<PAGE> 1
Registration No. 33-62767
As filed with the Securities and Exchange Commission on November 3, 1995.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
DIGITAL SOLUTIONS, INC.
(Exact name of Registrant as specified in charter)
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New Jersey 22-1899798
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
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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. / /
<PAGE> 2
CALCULATION OF REGISTRATION FEE
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==================================================================================================================================
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
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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.
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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
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Item Number and Heading Caption in Prospectus
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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 November , 1995
<PAGE> 5
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.
2
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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
3
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Road, South Plainfield, New Jersey 07080 where its telephone number is (908)
561-1200.
4
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THE OFFERING
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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
</TABLE>
(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, and (v) up to approximately 1,428,571 shares of Common Stock
reserved for issuance upon conversion of outstanding promissory notes,
assuming a $2.00 bid price of the Company's Common Stock.
5
<PAGE> 9
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. However, due to fourth quarter
charges of approximately $2,800,000, the Company projects a net loss for the
fiscal year ended September 30, 1995. 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
7
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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
8
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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.
LNB INVESTMENT CORPORATION LOAN
In October 1995, the Company entered into a Note and Finance Agreement
with LNB Investment Corporation ("LNB") providing for the loan to the Company of
up to $3,000,000 at an annual interest rate equal to the greater of 9.875% or
prime plus 1%. The loan is due 15 months after issuance and is secured by
shares of the Company's Common Stock having a market value of no less than four
times the outstanding balance of the loan. LNB 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
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PERCENTAGE OF
SHARES SHARES OWNED SHARES
BENEFICIALLY AFTER OWNED AFTER
NAME AND ADDRESS OF OWNED PRIOR TO SHARES OFFERED OFFERING OFFERING
SECURITY HOLDER OFFERING
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Keystone Financial, Inc.(1) . . . . . . . . 7,500,000 7,500,000 0 0
==================================================================================================================================
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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.
12
<PAGE> 16
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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
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
=======
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
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.
</TABLE>
II-2
<PAGE> 21
<TABLE>
<S> <C>
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.
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
</TABLE>
II-3
<PAGE> 22
<TABLE>
<S> <C>
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 Solutions, 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 LNB Investment Corporation, Inc. in October 1995.
99.8* Finance Agreement between the Company and LNB Investment Corporation, Inc. dated October 1995.
</TABLE>
II-4
<PAGE> 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 3rd day of
November, 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
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:
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/Raymond J. Skiptunis Chief Executive Officer and November 3, 1995
- ----------------------- Vice-Chairman
Raymond J. Skiptunis
/s/ * President, Chief Operating November 3, 1995
- ------------------------ Officer and Director
George J. Eklund
/s/ * Chairman of the Board November 3, 1995
- -----------------------
Karl Dieckmann
</TABLE>
II-5
<PAGE> 24
<TABLE>
<S> <C> <C>
/s/ * Director November 3, 1995
- -------------------------
Senator John Ewing
/s/ * Director November 3, 1995
- -------------------------
Steven B. Sands
/s/ * Chief Financial Officer and November 3, 1995
- ------------------------- Principal Accounting Officer
Kenneth Brice
*/s/ Raymond J. Skiptunis Attorney in Fact November 3, 1995
------------------------
Raymond J. Skiptunis
</TABLE>
II-6
<PAGE> 25
E X H I B I T S
----------------
REGISTRATION STATEMENT
ON FORM S-3
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
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.
10.4** 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.
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).
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
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 Solutions, 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 LNB Investment Corporation, Inc. in October 1995.
99.8* Finance Agreement between the Company and LNB Investment Corporation, Inc. dated October 1995.
</TABLE>
______________
*Filed herewith
**Previously filed
<PAGE> 1
EXHIBIT 5
Letterhead of:
GOLDSTEIN, AXELROD & DiGIOIA
369 Lexington Avenue
New York, New York 10017
Telephone: (212) 599-3322
Telecopier: (212) 557-0295
November 3, 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
November 3, 1995 (the "Registration Statement") under the Securities Act of
l933, 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"),
issuable to LNB Investment Corporation (the "Lenders") as collateral for the
loan to the Company of up to $3,000,000 pursuant to a certain Finance 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:
<PAGE> 2
Digital Solutions, Inc.
November 3, 1995
Page 2
l. 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, $.00l par value per share, and
5,000,000 shares of Preferred Stock, $.l0 par value per share.
3. All of the Shares have been duly authorized and
upon delivery and sale in accordance with the Finance 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
<PAGE> 1
EXHIBIT 99.7
[LNB Investment Corp LOGO]
===============================================================================
PROMISSORY NOTE
===============================================================================
PN DGSI/LNB 101
page one of three
1,000,000.00 Loan
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, the
undersigned Digital Solutions, Inc. ("Borrower"), hereby promises to pay to the
order of LNB Investment Corporation ("Lender") at 200 Lake Drive East, Suite
206, Cherry Hill, New Jersey 08002, or at such other place as Lender may
designate in writing, the principal sum of $1,000,000.00, together with interest
on such sum as set forth below.
The unpaid principal balances outstanding under this Note shall bear a
minimum interest at nine and seven eighths percent (9.875%) per annum initially.
The rate will be adjusted every five (5) months, based on the Prime Index plus
one percent (1%) as listed in the daily Wall Street Journal. 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 paid monthly, in arrears, commencing
on the date of funding, and on the due date of this Note fifteen months after
funding, when all principal, and other sums outstanding under this note shall be
due and payable in full. A 3% origination fee shall be prepaid at closing. The
principal balance of this note shall be due and payable quarterly (every ninety
(90) days from the date entered above) in the amount of seventy thousand
($70,000.00) USD with a balloon payment, for the final quarter of the term, in
the amount of seven hundred twenty thousand ($720,000.00) USD.
This Note may be prepaid in full or in part after the first thirty (30)
days without payment of any penalty. No partial pre-payments shall effect
the obligation of the Borrower.
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
privilege under this Note or pursuant to any applicable law shall be deemed to
constitute a course of conduct inconsistent with Lender's right at any time,
before or any default thereunder, to demand strict adherence to the terms of
this Note.
In the event that Borrower shall become in default thereunder, which
default shall continue for seven (7) days after written notice thereof from
Lender to Borrower specifying the default, 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.
Borrower /s/ GJE Lender /s/ BRG
------------- ------------
10/24/95
<PAGE> 2
[LNB INVESTMENT CORP LOGO]
================================================================================
PROMISSORY NOTE
================================================================================
PN-DGSI/LNB 101
page two of three
1,000,000.00 Loan
The 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 ability of any other parties hereto.
The Note is secured by certain Securities and a Finance Agreement
DGSI/LNB 101) executed by the 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 Finance Agreement falls in value,
(see Article III-3.1, 3.2, 3.3, 3.5 of the Finance Agreement) the Borrower
agrees to provide additional collateral to the Lender. Such additional
collateral will be delivered to the Lender within five (5) business days from
the date of its written request for same.
The note is a junior general obligation of the Company and is fully subordinate
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 such 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, its successors or assigns, 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 of 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, its successors or assigns, which will not be
unreasonably withheld, (it being understood that it would not be unreasonable
for United Jersey Bank to withhold such consent if any event of default has
occurred and is continuing with respect to the senior indebtedness), except that
nothing contained herein shall impair the right of the Note Holder to exercise
its right to sell the shares of Digital Common Stock pledged as collateral for
this Note pursuant to the terms of the Note and the Loan Agreement, with such
Note being deemed paid to the extent of such sale. No payment or distribution of
any kind or character on account or interest on this Note shall be permitted
during the continuance of any default within the meaning of any document or
instrument evidencing or securing the senior indebtedness.
Although LNB agrees to subordinate to all other senior debt, it is agreed and
understood LNB is to be the senior debtor in regards to the pledged collateral
shares.
Borrower /s/ GJE Lender /s/ BRG
---------- -----------
10/24/95
<PAGE> 3
[LNB INVESTMENT CORP. LOGO]
===============================================================================
PROMISSORY NOTE
===============================================================================
PN DGSI/LNB 101
page three of three
1,000,000.00 Loan
Upon tender of payment in full of all principal, interest and fees the
Lender shall return this original Promissory Note noted paid in full.
This Note and the liability of all parties under this Note shall be
governed by the laws of the State of New Jersey, where this note has been
delivered for value.
BORROWER:
DIGITAL SOLUTIONS, INCORPORATED
by: GEORGE J. EKLUND
---------------------------
George J. Eklund, President
October 24, 1995
STATE OF NEW JERSEY
COUNTY OF MIDDLESEX
On the 24th day of October, 1995, before me personally came, George J.
Eklund to me known, who, being by me duly sworn, did depose and say that the
corporation described in and which executed the foregoing instrument; and
the s(he) signed his/her name thereto by order of the board of directors of
said corporation.
/s/ MARILYN FLOREZ MOSEL
- ---------------------------------
Notary Public of New Jersey
MY COMMISSION EXPIRES AUG. 3, 1999
- -------------------------------------------------------------------------------
LENDER:
LNB INVESTMENT CORPORATION
by: BRUCE R. GOLDMAN
---------------------------
Bruce R. Goldman, President
STATE OF NEW JERSEY )
) ss.
COUNTY OF CAMDEN )
The foregoing document was executed before me this 26th day of October,
1995.
/s/ PHYLLIS M. NUGENT
- -------------------------------------
Notary Public of Gloucester County
MY COMMISSION EXPIRES DECEMBER 4, 1997
- --------------------------------------
Notary Public
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EXHIBIT 99.8
[LNB INVESTMENT CORP LOGO]
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FINANCE AGREEMENT
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FA-DGSI/LNB 101
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This Agreement, entered into the date last executed, by and between LNB
Investment Corporation (hereinafter known as "Administrator") with offices at
Woodland Falls Corporate Park, 200 Lake Drive East, Suite 206, Cherry Hill, New
Jersey 08002 and Digital Solutions Inc. (hereinafter known as "Borrower") with
offices at 4041-F Hadley Road, South Plainfield, New Jersey 07080.
WITNESSETH
Whereas, the Borrower is legally entitled to pledge and/or use as collateral
five million three hundred fifty thousand (5,350,000) shares of
free-trading common Digital Solutions, Inc. stock. The approximate
market value of the collateral shares is twelve million ($12,000,000.00)
U.S. Dollars (hereinafter collectively the "Stock"), and
Whereas, the Borrower and the Administrator (hereinafter jointly known as
"Parties") are interested in collateralizing the Stock for the purpose
of obtaining financing, through third party banking sources, and
Whereas, the Parties are desirous in entering into this Agreement in
connection with said third party financing,
Whereas, the Agreement shall be in force for a period of fifteen (15) months:
Now, therefore, in consideration of the mutual covenants and representations
contained herein and intending to be legally bound the Parties hereto agree
as follows:
Article I - Purpose
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1.1 The Borrower will simultaneously execute the stock powers and Powers of
Attorney granting Bruce R. Goldman the ability to deposit the Stock
along with the execution of this Agreement.
1.2 The Administrator shall use the Stock expressly as collateral for the
funding. The Stock will be deposited with Coutts & Co., or a bank of
equivalent stature (hereinafter known as the Broker"). The Stock shall
remain on deposit with the Broker for the life of this Agreement. The
Administrator shall acquire a margin loan utilizing its existing stock
portfolio. The Broker shall bank wire the funds to the Administrator.
At the end of fifteen (15) months the Administrator shall return the
Stock free and clear of any liens and encumbrances, unless renewed.
1.3 Prior to the deposit of the Stock the Borrower shall submit certified
copies of the Stock, intended to be deposited, to the Administrator,
who will then forward the certified copies and any other required
documentation to the Broker for their review. The Borrower will be given
all necessary information to perform a verbal verification of the
transaction with the Broker.
Article II- Loan
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2.1 The Borrower shall receive a total loan in the amount of three million
($3,000,000.00) U.S. Dollars over the term of this Agreement, in three
(3) equal portions. For each one million ($1,000,000.00) USD the
Borrower shall deposit one million seven hundred eighty three thousand
three hundred thirty four (1,783,334) shares of collateral stock. The
Borrower must wait a minimum thirty (30) days before requesting the next
portion of the funding. The Borrower must make a written request fifteen
(15) business days prior to the date at which funding is desired. The
Borrower may only obtain funding during the first twelve (12) months of
this Agreement. The Borrower prior to funding will execute a Promissory
Note, for each portion of the total loan borrowed, to the Administrator.
As part of the terms of the Promissory Note the Borrower agrees to the
following terms:
a) The term shall be for a period of fifteen months - renewable.
Borrower /s/ GJE Administrator /s/ BRG
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FINANCE AGREEMENT
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FA DGSI/LNB 101
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Article II - 2.1 cont'd.
b) If the Borrower elects to renew the loan there will be a renewal fee
of two percent (2%) to be paid at the time of renewal.
c) The initial interest rate will be a minimum 9.875% annum, adjusted
every five (5) months, based on the Prime Index plus one percent
(1%) as listed in the daily Wall Street Journal. The interest will
be paid monthly in arrears.
d) A thirty (30) day restriction on loan prepayment. The Borrower may
prepay the loan at the end of the 30 day restriction with the
following conditions:
(i) All applicable terms and conditions are satisfied.
(ii) The Borrower must notify the Administrator with its
intentions and details of remuneration within five (5)
days prior to prepayment.
2.2 The Borrower shall be responsible for the principal repayment, of three
million ($3,000,000.00) USD, and interest and fees (see
Article II - 2.1.b, c,2.4), if the Borrower has exercised the entire
funding capacity of this Agreement. The Borrower shall only be
responsible for the actual principal amount borrowed, plus fees and
interest respectively (see Article II - 2.1.b,c,2.4)
2.3 The funding will be held within five (5) business days of the receipt
of Stock by the Broker.
2.4 The Borrower shall be responsible for all fees associated with the
funding. The fees based on percentages will be deducted directly from
the gross loan and distributed by the Administrator at the loan
closing. The fees will be deducted respectively from each portion of
the funding at the time of each funding. The fee schedule is as follows:
Michael E. Heitz (hereinafter "Agent") - receives one percent (1%) of
the gross loan
Administrator - receives a fee of three percent (3%) of the gross loan
- at the end of 12 months one-half percent (1/2%) of the
outstanding balance
- 25,000 warrants at the initial funding, based on the
current bid price on the day of funding
2.5 The Borrower may request a renewal of the term thirty (30) days prior
to maturity. The renewal shall cause the terms of this Agreement to
remain in full force for an additional period of fifteen (15) months.
The Borrower shall pay to the Administrator a two percent (2%) renewal
fee.
Article III - Warranties & Guarantees
3.1 The Administrator will instruct the Broker, in the event the loan is
not funded, the Broker will voluntarily return the securities to the
Borrower and additionally instruct the Broker that the Stock can not
be sold and/or traded, except in the event of a default on the loan
and/or failure to maintain the margin (as prescribed in Article
III - 2.3, 3.3). The Administrator will provide written
acknowledgement from the Broker on the above instructions.
3.2 In the event of a default on the loan the Borrower will remunerate the
entire balance of the loan, inclusive of interest and any costs
incurred by the Administrator to cure the loan default.
a) The loan will be considered in default by any number and/or
combination, but not limited to the following:
(i) principal and/or interest payments are not made in a
timely manner
(ii) failure to fund a margin call
b) In the event of default the Stock will be sold, the proceeds from
the sale of the Stock shall be applied to the outstanding amount of the loan. A
five percent (5%) penalty will be charged against the outstanding balance and
deducted from any remaining proceeds after the loan has been satisfied. After
the loan and penalties are satisfied any remaining proceeds and/or stock will
be given to the Borrower within five business days of said satisfaction.
Borrower /s/ GJE Administrator /s/ BRG
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FINANCE AGREEMENT
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FA-DGSI/LNB,101
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3.3 In the event the market value of the Stock should drop twenty-five
percent (25%), the margin is based on the market value of the Stock at
the time of funding, per share the Borrower will be notified of a
margin call. The Borrower will be required by the Broker to fund the
margin by depositing enough shares of free-trading stock as to maintain
the 25% margin maintenance level. Upon written notification the Borrower
will have five (5) business days to cover the margin call. If the
Borrower does not cover the margin in the time allotted the loan will be
considered in default, and a demand for immediate remuneration of the
full balance of the loan will be made.
3.4 The Administrator will not at any time sell or trade the Stock on
deposit, except in the event of default.
3.5 The Stock will be returned to the Borrower within five (5) business
days of the full balance of the loans repayment, inclusive of interest
and fees. The Administrator shall return the Stock free and clear of
all liens and encumberances.
3.6 The Borrower shall indemnify the Administrator against a bankruptcy
filing. The Borrower agrees this entire Agreement is bankruptcy exempt.
3.7 In the event the Administrator changes the Broker venue, the Borrower
will be notified in writing fifteen (15) days in advance.
Article IV -- Non-Circumvention -- Non-Disclosure
4.1 The Parties acknowledge in the course of the activities of this
Agreement the Parties may receive from the other party hereto certain
confidential business and technical information, without limitations.
Each party further acknowledges the information to be furnished by the
other party hereto is valuable property belonging to the disclosing
party and the improper disclosure of such information would irrevocably
damage the business and property of the circumvented party. All
Parties hereto agree to abide by the rules of non-circumvention and
non-disclosure during the period of this Finance Agreement and for
five (5) years from the termination date hereof. This covenant and
Agreement shall survive termination of this Agreement for any reason
whatsoever. That in the event of circumvention by either party, directly
or indirectly, the circumvented party shall be entitled to a legal
monetary penalty equal to the maximum service it should realize from
such transaction(s) plus all expenses, including legal, that would
involve the recovery of these funds.
Article V -- Miscellaneous
5.1 Confidentiality is an expressed term of this Agreement and all dealings
between the Parties to this Agreement. The Parties agree to keep
confidential all aspects of this Agreement, except as required by law.
5.2 The Agreement together with all Attachments and Powers of Attorney
constitutes the entire Agreement between the Parties and except as may
be expressly set forth in this Agreement, any representations,
warranties, agreements, covenants whether written or verbal, not
contained herein are null and void.
5.3 A copy of this Agreement, or any other documents executed and/or signed
by any of the Parties hereto and sent to another party hereto by
facsimile transmission (fax) carries the full force and effect as if it
were the hand delivered originals.
5.4 All questions arising thereunder and the rights of the Parties shall be
construed in accordance with the laws of the United States of America.
Borrower /s/ GJE Administrator /s/ BRG
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FINANCE AGREEMENT
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FA-DGSI/LNB.101
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5.5 In the event any provision of this Agreement is deemed unenforceable
such determination shall not affect any of the other provisions herein.
Any disputes between the Parties which remain unresolved, a resolution
will be determined by the American Arbitration Association. This
determination will be binding on all Parties.
5.6 This Agreement may not be terminated or changed orally, but only by an
instrument in writing signed by the Parties. The Parties may terminate
this Agreement if either party fails to perform in accordance with the
terms set forth in this Agreement. The party desirous in terminating
this Agreement must give notice in writing. Such notice shall state the
default and require that said party must remedy the default within five
(5) business days or this Agreement shall be terminated without
prejudice.
5.7 Each Party acknowledges that they have had adequate time and opportunity
to consult with legal and financial counsel of their choosing prior to
the execution hereof, that they fully understand the facts, commitments,
and requirements hereof, and that they, having been so advised and
informed, have executed this Agreement freely and without reservation.
In Witness Whereof, this Agreement has been executed by the Parties hereto
the last date executed below.
DIGITAL SOLUTIONS INCORPORATED
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by: /s/ Gearge J. Eklund
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Gearge J. Eklund, President 10/24/95
STATE OF New Jersey)
) ss.:
COUNTY OF Middlesex)
On the 24th day of October, 1995, before me personally came Gearge J. Eklund, to
be known, who, being by me duly sworn, did depose and say that the corporation
described in and which executed the foregoing instrument; and the s(he) signed
his/her name thereto by order of the board of directors of said corporation.
/s/ Marilyn Florez Mosel
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Notary Public of New Jersey
My commission expires Aug. 3, 1999
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LNB INVESTMENT CORPORATION
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by: /s/ Bruce R. Goldman
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Bruce R. Goldman, President
The foregoing document was executed before me this 26th day of October 1995.
PHYLLIS M. NUGENT
/s/ Phyllis M. Nugent GLOUCESTER COUNTY
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Notary Public Print Name NOTARY PUBLIC
My Commission Expires: 12-4-97
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RENEWAL AGREEMENT
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RA-DGSI/LNB, 101
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I/We____________________ do hereby formally request LNB Investment Corp. to
renew Finance Agreement documents (FA/PA-DGSI/LNB 101), account number
__________, which was originated on _______________, in the amount of
$_________.
I/We do hereby agree to the renewal fee of ___% of the gross loan amount.
I/We do hereby agree to accept the terms and conditions of the original loan
documents as one in the same for this renewal.
The interest rate will be based on the Prime Index at the time of renewal, plus
one percent, and adjusted semi annually.
IN WITNESS WHEREOF, this agreement has been executed on the dates set forth
next to the signatures below.
By: ________________________________
George J. Eklund, President
STATE OF )
) ss.:
COUNTY OF )
On the _____th day of _____________, 19 ____, before me personally came,
____________________ to me known, who, being by me duly sworn, did depose and
say that the corporation described in and which executed the foregoing
instrument; and the s(he) signed his/her name thereto by order of the board of
directors of said corporation.
_____________________________________ ____________________________________
Notary Public Print Name
My Commission Expires:
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[LNB Investment Corp]
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POWERS OF ATTORNEY
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PA-DGSI/LNB,101
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I, the undersigned, George J. Eklund, on behalf of Digital Solutions, Inc. with
full legal responsibility, confirms and declares that LNB Investment Corp.
represented by Mr. Bruce R. Goldman is fully authorized by me and on my behalf
to negotiate the necessary arrangements for the opening and managing of a stock
account with Coutts & Co., or another bank of equivalent stature, for the
deposit of 5,350,000 shares of free-trading stock. This Powers of Attorney
allows Mr. Bruce R. Goldman to manage the stock account. This Powers of
Attorney is specifically for the handling and compliance of the Finance
Agreement, between LNB Investment Corp. and Digital Solutions, Inc. concerning
the deposit of Digital Solutions, Inc. stock shares, excluding any other events
affair or transactions and goods which belong to or refer to George J. Eklund
and Digital Solutions, Inc.
This Power of Attorney does not allow the attached listed assets to be sold
and/or be traded.
This document is an operable instrument and will remain in force and effect for
one (1) year and one (1) month from the issuing date.
By: /s/George J. Eklund
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George J. Eklund, President
The foregoing instrument was acknowledged before me this 24th day of October,
1995.
/s/ Marilyn Florez Mosel
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Notary Public MARILYN FLOREZ MOSEL
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES AUG. 3, 1999
Marilyn Florez Mosel
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Notary Name
My Commission Expires: 8/3/99
