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Registration No.
As filed with the Securities and Exchange Commission on September , 1995.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
DIGITAL SOLUTIONS, INC.
(Exact name of Registrant as specified in charter)
New Jersey 22-1899798
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
4041-F Hadley Road
South Plainfield, New Jersey 07080
(908) 561-1200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Raymond J. Skiptunis
Chief Executive Officer
4041-F Hadley Road
South Plainfield, New Jersey 07080
(908) 561-1200
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
VICTOR J. DiGIOIA, ESQ.
GOLDSTEIN, AXELROD & DiGIOIA
369 Lexington Avenue
New York, New York 10017
Telephone (212) 599-3322
Facsimile (212) 557-0295
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
/ /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered, only in connection with
dividend or interest reinvestment plans, check the following box. /x/
If the registrant elects to deliver its latest report to security
holders, or a complete and legible facsimile thereof, pursuant to 11(a)(1) of
this Form, check the following box. / /
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CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class of Securities Amount Being Price per Offering Registration
Being Registered Registered Share(1) Price(1) Fee
----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value (2) 7,500,000 $1.875 $14,062,500 $4,850.00
----------------------------------------------------------------------------------------------------------------------------------
Total........................................ $4,850.00
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(1) Estimated solely for the purpose of determining the registration fee,
based on a share price of $1.875, the average of the closing bid and
asked prices as quoted by the Nasdaq SmallCap Market on September 8,
1995.
(2) Shares of Common Stock to be sold by certain Selling Security Holders.
___________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SECTION 8(A) MAY
DETERMINE.
==================================================================================================================================
/TABLE
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DIGITAL SOLUTIONS, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Between Registration Statement and Form of Prospectus
Item Number and Heading Caption in Prospectus
----------------------- ---------------------
1. Forepart of the Registration Statement
and Outside Front Cover of Prospectus Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus......................... Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information, Risk Factors,
and Ratio of Earnings to Fixed
Charges..................................... Prospectus Summary; The Company; Risk Factors;
Summary Consolidated Financial Information
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. Outside Front Cover Page of Prospectus
6. Dilution.................................... Not Applicable
7. Selling Security Holders.................... Selling Security Holders
8. Plan of Distribution........................ Inside Front Cover; Plan of Distribution
9. Description of Securities to be
Registered.................................. Description of Securities
10. Interests of Names Experts and
Counsel..................................... Not Applicable
11. Material Changes............................ Recent Developments
12. Incorporation of Certain Information
by Reference................................ Incorporation of Certain Information by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
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P R O S P E C T U S
7,500,000 Shares of Common Stock
DIGITAL SOLUTIONS, INC.
This Prospectus covers 7,500,000 shares of common stock, $.001 par
value (the "Shares") of Digital Solutions, Inc. (the "Company"), which Shares
are being sold by certain selling shareholders (the "Selling Shareholders").
The Common Stock is traded in the over-the-counter market and is
included in the SmallCap Market of the Nasdaq Stock Market ("NASDAQ") under the
symbol "DGSI". On September __, 1995, the closing bid and asked prices for the
Common Stock as reported by NASDAQ were $_____ and $____ respectively. See
"Price Range of Common Stock and Certain Market Information."
The Shares may be sold from time to time by the Selling Shareholders,
or by their transferees. No underwriting arrangements have been entered into by
the Selling Shareholders. The distribution of the Shares by the Selling
Shareholders may be effected in one or more transactions that may take place on
the over the counter market, including ordinary brokers transactions, privately
negotiated transactions or through sales to one or more dealers for resale of
the Shares as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Shareholders in connection with such sales. The Selling
Shareholders and intermediaries through whom such Shares are sold may be deemed
"underwriters" with in the meaning of the Act, with respect to the Shares
offered.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is September , 1995
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy and information
statements and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copies at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional
Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office, Everett McKinley
Dirkson Building, 210 South Dearborn Street, Room 1204, Chicago, Illinois
60604. Copies of such material may be obtained from the public reference
section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
2. The Company's Registration on Form 8-A filed April 27, 1990.
3. The Company's Form 8-K dated November 28, 1994.
4. The Company's Form 10-Q for the quarter ended December 31,
1994.
5. The Company's Form 10-Q for the quarter ended March 31, 1995.
6. The Company's Form 10-Q for the quarter ended June 30, 1995.
Each document filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus and shall be part hereof from the date of filing of such
document.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any document described above (other than exhibits). Requests
for such copies should be directed to Digital Solutions, Inc., 4041-F Hadley
Road, South Plainfield, New Jersey 07080, telephone (908) 561-1200.
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PROSPECTUS SUMMARY
The following summary is intended to set forth certain pertinent facts
and highlights from material contained in the body of this Prospectus. The
summary is qualified in its entirety by the detailed information and financial
statements appearing elsewhere in this Prospectus, the Company's annual report
on Form 10-K for the Fiscal year ended September 30, 1994 (the "Form 10- K")
and the Company's quarterly reports on Form 10-Q for the quarters ended
December 31, 1994, March 31, 1995 and June 30, 1995 (the "Forms 10Q").
THE COMPANY
The Company was founded in 1969 and has expanded into a broad based
employer service company offering a wide range of services including payroll
processing, personnel administration, placement of temporary and permanent
employees, benefits administration and employee leasing. The Company is
currently in a program of expansion through acquisition of compatible
businesses and internal development of its existing business and client base.
The Company believes that by offering services which will relieve small and
medium size businesses of the ever increasing burden of administration of
employee related record keeping, payroll, benefits and other "Human Resource"
functions, such as hiring of temporary and permanent specialized employees, the
Company will be positioned to take advantage of major growth opportunities
during this and the next decade.
The Company also provides temporary or contract personnel on an as
needed basis to businesses, industries, hospitals and therapeutic centers.
Providing these temporary services fulfills the needs of companies requiring
temporary professional personnel such as engineers, project managers,
radiologists, and nurses on a short-term basis. The Company also functions as
a permanent placement agency for professional personnel similar to those
mentioned above. Additionally, the Company provides a full administrative
human resource service, sometimes known as "employee leasing", which provides a
client with all of the services normally associated with the personnel
functions of major corporations, including benefits administration.
In summary the Company provides various employer services which
include payroll processing, placement of permanent and temporary personnel,
employee leasing, benefits administration, insurance services, human resource
consulting and outsourcing. The Company currently markets and sells its
services in approximately 40 states. The company has three hubs operating in
South Plainfield, New Jersey, Houston, Texas and Tampa, Florida. Additionally,
the Company has sales service centers in New York City, Jackson, Mississippi,
Dallas, El Paso and Houston, Texas, Orlando and Tampa, Florida, and South
Plainfield, New Jersey.
Digital Solutions, Inc. (the "Company") was organized under the laws
of the State of New Jersey on November 25, 1969 and maintains executive offices
at 4041-F Hadley
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Road, South Plainfield, New Jersey 07080 where its telephone number is (908)
561-1200.
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THE OFFERING
Common Stock Outstanding 14,166,629
Risk Factors ................................. This Offering involves a high degree of risk. See "Risk Factors."
Use of Proceeds .............................. All of the proceeds of this offering will be paid to the respective Selling
Shareholders and none of the proceeds will be received by the Company.
Nasdaq SmallCap............................... DGSI
(1) Does not include: (i) 1,000,000 Shares reserved under the Company's
Stock Option Plan, (ii) 5,000,000 Shares reserved under the Company's
Senior Management Plan, (iii) 500,000 Shares reserved under the
Company's Non-Executive Director Plan and (iv) up to approximately
1,119,833 Shares reserved for issuance upon exercise of outstanding
warrants.
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RISK FACTORS
An investment in the securities offered hereby involves a high degree
of risk. The following factors, in addition to those discussed elsewhere in
this memorandum, should be considered carefully in evaluating the Company and
its business. An investment in the Securities is suitable only for those
investors who can bear the risk of loss of their entire investment.
1. Previous Losses. The Company experienced a net loss of
$695,000 for fiscal year 1992. The Company realized a net profit for the
fiscal year ended September, 1993 of $301,000 and a net profit of $720,000 for
the fiscal year ended September 30, 1994. Although the Company is currently
operating profitably, there can be no assurance the Company will be able to
continue to operate profitably in the future. See "RECENT DEVELOPMENTS." See
also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" in the Form 10-K for the fiscal year ended September 30, 1994
and the Forms 10-Q incorporated by reference herein.
2. Need for Additional Funds. The Company shall not receive any
proceeds from this Offering. There can be no assurance that cash generated
from operations will be sufficient to meet the Company's working capital
requirements or finance further Company development. The Company, in the
future, may need additional funds from loans and/or the sale of equity or debt
securities. No assurance can be given that such funds will be available or, if
available, will be on commercially reasonable terms satisfactory to the
Company.
3. Risks of Acquisitions. The Company may at times become
involved in discussions with potential acquisition candidates. However, there
can be no assurance that the Company will identify and/or consummate an
acquisition, or that such acquisitions, if completed, will be profitable. In
addition, should the Company consummate an acquisition, such acquisition could
have an adverse affect on the Company's liquidity and earnings. The Company
has recently entered into an agreement to acquire Turnkey Services Inc. In the
event the Company consummates an acquisition, or obtains additional capital
through the sale of debt or equity to finance such acquisition, current
shareholders may experience dilution in their shareholder's equity. In
addition, should the Company consummate an acquisition, such acquisition could
have an adverse affect on the Company's liquidity and earnings.
4. Competition. The payroll, temporary employee placement and
the employee leasing industries are characterized by vigorous competition. The
principal competitive factors are price and service. The Company believes that
its major competitors with respect to its payroll and accounting services are
Automated Data Processing, Inc., Ceridian Corporation and Paychex, Inc. and
with respect to employee placement (including temporary placements and employee
leasing), Volt Information,
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Tech Aid, Inc., Staff Leasing, Inc. and Administraff. These companies may have
greater financial and marketing resources than the Company. The Company
competes with numerous small and mid-sized companies in the employee leasing
area. The Company also competes with manual payroll systems and computerized
payroll services including banks, and smaller independent companies. There are
no assurances that the Company in its existing or future lines of business will
be able to compete effectively against its competitors in these industries.
5. Need for Temporary Personnel. The Company's subsidiary, DSI
Contract Staffing, Inc., is a temporary employment agency which depends on a
pool of qualified temporary employees willing to accept assignments for the
Company's clients. The business of this subsidiary is materially dependent
upon the continued availability of such qualified temporary personnel, but
there can be no assurance that such personnel will be available to the Company
in the future. The inability of the Company to secure temporary personnel
would have a material adverse effect on the Company's business.
6. Restrictions on Payment of Dividends. The Company has not
paid any dividends on its Common Stock since its inception and does not
contemplate or anticipate paying any dividends on its Common Stock in the
foreseeable future. Earnings, if any, will be retained and used to finance the
development and expansion of the Company's business. The Company may not pay
dividends on its Common Stock unless the Company has earnings or capital
surplus. Therefore, there can be no assurance whether or to what extent
dividends will be paid on the Shares. See "DIVIDEND POLICY" and the financial
statements and notes contained in the Form 10-K and Form 10-Q's thereto
incorporated by reference in this Memorandum.
7. NASDAQ Eligibility and Maintenance Requirements; Possible
Delisting of Securities from Nasdaq SmallCap Market System. The Board of
Governors of the National Association of Securities Dealers, Inc. (the "NASD")
has established certain standards for the continued listing of a security on
the SmallCap Market of the Nasdaq Stock Market. The maintenance standards
require, among other things, that an issuer have total assets of at least
$2,000,000 and capital and surplus of at least $1,000,000; that the minimum bid
price for the listed securities be $1.00 per share; and that the minimum market
value of the "public float" be at least $1,000,000. A deficiency in either the
market value of the public float or the bid price maintenance standard will be
deemed to exist if the issuer fails the individual stated requirement for ten
consecutive trading days. If an issuer falls below the bid price maintenance
standard, it may remain on the Nasdaq SmallCap Market if the market value of
the public float is at least $1,000,000 and the issuer has $2,000,000 in
equity. Upon completion of this Offering, the Company anticipates that it will
continue to meet all maintenance requirements for the Nasdaq SmallCap Market.
There can be no assurance that the Company will continue to satisfy the
requirements for maintaining a Nasdaq SmallCap Market listing. If the
Company's securities were excluded from the Nasdaq SmallCap Market, it would
adversely affect the prices of such securities and the ability of holders to
sell them, and
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the Company would be required to comply with the initial listing requirements
to be relisted on the Nasdaq SmallCap Market.
In the event that the Company is unable to satisfy the SmallCap
Market's maintenance requirements for the Nasdaq SmallCap Market trading would
be conducted in the "pink sheets" or the NASD's Electronic Bulletin Board. In
the absence of the Common Stock being quoted on the Nasdaq SmallCap Market, or
the Company having $2,000,000 in net tangible assets, trading in the Common
Stock would be covered by Rule 15c2-6 promulgated under the Securities Exchange
Act of 1934 for non-Nasdaq and non-exchange listed securities (otherwise known
as "penny stock" securities). Under such rule, broker/dealers who recommend
such securities to persons other than established customers and accredited
institutional investors must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a
transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission has adopted regulations that generally define a penny
stock to be any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include an equity
security listed on Nasdaq and an equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
If the Company's Common Stock was subject to the regulations on penny
stocks, the market liquidity for the Common Stock would be severely affected by
limiting the ability of broker/dealers to sell the Common Stock in the public
market. There is no assurance that trading in the Company's securities will
not be subject to these or other regulations that would adversely affect the
market for such securities.
8. Rule 144 Sales; Selling Shareholders Registration. Of the
15,166,629 issued and outstanding shares of the Company's Common Stock prior to
this Offering, approximately 7,509,283 shares may be deemed "restricted shares"
and, in the future, may be sold in compliance with Rule 144 under the Act.
Rule 144 provides that a person holding restricted securities which have been
outstanding for a period of two years after the later of the issuance by the
Company or sale by an affiliate of the Company, may sell in brokerage
transactions an amount equal to 1% of the Company's outstanding Common Stock
every three months. A person who is a "non-affiliate" of the Company and who
has held restricted securities for over three years is not subject to the
aforesaid volume limitations as long as the other conditions of the Rule are
met. Possible or actual sales of the Company's Common Stock by certain of the
Company's present shareholders under Rule 144 may, in the future, have a
depressive effect on the price of the
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Company's Common Stock in the open market. In addition, the Company has
registered 6,500,000 shares reserved under its stock option plans and
approximately 6,700,000 shares on behalf of selling stockholders. The sale of
these shares may have a depressive effect on the market for the Company's
Common Stock. See "DESCRIPTION OF SECURITIES."
9. Effect of Health Care Proposal. The Clinton Administration
and Congress have proposed certain changes to the nation's health care system.
Since the form of proposal which may be eventually adopted, if any, is not
known at this time, there can be no assurance that the proposal adopted would
not have a material adverse effect on the business of the Company.
10. Authorization and Discretionary Issuance of Preferred Stock;
Possible Anti-takeover Effects. The Company's Certificate of Incorporation
authorizes the issuance of "blank check" preferred stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors up to an aggregate of 5,000,000 shares of Preferred
Stock. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which would adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of the Company,
which could have the effect of discouraging bids for the Company and thereby
prevent stockholders from receiving the maximum value for their shares. The
Company has no present intention to issue any additional shares of its
preferred stock in order to discourage or delay a change of control of the
Company. However, there can be no assurance that preferred stock of the
Company will not be issued at some time in the future. See "DESCRIPTION OF
SECURITIES--Preferred Stock."
RECENT DEVELOPMENTS
ACQUISITIONS
A. Staff Acquisition. On November 21, 1994, pursuant to an Asset
Purchase Agreement, the Company acquired certain business assets of Staff-Rx
and its subsidiaries, RADS Radiography Service, Inc., Relief Services, Inc.,
Primedical Physician Services, Inc. and SkillMaster Management, Inc.
(collectively "Staff") through DSI Staff Rx, Inc., a newly formed subsidiary of
DSI Contract Staffing, Inc., a subsidiary of the Company. The assets acquired
include the customer accounts (the "Customer Accounts") of Staff-Rx, and all
books and records related thereto, and all owned and leased fixed assets
utilized by Staff-Rx in its business operations subject to the interest of
equipment lessors and the right to use the names Skillmaster, Staff RX, RADS
and Primedical (collectively the "Assets"). The Assets also include the
leasehold interest of Staff-Rx in all offices
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excluding the office located in Houston, Texas. Staff-Rx has offices in
Houston, Texas; Clearwater, Florida; Dallas, Texas and Orlando, Florida and
conducts business in approximately 35 states.
Certain principals and/or key managerial personnel of Staff-Rx deemed
essential have entered into employment agreements which contain negative and
restrictive covenants for the term of the agreement and continuing for a period
of two years thereafter (one year in the event Employee is terminated without
cause), which will prohibit competitive conduct. Non-employee shareholders of
Staff-Rx and certain other persons entered into three (3) year noncompetition
agreements with the Company, which contain restrictive covenants during the
term of the agreement prohibiting competitive conduct (collectively the
"Noncompetition Agreements").
In exchange for the Assets and the Noncompetition Agreements, the
Company paid to Staff-Rx (i) $200,000 in cash; (ii) a convertible promissory
note in the principal amount of $1,300,000; (iii) an earnout payment (the
"Earnout") as defined below; and (iv) a profit payment (the "Profit Payment"),
as defined below (together, the "Purchase Price"). The Company also paid
approximately $445,000 representing expenses incurred by Staff in operating the
business from October 3, 1994 to the closing.
The Purchase Price between the Assets and the Noncompetition Agreement
was allocated $1,400,000 to goodwill and $50,000 each to the Non-Competition
Agreements and to the fixed assets acquired.
The Earnout, payable quarterly commencing on the date of the end of
the first calendar quarter that the cumulative gross margin of DSI Staff RX,
Inc., since the closing, exceeds $5,000,000, will be equal to 50% of the gross
margins derived from the customer accounts in excess of $5,000,000 during the
two (2) year period commencing as of October 3, 1994 (the "Earnout Period").
Gross margins of DSI Staff RX, Inc. shall be equal to gross revenues less cost
of sales and certain investments made by the Company into the business. The
Profit Payment, payable quarterly commencing on the date of the end of the
first calendar quarter that the cumulative earnings before taxes ("EBT") since
the closing exceeds $600,000, shall be equal to 50% of the amount of Staff-Rx,
computed in accordance with generally accepted accounting principles as
modified by the agreement of the parties, in excess of $600,000 in each of the
two (2) year periods commencing on October 3, 1994 following the Closing Date,
up to a cumulative aggregate maximum Profit Payment of $600,000.
B. Turnkey Acquisition. In May, 1995, the Company announced that
it had consummated the acquisition, through its subsidiary, DSI Staff
Connxions-Southwest, Inc., of certain employee leasing assets and related
liabilities of Turnkey Services Inc., a Texas corporation ("Turnkey") with
operations in Texas and New Mexico. Additionally, certain principals of
Turnkey entered into non-competition agreements with the Company. The Company
acquired the Turnkey assets for an aggregate purchase price of $950,000,
payable through a combination of $783,750 in cash and 68,205 shares of
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common stock. One-half of the purchase price was paid at closing and one-half
will be subject to certain earnout provisions, and will not be payable by the
Company until one year after the closing.
CREDIT LINE
In February, 1995, the Company obtained a revolving line of credit of
up to $3,500,000 from United Jersey Bank secured by the Company's accounts
receivable. The amount available for borrowing is based on the eligible
accounts receivable, as well as other financial requirements. The Company has
agreed, in connection with the loan, not to create, form or acquire any
subsidiary, merge with or acquire another entity, make capital expenditures in
excess of $100,000, sell all or substantially of its assets, or loan money in
excess of $100,000 without the consent of the bank. The Company must also
maintain certain financial standards.
KEYSTONE FINANCIAL LOAN
In September 1995, the Company entered into a Note and Security and
Pledge Agreement with Keystone Financial, Inc. ("Keystone") providing for the
loan to the Company of $3,000,000 at an annual interest rate equal to the
greater of 9% or prime. The loan is due 24 months after issuance and is
secured by shares of the Company's Common Stock having a market value of no
less than two times the outstanding balance of the loan. Keystone has agreed
not to sell or otherwise liquidate the shares unless the Company defaults under
the loan agreement and fails to cure such default after notice. The shares
pledged as collateral are being registered under this Registration Statement.
INCREASE IN AUTHORIZED SHARES
In July 1995, the shareholders of the Company approved an amendment to
the Certificate of Incorporation to increase the authorized shares of Common
Stock from 20,000,000 shares to 40,000,000 shares. This increase was effected,
in part, to enable the Company to complete certain additional financial
transactions including the Keystone transaction described above.
OTHER DEVELOPMENTS
In October 1994, George J. Eklund was appointed by the Board of
Directors of the Company as President and Chief Operating Officer and in March,
1995 was elected to the Board of Directors by the shareholders of the Company.
From 1992 to 1994, Mr. Eklund was the President of the Human Resource
Information Services Division of FISERV, Inc. From 1977 to 1992, Mr. Eklund
was employed by Automatic Data Processing in various capacities, eventually
serving as Corporate Vice President and Division President of the Eastern
Division. From 1974 to 1977, Mr. Eklund was the Vice President of Operations
of Bucilla, Inc. Mr. Eklund
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obtained a B.B.A. in Marketing in 1964 from St. John's University. He received
an M.B.A. from New York University in Finance and Economics in 1969.
In connection with the appointment of Mr. Eklund, Donald W. Kappauf,
formerly the Company's President and Chief Operating Officer, assumed the
position of Executive Vice-President of the Company and Chief Operating Officer
of the Company's subsidiary, DSI Contract Staffing, Inc.
SELLING SHAREHOLDERS AND
TRANSACTIONS WITH SELLING SHAREHOLDERS
PERCENTAGE OF
SHARES SHARES OWNED SHARES
BENEFICIALLY AFTER OWNED AFTER
NAME AND ADDRESS OF OWNED PRIOR TO SHARES OFFERED OFFERING OFFERING
SECURITY HOLDER OFFERING
Keystone Financial, Inc.(1) . . . . . . . . 7,500,000 7,500,000 0 0
==================================================================================================================================
1. This Registration Statement has been filed to register up to 7,500,000
shares of Common Stock issued to Keystone Financial, Inc. ("Keystone")
as security for a loan of $3,000,000. In the event the loan is repaid
without default, the shares will be surrendered to the Company for
cancellation upon payment of the loan in full. In addition, one or
more lenders may be substituted for Keystone, or added in addition to
Keystone. Further, the shares may be utilized to secure additional
loans from Keystone and/or other affiliated or unaffiliated lenders.
2. Represents shares issuable upon exercise of warrants granted pursuant
to consulting agreements between the Company and the named
individuals.
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DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 40,000,000 shares
of Common Stock, par value $.001 per share and 5,000,000 shares of Preferred
Stock, par value $.10 per share, which may be issued in one or more series.
The following summary description of the Common Stock, Preferred Stock, Series
A Stock and Shares, are qualified in their entirety by reference to the
Company's Articles of Incorporation.
Common Stock
Each share of Common Stock entitles its holder to one non-cumulative
vote per share and, subject to the preferential rights of the Preferred
Stockholders, the holders of more than fifty percent (50%) of the shares voting
for the election of directors can elect all the directors if they choose to do
so, and in such event the holders of the remaining shares will not be able to
elect a single director. Holders of shares of Common Stock are entitled to
receive such dividends as the Board of Directors may, from time to time,
declare out of Company funds legally available for the payment of dividends.
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Common Stock are entitled to receive pro rata all of the assets of
the Company available for distribution to shareholders after the satisfaction
of the liquidation preference of the Preferred Stockholders.
Shareholders do not have any pre-emptive rights to subscribe for or
purchase any stock, warrants or other securities of the Company. The Common
Stock is not convertible or redeemable. Neither the Company's Certificate of
Incorporation nor its By-laws provide for pre-emptive rights.
Preferred Stock
The Preferred Stock may be issued in one or more series, to be
determined and to bear such title or designation as may be fixed by resolution
of the Board of Directors prior to the issuance of any shares thereof. Each
series of the Preferred Stock will have such voting powers (including, if
determined by the Board of Directors, no voting rights), preferences, and other
rights as determined by the Board of Directors, with such qualifications,
limitations or restrictions as may be stated in the resolutions of the Board of
Directors adopted prior to the issuance of any shares of such series of
Preferred Stock.
Purchasers of the Shares offered hereby should be aware that the
holders of any series of the Preferred Stock which may be issued in the future
could have voting rights, rights to receive dividends or rights to distribution
in liquidation superior to those of holders of the Common Stock, thereby
diluting or negating the voting rights, dividend rights or liquidation rights
of the holders of the Common Stock.
Because the terms of each series of Preferred Stock may be fixed by
the Company's Board of Directors without shareholder action, the Preferred
Stock could be issued with terms calculated to defeat a proposed takeover of
the Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the
market price of the Common Stock. Management of the Company is not aware of any
such threatened transaction to obtain control of the Company.
13
17
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Shareholders,
or by their transferees. No underwriting arrangements have been entered into by
the Selling Shareholders. The distribution of the Shares by the Selling
Shareholders may be effected in one or more transactions that may take place on
the over the counter market, including ordinary brokers transactions, privately
negotiated transactions or through sales to one or more dealers for resale of
the Shares as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Shareholders in connection with such sales. The Selling
Shareholders and intermediaries through whom such Shares are sold may be deemed
"underwriters" with in the meaning of the Act, with respect to the Shares
offered.
REPORTS TO SHAREHOLDERS
The Company distributes annual reports to its stockholders, including
financial statements examined and reported on by independent public
accountants, and will provide such other reports as management may deem
necessary or appropriate to keep stockholders informed of the Company's
operations.
LEGAL MATTERS
The legality of the offering of the Shares will be passed upon for the
Company by Goldstein, Axelrod & DiGioia, 369 Lexington Avenue, New York, New
York 10017.
EXPERTS
The financial statements of the Company as of September 30, 1994 and
for the fiscal year ended September 30, 1993 have been included in the
Company's Form 10-K for the fiscal year ended September 30, 1994, and
incorporated herein and in the Registration Statement by reference, in reliance
upon the report of Arthur Andersen LLP, independent public accountants,
appearing in the Form 10-K, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements and schedules of the Company as of and for
the fiscal year ended September 30, 1992 have been included in the Company's
Form 10-K for the fiscal year ended September 30, 1994, and incorporated herein
and in the Registration Statement by reference, in reliance upon the report of
M.R. Weiser & Co. LLP, independent public accountants, appearing in the Form
10-K, and upon the authority of said firm as experts in accounting and
auditing.
14
18
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Act with the
Securities and Exchange Commission (the "Commission"), with respect to the
securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement. For further
information with respect to the Company and such securities, reference is made
to the Registration Statement and to the exhibits and schedules filed
therewith. Each statement made in this Prospectus referring to a document
filed as an exhibit to the Registration Statement is qualified by reference to
the exhibit for a complete statement of its terms and conditions. The
Registration Statement, including exhibits thereto, may be inspected without
charge to anyone at the office of the Commission, and copies of all or any part
thereof may be obtained from the Commission's principal office in Washington,
D.C. upon payment of the Commission's charge for copying.
15
19
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the issuance and distribution of the
securities being registered herein are estimated.
Amount
------
Securities and Exchange Commission
Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,850
Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Transfer Agent and Registrar Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Miscellaneous Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,150
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws require the Company to indemnify, to the full
extent authorized by Section 14A:3-5 of the New Jersey Business Corporation
Act, any person with respect to any civil, criminal, administrative or
investigative action or proceeding instituted or threatened by reason of the
fact that he, his testator or intestate is or was a director, officer or
employee of the Company or any predecessor of the Company is or was serving at
the request of the Company or a predecessor of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
Section 14A:3-5 of the New Jersey Business Corporation Act authorized
the indemnification of directors and officers against liability incurred by
reason of being a director or officer and against expenses (including attorneys
fees) in connection with defending any action seeking to establish such
liability, in the case of third-party claims, if the officer or director acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and if such officer or director shall not
have been adjudged liable for negligence or misconduct, unless a court
otherwise determines. Indemnification is also authorized with respect to any
criminal action or proceeding where the officer or director had no reasonable
cause to believe his conduct was unlawful.
II-1
20
In accordance with Section 14A:2-7 of the New Jersey Business
Corporation Act, the Company's Certificate of Incorporation eliminates the
personal liability of officers and directors to the Company and to stockholders
for monetary damage for violation of a director's duty owed to the Company or
its Shareholders, under certain circumstances.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in such Act and is
therefore unenforceable.
ITEM 16. EXHIBITS
The exhibits designated with an asterisk (*) are filed herewith
and those designated with two asterisks (**) were previously filed.. All other
exhibits have been previously filed with the Commission and, pursuant to 17
C.F.R. Secs. 201.24 and 240.12b-32, are incorporated by reference to the
document referenced in brackets following the descriptions of such exhibits.
Exhibit
No. Description
------- -----------
2.1 Asset Purchase Agreement, dated September 1, 1994, as amended, between DSI Staff ConnXions, Inc., Digital
Solutions, Inc. and M & B Staff Management, Inc.
2.2 Asset Purchase Agreement dated November 21, 1994, by and among Registrant, Staff-RX, Inc., RADS Radiography, Inc.,
Skillmaster Management, Inc., Relief Services, Inc., DSI Staff-Rx, Inc. and DSI Contract Staffing, Inc. (Exhibit
2.2 to Form 8-K dated November 21, 1994).
2.3 Asset Purchase Agreement between DSI Staff ConnXions-Southwest, Inc. and The Alternative Source, Inc. (Exhibit 2.1
to Form 8K dated February 3, 1994).
2.4 Stock Purchase Agreement between MLB Medical Staffing, Inc. and DSI Contract Staffing, Inc., and Digital Solutions,
Inc. with DBRM Investment Corporation and Rick A. McMinn (Exhibit 2.2 to Form 8K dated February 3, 1994).
2.5 Stock Purchase Agreement of RAM Technical Services, Inc., DSI Contract Staffing, Inc. and Digital Solutions, Inc.
with Rick A. McMinn (Exhibit 2.3 to Form 8K dated Febraury 3, 1994).
4 Form of Common Stock Purchase Warrant (Exhibit 10.9.1 to Form 10-K for fiscal year ended September 30, 1991).
5* Opinion of Goldstein, Axelrod & DiGioia.
II-2
21
10.1 Employment Agreements with Anthony Insalaco and Jack Safran (Exhibit l0.l to Form 8-K dated March 2l, l990).
10.2 Employment Agreement with Donald Kappauf (Exhibit 3 to Form 8-K dated May l7, l990).
10.3 Financing Agreement with First Transcapital Corp. (Exhibit 10.3 to Form 10-K for fiscal year ended September 30,
1991).
10.4 Agreement between Registrant and First Fidelity Bank, N.A.
10.5 Agreement between Registrant and Midlantic Banks, Inc. dated October 11, 1991.
10.6 Lease dated 10/15/91 for office space at 4041-F Hadley Road, South Plainfield, New Jersey.
10.7 Employment Agreement between Karl Dieckmann and the Company dated November 1, 1991.
10.9 Form of Loan Agreement, August 1991 (Exhibit 10.9 to form 10-K for fiscal year ended September 30, 1991).
16.1 Letter from M. R. Weiser & Co. LLP changing certified accountant (Exhibit 16.1 to form 8-K/A Amendment No. 1 dated
October 25, 1993).
21 Subsidiaries (Exhibit 21 to Form 10K for fiscal year ended September 30, 1994).
23.1* Consent of M.R. Weiser & Co. LLP (included in Part II).
23.2* Consent of Arthur Andersen LLP (included in Part II).
23.3* Consent of Goldstein, Axelrod & DiGioia (contained in Exhibit 5).
99.1 Term Note in the principal amount of $1,300,000, dated October 3, 1994, of DSI Staff-RX, Inc. and Digital
Solutions, Inc. (Exhibit 99.1 to Form 8-K dated November 21, 1994).
99.2 Stock Pledge Agreement, dated October 3, 1994, among DSI Contract Staffing, Inc. and Staff-RX, Inc., Skillmaster
Management, Inc., RADS Radiography Service, Inc., and Primedical Physician Services, Inc. (Exhibit 99.2 to Form 8-K
dated November 21, 1994).
99.3 Security Agreement, dated October 3, 1994, among DSI Staff Rx, Inc. and Staff-RX, Inc., Skillmaster Management,
Inc., RADS Radiography Service, Inc., and
II-3
22
Primedical Physician Services, Inc. (Exhibit 99.3 to Form 8-K dated November 21, 1994).
99.4 Registration Rights Letter, dated November 21, 1994, among Digital Solutions, Inc. and Staff-RX, Inc., Skillmaster
Management, Inc., RADS Radiography Service, Inc., and Primedical Physician Services, Inc. (Exhibit 99.4 to Form 8-K
dated November 21, 1994).
99.5 Asset Purchase Agreement dated May 3, 1995, among Digital solutins, Inc., DSI StaffConnxions-Southwest, Inc. and
Turnkey Services, Inc. (Exhibit 2 to Form 10Q for quarter ended March 31,1995.
99.6 Amended and Restated Loan and Security Agreement dated February 27, 1995 and Promissory Note dated February 27,
1995 among the Company, its subsidiaries and United Jersey Bank (Exhibit 99 to Form 10Q for quarter ended March 31,
1995).
99.7* Promissory Note issued to Keystone Financial, Inc. in September 1995.
99.8* Security and Pledge Agreement between the Company and Keystone Financial, Inc. dated September 1995.
II-4
23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 18th day of
September, 1995.
DIGITAL SOLUTIONS, INC.
By: /s/Raymond J. Skiptunis
------------------------------------
Raymond J. Skiptunis
Chief Executive Officer,
Treasurer and Director, Chief
Financial Officer and Principal
Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below substitutes and appoints Raymond J. Skiptunis and George Eklund,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/Raymond J. Skiptunis Chief Executive Officer and September 18, 1995
----------------------- Vice-Chairman
Raymond J. Skiptunis
/s/George J. Eklund President, Chief Operating September 18, 1995
------------------------ Officer and Director
George J. Eklund
/s/Karl Dieckmann Chairman of the Board September 18, 1995
-----------------------
Karl Dieckmann
II-5
24
/s/John Ewing Director September 18, 1995
-------------------------
Senator John Ewing
/s/Steven B. Sands Director September 18, 1995
-------------------------
Steven B. Sands
/s/Kenneth Brice Chief Financial Officer and September 18, 1995
------------------------- Principal Accounting Officer
Kenneth Brice
II-6
25
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Digital Solutions, Inc. on Form S-3 of our report dated January 8, 1993 on our
audit of the consolidated statements of operations, shareholders' equity and
cash flows of Digital Solutions, Inc. for the year ended September 30, 1992,
which report is included in the Company's Annual Report on Form 10K for the
fiscal year ended September 30, 1994; such Annual Report is incorporated herein
by reference. We also consent to the reference to our firm under the caption
"Experts" in Form S-3.
We performed no audits and have issued no audit or review reports relating to
the financial statements of Digital Solutions, Inc. as at or for any period
subsequent to September 30, 1992.
/s/ M.R. WEISER & CO. LLP
--------------------------------------
M.R. WEISER & CO. LLP
Iselin, N.J.
September 18, 1995
II-7
26
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated December 7, 1994
included in Digital Solutions, Inc. Form 10-K for the year ended September 30,
1994 and to all references to our firm, included in this registration
statement.
/s/ Arthur Andersen LLP
------------------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
September 14, 1995
II-8
27
E X H I B I T S
----------------
REGISTRATION STATEMENT
ON FORM S-3
28
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
2.1 Asset Purchase Agreement, dated September 1, 1994, as amended, between DSI Staff ConnXions, Inc., Digital
Solutions, Inc. and M & B Staff Management, Inc.
2.2 Asset Purchase Agreement dated November 21, 1994, by and among Registrant, Staff-RX, Inc., RADS Radiography, Inc.,
Skillmaster Management, Inc., Relief Services, Inc., DSI Staff-Rx, Inc. and DSI Contract Staffing, Inc. (Exhibit
2.2 to Form 8-K dated November 21, 1994).
2.3 Asset Purchase Agreement between DSI Staff ConnXions-Southwest, Inc. and The Alternative Source, Inc. (Exhibit 2.1
to Form 8K dated February 3, 1994).
2.4 Stock Purchase Agreement between MLB Medical Staffing, Inc. and DSI Contract Staffing, Inc., and Digital Solutions,
Inc. with DBRM Investment Corporation and Rick A. McMinn (Exhibit 2.2 to Form 8K dated February 3, 1994).
2.5 Stock Purchase Agreement of RAM Technical Services, Inc., DSI Contract Staffing, Inc. and Digital Solutions, Inc.
with Rick A. McMinn (Exhibit 2.3 to Form 8K dated Febraury 3, 1994).
4 Form of Common Stock Purchase Warrant (Exhibit 10.9.1 to Form 10-K for fiscal year ended September 30, 1991).
5* Opinion of Goldstein, Axelrod & DiGioia.
10.1 Employment Agreements with Anthony Insalaco and Jack Safran (Exhibit l0.l to Form 8-K dated March 2l, l990).
10.2 Employment Agreement with Donald Kappauf (Exhibit 3 to Form 8-K dated May l7, l990).
10.3 Financing Agreement with First Transcapital Corp. (Exhibit 10.3 to Form 10-K for fiscal year ended September 30,
1991).
10.4 Agreement between Registrant and First Fidelity Bank, N.A.
10.5 Agreement between Registrant and Midlantic Banks, Inc. dated October 11, 1991.
10.6 Lease dated 10/15/91 for office space at 4041-F Hadley Road, South Plainfield, New Jersey.
10.7 Employment Agreement between Karl Dieckmann and the Company dated November 1, 1991.
10.9 Form of Loan Agreement, August 1991 (Exhibit 10.9 to form 10-K for fiscal year ended September 30, 1991).
29
16.1 Letter from M. R. Weiser & Co. LLP changing certified accountant (Exhibit 16.1 to form 8-K/A Amendment No. 1 dated
October 25, 1993).
21 Subsidiaries (Exhibit 21 to Form 10K for fiscal year ended September 30, 1994).
23.1* Consent of M.R. Weiser & Co. LLP (included in Part II).
23.2* Consent of Arthur Andersen LLP (included in Part II).
23.3* Consent of Goldstein, Axelrod & DiGioia (contained in Exhibit 5).
99.1 Term Note in the principal amount of $1,300,000, dated October 3, 1994, of DSI Staff-RX, Inc. and Digital
Solutions, Inc. (Exhibit 99.1 to Form 8-K dated November 21, 1994).
99.2 Stock Pledge Agreement, dated October 3, 1994, among DSI Contract Staffing, Inc. and Staff-RX, Inc., Skillmaster
Management, Inc., RADS Radiography Service, Inc., and Primedical Physician Services, Inc. (Exhibit 99.2 to Form 8-K
dated November 21, 1994).
99.3 Security Agreement, dated October 3, 1994, among DSI Staff Rx, Inc. and Staff-RX, Inc., Skillmaster Management,
Inc., RADS Radiography Service, Inc., and Primedical Physician Services, Inc. (Exhibit 99.3 to Form 8-K dated
November 21, 1994).
99.4 Registration Rights Letter, dated November 21, 1994, among Digital Solutions, Inc. and Staff-RX, Inc., Skillmaster
Management, Inc., RADS Radiography Service, Inc., and Primedical Physician Services, Inc. (Exhibit 99.4 to Form 8-K
dated November 21, 1994).
99.5 Asset Purchase Agreement dated May 3, 1995, among Digital solutins, Inc., DSI StaffConnxions-Southwest, Inc. and
Turnkey Services, Inc. (Exhibit 2 to Form 10Q for quarter ended March 31,1995.
99.6 Amended and Restated Loan and Security Agreement dated February 27, 1995 and Promissory Note dated February 27,
1995 among the Company, its subsidiaries and United Jersey Bank (Exhibit 99 to Form 10Q for quarter ended March 31,
1995).
99.7* Promissory Note issued to Keystone Financial, Inc. in September 1995.
99.8* Security and Pledge Agreement between the Company and Keystone Financial, Inc. dated September 1995.
1
EXHIBIT 5
2
Letterhead of:
GOLDSTEIN, AXELROD & DiGIOIA
369 Lexington Avenue
New York, New York 10017
Telephone: (212) 599-3322
Telecopier: (212) 557-0295
September 19, 1995
Digital Solutions, Inc.
4041-F Hadley Road
South Plainfield, New Jersey 07080
Re: Digital Solutions, Inc.
Registration Statement on Form S-3
Dear Sir/Madam:
We have acted as counsel to Digital Solutions, Inc., a New Jersey
corporation (the "Company"), in connection with a certain Registration
Statement on Form S-3 filed by the Company with the Securities and Exchange
Commission on September 19, 1995 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"). The Registration Statement has
been filed for the purpose of registering the following securities for offer
and sale under the Act:
7,500,000 shares of Common Stock, $.001 par value (the "Shares"),
issued to Keystone Financial, Inc. (the "Lenders") as collateral for the loan
to the Company of up to $3,000,000 pursuant to a certain Security and Pledge
Agreement (the "Pledge Agreement")
In connection with this opinion, we have examined a copy of (i) the
Company's Certificate of Incorporation as amended; (ii) Bylaws; (iii) the
Pledge Agreement; and (iv) such documents and corporate records as we have
deemed necessary solely for the purpose of rendering this opinion. On the
basis of such examination, we are of the opinion that:
3
Digital Solutions, Inc.
September 19, 1995
Page 2
1. The Company is a corporation duly organized and
validly existing and in good standing under the laws of the State of New
Jersey with corporate power to conduct the business which it conducts as
described in the Registration Statement.
2. The Company has an authorized capitalization
consisting of 40,000,000 shares of Common Stock, $.001 par value per share, and
5,000,000 shares of Preferred Stock, $.10 par value per share.
3. All of the Shares have been duly authorized and
upon delivery in accordance with the Pledge Agreement, will be validly issued,
fully paid for and non-assessable with no personal liability attached.
We hereby consent to the use of this opinion as an
exhibit to the Registration Statement and to the reference to our firm under
the caption "Legal Opinions" in the Prospectus forming a part of the
Registration Statement.
Very truly yours,
/s/ Goldstein, Axelrod & DiGioia
GOLDSTEIN, AXELROD & DiGIOIA
1
EXHIBIT 99.7
2
PROMISSORY NOTE
---------------
($3,000,000.00)
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, the
undersigned, Digital Solutions, Inc ("Borrower"), hereby promises to pay to the
order of Keystone Financial, Inc., a Delaware corporation ("Lender"), at 131 E.
Columbia Avenue, Suite 114, Battle Creek, Michigan 49015, or at such other
place as Lender may designate in writing, the principal sum of up to
$3,000,000.00, together with interest on such sum as set forth below.
The unpaid principal balances outstanding under this Note shall bear
interest at New York Prime as quoted in the Wall Street Journal under "Money
Rates" but in no event less than nine percent (9%) per annum, adjusted on the
first of the month following a change in the Prime Rate. Interest shall be
computed on a daily basis using a year of 360 days and assessed for the actual
number of days elapsed. Interest shall be payable monthly, in arrears,
commencing _______________, 1995, and on the 1st day of each month thereafter
until maturity, when all principal, accrued interest and other sums outstanding
under this note shall be due and payable in full. One month's interest shall be
prepaid at closing, to be applied to the last month's interest. This Note shall
mature and shall be due and payable in full upon the expiration of 24 months
from the date of this Note.
All installments, when received, shall be applied on interest then due and
the balance, if any, on principal. In the event that any installment shall be
overdue for a period in excess of seven (7) days, a late charge of four ($0.04)
cents for each One ($1.00) Dollar so overdue may be charged by the holder of
this Note for the purpose of defraying the expense incident to handling such
delinquent payment, and such charge shall be in addition to and not in lieu of
reasonable fees and charges of any agents or attorneys which the holder is
entitled to employ in the event of any default hereunder.
This Note may be prepaid in full or in part at any time without payment of
any penalty. No partial pre-payments shall affect the obligation of the
Borrower to continue to make regular payments required hereunder.
Any payment made by Borrower by mail will be deemed tendered and received
only upon actual receipt by Lender. All payments must be made promptly on the
due date for each payment as required herein, time being of the essence.
Borrower hereby expressly assumes all risk of loss or liability resulting from
non-delivery or delay in delivery of any payment transmitted by mail or in any
other manner.
No delay or failure of Lender in exercising any right, remedy, power or
priviledge under this Note of pursuant to any applicable law shall be deemed to
constitute a course of conduct inconsistent with Lender's right at any time,
before or after any default hereunder, to demand strict adherence to the terms
of this Note.
In the event that Borrower shall become in default hereunder, which
default shall continue for seven (7) days after notice to borrower, the entire
unpaid principal balance and all accrued interest under this Note shall become
immediately due and payable together with (to the extent permitted under
applicable law) the costs and attorney fees incurred by Lender in collecting or
enforcing payment.
3
Digital Solutions, Inc/Keystone Financial, Inc.
Promissory Note, Page 2 of 3
$3,000,000.00 Loan
Borrower hereby waives presentation for payment, demand, notice of
non-payment, notice of protest and protest of this Note and diligence in
collecting or bringing suit. The liability of Borrower shall be absolute and
unconditional without regard to the liability of any other parties hereto.
The Note is secured by a certain Security and Pledge Agreement executed by
Borrower on the date hereof, as the same may be amended, modified or altered
from time to time. If the value of the collateral which is the subject of such
Security and Pledge Agreement falls in value such that it no longer provides
the lender a market value ratio of fifty percent (50%) loan to market value or
greater, the borrower agrees to provide additional collateral to Lender
sufficient to maintain a market value ratio of fifty percent (50%) loan to
market value or greater. Such additional collateral will be delivered to Lender
within seven (7) days from the date of its written request for same in
accordance with Paragraph 12 of the Security and Pledge Agreement.
Subordination of Indebtedness: This note is a junior (until the occurrence
of an event of default) general obligation of the Company and is fully
subordinated to all "senior indebtedness" of the Company now existing or
hereafter incurred. Senior indebtedness is all indebtedness, liabilities and
obligations of the Company for money borrowed from banks, savings and loan
associations, the Small Business Administration and other financial
institutions, and their affiliates, and any deferrals, renewals or extensions
of any such senior indebtedness and notes or other instruments or evidences of
indebtedness issued in respect of or in exchange for any such senior
indebtedness or any funding to pay or replace any such senior indebtedness or
credit including all indebtedness of the Company to United Jersey Bank unless
in the instrument creating or evidencing the same, or pursuant to which it is
outstanding, it is provided that such indebtedness or such deferral, renewal or
extension thereof is not senior in right of payment to this Note. No payment or
distribution of any kind or character on account of principal due under the
loan agreement, shall be made by the Company to the Note Holder without the
written consent of United Jersey Bank, which will not be unreasonably withheld,
except that nothing contained herein shall impair the right of the Note Holder
to exercise its right to convert the Note into shares of Digital Common Stock
pursuant to the terms of the Note and the Loan Agreement, with such Note being
deemed paid to the extent of such conversation. No payment or distribution of
any kind or character on account of interest on this Note shall be permitted
during the continuance of any default in the payment of principal, premium, if
any, or interest on any senior indebtedness, except to the extent of Lender's
rights against the share of Digital Common Stock as set forth in the loan
documents.
4
Digital Solutions, Inc./Keystone Financial, Inc.
Promissory Note. Page 3 of 3
$3,000,000.00 Loan
This Note and the liability of all parties under this Note shall be
governed by the laws of the State of Michigan, where this Note has been
delivered for value.
WITNESS: BORROWER:
/s/ Marilyn Mosel Digital Solutions, Inc.
-----------------------------------
----------------------------------- By: /s/ Raymond Skiptunis
---------------------------------
Raymond Skiptunis, Vice Chairman
Address: 4041-F Hadley Road
South Plainfield, NJ 07080
LENDER:
/s/ Martha Jar
----------------------------------- Keystone Financial, Inc.
----------------------------------- By: /s/ Jacqueline T. Johnson
-------------------------------------
Jacqueline T. Johnson
Address: 131 E. Columbia Avenue
Suite 114
Battle Creek, MI 49015
STATE OF NEW YORK )
)SS.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 14th day of
------
September 1995, by Raymond Skiptunis .
----------- ---------------------
/s/ Victor J. DiGiola
-------------------------------------
Victor J. DiGiola
Notary Public State of New York
No. 31-4764366
Qualified in New York County
Commission Expires June 30, 1996
1
EXHIBIT 99.8
2
SECURITY AND PLEDGE AGREEMENT
($3,000,000.00)
Agreement made this _______ day of _____________, 1995, by and between
Digital Solutions, Inc., the undersigned ("Pledgor") and Keystone Financial,
Inc., a Delaware corporation ("Lender").
WHEREAS, Lender is about to make a certain loan to Pledgor in the
principal amount of up to $3,000,000.00 pursuant to the terms and provisions as
contained in a certain Promissory Note executed by Pledgor, the terms of which
are incorporated herein by reference the Promissory Note (the "Promissory
Note"); and
WHEREAS, to induce Lender to make the loan, Lender has required, and
Pledgor has agreed, to pledge certain stock owned by him as security for the
repayment of the loan, upon the terms and conditions hereinafter set forth.
NOW THEREFORE, Pledgor and Lender agree as follows:
1. PLEDGE. In consideration of the sum of money loaned to Pledgor by
Lender, the receipt of which is hereby acknowledged, Pledgor hereby assigns all
of his right, title and interest and grants a security interest in and to
Lender, in and to 3,000,000 free trading shares of Digital Solutions, Inc.
(DGSI) which shares will be duly authorized, endorsed and herewith
electronically transferred to Lender by DTC or ACAT. Pledgor appoints Lender as
his attorney-in-fact to arrange for the transfer of the pledged shares as
security for the repayment of the loan and shall not encumber the shares except
in accordance with the provisions of this Agreement.
2. DIVIDENDS. During the term of this Agreement, all dividends received
by Lender will be released to the Pledgor unless this loan is in default.
3. VOTING RIGHTS. During the term of this pledge, and so long as Pledgor
is not in default in the performance of any of the terms of this Agreement or
in their obligations in the Promissory Note executed by him, Pledgor shall have
the right to vote the pledged shares on all corporate questions, and Lender
shall execute due and timely proxies in favor of Pledgor to this end.
4. REPRESENTATIONS. Pledgor warrants and represents that there are no
restrictions upon the transfer of any of the pledged shares, and that Pledgor
has the right to transfer such shares free of any encumbrances and without
obtaining the consent of any other person or entity. In addition, Pledgor
hereby warrants and represents and covenants to Lender that, as of the date of
this Agreement, the fair salable value of Pledgor's assets exceeds his
liabilities, that he is meeting his current liabilities as they mature, that
all financial statements of Pledgor furnished to Lender are true and correct
and include reference to all contingent liabilities of Pledgor, since the date
of said financial statements there has been no material adverse change in the
financial conditions of Pledgor, that there are not now pending any material
court or administrative proceedings or undischarged judgments against Pledgor
and no federal or state tax liens have been
3
Digital Solutions Inc./Keystone
Security & Pledge Agreement, page 2 of 4
$3,000,000 Loan
filed or threatened against Pledgor, nor is Pledgor in default or claimed
default under any agreement for borrowed money, which will not be cured by
payment from the proceeds of the loan executed by Pledgor on the date hereof.
5. WARRANTS AND RIGHTS. In the event that, during the term of this
Agreement, subscription warrants or any other rights or options shall be issued
in connection with the pledged shares, such warrants, rights and options shall
be immediately assigned by Lendor to Pledgor, and if exercised by Pledgor, all
new shares or other securities so acquired by Pledgor shall be immediately
assigned to Lender, to be held under the terms of this Agreement in the same
manner as the shares originally pledged hereunder.
6. PROPERTY. Any property belonging to Pledgor or in which Pledgor has
an interest, either individually or jointly with others, held by Lender or any
of its subsidiaries or affiliates or carried in any accounts shall be subject
to a general lien and security interest for the discharge of Pledgor's
obligations to Lender, wherever or however arising and without regard to
whether or not Lender has made advances with respect to such property, and
Lender is hereby authorized to sell and/or purchase any and all such property
without notice to satisfy such general lien and security interest. Pledgor
irrevocably appoints Lender as his attorney-in-fact with power of substitution
to execute any documents for the perfection or registration of such general
liens and security interest.
7. MANAGEMENT OF PROPERTY. In the event that Pledgor fails to deposit
sufficient funds to satisfy any demands, or whenever in Lender's sole and
absolute discretion Lender considers it necessary, Lender may, without prior
demand or notice, when and if Lender deems appropriate, notwithstanding any
rule of any exchange, liquidate the portions in Pledgor's account(s), hedge
and/or affect those positions in the cash market or otherwise, sell any
property belonging to Pledgor's or in which Pledgor has any interest, cancel
any open orders for the purchase and sale of any property, or borrow or buy any
property, or borrow or buy any property required to make delivery against any
sale, including a short sale. Such sale or purchase may be public or private
and may be made without advertising or notice to Pledgors and in such manner as
Lender may, in Lender's sole and absolute discretion, determine, and no
demands, tenders or notices which Lender may make or give shall invalidate
Pledgor's aforesaid waiver. The proceeds of such transaction, if any are to be
applied to reduce any indebtedness owing by Pledgor to Lender.
Notwithstanding the foregoing, the Lender shall not sell or otherwise
liquidate any property belonging to the Pledgor unless (i) Pledgor defaults, as
defined in the Promissory Note and Security and Pledge Agreement and fails to
cure such default within the applicable cure period; or (ii) the aggregate
market value of the pledged property is below 60% of the outstanding balance of
the loan. In the event Lender takes action in accordance with (ii) of the
previous sentence, Lender shall simultaneously give Pledgor notice of such
action. Pledgor shall be entitled, at any time and at its option, to pledge
additional property, which additional property shall be added to the previously
pledge property when computing the loan to value ratio.
8. ACCOUNT LOSSES. Pledgor acknowledges that Pledgor shall be liable
for all losses in Pledgor's account(s) whether or not Pledgor's account(s) are
liquidated and for any debts and
4
Digital Solutions, Inc./Keystone
Security & Pledge Agreement, Page 3 of 4
3,000,000 Loan
deficiencies, including, but not limited to, interest, costs, expenses and
attorney's fees, including all debts and deficiencies resulting from a
liquidation of Pledgor's account(s).
9. DELIVERY OF PROPERTY. Pledgor acknowledges that Lender is hereby
specifically authorized for Lender's account(s) and benefit, from time to time
and without notice to Pledgor, either separately or with others, to lend,
pledge, repledge and hypothecate any and all property held by Lender in any of
Pledgor's account(s) and Lender shall not at any time be required to deliver
to Pledgor such identical property, but may fulfill Lender's obligations to
Pledgor by delivery of property of the same kind and amount.
10. LOAN FEE. Pledgor hereby agrees to pay (unless heretofore paid by
Pledgor) to Lender a loan fee for making the loan available in the amount of
$120,000.00 due and payable on or before the funding of the loan. There will be
an annual fee of $30,000.00 for the maintenance and continuation of this loan.
11. PAYMENT OF LOAN. Upon payment at or after maturity of all principal
and interest of the loan, and loan fees, less amounts theretofore received and
applied by Lender in reduction thereof, Lender shall transfer to Pledgor all of
the pledged shares, or property of the same kind and amount, and all rights
received by Lender as a result of its record ownership thereof.
12. DEFAULT. In the event that Pledgor defaults in the performance of
any of the terms of this Agreement, or if in the performance of any of his
obligation under the Promissory Note executed by him, which default shall
continue for seven (7) days after notice to borrower, Lender shall have the
rights and remedies provided in the Uniform Commercial Code in force in the
State of Michigan as of the date of this Agreement and, in connection
therewith, Lender may, upon seven (7) days advance written notice to Pledgor,
Pledgor's Bank (United Jersey Bank, Raitan Plaza II, Fieldcrest Avenue, Edison,
New Jersey 08837), and Pledgor's Attorney, Victor J. DiGioia, Esq., Goldstein,
Axelrod & DiGioia, 369 Lexington Avenue, New York, New York 10017, sent by
certified mail return receipt requested, and without liability for any
diminution in price which may have occurred, sell all of the pledged shares in
such manner and for such price as Lender may determine, at any bona fide public
sale, and Lender shall be free to purchase all or any part of the pledged
shares at such sale. Out of the proceeds of any sale, Lender may retain an
amount equal to the principal and interest then due on the loan, plus the
expenses of sale, including reasonable attorney's fees, plus any loan fees and
accrued interest and shall pay any balance of such proceeds to Pledgor.
13. WAIVER. No waiver or indulgence of Lender in enforcing the terms of
this Agreement shall be considered a waiver of future performance of this
Agreement in strict accordance with its terms, and Lender shall not be required
to give Pledgor notice of its intent to enforce such terms in the future.
14. ARBITRATION. Any dispute or controversy arising out of or relating
to this agreement shall be determined and settled by arbitration in the City of
Battle Creek, Michigan, in accordance with the Rules of the American
Arbitration Association then in effect.
5
Digital Solutions, Inc./Keystone
Security & Pledge Agreement, Page 4 of 4
$3,000,000 Loan
15. LENDER'S RIGHT TO ASSIGN. Lender shall have the right to
assign, sell or transfer this security agreement and the accompanying
promissory note without prior notice or consent of Pledgor.
16. BINDING EFFECT/APPLICABLE LAW. This agreement shall be binding
upon the parties hereto and their respective heirs, successors and assigns. The
terms and provisions hereof shall be governed and construed in accordance with
the laws of the State of Michigan.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first above written.
WITNESS: PLEDGORS:
/s/ Marilyn Mosel Digital Solutions, Inc.
---------------------------------
By: /s/ Raymond Skiptunis
--------------------------------- ------------------------------------
Raymond Skiptunis, Vice Chairman
Address: 4041-F Hadley Road
South Plainfield, NJ 07080
LENDER:
/s/ Martha Jar
--------------------------------- Keystone Financial, Inc.
--------------------------------- By: /s/ Jacqueline T. Johnson
------------------------------------
Jacqueline T. Johnson
Address: 131 E. Columbia Avenue
Suite 114
Battle Creek, MI 49015
STATE OF New York )
)SS.
COUNTY OF New York )
The foregoing instrument was acknowledged before me this 14th day of
September, 1995 by Raymond J. Skiptunis.
---------- ---------------------
/s/ Victor J. DiGiola
----------------------------------------
Notary Public, State of New York
No. 31-476368
Qualified in New York County
Commission Expires June 30, 1996
