<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File No. 0-27042
AlphaNet Solutions, Inc.
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2554535
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7 Ridgedale Ave., Cedar Knolls, New Jersey 07927
(Address of Principal Executive Offices) (Zip Code)
(201) 267-0088
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: No: X*
----- -----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of April 30, 1996:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common Stock, $.01 par value 5,100,000
</TABLE>
*Registrant became subject to the filing requirements of the Securities Exchange
Act of 1934 on March 20, 1996, when its Registration Statements on Form S-1 and
8-A were declared effective by the Commission.
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ALPHANET SOLUTIONS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION ........................................... 1
Item 1. Financial Statements ................................... 1
Balance Sheets
as of December 31, 1995
and March 31, 1996 (unaudited) .................................. 2
Statements of Income
for the Three Months Ended
March 31, 1995 and 1996 (unaudited) ............................. 3
Statement of Changes in Shareholders'
Equity for the Three Months Ended
March 31, 1996 (unaudited) ...................................... 4
Statements of Cash Flows
for the Three Months Ended
March 31, 1995 and 1996 (unaudited) ............................. 5
Notes to Financial Statements (unaudited) ....................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition. ......... 9
Results of Operations ........................................... 10
Liquidity and Capital Resources ................................. 11
PART II. OTHER INFORMATION............................................... 14
Item 1. Legal Proceedings ....................................... 14
Item 5. Other Information. ...................................... 14
Item 6. Exhibits and Reports on Form 8-K. ....................... 16
SIGNATURES ............................................................... 17
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<PAGE> 4
ALPHANET SOLUTIONS, INC.
BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................................... $ 1,223 $11,352
Accounts receivable, net ........................................................... 13,885 13,867
Inventories ........................................................................ 946 750
Current portion of loan receivable -- shareholder .................................. 160 --
Prepaid expenses and other current assets .......................................... 425 1,148
------- -------
Total current assets ............................................................. 16,639 27,117
Property and equipment, net ............................................................. 1,378 1,508
Loan receivable -- shareholder .......................................................... 253 --
Other assets ............................................................................ 500 102
------- -------
Total assets ..................................................................... $18,770 $28,727
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................................. $ 285 $ --
Current portion of capital lease obligations ....................................... 91 93
Accounts payable and accrued expenses .............................................. 11,230 13,452
------- -------
Total current liabilities ........................................................ 11,606 13,545
Long-term debt .......................................................................... 451 --
Capital lease obligations ............................................................... 139 115
------- -------
Total liabilities ................................................................ 12,196 13,660
------- -------
Shareholders' equity:
Preferred stock -- $0.01 par value; authorized
3,000,000 shares, none issued ..................................................... -- --
Common stock -- $0.01 par value; authorized
15,000,000 shares, 3,400,000 and 5,000,000
shares issued and outstanding ..................................................... 34 50
Additional paid-in capital ......................................................... 156 14,942
Retained earnings .................................................................. 6,384 75
------- -------
Total shareholders' equity ....................................................... 6,574 15,067
------- -------
Total liabilities and shareholders' equity ....................................... $18,770 $28,727
======= =======
</TABLE>
See accompanying notes to financial statements.
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ALPHANET SOLUTIONS, INC.
STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1995 1996
---- ----
<S> <C> <C>
Net sales:
Product sales ....................................................... $15,835 $ 15,191
Services and support ................................................ 2,460 4,105
------- --------
18,295 19,296
------- --------
Cost of sales:
Product sales ....................................................... 13,692 13,283
Services and support ................................................ 2,044 3,310
------- --------
15,736 16,593
------- --------
Gross profit ............................................................. 2,559 2,703
------- --------
Operating expenses:
Selling expenses .................................................... 1,156 1,249
General and administrative expenses ................................. 436 475
------- --------
1,592 1,724
------- --------
Operating income ......................................................... 967 979
------- --------
Other income (expense):
Interest income ..................................................... 13 17
Interest expense .................................................... (58) (35)
------- --------
(45) (18)
------- --------
Income before income taxes ............................................... 922 961
Provision (benefit) for income taxes ..................................... 28 (32)
------- --------
Net income ............................................................... $ 894 $ 993
======= ========
Pro forma data:
Income before income taxes .......................................... $ 922 $ 961
Provision for income taxes .......................................... 372 389
------- --------
Net income .......................................................... $ 550 $ 572
======= ========
Net income per share ................................................ $ 0.14 $ 0.14
======= ========
Weighted average number of common shares
and common shares equivalent ...................................... 3,988 4,043
======= ========
</TABLE>
See accompanying notes to financial statements.
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ALPHANET SOLUTIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 ................... $ 34 $ 156 $ 6,384 $ 6,574
Net proceeds from issuance of 1,600,000 shares
of Common Stock ............................ 16 14,786 -- 14,802
Payment of dividends ......................... -- -- (1,147) (1,147)
Distribution of S Corporation earnings ....... -- -- (6,155) (6,155)
Net income ................................... -- -- 993 993
-------- -------- -------- --------
Balance at March 31, 1996 .................... $ 50 $ 14,942 $ 75 $ 15,067
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
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ALPHANET SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 894 $ 993
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 41 84
Increase (decrease) from changes in:
Accounts receivable, net ........................ 3,894 18
Inventories ..................................... 714 196
Prepaid expenses and other current assets ....... (12) (723)
Other assets .................................... (19) 397
Accounts payable and accrued expenses ........... (1,819) 2,222
-------- --------
Net cash provided by operating activities ......... 3,693 3,187
-------- --------
Cash flows from investing activities:
Property and equipment expenditures ................. (212) (213)
Receipt of loan repayments - shareholder ............ 40 413
-------- --------
Net cash (used in) provided by investing activities (172) 200
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock .......... -- 14,802
Repayment of long-term debt ......................... (71) (736)
Repayment of capital lease obligations .............. -- (22)
Net payments of notes payable-bank .................. (1,152) --
Payment of dividends ................................ (75) (1,147)
Distribution of S Corporation earnings .............. -- (6,155)
-------- --------
Net cash (used in) provided by financing activities (1,298) 6,742
-------- --------
Net increase in cash and cash equivalents .............. 2,223 10,129
Cash and cash equivalents, beginning of period ......... 63 1,223
-------- --------
Cash and cash equivalents, end of period ............... $ 2,286 $ 11,352
======== ========
</TABLE>
See accompanying notes to financial statements.
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ALPHANET SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Note 1 -- Basis of Presentation:
The information presented for March 31, 1995 and 1996, and for the
three-month periods then ended, is unaudited, but, in the opinion of the
Company's management, the accompanying unaudited financial statements contain
all adjustments (consisting only of normal recurring adjustments) which the
Company considers necessary for the fair presentation of the Company's financial
position as of March 31, 1996 and the results of its operations and its cash
flows for the three-month periods ended March 31, 1995 and 1996. The financial
statements included herein have been prepared in accordance with generally
accepted accounting principles and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1995, which were included as part of
the Company's Registration Statement on Form S-1 (Registration No. 33-97922), as
declared effective by the Securities and Exchange Commission on March 20, 1996.
Results for the interim period are not necessarily indicative of
results that may be expected for the entire year.
Certain amounts in the 1995 financial statements have been reclassified
to conform to the 1996 presentation. Such reclassifications are not material.
Note 2 -- Income Taxes:
Prior to its initial public offering of Common Stock, the Company had
elected to be treated as a Subchapter S Corporation for income tax purposes. The
Subchapter S status was terminated effective March 19, 1996. Accordingly, $210
of net deferred tax assets have been recorded on the March 31, 1996 balance
sheet with a corresponding tax benefit for the three-month period ended March
31, 1996. The net deferred tax assets reflected on the March 31, 1996 balance
sheet of the Company are as follows:
<TABLE>
<S> <C>
Allowance for doubtful accounts..................... $ 33
Inventory reserves.................................. 66
Accrual for compensated absences.................... 186
Differences between book and
tax bases of property and equipment............... (75)
----
Net deferred tax assets............................. $210
====
</TABLE>
For informational purposes, the accompanying statements of income
include a pro forma adjustment for income taxes which would have been recorded
if the Company had not been an S corporation, based on the tax laws in effect
during the respective periods.
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<PAGE> 9
ALPHANET SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Note 3 -- Pro forma Net Income Per Share:
Pro forma net income per share is computed using the weighted average
number of common shares and common shares equivalent outstanding during the
periods. Common shares equivalent consists of the Company's common shares
issuable upon the exercise of stock options. The weighted average number of
common shares and common shares equivalent outstanding have been adjusted for
the number of shares that the Company would need to issue to fund the S
Corporation Distribution to its then current shareholders less the outstanding
loan to a current shareholder.
Note 4 -- Initial Public Offering:
On March 26, 1996, the Company consummated an initial public offering
of 2,100,000 shares of its Common Stock at a price of $10.50 per share, of which
1,600,000 shares were issued and sold by the Company and 500,000 shares were
sold by a selling shareholder of the Company. The net proceeds from the offering
were $14,802. The Company did not receive any proceeds from the sale of shares
sold by the selling shareholder. See also Note 7 -- Subsequent Event.
Note 5 -- Related Party Transactions:
On September 28, 1995, the Board of Directors voted to distribute to
its shareholders the previously taxed and undistributed earnings of the Company
as of the effective date of the Company's termination of its S Corporation
status, which termination occurred on March 19, 1996. The amount of such
distribution was $5,782 and represented substantially all of the previously
taxed and undistributed earnings less the outstanding loan to a current
shareholder.
In connection with certain litigation arising from the alleged wrongful
conduct of two former employees of the Company, Stan Gang, the Company's
President, Chief Executive Officer and principal shareholder, paid the Company
$675 to indemnify the Company for any and all losses which the Company may
sustain relating to such litigation, and such amount is included in accounts
payable and accrued expenses on the March 31, 1996 balance sheet. Mr. Gang has
agreed to indemnify the Company for an additional $325 in connection therewith.
The Company shall reimburse Mr. Gang in the event and to the extent that the
Company, as plaintiff in such litigation, is awarded and collects damages from
the defendants in such litigation, receives sums as a result of a settlement
between the Company and such defendants, or receives proceeds under an insurance
policy.
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<PAGE> 10
ALPHANET SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Note 6 -- Legal Proceedings:
On February 13, 1996, the Company, as plaintiff, filed a complaint and
jury demand in the Superior Court of New Jersey Chancery Division: Morris
County, against two former employees of the Company and their current employer
(together, the "Defendants"). Such complaint relates to a civil action for
damages and preliminary and permanent injunctive relief against the Defendants.
The Company has obtained preliminary injunctive relief as against one of the
Defendants. The complaint alleges theft of services which relates to the
diversion by the Defendants of certain of the Company's technical personnel to
perform work on behalf of the Defendant's current employer. In addition, the
complaint alleges theft of the Company's property as the Defendants removed
computer equipment from the Company's inventory without proper authorization or
subsequent payment. The Company also has alleged that the Defendants arranged
for the training of certain of the Company's customers through a third-party
training company and not through the Company which has resulted in theft of
corporate opportunity by the Defendants. In addition, the Defendants utilized
corporate credit cards for extensive personal expenditures and unauthorized
travel expenses for which the Company has not been reimbursed. The Company is
seeking in excess of $675 in restitution from certain of the Defendants and
additional compensatory damages from another Defendant. The Company intends to
vigorously pursue all available remedies against the Defendants. The litigation
is in a very early stage and, therefore, the Company currently is unable to
evaluate the likelihood of a favorable outcome for the Company. The Company
believes that some or all of its damages in connection with the litigation may
be covered by insurance. In any event, Stan Gang, the Company's President and
Chief Executive Officer and principal shareholder, has agreed to indemnify the
Company for any and all losses which the Company may sustain, up to $1,000
arising from or relating to the alleged wrongful conduct of the Defendants. In
connection therewith, Mr. Gang has paid $675 of his personal funds to the
Company. Pursuant to the terms of the agreement between the Company and Mr.
Gang, the Company shall reimburse Mr. Gang in the event and to the extent that
the Company is awarded and collects damages from the Defendants, receives sums
as a result of a settlement between the Company and the Defendants, or receives
proceeds under an insurance policy. Management is of the opinion that the
ultimate disposition of this matter will not have a material adverse effect on
the results of operations or financial position of the Company.
Note 7 -- Subsequent Event:
On April 19, 1996, the underwriters of the Company's initial public
offering notified the Company of their intent to exercise, in part, their
over-allotment option to purchase shares of the Company's Common Stock. As a
result, the Company issued and sold an additional 100,000 shares of its Common
Stock at the initial public offering price of $10.50 per share. The net proceeds
to the Company, after expenses and underwriting discounts and commissions, were
approximately $950. The option lapsed as to its unexercised portion.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
GENERAL
The Company was formed in 1984 as a reseller of computer hardware and
software products, and to date most of its revenues have been derived from
product sales. The Company entered into a distribution agreement in 1984 with
MicroAge, one of the nation's largest aggregators, to acquire products for
resale. The distribution agreement with MicroAge gives the Company access to
products on an as-needed basis (thereby reducing the Company's need to carry
large inventories), electronic ordering capability, product configuration and
testing, warehousing and delivery. The Company also has partnered with many
industry-leading vendors of information technology equipment, including Compaq,
Hewlett-Packard, IBM, Lotus, Microsoft and Novell, to resell such products and
provide enhanced service offerings.
In 1990, the Company began developing its systems integration
capabilities to expand the scope of its service offerings. At that time, the
Company also made the strategic decision to focus its sales, services and
support efforts directly to Fortune 1000 and other large and mid-sized companies
located in the New York-to-Philadelphia corridor. The Company believes that
there is a growing trend on the part of such companies to outsource information
technology functions.
The Company's primary strategy is to combine the technical expertise of
its service personnel with the strong product procurement and marketing
capabilities of its reseller business to provide comprehensive information
technology solutions to new and existing clients. The Company believes that its
ability to provide a broad range of technical services, coupled with its
traditional strength in satisfying its clients' hardware requirements and its
long-term relationships with large clients, positions the Company to grow the
services component of its business, while further strengthening its product
sales. The Company anticipates that an increasing percentage of its gross
profits in the future will be derived from the services and support component of
its business. The Company believes that its ability to be a single-source
provider of information technology products and services and support enables it
to earn margins higher than it would earn if it sold products only.
This Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements.
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<PAGE> 12
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 Compared to Three Months Ended
March 31, 1996
Revenue. Total revenue increased by 5.5%, or $1,001,000, from
$18,295,000 in the first quarter of 1995 to $19,296,000 in the first quarter of
1996. Product sales revenue decreased by 4.1%, or $644,000, from $15,835,000 in
the first quarter of 1995 to $15,191,000 in the first quarter of 1996. The
decrease is primarily attributed to a decline in product sales to one of the
Company's largest customers, Nabisco Foods Group, offset in part by an increase
in sales to other existing and new customers. Service and support revenue
increased by 66.9%, or $1,645,000, from $2,460,000 in the first quarter of 1995
to $4,105,000 in the first quarter of 1996. This increase was attributable
primarily to increased demand for the Company's services and support, including
increased demand for the Company's training, systems engineering, cabling and
customer engineering services. During such period, certain customers which
previously had purchased only products from the Company also engaged the Company
for services and support. In the first quarter of 1996, sales to BASF and
Nabisco Foods Group, the Company's two largest customers, each of which
accounted for more than 10% of the Company's total revenue, accounted in the
aggregate for approximately 26.5% of such revenue. There can be no assurance
that BASF and Nabisco Foods Group will continue to place orders with the Company
or engage the Company to perform services and support functions at existing
levels.
Gross profit. The Company's cost of sales includes primarily, in the
case of product sales revenue, the cost to the Company of products acquired for
resale, and in the case of services and support revenue, salaries and related
employee benefits and payroll taxes. The Company's gross profit increased by
5.6%, or $144,000, from $2,559,000 in the first quarter of 1995 to $2,703,000 in
the first quarter of 1996. Gross profit margin remained constant at 14% of total
revenue in both periods, as an increase in gross profit margin attributable to
services and support revenue was offset by a decline in gross profit margin
attributable to product sales. Gross profit margin attributable to product sales
decreased from 13.5% in the first quarter of 1995 to 12.6% in the first quarter
of 1996. This decrease was attributed primarily to continued downward pricing
pressure on sales of computer hardware products, which typically results in
margin deterioration on such sales. Gross profit margin attributable to services
and support revenue increased from 16.9% of services and support revenue in the
first quarter of 1995 to 19.4% in the first quarter of 1996. The increase in
such gross profit margin was attributable primarily to the fact that services
and support revenue increased at a faster rate than overhead costs and, to a
lesser extent, to increases in service personnel productivity rates.
Selling expenses. Selling expenses consist primarily of personnel
costs, including sales commissions earned by Company personnel involved in the
sales and marketing of hardware, software and professional services. These
personnel include direct sales, sales support and marketing personnel. Selling
expenses also include costs of advertising, public relations and
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<PAGE> 13
attendance at conferences, user group meetings and trade shows. Selling expenses
increased by 8.0%, or $93,000, from $1,156,000 in the first quarter of 1995 to
$1,249,000 in the first quarter of 1996, and increased from 6.3% of total
revenue in the first quarter of 1995 to 6.5% of total revenue in the first
quarter of 1996. This increase is attributable primarily to the Company's
increased sales and marketing efforts associated with its services and support
offerings.
General and administrative expenses. General and administrative
expenses consist primarily of salaries and occupancy costs for administrative,
executive and finance personnel. General and administrative expenses increased
by 8.9% or $39,000, from $436,000 in the first quarter of 1995 to $475,000 in
the first quarter of 1996, and from 2.4% to 2.5% of total revenue, respectively.
These increases in general and administrative expenses were due primarily to the
hiring of a chief financial officer in late 1995.
Income taxes. Prior to March 19, 1996, the Company was treated as an S
Corporation for income tax purposes. Therefore, for most of the first quarter of
1996 and for all of the first quarter of 1995, the Company was exempt from
Federal income taxes and certain state income taxes. In addition, the Company
received a $210,000 benefit for income taxes in the first quarter of 1996 to
reflect the recording of net deferred tax assets as of March 31, 1996 which
resulted from the Company's termination of its S Corporation status. As a
result, the Company's effective income tax rates were 3.0% in the first quarter
of 1995 and a benefit of 3.3% in the first quarter of 1996. For informational
purposes, based upon the tax laws in effect during the respective periods, pro
forma income taxes have been disclosed for income taxes which would have been
recorded if the Company had not been an S Corporation.
LIQUIDITY AND CAPITAL RESOURCES
In March 1996, the Company consummated an initial public offering of
2,100,000 shares of its Common Stock at a price of $10.50 per share. Of the
2,100,000 shares, 1,600,000 shares were issued and sold by the Company and
500,000 shares were sold by a shareholder of the Company. The Company did not
receive any of the proceeds from the sale of shares by the selling shareholder.
The net proceeds to the Company were $14,802,000.
Since its inception, the Company has funded its operations primarily
from cash generated by operations and, to a lesser extent, such cash has been
augmented with funds from borrowings under the Company's revolving credit
facility. Net cash provided by operations was $3,187,000 for the first quarter
of 1996 and consisted primarily of net income for the quarter of $993,000 and an
increase in accounts payable and accrued expenses of $2,222,000. The increase in
accounts payable and accrued expenses is attributable primarily to the receipt
of a $675,000 indemnification payment from a principal shareholder relating to
certain litigation, and a $520,000 increase in deferred revenue.
The Company's working capital was $13,572,000 at March 31, 1996
compared to $5,033,000 at December 31, 1995.
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<PAGE> 14
Net cash provided by investing activities in the first quarter of 1996
was $200,000, consisting of the receipt of a $413,000 loan repayment from a
current shareholder offset by $213,000 of expenditures for property and
equipment. Capital expenditures consisted primarily of purchases of computer
equipment utilized in-house and for the continued development of the Company's
Technical Support Center. Although the Company currently has no material
commitments for capital expenditures outstanding, the Company anticipates
further capital expenditures for the continued development of its Technical
Support Center and for futher expansion of its Learning Centers.
Net cash provided by financing activities in the first quarter of 1996
was $6,742,000, which consisted of the net proceeds from the issuance of Common
Stock of $14,802,000, partially offset by a $6,155,000 distribution of
previously undistributed S Corporation earnings, payments of dividends of
$1,147,000, repayment of long-term debt of $736,000 and payment of capital lease
obligations of $22,000.
The Company has entered into a master lease agreement with First
Fidelity Leasing Group, Inc., under which the Company may lease up to $500,000
of equipment. Such agreement provides for equipment to be leased for three-year
terms with transfer of ownership of the equipment to the Company at the end of
the applicable equipment lease term. At March 31, 1996, capital lease
obligations outstanding under these equipment leases, which expire in 1998,
aggregated $208,000.
The Company has a revolving credit facility with First Union National
Bank (formerly First Fidelity Bank, N.A.) pursuant to which it may borrow up to
a maximum of $7,000,000 at the bank's prime rate, increasing to $9,000,000
during the period from October 1 through March 30 of each calendar year at the
bank's prime rate plus 1.00%. Obligations under such credit facility are payable
within 90 days following notice of termination by the bank, or expiration of
such facility on May 31, 1996, whichever is earlier, are collateralized by
substantially all the assets of the Company. There were no outstanding
borrowings under the revolving credit facility as of March 31, 1996. The credit
facility contains, among other provisions, covenants relating to the Company's
payment of cash dividends. The Company expects to renew the credit facility
prior to or upon its expiration on May 31, 1996. The Company anticipates that
the renewed credit facility will be on terms substantially similar to the
current terms of such facility.
The Company purchases certain inventory and equipment through financing
arrangements with Deutsche Financial Services, IBM Credit Corporation and Finova
Capital Corporation and expects to continue these relationships. At March 31,
1996, there were outstanding balances of $4,334,000, $1,161,000 and $0,
respectively, under such arrangements. Obligations under such financing
arrangements are collateralized by substantially all of the assets of the
Company. Deutsche Financial Services and IBM Credit Corporation have entered
into an intercreditor agreement with respect to their relative interests.
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<PAGE> 15
As of December 31, 1995, the Company had a $1,425,000 term loan from
First Fidelity Bank, N.A., of which approximately $736,000 was outstanding. The
Company prepaid the entire outstanding balance of such term loan with a portion
of the net proceeds from its initial public offering.
The Company believes that the net proceeds of the initial public
offering, together with available funds, existing credit facilities and the cash
flow expected to be generated from operations, will be adequate to satisfy its
current and planned operations for at least the next 24 months.
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<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 13, 1996, the Company, as plaintiff, filed a complaint and
jury demand in the Superior Court of New Jersey Chancery Division: Morris
County, against two former employees of the Company and their current employer
(together, the "Defendants"). Such complaint relates to a civil action for
damages and preliminary and permanent injunctive relief against the Defendants.
The Company has obtained preliminary injunctive relief as against one of the
Defendants. The complaint alleges theft of services which relates to the
diversion by the Defendants of certain of the Company's technical personnel to
perform work on behalf of the Defendant's current employer. In addition, the
complaint alleges theft of the Company's property as the Defendants removed
computer equipment from the Company's inventory without proper authorization or
subsequent payment. The Company also has alleged that the Defendants arranged
for the training of certain of the Company's customers through a third-party
training company and not through the Company which has resulted in theft of
corporate opportunity by the Defendants. In addition, the Defendants utilized
corporate credit cards for extensive personal expenditures and unauthorized
travel expenses for which the Company has not been reimbursed. The Company is
seeking in excess of $675,000 in restitution from certain of the Defendants and
additional compensatory damages from another Defendant. The Company intends to
vigorously pursue all available remedies against the Defendants. The litigation
is in a very early stage and, therefore, the Company currently is unable to
evaluate the likelihood of a favorable outcome for the Company. The Company
believes that some or all of its damages in connection with the litigation may
be covered by insurance. In any event, Stan Gang, the Company's President and
Chief Executive Officer and principal shareholder, has agreed to indemnify the
Company for any and all losses which the Company may sustain, up to $1,000,000
arising from or relating to the alleged wrongful conduct of the Defendants. In
connection therewith, Mr. Gang has paid $675,000 of his personal funds to the
Company. Pursuant to the terms of the agreement between the Company and Mr.
Gang, the Company shall reimburse Mr. Gang in the event and to the extent that
the Company is awarded and collects damages from the Defendants, receives sums
as a result of a settlement between the Company and the Defendants, or receives
proceeds under an insurance policy. Management is of the opinion that the
ultimate disposition of this matter will not have a material adverse effect on
the results of operations or financial position of the Company.
ITEM 5. OTHER INFORMATION.
On March 26, 1996, the Company completed an initial public offering of
2,100,000 shares of its Common Stock at a price of $10.50 per share. Of the
2,100,000 shares, 1,600,000 shares were issued and sold by the Company and
500,000 shares were sold by a shareholder of the Company. The Company did not
receive any of the proceeds from the sale of shares by the selling shareholder.
The net proceeds to the Company were $14,802,000. The Company intends
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<PAGE> 17
to use approximately $4,500,000 of such net proceeds to expand the services
component of its business. Of this amount, approximately $2,000,000 will be used
to continue development of the Company's Technical Support Center, approximately
$500,000 will be used to expand the Company's system integration department,
approximately $500,000 will be utilized to expand the Company's education
centers and approximately $500,000 will be applied to finance increased
marketing and sales activities. The remaining $1,000,000 will be used to acquire
computer and other capital equipment and a state-of-the-art accounting system.
In connection with the termination of the Company's S Corporation status, the
Company distributed an aggregate of $5,782,000 to the pre-offering shareholders
of the Company, which amount represented substantially all of the Company's
undistributed S Corporation earnings net of an outstanding loan to a current
shareholder. The Company also prepaid all amounts outstanding under its
$1,425,000 term loan from First Union National Bank. The Company intends to use
the balance of the net proceeds for working capital and possible acquisitions of
businesses complementary to the Company's business.
Pending such uses, the remainder of the net proceeds of such offering
have been invested in investment grade, interest bearing instruments.
Subsequent to the end of the quarter, on April 19, 1996, the managing
underwriters of the Company's initial public offering informed the Company that
they had partially exercised the over-allotment option to purchase 100,000
shares of Common Stock from the Company at the initial public offering price of
$10.50 per share. Net proceeds to the Company from such exercise were
approximately $950,000. The option lapsed as to the underwriters' right to
purchase the remaining 215,000 shares of Common Stock subject to such option.
On May 3, 1996, the Board of Directors elected two additional
independent Directors, David J. Sorin and Susan Wolford. Mr. Sorin and Ms.
Wolford, together with incumbent Directors, Stan Gang and Michael R. Bruce, were
elected to the Company's Audit Committee.
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<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 Form of Indemnification Agreement dated May 3, 1996 by
and between the Company and David J. Sorin.
10.2 Form of Indemnification Agreement dated May 3, 1996 by
and between the Company and Susan Wolford.
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report on Form 10-Q is filed.
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AlphaNet Solutions, Inc.
DATE: May 13, 1996 By:/s/ Stan Gang
-------------------------
Stan Gang,
President and Chief
Executive Officer
(Principal Executive
Officer)
DATE: May 13, 1996 By:/s/ Gary S. Finkel
--------------------------
Gary S. Finkel,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<PAGE> 1
EXHIBIT 10.1
ALPHANET SOLUTIONS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of May 3, 1996,
by and between AlphaNet Solutions, Inc., a New Jersey corporation (the
"Company"), and David J. Sorin ("Indemnitee").
WHEREAS, Indemnitee is a director of the Company and performs a
valuable service in such capacity for the Company;
WHEREAS, the Company and Indemnitee recognize the difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company as an officer and director, wishes to provide for the indemnification
and advancing of expenses to Indemnitee to the maximum extent permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) Indemnification of Expenses. The Company shall indemnify Indemnitee
to the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes might
lead to the institution of any such action, suit, proceeding or alternative
dispute resolution mechanism, whether civil, criminal, administrative,
investigative or other (collectively hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to
<PAGE> 2
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity (hereinafter an "Indemnifiable Event") against
any and all expenses (including attorneys' fees and all other costs, expenses
and obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such Claim), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of such Claim and
any federal, state, local or foreign taxes imposed on the Indemnitee as a result
of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than thirty (30) days after written demand by Indemnitee
therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations
of the Company under Section l(a) shall be subject to the condition that the
Reviewing Party (as described in Section 10(e) hereof) shall not have determined
(in a written opinion, in any case in which the Independent Legal Counsel
referred to in Section 1(c) hereof is involved) that Indemnitee would not be
permitted to be indemnified under applicable law, and (ii) the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section
2(a) (an "Expense Advance") shall be subject to the condition that, if, when and
to the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section l(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the
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<PAGE> 3
legal or factual bases therefor, and the Company hereby consents to service of
process and to appear in any such proceeding. Any determination by the Reviewing
Party otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to payments of Expenses and Expense
Advances under this Agreement or any other agreement or under the Company's
Certificate of Incorporation or Bylaws as now or hereafter in effect, the
Company shall seek legal advice only from Independent Legal Counsel (as defined
in Section 10(d) hereof) selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent Indemnitee would be permitted to be indemnified under
applicable law. The Company agrees to pay the reasonable fees of the Independent
Legal Counsel referred to above and to fully indemnify such counsel against any
and all expenses (including attorneys' fees), claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other provision
of this Agreement other than Section 9 hereof, to the extent that Indemnitee has
been successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any Claim referred to in
Section (1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to Indemnitee's right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
the termination of any Claim, by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a
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<PAGE> 4
presumption that Indemnitee did not meet any particular standard of conduct or
have any particular belief or that a court has determined that indemnification
is not permitted by applicable law. In addition, neither the failure of the
Reviewing Party to have made a determination as to whether Indemnitee has met
any particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief. In connection with
any determination by the Reviewing Party or otherwise as to whether the
Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be
on the Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
hereunder to pay the Expenses of any Claim, the Company, if appropriate, shall
be entitled to assume the defense of such Claim with counsel approved by
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall
have the right to employ Indemnitee's counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's counsel shall be at the expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a New Jersey corporation to indemnify
a member of its board of directors or an officer, employee, agent or fiduciary,
it is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which
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<PAGE> 5
narrows the right of a New Jersey corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the New Jersey Business Corporation
Act, or otherwise. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though Indemnitee may have ceased to serve in such
capacity.
4. NO DUPLICATION OF PAYMENTS.
The Company shall not be liable under this Agreement to make any
payment in connection with any Claim made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
Certificate of Incorporation, Bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of Expenses in the
investigation, defense, appeal or settlement of any civil or criminal Claim, but
not, however, for all of the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such Expenses to which
Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT.
Both the Company and Indemnitee acknowledge that in certain instances,
Federal law or applicable public policy may prohibit the Company from
indemnifying its directors, officers, employees, agents or fiduciaries under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
7. LIABILITY INSURANCE.
To the extent the Company maintains liability insurance applicable to
directors, officers, employees, agents or fiduciaries, Indemnitee shall be
covered by such policies in such a manner as to provide Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if Indemnitee is a director; or of the Company's officers,
if Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
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<PAGE> 6
8. EXCEPTIONS.
Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (1) with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such suit, or (iii) as
otherwise required under Section 14A:3-5 of the New Jersey Business Corporation
Act, regardless of whether Indemnitee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale, or sale and
purchase, by Indemnitee of securities in violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or any similar successor statute.
9. PERIOD OF LIMITATIONS.
No legal action shall be brought and no cause of action shall be
asserted by or in the right of the Company against Indemnitee, Indemnitee's
estate, spouse, heirs, executors or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
two-year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action, such shorter period shall
govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of
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<PAGE> 7
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing more than 20% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last
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<PAGE> 8
three years (other than with respect to matters concerning the rights of
Indemnitee under this Agreement, or of other indemnitees under similar indemnity
agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean any
appropriate person or body consisting of a member or members of the Company's
Board of Directors or any other person or body appointed by the Board of
Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
11. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of the
Company, spouses, and any heirs, and personal and legal representatives of the
Indemnitee. The Company shall require and cause any successor (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all, substantially
all, or a substantial part, of the business and/or assets of the Company, by
written agreement in form and substance satisfactory to Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as a director of the Company or of any other
enterprise at the Company's request.
13. ATTORNEYS' FEES.
In the event that any action is instituted by Indemnitee under this
Agreement or under any liability insurance policies maintained by the Company to
enforce or interpret any of the terms hereof or thereof, Indemnitee shall be
entitled to be paid all Expenses incurred by Indemnitee with respect to such
action, regardless of whether Indemnitee is ultimately successful in such
action, and shall be entitled to the advancement of Expenses with respect to
such action, unless as a part of such action the court of competent jurisdiction
over such action determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in
defense of such action (including costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), and shall be
entitled to the advancement Expenses with respect to such action,
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<PAGE> 9
unless as a part of such action the court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
14. NOTICE.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by
hand and receipted for by the party addressee, on the date of such receipt, or
(ii) if mailed by domestic certified or registered mail with postage prepaid, on
the third business day after the date postmarked. Addresses for notice to either
party are as shown on the signature page of this Agreement, or as subsequently
modified by written notice.
15. CONSENT TO JURISDICTION.
The Company and Indemnitee each hereby irrevocably consent to the
jurisdiction of the courts of the State of New Jersey for all purposes in
connection with any action or proceeding which arises out of or relates to this
Agreement and agree that any action instituted under this Agreement shall be
commenced, prosecuted and continued only in the Superior Court of the State of
New Jersey in and for Morris County, which shall be the exclusive and only
proper forum for adjudicating such a claim.
16. SEVERABILITY.
The provisions of this Agreement shall be severable in the event that
any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
17. CHOICE OF LAW.
This Agreement shall be governed by and its provisions construed and
enforced in accordance with the laws of the State of New Jersey, as applied to
contracts between New Jersey residents, entered into and to be performed
entirely within the State of New Jersey, without regard to the conflict of laws
principles thereof.
18. SUBROGATION.
In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company effectively to
bring suit to enforce such rights.
- 9 -
<PAGE> 10
19. AMENDMENT AND TERMINATION.
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless it is in writing signed by both the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT.
This Agreement sets forth the entire understanding between the parties
hereto and supersedes and merges all previous written and oral negotiations,
commitments, understandings and agreements relating to the subject matter hereof
between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT.
Nothing contained in this Agreement shall be construed as giving
Indemnitee any right to be retained in the employ of the Company or any of its
subsidiaries.
*****
- 10 -
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AlphaNet Solutions, Inc.
By:
--------------------------------------
Stan Gang, Chairman of the Board,
President and Chief Executive Officer
AGREED TO AND ACCEPTED
INDEMNITEE:
- - ----------------------
David J. Sorin
- - ----------------------
(Street Address)
- - ----------------------
(City, State and Zip)
- 11 -
<PAGE> 1
EXHIBIT 10.2
ALPHANET SOLUTIONS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of May 3, 1996,
by and between AlphaNet Solutions, Inc., a New Jersey corporation (the
"Company"), and Susan Wolford ("Indemnitee").
WHEREAS, Indemnitee is a director of the Company and performs a
valuable service in such capacity for the Company;
WHEREAS, the Company and Indemnitee recognize the difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company as an officer and director, wishes to provide for the indemnification
and advancing of expenses to Indemnitee to the maximum extent permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) Indemnification of Expenses. The Company shall indemnify Indemnitee
to the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes might
lead to the institution of any such action, suit, proceeding or alternative
dispute resolution mechanism, whether civil, criminal, administrative,
investigative or other (collectively hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to
<PAGE> 2
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity (hereinafter an "Indemnifiable Event") against
any and all expenses (including attorneys' fees and all other costs, expenses
and obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such Claim), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of such Claim and
any federal, state, local or foreign taxes imposed on the Indemnitee as a result
of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than thirty (30) days after written demand by Indemnitee
therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations
of the Company under Section l(a) shall be subject to the condition that the
Reviewing Party (as described in Section 10(e) hereof) shall not have determined
(in a written opinion, in any case in which the Independent Legal Counsel
referred to in Section 1(c) hereof is involved) that Indemnitee would not be
permitted to be indemnified under applicable law, and (ii) the obligation of the
Company to make an advance payment of Expenses to Indemnitee pursuant to Section
2(a) (an "Expense Advance") shall be subject to the condition that, if, when and
to the extent that the Reviewing Party determines that Indemnitee would not be
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section l(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to
- 2 -
<PAGE> 3
appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change in
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to payments of Expenses and Expense
Advances under this Agreement or any other agreement or under the Company's
Certificate of Incorporation or Bylaws as now or hereafter in effect, the
Company shall seek legal advice only from Independent Legal Counsel (as defined
in Section 10(d) hereof) selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent Indemnitee would be permitted to be indemnified under
applicable law. The Company agrees to pay the reasonable fees of the Independent
Legal Counsel referred to above and to fully indemnify such counsel against any
and all expenses (including attorneys' fees), claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other provision
of this Agreement other than Section 9 hereof, to the extent that Indemnitee has
been successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any Claim referred to in
Section (1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
precedent to Indemnitee's right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
the termination of any Claim, by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable
- 3 -
<PAGE> 4
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
hereunder to pay the Expenses of any Claim, the Company, if appropriate, shall
be entitled to assume the defense of such Claim with counsel approved by
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall
have the right to employ Indemnitee's counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's counsel shall be at the expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a New Jersey corporation to indemnify
a member of its board of directors or an officer, employee, agent or fiduciary,
it is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a New
Jersey corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by
- 4 -
<PAGE> 5
such law, statute or rule to be applied to this Agreement, shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the New Jersey Business Corporation
Act, or otherwise. The indemnification provided under this Agreement shall
continue as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though Indemnitee may have ceased to serve in such
capacity.
4. NO DUPLICATION OF PAYMENTS.
The Company shall not be liable under this Agreement to make any
payment in connection with any Claim made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
Certificate of Incorporation, Bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of Expenses in the
investigation, defense, appeal or settlement of any civil or criminal Claim, but
not, however, for all of the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such Expenses to which
Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT.
Both the Company and Indemnitee acknowledge that in certain instances,
Federal law or applicable public policy may prohibit the Company from
indemnifying its directors, officers, employees, agents or fiduciaries under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
7. LIABILITY INSURANCE.
To the extent the Company maintains liability insurance applicable to
directors, officers, employees, agents or fiduciaries, Indemnitee shall be
covered by such policies in such a manner as to provide Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if Indemnitee is a director; or of the Company's officers,
if Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
- 5 -
<PAGE> 6
8. EXCEPTIONS.
Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (1) with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such suit, or (iii) as
otherwise required under Section 14A:3-5 of the New Jersey Business Corporation
Act, regardless of whether Indemnitee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale, or sale and
purchase, by Indemnitee of securities in violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or any similar successor statute.
9. PERIOD OF LIMITATIONS.
No legal action shall be brought and no cause of action shall be
asserted by or in the right of the Company against Indemnitee, Indemnitee's
estate, spouse, heirs, executors or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such
two-year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action, such shorter period shall
govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as
- 6 -
<PAGE> 7
a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing more than 20% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
- 7 -
<PAGE> 8
(e) For purposes of this Agreement, a "Reviewing Party" shall mean any
appropriate person or body consisting of a member or members of the Company's
Board of Directors or any other person or body appointed by the Board of
Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
11. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of the
Company, spouses, and any heirs, and personal and legal representatives of the
Indemnitee. The Company shall require and cause any successor (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all, substantially
all, or a substantial part, of the business and/or assets of the Company, by
written agreement in form and substance satisfactory to Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as a director of the Company or of any other
enterprise at the Company's request.
13. ATTORNEYS' FEES.
In the event that any action is instituted by Indemnitee under this
Agreement or under any liability insurance policies maintained by the Company to
enforce or interpret any of the terms hereof or thereof, Indemnitee shall be
entitled to be paid all Expenses incurred by Indemnitee with respect to such
action, regardless of whether Indemnitee is ultimately successful in such
action, and shall be entitled to the advancement of Expenses with respect to
such action, unless as a part of such action the court of competent jurisdiction
over such action determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in
defense of such action (including costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), and shall be
entitled to the advancement Expenses with respect to such action, unless as a
part of such action the court having jurisdiction over such action determines
that each
- 8 -
<PAGE> 9
of Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
14. NOTICE.
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by
hand and receipted for by the party addressee, on the date of such receipt, or
(ii) if mailed by domestic certified or registered mail with postage prepaid, on
the third business day after the date postmarked. Addresses for notice to either
party are as shown on the signature page of this Agreement, or as subsequently
modified by written notice.
15. CONSENT TO JURISDICTION.
The Company and Indemnitee each hereby irrevocably consent to the
jurisdiction of the courts of the State of New Jersey for all purposes in
connection with any action or proceeding which arises out of or relates to this
Agreement and agree that any action instituted under this Agreement shall be
commenced, prosecuted and continued only in the Superior Court of the State of
New Jersey in and for Morris County, which shall be the exclusive and only
proper forum for adjudicating such a claim.
16. SEVERABILITY.
The provisions of this Agreement shall be severable in the event that
any of the provisions hereof (including any provision within a single section,
paragraph or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
17. CHOICE OF LAW.
This Agreement shall be governed by and its provisions construed and
enforced in accordance with the laws of the State of New Jersey, as applied to
contracts between New Jersey residents, entered into and to be performed
entirely within the State of New Jersey, without regard to the conflict of laws
principles thereof.
18. SUBROGATION.
In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company effectively to
bring suit to enforce such rights.
- 9 -
<PAGE> 10
19. AMENDMENT AND TERMINATION.
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless it is in writing signed by both the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT.
This Agreement sets forth the entire understanding between the parties
hereto and supersedes and merges all previous written and oral negotiations,
commitments, understandings and agreements relating to the subject matter hereof
between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT.
Nothing contained in this Agreement shall be construed as giving
Indemnitee any right to be retained in the employ of the Company or any of its
subsidiaries.
*****
- 10 -
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AlphaNet Solutions, Inc.
By:
-------------------------------------
Stan Gang, Chairman of the Board,
President and Chief Executive Officer
AGREED TO AND ACCEPTED
INDEMNITEE:
- - ----------------------
Susan Wolford
- - ----------------------
(Street Address)
- - ----------------------
(City, State and Zip)
- 11 -
<PAGE> 1
EXHIBIT 11
ALPHANET SOLUTIONS, INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1996
<S> <C> <C>
Pro forma net income................................................. $ 550 $ 572
====== ======
Weighted average number of common shares and common shares equivalent:
Common shares.................................................... 3,400 3,488
Shares necessary to fund S Corporation Distribution.............. 551 520
Cheap stock (treasury stock method).............................. 37 35
------ ------
3,988 4,043
====== ======
Pro forma net income per share..................................... $ 0.14 $ 0.14
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 11,352
<SECURITIES> 0
<RECEIVABLES> 13,948
<ALLOWANCES> 81
<INVENTORY> 750
<CURRENT-ASSETS> 27,117
<PP&E> 2,027
<DEPRECIATION> 519
<TOTAL-ASSETS> 28,727
<CURRENT-LIABILITIES> 13,545
<BONDS> 115
0
0
<COMMON> 50
<OTHER-SE> 15,017
<TOTAL-LIABILITY-AND-EQUITY> 28,727
<SALES> 15,191
<TOTAL-REVENUES> 19,296
<CGS> 13,283
<TOTAL-COSTS> 16,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 961
<INCOME-TAX> 389<F1>
<INCOME-CONTINUING> 572<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 572<F1>
<EPS-PRIMARY> 0.14<F1>
<EPS-DILUTED> 0
<FN>
<F1>Includes a pro forma adjustment to include income taxes which would have been
incurred if the Company had not been an S Corproation for such period.
</FN>
</TABLE>
