg DeVault LLP attorney Mark Merkle, who represents the Craigs.

"Our position is, if the money was there, it wouldn't be such a big deal," he said.

In the years after it provided the Craigs their promissory notes, Ontario sold off some of its strongest businesses. According to Hoovers.com, the company was founded in 1955 to make components for aircraft engines. Eventually evolving into an advanced manufacturing and IT holding company with numerous subsidiaries, Ontario acquired debt-collection softwaremaker Compusoft in 1985 and renamed it Ontario Systems.

Led by co-founders Wil Davis and Ron Fauquher, Muncie's Ontario Systems is now one of central Indiana's biggest and best-known IT firms. But it's no longer an Ontario Corp. subsidiary. According to the Muncie Star-Press' archives, Carmelbased Oxford Financial Group bought Ontario Systems in 2003. Terms of the deal were not disclosed. By 2005, the Star-Press reported Ontario Systems had grown to 500 employees.

Three years later, in 2006, Ontario Corp. shed another of its prize assets: Dalevillebased Sherry Laboratories. With 180 employees at the time of its sale, Sherry Laboratories provides product testing for aerospace and auto manufacturers.

The Craigs won a summary judgment against Ontario in 2006, but the company has since appealed. The company declined IBJ's request for comment, deferring instead to its outside counsel, Taft Stettinius and Hollister LLP partner Richard Richmond.

Ontario has settled its debt with Fifth Third, Richmond said, but not First Merchants. The company continues to argue it can't satisfy the Craigs' promissory notes until it settles its bank obligations.

"What we'd like is [to] have the Craigs acknowledge they have an obligation to stand by and stand still until the corporation is able to fulfill its obligations to First Merchants, as they're required to do," Richmond said.

But Merkle said, sooner or later, Ontario will have to pay the Craigs what it owes them.

"It's pretty straightforward. There are promissory notes with repayment terms that weren't met. That's kind of it. And then it's all about, do they have funds to pay? That's always the $1.3 million question," Merkle said.
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