HomeMy WebLinkAbout97-01014
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10. The Corporation is in the business of conducting computer consulting work
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for various businesses in the mid-Atlantic region.
II. Throughout his involvement with the Corporation. Mr. Capp acted in the
capacity of computer consultant, as well as serving on the Corporation's board of
directors as President, and later as Chief Financial Officer ("CFO").
12. From January I, 1995 until his subsequent removal from the Corporation,
Mr. Capp devoted his exclusive business intentions and best efforts towards developing
the Corporation into a profitable organization.
13. During his involvement with the Corporation and as a result of his position
as CFO, Mr. Capp became concerned with the lack of proper cost control measures
necessary to ensure the viability of the Corporation. The aforementioned lack of
appropriate cost control measures inciuded insufficient record keeping by various other
employees and owners of the Corporation, as well as failure to follow proper requisition
and procurement procedures.
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44. In Janual)'. 1995, the owners of the Corporation had declared that they
would receive a shareholder distribution of profits on a regular basis.
45. In December. 1995, at the Corporation's Board meeting, a shareholder
distribution of Fifty Thousand Four Hundred Sixty-Eight Dollars ($50,468.00) was
declared, but not distributed.
46. At the aforementioned Board meeting, it was determined that the
distribution would be divided equally among those owners who were also full-time
employees of the Corporation.
47. Of the five (5) owners of the Corporation. only John Gomel)' was not also
a full-time employee.
48. Pursuant to the directive made at the December 1995 Board meeting. Mr.
Capp's share of the declared but unpaid owner distribution is Twelve Thousand Six
Hundred Seventeen Dollars ($12,617.00).
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STOCK PURCHASEAGREEMENTIREDEMP110N AGREEMENT
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AGREEMENT made this _ day of
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A. Caw,lohn C. Kelly,loseph P. Bennett, Ten)' 1.10hnson and lohn M Gom~ry, Shareholders in
Peri'cct Order, Ine., a Pennsylvania corporation. hc:reinaftcr separately referred to as "Shareholder"
and sometimes collectively refczred to as "SharcholdelS," and Perfect Ordc-r, Inc., ~inafter
rcfened to as the "Corporation."
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WHEREAS, the Shareholders are presently active in the management l)f the Corporation
and oWn the following stock interests in it:
lames A- Capp
John C. Kelly"
Joseph P. Bennett
Terry J. Johnson
JohnM. Gomcry
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"100 shares
I 00 shares
1 00 shares
100 shares
100 shares
and
WHEREAS. the Corporation is dependent upon and derives substantial benefit from the
continued' active interest and participation of the Shareholders in the malllgement of the
Corporation; and
WHEREAS, the parties hereto believe that the maintenance OfharmOniollS management is
.il1 the best inte:cst of the Corporation and the Shareholders and for this reason that ownership of the
stoclc _in the Corporation remain in and be restricted to the parties hereto; and
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WHEREAS, the Corporarlon has not amngcd to provide 1\mds ncc:es:1lll)' to acquire tho
~ of tho SharchoIdcr1 throuah Ufo insuranco policies on the Iifo of said ShlUeholders, however,
the CoIpolltion docs reserve the right to at a 1iJturc date lUTlUIgo to provide tho funds ncceslllol)' to
acquirO the shalcs of a dcc(ased Shareholder through insurantC policies 011 the lives of ~
Sharcho1dcls;
NOW, THEREFORE. in consideration of the promises and mutual CO'/CDlDts, conditions
and agreements herein contained, the parties hereto, each iIlt~ntfing to be legally bound thereby,
apo as foUows:
1. LIFE INSURANCE. Tho ColpOralion shall have the right to obtain insurance on tho lifo
..... of each Shareholder in the !\!Dounts set forth on Schedule "}., II naming itself Ow.ler and beneficWy
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'; of each policy. All policies shall be listed in: SChcdulo"l\" attached hereto, and the policics and
any proceeds received therewlCler shall be held by the ColpOration in trUSt for tie purposes of this
Agreement. The Corporarlon shall have ~e tight to take out additionallnsuranco on the life of any . ( "
Shareholder whenever, in the opinion of the ColpOratiOD, additional insurance IDay be required to
carry out iu obligations under this Agreement The Additional policies shall be listed in Schedule
"A" and subject to the terms of this Agreement. The Corporation shall pay all premiums on the
insurance policies and shall give proof of paymCDt to each of the Shareholder!: within thirty (30)
days after tho date of each premium. If tho ColpOration should fail to pay w:,y premium within
twCDty-five (25) days after the duo date, the Shareholder on whom the policy is issued may pay
such premium, in which event he shall have a right to reimbursement from the I:OIpOration within
sixty (60) days.
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. ,within thirty (30) days, after the receipt of such notice, all of such stock ,shall be offered to the
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remAlnl"g Shareholders who sha1l have the option, amoog themselves. to purchue all, but not
less than all, of such Iitock. The ro-A1nl"S Shareholders shal1 have the right to Il\l1'Chase such
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portion of the sharcJ offered for sale as the number of shares owned by each /It such date sha11
bear to the total Dumber of shares owned by all oftha Shareholders, excluding that oftha selling
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Shardwldcr, provided. however, thet if any Shareholder docs Dot purchase his t\111 proportionate
share of the stock, the IInRccepted stock may be purchased by the other Shareholders
Pfllportionatcly. Each of the remaining Shareholders shall have the right to exercise this OptiOD
'or thirty (30) days after the COlporation's option to purchase has expired. If said shares of stock
are not purchased within the, aforesaid period, the Shareholder desiring to sell said shares may
'..,. ;,.. 'diliposc of them in any lawful manner available to him, but not at a price less thlln that
established in accordance with the provisions oflhis Agreement; without first otfering to sell said
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. , . s~ to ,the Corporation and remaining Shareholders at such lesser price. ;
The price to be paid by the Colpo-ration and/or ro-Rlning shareholders for the shares of
stock of the selling Shareholder at any time during his life shall be determined as tollows:
A. Fifty'percent (50%) of the price as ddennincd under Article 2 hereof, if the
selling Shareholder has been active in the Corporation for a period of five years or less;
B. Seventy-five percent (75%) of the price as detennined under Article 2 hereof, if
the selling Shareholder has been active in the Colporation for a period of more than five years, but
eight or less years;
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. C. One hundred pcn:cnt (100%) of the price as dctcnnined under Article 2 wear, if
the sc1ling Stockholder has been active in the Coxporatlon for a perlod of nine YeflfS or morc.
4. V ALUA nON OF STOCK. The value of tho shares shall be detennir,ed at the time of a
1ifetime sale or at the time of death of a Shareholder in accordance with the per share value set forth
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on Schedule "B", attached hereto and made a part hereof: In the event Schedule "B" has not he
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cxceutcd for a period of two (2) years prior to the valuation date, the value shall be detcnnined by
the certified public accountant regularly retained by the Corporation. Such delllnnination by said
,ccrtifled public accountant shall be conclusive as to all parties. If DO accolmtant shall be so
,retained, said value shall be determined by any other certified public accountant selected by the
mutual agreement of the C~rporation, the surviving or remaining Shareholders and of ~e selling
Shareholder or legal representative of the deceased Shareholder. The value or the shares of the .
Coxporation as detClIl1i.ned as herein before stated is end sha11 be inclusive of the . talue of goodwill.
. s: PAYMENT TERMS AND CO~ONS. The "payment date" shaU be a date agreed , (
, to by the parties which date shall be no sooner than forty-five (45) days and no later \han one
hundred twenty (120) days after the date that notice was first given to the surviving Shareholders of
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the death, disability, involuntaty transfer or desire to sell of a Shareholder. In the event that the
parties to such purchase and sale are unable to agree on a payment date, the J:ayment date shall
occur on the one hundred twenty-first (121st) day following the receipt of said DO lice.
Upon the payment date, at the principal office of the Corporation (or SllCh other place as
may be agreed upon by such parties), the Corporation and/or surviving/remaining Shareholders, as
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the caso may be, ~. purchase and pay for the shares of the selling or deceased Shareholder in
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accordance with the roii~~:
Upon the' death of a Shareholder, the Corporation shall immediately collect the
pzocceds of the policics owned by it on the life oflhe deceased Shareholder for lhe pwposes oflhis
Agreement and shall apply all of said proceeds as may be /lL!C{,S'lIlty to purc~ the shares of stock
of the deceased Shareholder at the price established in accordance with the provisions of this
Agreement. If such proceeds are not sufficient to purclulse all oflhe shares of stllck of the deceased
Shareholder, .the balance of the purchase price shall be paid in one sum, or, at the option of the
COIpOration, in all events, within five (5) years in sixty (60) equal co:3SCCutive monthly
inst.a1lments, with an inte~t rate of York Bank & Trust Company prime, less lhtee percent (3%),
. but not less than the interest imputed under Section 483 and/or the Original Issue: Discount Rules of -
Sections 127H275 of the Internal Revenue Code of 1986, as amended, whichever is applicable,
per annum (interest to be detenniped based upon the federal applicable rate in effect fifteen days
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prior to the "payment date"), which defcned payment shall be evidenced by ajuClgment note/notes.
Upon a lifetime sale, the purchase price, as detennined in paragraph 4 ~of, shall
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be paid in a lump sum cash sett1em~nt, or, at the option of the Corporation, tlv, COIpOration shall
pay in cash to the ...lIing Shareholder ten peltent (10%) of the said purc:Jasc price, and in
satisfactio!l of the balance of said purchase price, shall execute and deliver to the selling
Shareholder, a series of sixty (60) consecutive monthly installment notes of equal amounts and in
the aggregate sum of said balance, payable to the order of the selling Shar,molder. The said
judgment notes shall bear interest at the rate of York Bank & Trust Compar,y prime less three
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adjudication beaune final) to sell all of the sb.arcs of stock of CoIpOratiOll owned by such
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incompetent Shareholder,
(e) The tcm1Ination of employment relationship of a SI:.archolder by the
. CoJporaUon for any reason. whether vohmtary or Involuntary, other than total di:labllity (as dp.fin~.d
in paragraph 7 hcreo~ for a period not exceeding twenty-four (24) months (as ~I:fined in pamgraph
7 h~f), death or retirement, shall be treated as an offer made on the date of tP.nninAtion . of
employment;
then all of the stock of such a Shareholder shall be deemed to have been offered for sale to the
.I"'"'Aining Sharcholder at the time of such proceedings, process, filing. or termination. excepting
termination due to disability, at the same price and on the same terms as to acceptance and payment
as if the offU had been made under the provisions of paragrapps 3 and S hereof:
7.' DISABILITY. In the event a Shareholder is totally disabled (total disablllty being
. dc~ as ~~iving continued total disabi~tY payments from Insurance Comperi)' and/or any other .' '("
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insurance c8nier responsible for making such payments to Shareholder upon Shs~older l?ccoming
eligible for total disability payments under the disability policy in place at the tim!= for said
disability) for a period exceeding twenty-four (24) months (the twenty-four month period being
defined as a three [3] month waiting period during total disability after which the disabled party
receives ~ty-one [21] consecutive total disability payments under the insuran::c carrier's policy),
COqlOration or non-disabled Shareholders. as the case may be, shall have the option to: (i) force the
disabled Stockh,older to sell his stock pursuant to paragraph 6, subparagraph (:) hereof upon the
terms, conditions and price set forth in paragraphs 3 and S hereof; or (ii) to waive its or their right,
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as tho case may be, to pUIChasc thc disabled Sbarcbolder's stock as ptOvided tix hereinabove in
subpmgraph (i) for a period of six (6) months. The Corporalion or non-disabled ShuehDldcrs, as
the case may be, may extend the aforementioned waiver for an unlimited nU!l1bc~ of six (6) month
periods at their option. Notwithstanding anything to the contrary conrz1ned hensln, the
Corporation's or the non-disabled Shareholders', as the case may be, waiver undCl subparagraph (ii)
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hereinabove shall not be constrUed to bar forever the Corporation's or non-disable.i Shareholders, is
thc case may be, the right to purchase tho disabled Shareholder's stock pursuant to this paragraph
and paragraph 6, subparagraph (e) hereof. Thc Corporation o~ non-disabled Shareholder, as the
case may be, hereby preserves and retains its or their right to purcl1ase the sto(:k of the disabled
Shareholder at the times and manner herein provided.
8. Dm,TVF.RY OF CERT\'P.CATES. Upon any sale ~d purchase henunder, the selling
'... . Shareholder or his legal representatives, as the case may be, shall deliver the mues being sold to
~ purchaser dQly endorsed for transfer rrc: abd clear of any li~ or encumbrano: with all required . ,. "
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transfer taxes paid or provided for.
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9. DTSPOSmON OF POLICTES In the event that a Shareholder shculd sell,his stock
during his lifetime as provided herein, or in the event of the termination of this Agreement, the
withdrawing Shareholder or the I"'"'Aining Shareholders, as the case may be, shall have the option,
cxcrcisable,within sixty (60) days, to purchase any life insurance policy/policics on his own life
subject to this Agreement. A Shareholder shall give written notice of his intc:1tion to buy sueh
policy/policies to the Corporation. The purchase pricc for any such policy shall be its interpolated
tcnni.lla1 reserve and any dividend credits outstanding as of the dale of p.U'Chase, plus the
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BERGDOLL
~ COMPANY
ceRTIFIED PUBLIC ACCOUNTANTS
137 WEST MARKET STREET. YORK. PENNSYLVANIA 17401
PH: (717) 85..78114 FAX: (717) 854-1778
September 30. 1996
Perfect Order. Inc.
711 S . York Street
Meehanlcsburg, PCMSylvania 17055
· Description of the Assignment ·
Bergdoll & Company has been engaged by Perfect Order, Ioc.. a Pennsylvania
corporation. to estimale the fair market value of 100% of the common stock in the
company as of June 30, 1996, The purpose of the valuation is that it will be used in
cOMectlon with your stockholders' agreement.
Fair market value is defined as the eash or cash equivalent price at which
property woul.! change hands between a willing buyer and a willing se\ler, neither being
under a compulsion to buy or sell and both having reasonable knowledge of relevant
flCts,
· Summary Description of the Company"
, Perfect Order, Inc. is a computer eODsulting firm. specializing in computer
nelwork systems, which also sells computer software and hardware to its clients on an
as needed basis,
.. Valuation Methods and Conclusion ..
In developing a value for Perfect Order, Jne,. we were unable to use traditional
income and market approaches because of the lack of operating history (less than two
years), because of inadequate operating history (due to incomplete accounting records),
because of the inability to project future operating results (due to infancy of business and
significant shareholder/personnel changes) and beeause of the lack of comparable
companies. ,Accordingly. our valuation is based solely on the book value of Ihe
company (net asset value) as Set forth in the June 30, 1996 balance sheet allached
herelo.
Based on the information provided to us and the limitations staled above, it is our
considered opinion that the fair market value of 100% of the common stock of Perfect
Order, Inc. IS $182,000.
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.....~'RSOF; AACRlCANNSTrTlITeOl' Cel'fTPl!D ~c ACOCJl..;WANTS . ~''''''''S''l.V;'~A r..s TrTUTli C)f:~~TFlE:DPU8l.C ""CCOUNT"""TS
10/2t/96 ~IO~ 10:26 lTX/RX NO 8019]
EXECUTIVE SUMMARY
The Company Concept
Technology-related business services are among the
fastest growing industries in the United States. This growth
is the result of a business philosophy that has been
established by large corporations to downsize, in order to
provide higher earnings. This downsizing, normally termed as
"RIGHTSIZING", is based on the concept of gaining advantages
over competitors by reducing company overhead. This is
accomplished by reducing staff in support oriented
departments and replacing these support functions with
services available from outside the company. Since the
largest overhead budgets are presently in the MIS and DP
departments in these firms, the outsourcing of these services
has ensured the continuing growth of the technology-related
support services for the foreseeable future.
At the same time that this downsizing has occurred,
there has been an explosion of network computing. This
informational highway has brought unprecedented need of
essential data available to business. The secure and timely
access of this data is crucial to virtually every business
sector today. The technology surrounding the information
highway and the fact that most MIS/DP departments are running
with half the staff they had last year, has left the huge
opportunity for small business with network computing
expertise to grow.
The concept behind Perfect Order, Inc. is to fill the
void created by the corporate downsizing and the network
computing explosion. We will provide network computing
services to business on a contractual basis. We will grow
this business by hi~ing the best of the downsizing victims
and training them. Once trained, they will be redeployed to
work as consultants to large firms needing access to the
information highway.
The Corporation
Perfect Order, Inc. was incorporated in Pennslyvania
September 1992 as a "s" corporation. The corporation has a
limited ownership of 5 principles. These principles will
provide all the initial start-up funds and work force.
The Market
Our target market will be large firms needing network
computing assistance in the Mid-Atlantic States. These
states include Delaware, Maryland and New Jersey. This
territory offers a large base of clients within business and
government.
EXECUTIVE SUMMARY (Con'tl
Competitive Position
Currently most of the network computing expertise is in
the ranks of the University and the sales organization of the
computer manufacturers. Since the computing manufacturers
are leaving the business in their own downsizing effort, most
of the firms in the area are experiencing trouble in finding
local support and sales of network computing. The existing
competitive consulting firms are all based in the
metropolitan areas and have a considerable higher cost of
providing services. We intend to provide better services at
a lower price.
Management Team
The management team will consist of the 5 principles.
All 5 principles have an established history in network
computing and the business of providing services to large
corporations.
James A. Capp
President
Zachery Lembo
Vice-President/Sales
John C. Kelly
Vice-President/Marketing
Terry J. Johnson
Vice-President/Industry Relations
John M. Gomery
Sectretary/Treasurer
The Future
Long term development calls for the company to expand.
This expansion will initially occur in the Mid-Atlantic area,
by increasing employment and market share. When this
expansion is stable, the intent is to expand by providing
services internationally. It is generally perceived that the
present situation in the US will be arriving in Europe and
Japan within the next several years. Demand for networking
connectivity has created a need for networking expertise in
the U.S.. We expect this to expand into Japan and Europe.
Financial
The company will start with $100,000 in start-up funds
with each principle owning 100 shares of "A" shares @ $50
each or $5,000. The balance to be funded in 300 "B" shares
@ $50 each or $15,000. Failure to execute this plan by any
principle by January 1, 1995, will cause the exit plan to be
placed in effect.
MISSION STATEMENT
Company Description
This company will provide consulting in the field of
network computing throughout the Mid-Atlantic region.
Company Mission
Our goal will be to increase the customers productivity
by helping them maximize their utilization of enterprise-wide
network computing. Assisting the customer in lowering their
cost of computing and providing them with a competitive
advantage in their market. We will provide consulting and
training programs of consistently high quality with an
unequalled staff and backing these programs with on-going
support. We will be a service company dedicated to long-term
relationships with our customers. We aim to be known as the
single source of network computing expertise in the
Mid-Atlantic area. Our development goals are to provide for
steady expansion, through the careful hiring and training of
employees. The company is expected to be profitable by its
third year of operation with over $1,000,000 in revenue.
Services
The company will provide several consulting services
within the network computing field. We also will provide
expertise in networking protocols and network applications.
The majority of our income will be from providing direct
consulting services to our customers. These direct services
will include assisting the customer in the selection,
configuration, installation and supporting of enterprise-wide
network computing.
Along with these direct offerings, we will provide for
custom training classes. For marketing purposes, we will
also provide for general training classes on a quarterly
basis.
We also will provide for joint marketing relationships
with hardware and software vendors. This will include
providing configuration and installation support to their
customers.
The company will create marketable software programs and
software development tools. The costs of these will be
reimbursed to the creator and/or investor by the company
after sale or placement. Royalties will also be considered
as a form of repayment [or these programs/tools. Royalties,
when appropriate, are negotiable but will not exceed 10% of
income for each particular entity. Payment will commence 30
days after initial payment of the placement.
INDUSTRY ANALYSIS
Computer-related Service Industry
The service industries represent the fastest growing
sector of the national economy and the computer-related
services reflect that growth. These services as a whole grew
in excess of l50% over the past 5 years.
Network Computing Industry
Today over 70% of all business computing is based on
network. The nations largest data repositories are available
today over the Internet. This wealth of data is growing by
an amazing exponential rate, causing the US Government to be
concerned about improving the speeds of the nations data
highway. With this explosion of network computing,
businesses across the country have found access to the
nation's data highway absolute necessity.
New Developments in Business Computing
The need to be more cost effective in order to compete
in the global market has forced most of the US industry to
lower their overhead and downsize their internal support and
service organizations. This has caused most of the MIS and
DP departments to decrease their staffing and lower their
training budgets.
The cost of centralized computing has forced the
industry to develop a distributed network of low-cost "Open"
desktop computers and specialized network servers as
resources. This "Open Computing" model has left the recently
reduced MIS and DP departments with a new and sometimes
confusing model of computing.
The Network Consulting Opportunity
The downsizing within the computer industry has left the
field with an unprecedented amount of unemployed. A majority
of these recently unemployed are highly skilled computing
professionals. With some additional training these computer
professionals can enjoy a rewarding career providing
consulting services in network computing.
Critical Very Important Total
Computing Process 24.1 42.4 66.5
Reengineering System 21. 8 41.6 63.4
Downsizing MIS 15.6 31.6 47.2
Outsourcing 4.0 12.3 l6.3
Top MIS Goals for 1995 (% of respondents)'
Critical Very Important Total
Managing Costs 54.0 39.7 93.7
Improving Productivity 38.0 53.8 91. 8
Improving Quali ty 36.4 52.7 89.l
Competitive Advantage 33.2 32.4 65.6
Raising Profits 20.9 32.l 53.0
The % of Total Budget*
1992 1994
Personnel 36.5 33.2
Hardware 24.6 22.5
Software 14.8 l6.6
Networking 5.7 8.3
Comrn. Svcs 6.1 7.4
Outside svcs 5.4 6.3
Overhead 6.9 5.7
The '/, of Communications Budget
Voice
Data
1992
52.2
47.2
1994
39.0
61. 0
, DATAMATION:8/15/94
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SALES & MARKETING PLAN
Marketing Plan
The initial marketing will be accomplished by direct
mailings and follow-up phone calls. Each sales person will
develop their own forecasts and maintain a mail and phone
program.
To facilitate this effort a low cost general training
schedule will be developed and used as a lost leader. This
will local individuals and industry to receive general
network computing training at a very reasonable cost. This
low cost training will establish this firm as having area's
best expertise and provide the company with the reputation of
providing services at a very reasonable rate.
The company will maintain an entry in the "Yellow
Pages", as well as a monthly ad for employment in the local
newspapers. The company will also maintain a high profile in
all pertinent professional organization in the area, like
HUUG, ACM and DPMA. We will volunteer for speaking
engagements as often as possible.
The company employees
group within the Internet.
and marketing data base on
will remain active on several new
The company will maintain a sales
the internal computing network.
Example
Month
One
Two
Three
Four
Market Plan
Activity
Direct mailing advertising training on ???
Phone Calls and Registration for Course
??? training and announcement of next course
repeat of first month activities
Sales Plan
The sales team will close business developed from the
marketing plan, by using standard contracts supplied by
Perfect Order. The sales team will develop a program to
constantly be interviewing for consulting positions within
the company, while the existing consultant staff will be
responsible for developing an ongoing training program for
themselves and new hires. The sales team will develop a
network of industry alliances with all the hardware and
software vendors in the network computing field. They also
will develop relation-ships with other consulting
organizations, so we can sub-contract when necessary as well
as being considered for sub-contracts.
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OPERATIONS
Networking
The core revenue for this company with be derived from
consulting in the field of network computing. The lifeline
of our internal operations will also be network computing.
The network will also provide for training equipment and
classes. This same network will also provide the vital
function of running the day to day operation of the business,
like accounting and handling the phone system.
Service Pricing
All consulting services will be priced at $l25.00 an
hour. These rates will be discounted at the discretion of
the sales manager, however at no time will the rate fall
below $60.00 an hour.
Business Revenue
The revenue generating from this consulting business be
applied in the following matter:
40% of revenue to consultant on the job
10% of revenue to consultant for on-time performance
10% of revenue to sales commission
lO% of revenue for training and training equipment
10% of revenue to facilities and operational expenses
lO% of revenue for profit sharing
lOt of revenue for company profit
Start-up Issues
Since initial start-up cost will be high including
legal fees and accounting fees, some of the start-up funds
will be used. These funds will be replaced after the company
shows a profit, therefore assuring the original principals a
return on their investment.
In the initial phases of the company growth, expenses
will not be paid to sales or consultants. Once the company
starts to turn a profit, we will provide for the payment of
legitimate expenses. As soon as possible we would like to
provide for employee benefits. This will be accomplished by
lowering the percentage of revenue disbursement to the on-
site consultant and the sales representative and applying
those funds towards benefits.
'f ..
OPERATIONS (Con't)
Competitive Advantage
The company will be operation on a low 10% profit
margin. We intended to hold facilities and operational costs
to lO% or less. At the same time we are rewarding the on-
site consultant with an extremely high percentage of the
contract revenues and allowing the salesperson involved an
industry leading commission percentage. This formula for
operations should provide this company with a staff made up
of the industries' best people and still provide extremely
competitive pricing for the customers. The 10% investment in
training will insure this companies' continued expertise in
the fast-changing field of network computing.
t
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REVENUE FLOW CHART: 1995
COMPANY 1 QTR 2 QTR 3 QTR 4 QTR
DGS 251M 251M 251M 251M
DER 0 251M 251M 251M
AMP 101M 251M 351M 50/M
PROGRESSIVE 0 0 101M 201M
TIRE & RUBBER 0 0 101M 101M
PFALTZGRAFF 0 0 0 lO/M
DENVER/EPHRATA TEL. 0 lO/M 201M 301M
DONNELY 0 0 101M 201M
RITEAID 0 101M 101M 201M
ARMSTRONG 0 0 0 5/M
ARMY 101M 101M 101M 101M
YORK INT'L 0 5/M 0 0
FNH 0 0 5/M 0
HARLEY 0 5/M 5/M 0
UNITED TEL. 5/M 101M 301M 50/M
HERSHEY FOODS 0 0 0 0
CENTRAL PA. MULTILIST 0 0 0 50/M
WEST SHORE TAX 40/M 0 0 0
ROBEC DISTRIBUTORS 5/M 5/M 5/M 5/M
OTHERS 101M 101M 101M 101M
TOTALS 105/M 140/M 210/M 340/M
795/M
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KRISTIN D. Mr:RTZ " Shenff 01" Deputy Sheriff of
CUMBCHl,AND County, Pennsylvania, who being duly sworn according
to law, says, the wit.hin COMPI.AINT
upon P~RF~CT OrlDER INC
defendant., at 112:3:00 HOURS. on the ~7ttl day of FE'bruary
was served
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711 SOUTH YORK ST.
SUITE 104
M~;CIIANICSBUl'IG, , PA 17il155 , CIIMBERLAND
Count.y, Pennsylvania, by hand' ng to CLLU, nUNI'LC, OFFICE MANAGCR
a tru'O o:lnd attestE'd <:opy of t.he r:IJMF'LA INT
and at the somE' time> dirC'.ct.ing Her. ottention t.o thE' contents t.hereof.
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averred that Plaintiff was actually mismanaging and neglecting his duties
as Chief Financial Officer and/or otherwise not performing his duties in
a manner consistent with the best interests of the Corporation.
13. Admitted in part; denied in part. It is admitted that
Plaintiff voiced concerns with regard to his perceived lack of proper
cost control measures from a purchasinq standpoint. It is specifically
denied, however, that the alleged lack of proper cost control methods
included insufficient record keeping by other employees and owners, as
well as failure to follow proper requisition and procurement procedures
and strict proof thereof is demanded at the time of trial. By way of
additional response, as Chief Financial Officer, Plaintiff was
responsible for ensuring and maintaining proper record keeping; a duty
he sorely neglected as the remaining owners discovered on or about June
of 1996 that Plaintiff had not billed his customers from January of 1995
through July of 1996, nor properly recording monies which did come into
the Corporation into Defendant's account. Additionally, various other
deficiencies with regard to Plaintiff's handling of the Corporation's
finances and accounting practices were discussed with Plaintiff by the
remaining owners/shareholders on numerous occasions prior to Plaintiff's
departure from the Corporation.
14. Denied. After reasonable investigation, Defendant is without
knowledge or information sufficient to form a belief as to the truth or
veraci ty of the allegations contained in paragraph 14 of Plaintiff's
Complaint and the same are denied and strict proof thereof is demanded
at the time of trial. By way of additional response, Defendant
incorporates herein by referenced as though set forth in full, its
response to paragraph 13 above.
2
15. Aclmitted in part; denied in part. It is aclmitted that a
disagreement arose within the management and ownership of the
Corporation. It is specifically denied, however, that the "disagreement"
stemmed from Plaintiff's alleged "insistence" as to any issue, and strict
proof thereof is demanded at the time of trial.
16. Denied. It is specifically denied that Defendant
Corporation's owners met secretly for purposes of devising a plan to
force Plaintiff out of the Corporation, and strict proof thereof is
demanded at the time of trial.
17. Aclmitted. It is aclmitted that during a regularly scheduled
Board meeting, of which Plaintiff was notified and, in fact, attended,
the Board of Directors moved for and approved Plaintiff's resignation
from the Board and also from the position of Chief Financial Officer.
18. Aclmitted. By way of additional response, Defendant never had
a formal agenda for any of its Board meetings, nor is there any statutory
requirement which imposes such an obligation on Defendant.
19. Denied. After reasonable investigation, Defendant is without
knowledge or information sufficient to form a belief as to the truth or
veracity of the allegations contained in paragraph 19 of Plaintiff's
Complaint and the same are denied and strict proof thereof is demanded
at the time of trial.
20. Denied. It is specifically denied that Plaintiff was "forced
out" of the Corporation, and strict proof thereof is demanded at the time
of trial. By way of additional response, Plaintiff's resignation as
Chief Financial Officer and from the Board was the result of a vote by
the remaining Directors at a properly held Board meeting.
21. Aclmitted upon information and belief.
3
22.
Denied.
The allegations raised in paragraph 22 state a
conclusion of law to which no response is necessary.
By way of
additional response, it is specifically denied that the Corporation has
improperly retained monies and property due and owing Plaintiff and
strict proof thereof is demanded at the time of trial.
COUN'l' I
Breach of Contract
Stock Redemption Plan
24.
23. No response required.
25.
26.
27.
28.
29.
30.
Denied. The Agreements speaks for itself.
Denied. The Agreement speaks for itself .
Denied. The Agreement spea ks for itself.
Denied. The analysis speaks for itself.
Admitted.
Admitted.
Denied.
The allegations raised in paragraph 30 state a
conclusion of law to which no response is necessary.
31. Admitted. It is admitted that the Corporation has refused to
redeem/purchase Plaintiff's stock; said decision being consistent with
Defendant's ootion to purchase as set forth in the Agreement. By way of
additional response, pursuant to the terms of the Stock Agreement, as
neither the shareholders nor the Corporation have agreed to purchase
Plaintiff's shares, Plaintiff may dispose of his stock in any lawful
manner. Defendant has no obligation to redeem Plaintiff's stock.
WHEREFORE, Defendant, Perfect Order, Inc. requests judgment in its
favor and against Plaintiff plus such costs and other relief as the Court
deems just and equitable under the circumstances.
4
COUNT II
Breach of Contract
Retained Wagea
32. No response required.
33. Denied. The "business plan" speaks for itself.
34. Denied. The "business plan" speaks for itself.
35. Admitted. By way of additional response, in February of 1997
prior to the filing of Plaintiff's Complaint, Plaintiff was paid the sum
of Eleven Thousand Nine Hundred Fifty Dollars and Fifty-four Cents
C $11, 950.54) .
36. Denied. After reasonable investigation, answering Defendant
is without knowledge or information sufficient to form a belief as to the
truth or veracity of the allegations contained in paragraph 36 of
Plaintiff's Complaint and the same are denied and strict proof thereof
is demanded.
37. Denied. After reasonable investigation, answering Defendant
is without knowledge or information sufficient to form a belief as to the
truth or veracity of the allegations contained in paragraph 37 of
Plaintiff's Complaint and the same are denied and strict proof thereof
is demanded. By way of additional response, Defendant has been paid the
amount at issue in this Count.
38. Denied. After reasonable investigation, answering Defendant
is without knowledge or information sufficient to form a belief as to the
truth or veracity of the allegations contained in paragraph 38 of
Plaintiff's Complaint and the same are denied and strict proof thereof
is demanded.
By way of additional response, Defendant has been paid
Plaintiff the amount at issue in this Count.
5
and withholding ($4,787.91) was issued to him. No shareholder
distributions have been paid; monies were, however, paid into a venture
fund to be distributed on or before April 1, 1996, but this distribution
was never made as the company did not "recognize" a profit.
46. Denied. After reasonable investigation, Defendant is without
knowledge or information sufficient to form a belief as to the truth or
veracity of the allegations contained in paragraph 46 of Plaintiff's
Complaint and the same are denied and strict proof thereof is demanded
at the time of trial.
47. Denied. After reasonable investigation, Defendant is without
knowledge or information sufficient to form a belief as to the truth or
veracity of the allegations contained in paragraph 47 of Plaintiff's
Complaint and the same are denied and strict proof thereof is demanded.
48. Denied. It is specifically denied that there was any
directive at the December 1995 Board meeting during which time a
shareholder distribution was declared or that any such distributions were
ever paid or are owing to Plaintiff, and strict proof thereof ~s demanded
at the time of trial. By way of additional response, Defendant
incorporates herein by referenced as though set forth in full its
response to paragraph 45 above.
49. Admitted. It is admitted that Defendant has refused to make
the requested shareholder distribution to Plaintiff, as Defendant has
never issued any shareholder distributions in the past (or subsequent to
Plaintiff's departure), such that Plaintiff would be entitled to same.
WHEREFORE, Defendant, Perfect Order, Inc. requests judgment in its
favor and against Plaintiff plus such costs and other relief as the Court
deems just and equitable under the circumstances.
7
veracity of the allegations contained in paragraph 56 of Plaintiff's
Complaint and the same are denied and strict proof thereof is demanded
at the time of trial.
57. Denied. After reasonable investigation, Defendant is without
knowledge or information sufficient to form a belief as to the truth or
veracity of the allegations contained in paragraph 57 of Plaintiff's
Complaint and the same are denied and strict proof thereof is demanded
at the time of trial. By way of additional response, no profit share
distributions have ever been made by the Corporation; consequently,
Plaintiff's "demand" for such is illogical and inappropriate.
Additionally, only discretionarv bonuses were issued to all employees,
and given Plaintiff's performance for the year 1996, no bonus was deemed
warranted or earned.
WHEREFORE, Defendant, Perfect Order, Inc. requests judgment in its
favor and against Plaintiff plus such costs and other relief as the Court
deems just and equitable under the circumstances.
COUNT V
Conversion of Property
58. No response required.
59. Denied. It is specifically denied that when Plaintiff
resigned from the Board and his position as Chief Financial Officer that
certain property belonging to Plaintiff was retained, and strict proof
thereof is demanded at the time of trial.
60. Admitted in part; denied in part. It is admitted that
Defendant has either retained and/or disposed of the enunciated property,
but it is speCifically denied that said property is owned by Plaintiff
9
and strict proof thereof is demanded at the time of trial.
61. Denied. After reasonable investigation, Defendant is without
knowledge or information sufficient to form a belief as to the truth or
veracity of the allegations contained in paragraph 61 of Plaintiff's
Complaint and the same are denied and strict proof thereof is demanded.
62. Admitted. It is admitted that Defendant has refused to return
said items as they are not Plaintiff's property. By way of additional
responde, after his departure from the Corporation, Plaintiff made at
least three (3) separate trips to the facility for purposes of retrieving
his property and at no time inquired into the whereabouts of the items
identified in paragraph 60 of his Complaint.
WHEREFORE, Defendant, Perfect Order, Inc. requests judgment in its
favor and against Plaintiff plus such costs and other relief as the Court
deems just and equitable under the circumstances.
NEW MATTER
63. Paragraphs 1 through 62 above are incorporated herein by
reference as though fully set forth at length.
64. It is believed and therefore averred that during his tenure as
Chief Financial Officer, Plaintiff was derelict in his duties to the
Corporation, neglectful, and otherwise mismanaged the Corporation's
funds.
65. Pursuant to the terms of the Stock Purchase
Agreement/Redemption Agreement, Defendant has no contractual (or other)
obligation or duty to purchase or redeem Plaintiff's stock.
66. Defendant Corporation has never made any shareholder
distributions such that Plaintiff is entitled to the monetary relief he
10
JAMES A. CAPP,
Plaintiff,
IN THE COURT OF COMMON PLEAS
OF CUMBERLAND COUNTY, PENNSYLVANIA
v.
NO. 97-1014
PERFECT ORDER, INC.,
Defendant.
CIVIL ACTION - LAW
AND NOW, this
CERTIFICATE OF SERVICE
Jr-
'r}..5 day of March, 1997,
I, Robert M. Strickler,
Esquire, a member of the firm of GRIFFITH, STRICKLER, LERMAN, SOLYMOS &
CALKINS, Esquires, hereby certify that I have, this date, served a copy
of Defendant's Answer and New Matter to Plaintiff's Complaint, by United
States Mail, addressed to the party or attorney of record as follows:
Thomas J. Weber, Esquire
320 Market Street
P.O. Box 1268
Harrisburg, PA 17108-1268
GRIFFITH, STRICKLER, LERMAN,
S LYMOS & CALKINS
itJ
BY:
R ERT M. STRICKLER
Attorney for Defendant
Supreme Court I.D. No.
110 South Northern Way
York, PA 17402
(717) 757-7602
07496
65. Denied as stated. The Stock Redemption Agreement which is attached as
Exhibit "A" to Plaintiffs Complaint specifically states: "the parties hereto believe that the
maintenance of hannonious management is in the best interests of the corporation and the
shareholders and for this reason that ownership of the stock and corporation remain in and
be restricted to the parties hereto." fu Exhibit "A" to Plaintiffs Compliant. 3rd Whereas
Clause, Page 1.
66. Denied as stated, Defendant Corporation specifically declared a shareholder
distribution in December, 1995, as more fully desaibed in Count III of Plaintiffs Complaint,
At the time of declaration when the dividend was declared, it became a legal obligation of
the Corporation. As the individual holding the shares upon which the dividend was
declared, Plaintiff Mr. Capp became entitled to this payment.
67. Denied as stated. Pursuant to the Corporation's Business Plan, which is
attached as Exhibit "C" to Plaintiff's Complaint, the Corporation was obligated to make the
profit sharing payment consistent with the allegations contained in Count IV of Plaintiffs
Complaint. The Corporation consistently made such payment to all individuals who
contributed to the Corporation during the given year regardless of their status at the end of
the year.
2
CERTIFICATE OF SERVICE
I hereby certify that I am this date serving a copy of the foregoing document upon
the person(s) and in the manner indicated below, which service satisfies the requirements
of the Pennsylvania Rules of Civil Procedure, by depositing a copy of same in the United
States Mail, Harrisburg, Pennsylvania, with first.class post.1ge, prepaid, as follows:
Roben M. Strickler, Esquire
Lisa M. DiBernardo, Esquire
Griffith, Strickler, Lennan, Solymos & Calkins
110 S. Nonhern Way
York, PA 17402-3737
GOLDBERG, KATZMAN & SHIPMAN, P.C.
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By:
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THo as J. We er, Esquire
Attorney 1.0. #58853
320 Market Street
P. O. Box 1268
Harrisburg, PA 17108-1268
(717) 234-4161
Attorneys for Plaintiff
Dated: April 18, 1997
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6. In the past, Mr. Capp was an employee, officer and director of Perfect
Order. As such, he was involved in the day to day business operations of Perfect
Order.
FACTUAL BACKGROUND
7. A substantial part of the transactions, occurrences and events giving rise
to this action took place at Perfect Order's prior place of business, 711 South York
Street, Mechanicsburg. Pennsylvania 17055.
8. On January 19. 1996, a Stock Purchase Agreement/Redemption
Agreement (the .Stock Purchase Agreement") was entered regarding the stock
ownership, management and future business of Perfect Order. A true and correct
copy of that agreement is attached hereto as exhibit. A" and incorporated herein by
reference.
9. Although Perfect Order had been incorporated for some time prior to
January 19, 1996, the Stock Purchase Agreement represented the start of a new
business for Perfect Order.
10. As a part of the agreement related to the formation of this new business
venture, the parties to the Stock Purchase Agreement a:! '3greed that they would
not operate separate computer businesses in competition with Perfect Order.
11. The shareholders of Perfect Order each brought to the company his
expertise, contacts with potential customers and contacts with suppliers of
computer hardware and software.
2
12. In addition, each of the shareholders. with the exception of Mr. Capp,
contributed money to the company. Instead of contributing money, Mr. Capp
contributed a computer sales, service and consulting business which he operated as
a sole proprietorship under the registered name UKeystone Programming."
13. Mr. Capp became the Chief Financial Officer (UCFO"1 and treasurer of
Perfect Order. He held that position until he was removed as an officer on June 7,
1996, due to his financial mismanagement of Perfect Order.
14. In addition to being an officer of Perfect Order, Mr. Capp was a director
of the corporation. He was removed as a director on June 7. 1996. also due to his
financial mismanagement of Perfect Order.
15. Mr. Capp was charged with managing the company's financial affairs
including the institution of appropriate financial policies for this new business and
maintenance of its accounts. He was responsible for billing clients.
16. During the time he was an officer and director. Mr. Capp allowed the
company's finances to go unattended. The mismanagement went so far that
customers were not billed for months.
17. Mr. Capp took efforts to conceal the company's financial condition from
the other officers, directors and shareholders. These steps included giving the
other shareholders assurances that the finances were in order and representing that
he was developing an accounting program for the company's finances.
3
18. Mr. Capp was responsible for preparing financial reports. However,
when asked why reports were not being provided. he would explain his failure to
deliver financial reports by stating that the accounting program was being
developed.
19. The truth, known only to Mr. Capp, was that the company was having
financial difficulty. caused in large part by his failure to invoice customers and to
completely and properly develop an accounting program.
20. The true financial condition of the company and the status of the
accounting program was discovered in May 1996, when Mr. Capp approached the
other shareholders and stated that the company would need to borrow funds to
stay in business. At this point, the other directors. officers and shareholders
examined the company's financial condition and asked that Mr. Capp agree to
refrain from voting as a director pending a detailed examination of the company's
finsnces. When such an agreement was not forthcoming. on June 7.1996, Mr.
Capp was removed as an officer and director by unanimous vote of the other
directors and shareholders.
21. After his removal as an officer and director, Perfect Order allowed Mr.
Capp to continue as an employee and shareholder. He was allowed to participate in
corporate meetings. but not to vote. In fact, for a time, it was thought that Mr.
Capp would resume his position as an officer and director provided the financial
conditions and other business issues he created could be corrected.
4
22. During this time, Mr. Capp was allowed access to Perfect Order's
computer system to allow Mr. Capp the ability to serve customers.
23. While having access to Perfect Order's computer system for the purpose
of serving clients, Mr. Capp published the access codes to Perfect Order's
computer system in a public directory accessible to anyone with access to a
telephone line. Had this not been discovered, anyone could have accessed Perfect
Order's confidential and proprietary information and the confidential and proprietary
information of Perfect Order's clients. But it could have been far worse. With such
unlimited access, anyone with limited skill or perhaps no skill at all, could have
Intentionally or accidentally destroyed Perfect Order's computer system.
24. Mr. Capp's conduct resulted In Perfect Order having to take costly steps
to secure its computer system.
25. Unknown to Perfect Order, while he was an officer and director, Mr.
Capp had begun a pattern of self-profiteering with the intention of diverting Perfect
Order's business to himself.
26. As described above, prior to the entry of the Stock Purchase
Agreement, Mr. Capp had a business which he operated as a sole proprietorship
under the registered name "Keystone Programming." Thst business was
5
transferred by Mr. Capp to Perfect Order and represented his contribution to the
new business. Keystone Programming became a part of Perfect Order.
27. As a part of the agreement for the formation and development of
Perfect Order, Mr. Capp, on January 19, 1995, assigned the name "Keystone
Programming" to Perfect Order.
28. For a time, Perfect Order did business under the name Keystone
Programming. Although the intention was to retire the name Keystone
Programming, in favor of the new name Perfect Order, the name remained
registered to Perfect Order.
29. On June 14, 1996, after he was removed as an officer and director of
Perfect Order, Mr. Capp without any authorization transferred Perfect Order's
fictitious name "Keystone Programming" to himself.
30. Unknown to Perfect Order, Mr. Capp was maintaining the separate
existence of Keystone Programming so that he could illegally divert business from
Perfect Order to Keystone Programming and use Perfect Order's resources to
support his separate business.
31. Mr. Capp did this by, among other actions, continuing to maintain bank
accounts in the name of Keystone Programming for which only he and his spouse
had signature power. Although he was asked to close any accounts in the name of
Keystone Programming and he informed the other shareholders that he did close
6
any such accounts, it is believed and therefore averred that he never did close the
accounts.
32. In addition, despite the urging of the other shareholders that the name
Keystone Programming be retired, Mr. Capp as CFO used Perfect Order's funds to
order advertising showing that Perfect Order was doing business as Keystone
Programming.
33. In further derogation of his obligations to Perfect Order, Mr. Capp
caused Perfect Order to enter into a one sided employment arrangement with one
Timothy Hoy ("Mr. Hoy"). This was done because Mr. Capp urged that Mr. Hoy's
services were needed to service an account for Jack Gaughen Resl Estate ("Jack
Gaughen") and an anticipated account for the Commonwealth of Pennsylvania
Department of Insurance. However, this in fact was a further attempt by Mr. Capp
to further his own interests by using Perfect Order's resources to support the
separate business he was maintaining.
34. Although Mr. Hoy did work for Jack Gaughen as a client of Perfect
Order, Mr. Capp as CFO did not invoice Jack Gaughen for any of the work done.
As a result, Perfect Order was servicing for free a customer which Mr. Capp
intended to divert to his separate business. In the end, Mr. Capp did divert Jack
Gaughen's business from Perfect Order to his separate business, Keystone
Programming.
7
35. During the time Mr. Capp was at Perfect Order, he was in part charged
with negotiating a contract with the Commonwealth of Pennsylvania Department of
Insurance ("Department of Insurance").
36. On June 6, 1996, Mr. Capp on behalf of Perfect Order executed a
$300,000 contract with the Department of Insurance for its purchase of computer
system consulting from Perfect Order. A copy of the contract signed by Mr. Capp
on June 6, 1996, and Linda S. Kaiser, Pennsylvania's Insurance Commissioner, on
June 10, 1996, is attached hereto as exhibit "B" and incorporated herein by
reference.
37. Instead of turning this contract over to Perfect Order, Mr. Capp
concealed the existence of the contract from Perfect Order.
38. In fact, it is believed and therefore averred that Mr. Capp never intended
to turn this contract over to Perfect Order. To the contrary, his intention was to
convert the contract to his own benefit.
39. Mr. Capp did convert the contract to his own benefit by concealing the
existence of the contract from Perfect Order and subsequently illegally influencing
the Department of Insurance to reissue the contract to his business -- Keystone
Programming.
40. In addition, the Department of Insurance was to issue a valuable
contract for the purchase of associated computer hardware and software. That
contract would have been awarded to Perfect Order as the computer consultant. It
8
is believed Mr. Capp converted the associated contract for the computer hardware
and software.
41. When he left Perfect Order, Mr. Capp took certain computer software
developed at Perfect Order with him. Any software developed at Perfect Order is
the property of Perfect Order. It is believed and therefore averred that Mr. Capp is
deriving a benefit from the software he took from Perfect Order.
42. Mr. Capp intentionally diverted clients of Perfect Order to his own
business, Keystone Programing. The clients so converted included, but were not
limited to, Jack Gaughen Real Estate.
43. As an officer of Perfect Order, Mr. Capp owed a duty to the corporation
to perform his duties as an officer in good faith. in a manner and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary prudence
would under similar circumstances.
44. As a director of Perfect Order. Mr. Capp owed a fiduciary duty to the
corporation and was required to perform his duties in good faith, in a manner he
reasonably believed to be in the best interests of the corporation and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances.
45. As an officer and director. Mr. Capp owed a duty of loyalty to Perfect
Order.
9
COUNT I
BREACH OF DUTY OF LOYALTY
46. Paragraphs 1 through 45 above, are incorporated herein by reference as
if set forth at length.
47. As described above, Mr. Capp set upon a course of action designed to
deprive Perfect Order of the benefit of the contract with the Pennsylvania
Department of Insurance.
48. Mr. Capp did convert the contract with the Pennsylvania Department of
Insurance to his own benefit.
49. In addition, by so doing, Mr. Capp deprived Perfect Order of the
opportunity to be awarded the associated contract for the Department of
Insurance's purchase of computer hardware and software. It is believed and
therefore averred that this second contract was performed by Mr. Capp's business
Keystone Programming.
50. As described above, Mr. Capp knowingly converted clients of Perfect
Order to his own benefit, including, but not limited to, Jack Gaughen.
51. Mr. Capp's actions were in violation of the duties he owed to the
corporation as an officer and director.
52. As a direct and proximate result of the wrongful actions of Mr. Capp,
Perfect Order has suffered damages including the loss of the valuable contracts
10
with the Department of Insurance and the loss of the value of the business
relationships with Jack Gaughen and other customers.
WHEREFORE. Plaintiff Perfect Order, Inc. demands that judgment be entered
in its favor and against Defendant James A. Capp in an amount sufficient to
compensate it for the damages it has suffered, including, but not limited to, the
value of the converted contracts with the Department of Insurance and the value of
the lost business relationships with converted clients, which damages exceed the
limit for mandatory arbitration, plus interest and costs.
COUNT II
BREACH OF FIDUCIARY DUTY
53. Paragraphs 1 through 52 above, are incorporated herein by reference as
if set forth at length.
54. As a director of Perfect Order, Mr. Capp owed a fiduciary duty to the
corporation and was required to perform his duties in good faith. in a manner he
reasonably believes to be in the best interests of the corporation and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances.
55. Mr. Capp did not perform his duties to Perfect Order in good faith.
56. Mr. Capp did not perform his duties to Perfect Order in a manner which
was in the best interests of the corporation.
11
57. Mr. Capp did not parform his duties to Perfect Order with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary prudence
would use under similar circumstances.
58. As described above, instead of putting his efforts into Perfect Order, Mr.
Capp was putting his efforts into developing and maintaining Keystone
Programming.
59. As a direct and proximate result of Mr. Capp's breach of the fiduciary
duty he owed to Perfect Order, the company suffered damages in including, but not
limited to, (i) the cost of advertising in which Mr. Capp used Perfect Order's money
to promote Keystone Programming, (ii) the loss of business relative to the
Department of Insurance contracts and other customers Mr. Capp diverted to
Keystone Programming and (iil) the cost of employing Mr. Hay, who only served to
advance Mr. Capp's separate business.
WHEREFORE, Plaintiff Perfect Order, Inc. demands that judgment be entered
in its favor and against Defendant James A. Capp in an amount sufficient to
compensate it for the damages it has suffered, which damages exceed the limit for
mandatory arbitration, plus interest and costs.
COUNT III
BREACH OF DUTY OF CARE
60. Paragraphs 1 through 59 above, are incorporated herein by reference as
if set forth at length.
12
61. Mr. Capp failed to perform his duties as a director and officer (CFO and
treasurer) with the requisite level of care.
62. Mr. Capp's breaches of his duty of care included his failure to develop
an accounting system for Perfect Order and resulting total failure to maintain
financial records.
63. Mr. Capp's breaches of his duty of care also included not billing clients
for work performed by Perfect Order.
64. As a direct and proximate result of Mr. Capp's breach of his duty of
care, Perfect Order suffered damages including, but not limited to, (i) the cost to
develop and implement a financial management program, which Mr. Capp was
supposed to do, but never did accomplish, Iii) the cost to correct its financial
records and, liii) the cost to service clients which Mr. Capp was not invoicing.
WHEREFORE, Plaintiff Perfect Order, Inc. demands that judgment be entered
in its favor and against Defendant James A. Capp in an amount sufficient to
compensate it for the damages it has suffered, which damages exceed the limit for
mandatory arbitration, plus interest and costs.
COUNT IV
CONVERSION
65. Paragraphs 1 through 64 above, are incorporated herein by reference as
if set forth at length.
13
66. Regardless of his status as a director, officer or employee, Mr. Capp had
no right to convert to his own use and benefit the contractual rights and other
property of Perfect Order.
67. As described above, Mr. Capp, without right, justification or authority,
converted contractual rights and intellectual property belonging to Perfect Order,
including (i) the Insurance Department Contracts, Iii) computer programs developed
at Perfect Order and liii) the fictitious name Keystone Programming.
68. As a direct and proximate result of the wrongful conduct of Mr. Capp,
Perfect Order suffered damages including, but not limited to, the loss of the value
of the Insurance Department Contracts, computer programs and the name Keystone
Programming.
WHEREFORE, Plaintiff Perfect Order, Inc. demands that judgment be entered
in its favor and against Defendant James A. Capp in an amount sufficient to
compensate it for the damages it has suffered, which damages exceed the limit for
mandatory arbitration, plus interest and costs.
COUNT V
NEGLIGENCE
69. Paragraphs 1 through 68 above, are incorporated herein by reference as
if set forth at length.
70. Mr. Capp was negligent when he placed the access codes to Perfect
Order's computer system in a public directory which was available to anyone with
14
WHEREAS, the Corporation has not arranged to provide funds necessary to acquire the
shares of the Shareholders through life insurance policies on the life of said Shareholders, however,
the Corporation docs reserve the right to at a future date lIlTlIOge to provide the funds necessary to
acquire the shares of a deceased Shareholder through insurance policies on the lives of the
Shareholders;
NOW, TIIEREFORE, in consideration of the promises and mutual covenants, conditions
and agreements herein contained, the parties hereto, each intending to be legally bound thereby,
agree as follows:
I. LIFE INSURANCE. The Corporation shall have the right to obtain insurance on the life
of each Shareholder in the amounts set forth on Schedule "A," naming itself owner and beneficiary
of each policy. AIl policies shall be listed in Schedule "A," attached hereto, and the policies and
any proceeds received thereunder shall be held by the Corporation in trust for the purposes of this
Agreement The Corporation shall have the right to take out additional insurance on the life of any
Shareholder whenever, in the opinion of the Corporation, additional insurance may be required to
carry out its obligations under this Agreement. The Additional policies shall be listed in Schedule
"A" and subject to the terms of this Agreement. The Corporation shall pay all premiums on the
insurance policies and shall give proof of payment to each of the Shareholders within thirty (30)
days after the date of each premium. If the Corporation should fail to pay any premium within
twenty-five (25) days after the due date, the Shareholder on whom the policy is issued may pay
such premium, in which event he shall have a right to reimbursement from the Corporation within
sixty (60) days.
2
2. PURCHASE AND SALE OF A SHAREHOLDER'S INTEREST AT DEATH. The
Corporation shall be the beneficiary and shall purchase, and the legal representative of the estate of
the deceased Shareholder shall sell, all of the shares in the Corporation now owned or hereafter
acquired by the deceased Shareholder for the price established in accordance with the provisions of
this Agreement and upon the terms and conditions also contained herein below.
If the Corporation is unable to make such purchase required of it because of the provisions
of its charter, its by-laws, or allY applicable state or federal law, the Corporation and Shareholders
agree to take such action as may be necessary to pennit the Corporation to make such purchase. In
the event that the Corporation is unable or unwilling to take such action as may be necessary to
pennit the Corporation to make such purchase, the remaining shareholders shall have the option set
forth in paragraph 3 hereof to purchase said stock.
3. LIFETIME SALE OF STOCK. In the event that a Shareholder desires to dispose of
all of his shares of stock at any time during his lifetime, he shall first offer all of his shares for
sale to the Corporation, and the Corporation shall have the option to purchase all, but not less
than all, of his stock. In such event the selling Shareholder shall give written notice thereof to
the Corporation, which, upon receipt of such notice, the Corporation shall have thirty (30) days
to give written notice to purchase said shares of stock at the price established in accordance with
the provisions of this Agreement. If the Corporation does not agree to purchase all of the shares
3
C. One hundred percent (100%) of the price as determined under Article 2 hereof, if
the selling Stockholder has been active in the Corporation for a period of nine years or more.
4. V ALUA TION OF STOCK. The value of the shares shall be determined at the time of a
lifetime sale or at the time of death of a Shareholder in accordance with the per share value set forth
on Schedule "B", attached hereto and made a part hereof. In the event Sche~ule "B" has not be
executed for a period of two (2) years prior to the valuation date, the value shall be detennined by
the certified public accountant regularly retained by the Corporation. Such determination by said
certified public accountant shall be conclusive as to all parties. If no accountant shall be so
retained, said value shall be determined by any other certified public accountant selected by the
mutual agreement of the Corporation, the surviving or remaining Shareholders and of the selling
Shareholder or legal representative of the deceased Shareholder. The value of the shares of the
Corporation as determined as herein before stated is and shall be inclusive of the value of goodwill.
5. PAYMENT TERMS AND CONDITIONS. The "payment date" shall be a date agreed
to by the parties which date shall be no sooner than forty-five (45) days and no later than one
hundred twenty (120) days after the date that notice was first given to the surviving Shareholders of
the death, disability, involuntary transfer or desire to sell of a Shareholder. In the event that the
parties to such purchase and sale are unable to agree on a payment date, the payment date shall
occur on the one hundred twenty-first (12Ist) day following the receipt of said notice.
Upon the payment date, at the principal office of the Corporation (or such other place as
may be agreed upon by such parties), the Corporation and/or surviving/remaining Shareholders, as
5
......... .
the case may be, shall purchase and pay for the shares of the selling or decensed Shareholder in
accordance with the following:
Upon the death of a Shareholder, the Corporation shall immediately collect the
proceeds of the policies owned by it on the life of the deceased Shareholder for the purposes of this
Agreement and shall apply all of said proceeds as may be necessary to purchas~ the shares of stock
of the deceased Shareholder at the price established in accordance with the provisions of this
Agreement. If such proceeds are not sufficient to purchase all of the shares of stock of the deceased
Shareholder, the balance of the purchase price shall be paid in one sum, or, at the option of the
Corporation, in all events, within five (5) years in sixty (60) equal consecutive monthly
installments, with an interest rate of York Bank & Trust Company prime, less three percent (3%),
but not less than the interest imputed under Section 483 and/or the Original Issue Discount Rules of
Sections 1271-1275 of the Internal Revenue Code of 1986, as amended, whichever is applicable,
per annum (interest to be detennined based upon the federal applicable rate in effect fifteen days
prior to the "payment date"), which deferred payment shall be evidenced by a judgment note/notes.
Upon a lifetime sale, the purchase price, as determined in paragraph 4 hereof, shall
be paid in a lump sum cash settlement, or, at the option of the Corporation, the Corporation shall
pay in cash to the selling Shareholder ten percent (10%) of the said purchase price, and in
satisfaction of the balance of said purchase price, shall execute and deliver to the selling
Shareholder, a series of sixty (60) consecutive monthly installment notes of equal amounts and in
the aggregate sum of said balance, payable to the order of the selling Shareholder. The said
judgment notes shall bear interest at the rate of York Bank & Trust Company prime less three
6
........-..-...
percent (3%), but not less than the interest imputed under Section 483 and/or the Original Issue
Discount Rules of Sections 1271.1275 of the Internal Revenue Code of 1986, as amended,
whichever is applicable, per annum (interest to be determined based upon the federal applicable rate
in effect fifteen days prior to the "payment date").
Payment of such balance of the purchase price upon a ~eath buyout, shall
commence six (6) months following the date on which the payment date falls. Payment of such
balance of the purchase price upon a lifetime buyout, shall commence on the first day of the second
month next following the month in which the payment date falls. Such balance of the purchase
price shall be evidenced by a non-negotiable promissory note/notes bearing interest at the rate of
Meridian Bank prime, less three percent (3%), but not less than the interest imputed under Section
483 and/or the Original Issue Discount Rules of Sections 1271-1275 of the Internal Revenue Code
of 1986, as amended, whichever is applicable, which shall be delivered to the selling Shareholder or
his legal representative on the payment date and said promissory notes shall contain the following
terms:
(i) interest shall be payable on the unpaid principal balance at the rate of
York Bank & Trust Company prime, less three percent (3%), but not less than the interest imputed
under Section 483 and/or the Original Discount Rules of Section 1271-1275 of the Internal
Revenue Code of 1986, as amended, whichever is applicable, per annum (interest to be determined
based upon the federal applicable rate in effect fifteen days prior to the "payment date");
(ii) interest and principal shall be payable in consecutive equal monthly
installments;
7
(Hi) the note/notes shall be pre-payable in whole or in part at any time
without penalty;
(iv) a fee often percent (10%) for collection shall be added to the principal
balance upon default;
(v) judgment may be entered upon the note only in the. event of default of
more than thirty (30) days duration;
(vi) the total principal amount of the note/noles, together with accrued
interest, shall immediately become due and payable without prior notice or demand in the event of:
(a) default in the payment of any installment or principal or interest
on the note/notes when due; or
(b) the insolvency or reorganization, or an arrangement with the
creditors of, or execution of an assignment for the benefit of creditors of, or the appointment of a
receiver for, or filing a Bankruptcy Petition for or against the Corporation or the
purchasing/surviving Shareholder (whether or not pursuant to Bankruptcy or other insolvency
laws); or
(c) the cornplete or partial liquidation and dissolution of the
Corporation, except in connection with a merger or consolidation.
Should it at any time reasonably appear that on the date the Corporation will be
required to make payment of all or a portion of the purchase price for shares of stock of the
Corporation as provided for in this Agreement, it will be precluded frorn doing so under the law of
the state of its incorporation by reason of its surplus being insufficient, the Corporation and the then
8
Shareholders (whether parties to this Agrecment or transfcrrees of such persons in any manner
whatsoever) shall take all action necessary to reduce the stated capital of the Corporation to the
extent necessary for the purchase or redemption of such shares. If by reason of the law of the state
of incorporation, Corporation and its Shareholders shall be unable to take action to pennit it to
make the payments of purchase price required of it by the provisions of this Agreement not later
than ninety (90) days after the date otherwise required by this Agreement, or such later date as shall
be agreed to by selling Shareholder, or if for any reason such action is not taken, the then
Shareholders shall be obligated to purchase such shares or make the required payments in like
manner as required of Corporation pursuant to the provisions of this Agreement.
6. ACTS CONSTIllITING OFFER TO SELL. The following acts constitute an offer to
sell:
(a) Voluntary or involuntary proceedings against a Shareholder under the
provisions of any federal or state act relating to bankruptcy or insolvency, unless Shareholder shall
within a period of ninety (90) days, successfully contest and obtain a dismissal of any such
proceedings;
(b) The attachment of a Shareholder's stock, unless Shareholder shall within a
period of ninety (90) days successfully contest and obtain a removal of such attachment;
(c) Any other form of legal proceedings or process by which the stock of a
Shareholder may be sold either voluntarily or involuntarily;
(d) The adjudication of a Shareholder to be incompetent in an appropriate judicial
proceeding, such adjudication shall be deemed to constitute an offer (made on the date the
9
. ~ . .. . .. ..'.. . .., .
adjudication became final) to sell all of the shares of stock of Corporation owned by such
incompetent Shareholder;
(e) The termination of employment relationship of a Shareholder by the
Corporation for any reason, whether voluntary or involuntary, other than total disability (as defined
in paragraph 7 hereof) for a period not exceeding twenty-four (24) months (as ~efined in paragraph
7 hereof), death or retirement, shall be treated as an offer made on the date of termination of
employment;
then all of the stock of such a Shareholder shall be deemed to have been offered for sale to the
remaining Shareholder at the time of such proceedings, process, filing, or termination, excepting
termination due to disability, at the same pn-ce and on the same terms as to acceptance and payment
as if the offer had been made under the provisions of paragraphs 3 and 5 hereof.
7. DISABILITY. In the event a Shareholder is totally disabled (total disability being
defined as receiving continued total disability payments from Insurance Company and/or any other
insurance carrier responsible for making such payments to Shareholder upon Shareholder becoming
eligible for total disability payments under the disability policy in place at the time for said
disability) for a period exceeding twenty-four (24) months (the twenty-four month period being
defined as a three [3] month waiting period during total disability after which the disabled party
receives twenty-one [21] consecutive total disability payments under the insurance carrier's policy),
Corporation or non-disabled Shareholders, as the case may be, shall have the option to: (i) force the
disabled Stockholder to sell his stock pursuant to paragraph 6, subparagraph (e) hereof upon the
terms, conditions and price set forth in paragraphs 3 and 5 hereof; or (ii) to waive its or their right,
10
as the cllSe rnay be, to purchase the disabled Shareholder's stock lIS provided for hereinabove in
subparagraph (i) for a period of six (6) months. The Corporation or non-disabled Shareholders, as
the cllSe rnay be, may extend the aforementioned waiver for an unlimited number of six (6) month
periods at their option. Notwithstanding anything to the contrmy contained herein, the
Corporation's or the non-disabled Shareholders', as the case may be, waiver und~r subparagraph (ii)
hereinabove shall not be construed to bar forever the Corporation's or non-disabled Shareholders, as
the case may be, the right to purchase the disabled Shareholder's stock pursuant to this paragraph
and paragraph 6, subparagraph (e) hereof. The Corporation or non-disabled Shareholder, as the
cllSe rnay be, hereby preserves and retains its or their right to purchase the stock of the disabled
Shareholder at the times and manner herein provided.
8. DELIVERY OF CERTIFTCATES. Upon any sale and purchase hereunder, the seIling
Shareholder or his legal representatives, as the case may be, shall deliver the shares being sold to
the purchaser duly endorsed for transfer free and clear of any lien, or encumbrance with all required
transfer taxes paid or provided for.
9. DISPOSmON OF POLICIES. In the event that a Shareholder should seIl his stock
during his lifetime as provided herein, or in the event of the tennination of this Agreement, the
withdrawing Shareholder or the remaining Shareholders, as the case may be, shall have the option,
exercisable within sixty (60) days, to purchase any life insurance policy/policies on his own life
subject to this Agreement. A Shareholder shall give written notice of his intention to buy such
policy/policies to the Corporation. The purchase price for any such policy shall be its interpolated
tenninal reserve and any dividend credits outstanding as of the date of purchase, plus the
11
disposition of such shares, an injunction may be issued restraining any sale or disposition pending
the determination of such controversy. In the event of any controversy conceming the right or
obligation to purchase or selI any shares, such right or obligation shall be enforceable in a court of
equity by a decree of specific performance. Such remedy shall, however, be cumulative and not
exclusive, and shall be in addition to any other remedy which the parties may ~ve.
12. SAVINGS CLAUSE. In the event any part of this Agreement is found to be void or
voidable, the remaining provisions of this Agreement shall nevertheless be binding with the same
effect as though the void or voidable part were deleted.
13. TERMINATION OF THE AGREEMENT. This Agreement and all rights, duties,and
interest of the parties hereunder shall terminate upon any of the following events:
(a) The written agreement of all of the Shareholders and the Corporation;
(b) The bankruptcy, receivership or dissolution of the Corporation;
(e) Cessation of the Corporation's business;
(d) Termination of the policies on the lives of all Shareholders; or
(e) The death of all the Shareholders within a period of thirty (30) days.
Upon the termination of this Agreement, each Shareholder shall surrender to the
Corporation, the certificates for his shares of stock and the Corporation shall issue to him in lieu
thereof new certificates for an equal number of shares without the endorsement set forth above.
14. SHAREHOLDERS RATIFICATION. Shareholders hereby agree to vote their shares
of stock so as to cause the Corporation to ratit)t, approve and adopt this Agreement and to execute
the same. A copy of this Agreement shall be attached by the Secretary to the Minutes of the
13
meeting of the Shareholders of the Corporation at which the adoption and execution of. this
Agreement by the Corporation was authorized.
IS. AMENDMENT OF AGREEMENT. This Agreement rnay be altered, amended,
modified or revoked at any time by written agreement signed by all parties hereto.
16. AGREEMENT TO BE BOUND. This Agreement shall be bin~g not only upon the
parties hereto, but also upon their heirs, personal representatives, successors and assigns, and the
parties hereto agree for themselves and their heirs, personal representatives, successors and assigns
to execute any instruments in writing which may be necCS3ary and proper in carrying out the
purposes of this Agreement
17. INTERPRETATION OF AGREEMENT. Where appropriate in this Agreement, the
words used in the singular shall include the plura1and words used in the maseuline, shall include
the feminine. The laws of the Commonwealth of Pennsylvania shall govern this Agreement
18. PROHIBITIVE SUB-S TERMTNA TION. No transfer or disposition of shares pursuant
to this Agreement shaIl be made if such transfer would terminate the Corporation's Sub-Chapter S
election, unless provided by the affirmative vote of Shareholders holding at least two-thirds of the
shares then outstanding, both voting and non-voting.
19. DTSTRffilmONS.
Distributions will be made at the discretion of a unanimous vote of the corporate
officers.
14
exhibit B
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Oepartaent of Insurznce
Underground Storz;e Tank Indelnificltion Fund
SOl N. 7th Str"t
Harri.burg, PA 17102
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SERVICE PURCHASE CONTRACT
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Und.rground Storag, lank
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901 N. 7th Str..t
H.rri.bur PA 171e2
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711 S. York Str..t \
Sd to 104
H'chanic.bur~. PA 17055
25-169050;
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The Contractor .ill provide COlputer Systels consulting,
training, progrz:aing, and ilplementation services to the
Under;round St:rzge Tank Indelnification Fund in the
development of t~e new Fur.d fee assessment and clai;s systeA.
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CONTRACTOR AGREES TO THE TERMS AND CONDITIONS ON THE REVERSE SIDE AND ATTACHMENTS, IF
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EXECUTED, APPROVED AND DELIVERED TO THE CONTRACTOR.
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CERTIFICATE OF SERVICE
I hereby certify that I am this date serving a copy of the foregoing Praecipe to
Discontinue upon the person(s) and in the manner Indicated below, which service satisfies
the requirements of the Pennsylvania Rules of Civil Procedure, by depositing a copy of same
in the United States Mail, Harrisburg, Pennsylvania, with first.c1ass postage, prepaid, as
follows:
James P. DeAngelo, Esquire
McNees. Wallace & Nurick
100 Pine Street
P. O. Box 1166
Harrisburg, PA 17108.1166
Lisa M. DiBernardo, Esquire
Griffith, Strickler, Lerman. Solymos & Calkins
110 S. Northern Way
York, PA 17402.3737
GOLDBERG, KATZMAN & SHIPMAN, P.C.
.//
By:
Tho as J. W ber, Esquire
Att6rney 1.0. #58853
320 Market Street
P. O. Box 1268
Harrisburg, PA 17108.1268
(717) 234.4161
Attorneys for Defendant, James A. Capp
Dated: October 22. 1998
11828.1