<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
DIGITAL SOLUTIONS, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Donald T. Kelly, Secretary
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
N/A
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
------------------------------------------------------------------------
(5) Total fee paid:
N/A
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
DIGITAL SOLUTIONS, INC.
300 Atrium Drive
Somerset, New Jersey 08873
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on March 18, 1998
To the Shareholders of
DIGITAL SOLUTIONS, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
DIGITAL SOLUTIONS, INC. (the "Corporation") will be held at the Somerset
Marriott, 110 Davidson Avenue, Somerset, New Jersey 08873 on March 18, 1998 at
11:00 AM New Jersey Time, for the following purposes:
1. To elect five directors to the Board of Directors of the Corporation.
2. To transact such other business as may properly be brought before the Meeting
or any adjournment thereof.
The close of business on February 10, 1998 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at,
the Meeting and any adjournment thereof.
You are cordially invited to attend the Meeting. Whether or not you
plan to attend, please complete, date and sign the accompanying proxy and return
it promptly in the enclosed envelope to assure that your shares are represented
at the Meeting. If you do attend, you may revoke any prior proxy and vote your
shares in person if you wish to do so. Any prior proxy will automatically be
revoked if you execute the accompanying proxy or if you notify the Secretary of
the Corporation, in writing, prior to the Annual Meeting of Shareholders.
By Order of the Board of Directors
Donald T. Kelly
Secretary
Dated: February 16, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES.
<PAGE> 3
TO BE HELD ON MARCH 18, 1998
This proxy statement and the accompanying form of proxy have been
mailed to the shareholders of record of February 10, 1998 (the "record date") of
DIGITAL SOLUTIONS, INC., a New Jersey corporation (the "Corporation") in
connection with the solicitation of proxies by the Board of Directors of the
Corporation for use at the Annual Meeting of shareholders to be held on March
18, 1998 at 11:00 a.m. and at any adjournment thereof.
SOLICITATION, VOTING AND REVOCABILITY OF PROXY
Shares of the Corporation's common stock par value $.001 per share
represented by an effective proxy in the accompanying form will, unless contrary
instructions are specified in the proxy, be voted FOR the election of the five
persons nominated by the Board of Directors. Each share of common stock is
entitled to one vote. Voting is on a noncumulative basis.
Any proxy may be revoked at any time before it is voted. A shareholder
may revoke a proxy by submitting a proxy bearing a later date or by notifying
the Secretary of the Corporation either in writing prior to the Annual Meeting
or in person at the Annual Meeting. Revocation is effective only upon receipt of
such notice by the Secretary. Election of directors is by plurality vote, with
the five nominees receiving the highest vote totals to be elected as directors
of the Corporation. Accordingly, abstentions and broker non-votes will not
affect the outcome of the election of directors. Abstentions and non-votes will,
however, be considered as votes represented at the Annual Meeting solely for
quorum purposes.
The Corporation will bear the cost of the solicitation of proxies by
the Board of Directors. The Board of Directors may use the services of its
executive officers and certain directors to solicit proxies from shareholders in
person and by mail, telegram and telephone. Arrangements may also be made with
brokers, fiduciaries, custodians, and nominees to send proxies, proxy statements
and other material to the beneficial owners of the Corporation's common stock
held of record by such persons, and the Corporation may reimburse them for
reasonable out-of-pocket expenses incurred by them in so doing.
The annual report to shareholders for the fiscal year ended September
30, 1997, including financial statements, accompanies this proxy statement.
The principal executive offices of the Corporation are located at 300
Atrium Drive, Somerset, New Jersey 08873; the Corporation's telephone number is
(732) 748-1700.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Corporation has selected Arthur Andersen
LLP., Certified Public Accountants, as independent accountants of the
Corporation for the fiscal year ending September 30, 1998. Shareholders are not
being asked to approve such selection because such approval is not required. The
audit services provided by Arthur Andersen, LLP. consist of examination of
financial statements, review of filings with the Securities and Exchange
Commission, and consultation in regard to various accounting matters.
Representatives of Arthur Andersen, LLP. are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they so desire,
and will be available to respond to appropriate questions.
VOTING SECURITIES AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The securities entitled to vote at the Annual Meeting are the
Corporation's common stock, $.001 par value. Each share of common stock entitles
its holder to one vote on each matter submitted to shareholders. The close of
business on February 10, 1998 has been fixed as the record date for the
determination of shareholders entitled to notice of and to vote at the meeting
and any adjournment thereof. As of February 10, 1998, 19,298,010 shares of
common stock were issued and outstanding. Voting of the shares of common stock
is on a noncumulative basis.
The following table sets forth certain information as of February 10,
1998 with respect to (i) each director and officer of the Company (ii) the
persons (including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Company to be the beneficial owner
of more than five percent of
2
<PAGE> 4
any class of the Company's voting securities and (iii) officers and directors as
a group.
<TABLE>
<CAPTION>
Number of Shares Percent of Company's
Name of Shareholder Presently Owned(1) Outstanding Stock
<S> <C> <C>
Karl W. Dieckmann(2) 310,743 1.6%
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
George J. Eklund(3) 379,545 2.0%
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
Senator John H. Ewing(4) 120,625 *
76 Claremont Road
Barnardsville, NJ 07924
William J. Marino(5) 88,617 *
c/o Blue Cross/Blue Shield
of New Jersey
3 Penn Plaza East
Newark, NJ 07105
Donald W. Kappauf(6) 526,248 2.75%
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
Donald T. Kelly(7) 18,850 *
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
All officers and directors as a group 1,444,628 7.55%
(6)persons (2,3,4,5,6,7)
</TABLE>
* Less than 1 percent.
(1) Ownership consists of sole voting and investment power except as
otherwise noted.
(2) Includes options to purchase 10,000 shares of the Company's common
stock, and warrants to purchase 10,000 shares of common stock, and
excludes unvested options to purchase 5,000 shares of common stock.
(3) Includes options to purchase 300,000 shares of the Company's common
stock, and excludes unvested options to purchase 200,000 shares of
common stock.
(4) Includes options to purchase 35,000 shares of common stock, and
excludes unvested options to purchase 5,000 shares of common stock.
(5) Includes options to purchase 10,000 shares of the Company's common
stock, and excludes unvested options to purchase 5,000 shares of common
stock.
3
<PAGE> 5
(6) Includes options to purchase 150,000 shares of the Company's common
stock, and excludes unvested options to purchase 150,000 shares of
common stock.
(7) Includes options to purchase 10,000 shares of common stock, and
excludes unvested options to purchase 70,000 shares of common stock.
CERTAIN REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Corporation's directors and officers, and persons who own, directly
or indirectly, more than 10% of a registered class of the Corporation's equity
securities, to file with the Securities and Exchange Commission (SEC) reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Corporation. Officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish the Corporation with
copies of all Section 16(a) forms that they file. Based solely on review of the
copies of such reports received by the Corporation, the Corporation believes
that all Section 16(a) filing requirements applicable to officers, directors and
10% shareholders were complied with during the 1997 fiscal year.
I. ELECTION OF DIRECTORS
A board of five directors is proposed to be elected at the Annual
Meeting of shareholders to hold office for a term of one year and until their
respective successors shall have been duly elected and shall have qualified. The
affirmative vote of a plurality of the outstanding shares of common stock voting
thereon at the Annual Meeting of shareholders is required to elect the
directors. All proxies received by the Board of Directors from holders of the
common stock will be voted for the election as directors of the nominees listed
below if no direction to the contrary is given. In the event any nominee is
unable to serve, the proxy solicited hereby may be voted, in the discretion of
the proxies, for the election of another person in his stead. The Board of
Directors knows of no reason to anticipate that this will occur.
The following tables set forth certain information as of February 10,
1998 with respect to the nominees for election as directors of the Corporation.
<TABLE>
<CAPTION>
POSITION WITH CORPORATION: DIRECTOR CONTINUOUSLY
NAME PRINCIPAL OCCUPATION; AND AGE SINCE
<S> <C> <C>
Karl W. Dieckmann Chairman of the Board of Directors; 69 1990
George J. Eklund Director; 54 1995
Senator John H. Ewing Director; 77 1990
William J. Marino Director; 54 1995
Donald W. Kappauf President and Chief Executive Officer; 51 N/A
</TABLE>
Each director is elected for a period of one year at the Company's
annual meeting of shareholders and will serve until his successor is duly
elected by the shareholders.
Karl W. Dieckmann, Director of the Company since April, 1990, has been
Chairman of the Board since November, 1991. From 1980 to 1988, Mr. Dieckmann was
the Executive Vice President of Science Management Corporation and managed the
Engineering, Technology and Management Services Groups. From 1948 to 1980, Mr.
Dieckmann was employed by the Allied Corporation (now Allied Signal Corporation)
in various capacities including President, Semet Solvay Division; Executive Vice
President, Industrial Chemicals Division; Vice President Technical -- Fibers
Division; Group General Manager -- Fabricated Products Division; and General
Manager --Plastics Division, as well as various positions with the Chemicals
Division.
4
<PAGE> 6
George J. Eklund has been a director of the Company since 1995. From
September 1994 to March 1996 he was the Company's President and Chief Operating
Officer and President and Chief Executive Officer of the Company from March 1996
to December 1997, when Mr. Eklund's position was changed for health reasons.
From 1992 to 1994, Mr. Eklund was President of the Human Resource Information
Services division of Fiserv, Inc., which provides outsourcing services. From
1977 to 1992, Mr. Eklund was employed by ADP (Automatic Data Processing) in
various positions eventually serving as Corporate Vice President and Eastern
Division President. His eastern division served the northeast area of the
country.
Senator John H. Ewing, has been a Director of the Company since April,
1990. Senator Ewing has been a State Senator for the state of New Jersey from
1978 to the present. From 1968 to 1977, Senator Ewing was a New Jersey State
Assemblyman. From 1940 to 1968, he was employed by Abercrombie and Fitch Co.,
New York City, and eventually rose to the position of Chairman of the Board.
Senator Ewing is also currently Chairman of the New Jersey Senate Education
Committee.
William J. Marino, President and Chief Executive Officer of Blue Cross
and Blue Shield of New Jersey, joined the Board of Directors in October, 1995.
He joined Blue Cross and Blue Shield in 1992 and was named to his present post
in 1994. From 1968 to 1991, Mr. Marino held a variety of sales, marketing and
management positions with the Prudential Insurance Company of America. He is
Chairman of the Board of Trustees of the United Way of Essex and West Hudson
(NJ) and is Chairman of the Board of Directors and Executive Committee of the
Regional Business Partnership, and a Trustee of the New Jersey Network
Foundation, St. Peter's College and the Newark Museum.
Donald W. Kappauf became President and Chief Executive Officer of
Digital Solutions, Inc. on December 16, 1997. Mr. Kappauf joined Digital
Solutions, Inc. in 1990 and has held several senior management positions
including Division President and Executive Vice President. From 1988 to 1990, Mr
Kappauf was President of Perm Staff/Temp Staff in Princeton, New Jersey. He was
Assistant Vice President of SMC Engineering and then President of SMC Personnel
Support from 1968 to 1988.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has three committees: Audit, Compensation and
Nominating Committees. During fiscal year 1997, the Board of Directors held five
meetings. The Audit Committee met on one occasion and the Nominating Committee
met on one occasion. The Compensation Committee met on five occasions. No member
of the Board nor any member of any Board Committee failed to attend less than
75% of the meetings of the Board or such Committee.
COMMITTEES OF THE BOARD
Audit Committee. The members of the Audit Committee are John E. Ewing
and Karl W. Dieckmann. The Audit Committee acts to: (i) acquire a complete
understanding of the Corporation's audit functions; (ii) review with management
the finances, financial condition and interim financial statements of the
Corporation; (iii) review with the Corporation's independent auditors the
year-end financial statements; and (iv) review implementation with the
independent auditors and management any action recommended by the independent
auditors.
Compensation Committee. The members of the Compensation Committee are
Karl W. Dieckmann, John H. Ewing, and William J. Marino. The Compensation
Committee functions include administration of the Corporation's 1992 Employee
Stock Option Plan and Non-Executive Director Stock Option Plan and negotiation
and review of all employment agreements of executive officers of the
Corporation.
Nominating Committee. The members of the Nominating Committee are Karl
W. Dieckmann, George J. Eklund, and William J. Marino. The Nominating Committee
functions include the review of all candidates for a position on the Board of
Directors including existing directors for renomination and reports its findings
with recommendations to the Board. The Nominating Committee solicits candidates
on behalf of the Company to fill any vacancy on the Board. The Nominating
Committee performs such other duties and assignments as directed by the Chairman
or the Board but shall have no power to add or remove a director without the
approval of the Board.
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<PAGE> 7
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Karl W. Dieckmann, John H. Ewing and William J. Marino served on the
Company's Compensation Committee during the last fiscal year. See "Certain
Relationships and Related Transactions" for transactions between the Company and
members of the Compensation Committee.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not compensated for
services in such capacity. Non-employee directors receive $400 for each meeting
attended and $250 for committee each meeting attended. Non-employee directors
are also eligible to participate in the Non-Executive Director Option Plan, as
discussed below.
EXECUTIVE COMPENSATION
The following provides certain summary information concerning
compensation paid or accrued by the Company during the years ended September 30,
1997, 1996 and 1995 to the Company's Chief Executive Officer and each of the
executive officers of the Company who received in excess of $100,000 in
compensation.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
NAME AND YEAR SALARY BONUS OTHER OPTIONS/SAR'S
PRINCIPAL POSITION
<S> <C> <C> <C> <C> <C>
Raymond Skiptunis (1) 1997 $ 0 $ 0 $210,000 0
1996 $214,061 $ 0 $ 0 0
1995 $193,542 $ 0 $ 0 0
George J. Eklund, (2) 1997 $210,000 $ 0 $ 0 0
Chief Executive Officer 1996 $207,924 $100,000 $ 0 300,000
1995 $181,866 $ 50,000 $ 0 0
Donald T. Kelly, (3) 1997 $ 90,865 $ 20,000 $ 0 30,000
Chief Financial Officer
Louis J. Monari, (4) 1997 $106,077 $ 0 $ 0 0
Vice President 1996 $ 91,539 $ 20,000 $ 0 30,000
1995 $ 90,538 $ 15,000 $ 0 0
Donald W. Kappauf, (5) 1997 $121,154 $ 0 $ 0 0
Executive Vice President 1996 $110,000 $ 20,000 $ 0 0
1995 $110,000 $ 0 $ 0 0
</TABLE>
- - ---------------------
(1) Mr. Skiptunis was replaced as Chief Executive Officer by Mr. Eklund in
March, 1996. The other compensation of $210,000 during 1997 was
severance pay.
(2) Mr. Eklund's employment with the Company commenced on September
19,1994. He assumed the position of Chief Executive Officer in March
1996.
(3) Mr. Kelly was granted a sign on bonus of $20,000 at employment, on
January 20, 1997.
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<PAGE> 8
(4) Mr. Monari's employment terminated in July, 1997.
(5) This includes Mr. Kappauf's compensation for the executive vice
president position he assumed on August 27, 1997. His compensation in
1997, prior to becoming executive vice president was $105,288.
Compensation for 1996 and 1995 was for his position as Division Vice
President.
The Corporation provides normal and customary life and health insurance
benefits to all of its employees including executive officers. The Corporation
has no retirement or pension plan other than a 401(k), which is voluntary.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NO. OF SECURITIES PERCENTAGE OF
UNDERLYING OPTIONS TOTAL OPTIONS/
GRANTED GRANTED IN FISCAL EXERCISE OF BASE
YEAR PRICE PER SHARE EXPIRATION DATE
NAME
<S> <C> <C> <C> <C>
Donald T. Kelly 30,000 29% $1.875 01/20/02
- - ------------------------------- -------------------- -------------------- ------------------- ---------------
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth information with respect to the named
executive officers concerning exercise of stock options and SARs during the last
fiscal year and the value of unexercised options and SARs held as of the year
ended September 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS/SARS SEPTEMBER 30, 1997
SHARES ACQUIRED EXERCISABLE/ VALUE OF UNEXERCISED IN-THE-MONEY
ON EXERCISE UNEXERCISABLE OPTIONS AS OF SEPTEMBER 30, 1997
VALUE REALIZED EXERCISABLE/
NAME UNEXERCISABLE
<S> <C> <C> <C> <C>
George J. Eklund 0 0 300,000/200,000 $0/$0
Louis Monari 0 0 30,000/20,000 $63,900/$0
Donald W. Kappauf 0 0 100,000/0 $213,000/$0
Donald T. Kelly 0 0 10,000/20,000 $21,300/$42,600
</TABLE>
- - ----------------------------
(1) Based upon a closing bid price of the Common Stock at $2.1300 per share
on September 30, 1997.
EMPLOYMENT AGREEMENT
Effective March 12, 1996, the Company entered into a new employment
agreement with Mr. Eklund for a three year term. The employment agreement
provided for (i) annual compensation of $210,000 for the first year of
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<PAGE> 9
the agreement increasing at the discretion of the Company; (ii) a bonus in
accordance with a plan to be established by the Company; (iii) the award of
stock options to purchase 300,000 shares of the Company's common stock, subject
to vesting requirements; (iv) certain insurance and severance benefits; and (v)
a $700 per month automobile allowance. Effective December 16, 1997, Mr. Eklund's
position was changed for health reasons. The Company and Mr. Eklund have entered
into an agreement regarding the change in his position. Pursuant to this
agreement, Mr. Eklund's position changed from President and Chief Executive
Officer of the Company to Special Assistant to the Board of Directors. Mr Eklund
remains a Director. Mr. Eklund will continue to receive his salary and certain
other benefits as provided in his original employment agreement.
Effective December 16, 1997, the Company entered into an agreement with
Mr. Donald Kappauf wherein Mr. Kappauf assumed the duties of President and Chief
Executive Officer. The agreement provides for (i) annual compensation of
$165,000 for the first year of the agreement increasing at the discretion of the
Company; (ii) a bonus equivalent to 6% of the Company's pre-tax profit for
fiscal 1998 (8% of the amount over $2,500,000) provided the Company's earnings
before taxes are at least $1,500,000; (iii) the award of stock options to
purchase 100,000 shares of the Company's common stock, 50,000 of which will vest
in one year while the remainder will vest in two years; (iv) a two year term.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth herein is a line graph comparing the total returns (assuming
reinvestment of dividends) of the Company's common stock, the Standard and Poor
Industrial Average, and an industry composite consisting of a group o two peer
issuers selected in good faith by the Company. The Company's common stock is
listed for trading in the Nasdaq SmallCap market and is traded under the symbol
"DGSI".
[PERFORMANCE LINE GRAPH]
NOTES
(1) Assumes that the value of the investment in the Company's Common Stock
and each index was $100 on September 30, 1991 and that dividends were
reinvested at years ended September 30.
(2) Industry composite includes Paychex and Automatic Data Processing. The
industry composite has been determined in good faith by management to
represent entities which compete with the Company in certain of its
significant business segments. Management does not believe that there
are any publicly held entities which compete with all of the Company's
business segments.
1990 STOCK OPTION PLANS
In April, 1990, the Board of Directors adopted the 1990 Employees Stock
Option Plan (the "1990 Plan") which was approved by shareholders in August,
1990. The 1990 Plan provides for the grant of options to purchase up to
1,000,000 shares of the Company's common stock. Under the terms of the 1990
Plan, options granted
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<PAGE> 10
thereunder may be designated as options which qualify for incentive stock option
treatment ("ISOs") under Section 422A of the Code, or options which do not so
qualify ("Non-ISO's").
The 1990 Plan is administered by a Stock Option Committee designated by
the Board of Directors. The Stock Option Committee has the discretion to
determine the eligible employees to whom, and the times and the price at which,
options will be granted; whether such options shall be ISOs or Non-ISOs; the
periods during which each option will be exercisable; and the number of shares
subject to each option. The Committee has full authority to interpret the 1990
Plan and to establish and amend rules and regulations relating thereto.
Under the 1990 Plan, the exercise price of an option designated as an
ISO shall not be less than the fair market value of the common stock on the date
the option is granted. However, in the event an option designated as an ISO is
granted to a ten percent (10%) shareholder (as defined in the 1988 Plan), such
exercise price shall be at least 110% of such fair market value. Exercise prices
of Non-ISO options may be less than such fair market value.
The aggregate fair market value of shares subject to options granted to
a participant, which are designated as ISOs and which become exercisable in any
calendar year, shall not exceed $100,000.
The Stock Option Committee may, in its sole discretion, grant bonuses
or authorize loans to or guarantee loans obtained by an optionee to enable such
optionee to pay any taxes that may arise in connection with the exercise or
cancellation of an option.
Unless sooner terminated, the 1990 Plan will expire in April 2000.
In April 1990, the Board of Directors adopted the Non-Executive
Director Stock Option Plan (the "Director Plan") which was approved by
shareholders in August, 1991 and amended in March 1996. The Director Plan
provides for issuance of a maximum of 500,000 shares of common stock upon the
exercise of stock options arising under the Director Plan. Options may be
granted under the Director Plan until April, 2000 to: (i) non-executive
directors as defined and, (ii) members of any advisory board established by the
Company who are not full-time employees of the Company or any of its
subsidiaries. The Director Plan provides that each non-executive director is
automatically granted an option to purchase 5,000 shares upon joining the Board
and each September lst, pro rata, based on the time the director has served in
such capacity during the previously year. Similarly, each eligible director of
an advisory board will receive on each September lst an option to purchase 5,000
shares of the Company's common stock each September lst. The Directors' Plan
also provides that directors, upon joining the Board, and for one (1) year
thereafter, will be entitled to purchase restricted stock from the Company at a
price equal to 80% of the closing bid price on the date of purchase up to an
aggregate purchase price of $50,000.
The exercise price for options granted under the Director Plan shall be
100% of the fair market value of the common stock on the date of grant. Until
otherwise provided in the Stock Option Plan, the exercise price of options
granted under the Director Plan must be paid at the time of exercise, either in
cash, by delivery of shares of common stock of the Company or by a combination
of each. The term of each option commences on the date it is granted and unless
terminated sooner as provided in the Director Plan, expires five (5) years from
the date of grant. The Director Plan shall be administered by a committee of the
board of directors composed of not fewer than three persons who are officers of
the Company (the "Committee"). The Committee has no discretion to determine
which non-executive director or advisory board member will receive options or
the number of shares subject to the option, the term of the option or the
exercisability of the option. However, the Committee will make all
determinations of the interpretation of the Director Plan. Options granted under
the Director Plan are not qualified for incentive stock option treatment.
In April 1990, the Board of Directors adopted and in August, 1990, the
Company's shareholders approved the Senior Management Incentive Plan (the
"Management Plan") for use in connection with the issuance of stock, options and
other stock purchase rights to executive officers and other key employees and
consultants who render significant services to the Company and its subsidiaries.
It is contemplated that only those executive management employees (generally the
Chairman of the Board, Chief Executive Officer, Chief Operating Officer,
President and Vice Presidents of the Company or Presidents of the Company's
subsidiaries) who perform services of special importance to the Company will be
eligible to participate under the Management Plan. A total of 5,000,000 shares
of common stock will be reserved for issuance under the Management Plan. Awards
made under the Management
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<PAGE> 11
Plan will be subject to three-(3) year vesting periods, although the vesting
periods are subject to the discretion of the Administrator.
Unless otherwise indicated, the Management Plan is to be administered
by the Board of Directors or a committee of the Board, if one is appointed for
this purpose (the Board or such committee, as the case may be, shall be referred
to in the following description as the "Administrator"). The Management Plan
generally provides that, unless the Administrator determines otherwise, each
option or right granted under a plan shall become exercisable in full upon
certain "change of control" events as described in the Management Plan. If any
change is made in the stock subject to the Management Plan, or subject to any
right or option granted under the Management Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Administrator will make appropriate adjustments to such plans and the classes,
number of shares and price per share of stock subject to outstanding rights or
options. The Management Plan permits awards until April, 2000.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan.
The Management Plan provides four types of awards: stock options,
incentive stock rights, stock appreciation rights (including limited stock
appreciation rights) and restricted stock purchase agreements, as described
below.
Options granted under the Management Plan may be either incentive stock
options ("ISOs") or options which do not qualify as ISOs ("non-ISOs") similar to
the options granted under the 1990 Plan.
Incentive stock rights consist of incentive stock units equivalent to
one share of common stock in consideration for services performed for the
Company. If the employment or consulting services of the holder with the Company
terminate prior to the end of the incentive period relating to the units
awarded, the rights shall thereupon be null and void, except that if termination
is caused by death or permanent disability, the holder or his heirs, as the case
may be, shall be entitled to receive a pro-rata portion of the shares
represented by the units, based upon that portion of the incentive period which
shall have elapsed prior to the death or disability.
Restricted stock purchase agreements provide for the sale by the
Company of shares of common stock at a price to be determined by the Board of
Directors, which shares shall be subject to restrictions on disposition for a
stated period during which the purchaser must continue employment with the
Company in order to retain the shares. Payment can be made in cash, a promissory
note or a combination of both. If termination of employment occurs for any
reason within six months after the date of purchase, or for any reason other
than death or by retirement with the consent of the Company after the six month
period, but prior to the time that the restrictions on disposition lapse, the
Company shall have the option to reacquire the shares at the original purchase
price.
Restricted shares awarded under the Management Plan will be subject to
a period of time designated by the Administrator (the "restricted period")
during which the recipient must continue to render services to the Company
before the restricted shares will become vested. The Administrator may also
impose other restrictions, terms and conditions that must be fulfilled before
the restricted shares may vest.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning employment agreements with and compensation
of the Corporation's executive officers and directors, see "Executive
Compensation."
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the
Corporation's 1998 Annual Meeting of Stockholders must be received by the
Corporation on or before November 20, 1997 to be eligible for inclusion in the
Corporation's proxy statement and form of proxy to be used in connection with
the l998 Annual Meeting of Shareholders.
10
<PAGE> 12
FINANCIAL INFORMATION
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM l0-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1997 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS TO SHAREHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST THEREFOR SENT TO DONALD T. KELLY, SECRETARY, DIGITAL
SOLUTIONS, INC., 300 ATRIUM DRIVE, SOMERSET, NEW JERSEY 08873. Each such request
must set forth a good faith representation that as of February 10, 1998, the
person making the request was the beneficial owner of common stock of the
Corporation entitled to vote at the Annual Meeting of Shareholders.
II. OTHER BUSINESS
As of the date of this Proxy Statement, the only business which the
Board of Directors intends to present, and knows that others will present, at
the Annual Meeting is that herein above set forth. If any other matter or
matters are properly brought before the Annual Meeting, or any adjournments
thereof, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy on such matters in accordance with their judgment.
By Order of the Board of Directors
Donald T. Kelly
February 16, 1998 Secretary
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND
RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF
IT IS MAILED IN THE UNITED STATES OF AMERICA.
11
<PAGE> 13
DIGITAL SOLUTIONS, INC.
Annual Meeting of Shareholders - March 18, 1998
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Karl W. Dieckmann and Donald W. Kappauf, and
each of them, proxies, with full power of substitution, to vote all shares of
common stock of Digital Solutions, Inc owned by the undersigned at the annual
meeting of shareholders of Digital Solutions, Inc. to be held on March 18, 1998
and at any adjournments thereof, hereby revoking any proxy heretofore given.
The undersigned instructs such proxies to vote:
I. Election of Directors
<TABLE>
<S> <C>
/ / For all nominees listed below / / Withhold authority
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
(Instruction: To withhold authority for any individual nominee, strike a line
through the nominee's name in the list below.)
Karl W. Dieckmann George J. Eklund Senator John H. Ewing
Donald W. Kappauf William J. Marino
(Continued and to be signed on reverse side)
<PAGE> 14
and to vote upon any other business as may properly become before the meeting or
any adjournment thereof, all as described in the proxy statement dated February
16, 1998 receipt of which is hereby acknowledged.
Either of the proxies or their respective substitutes. who shall be present and
acting shall have and may exercise all the powers hereby granted. The shares
represented by this proxy will be voted FOR the election of five directors
unless contrary instructions are given. Said proxies will use their discretion
with respect to any other matters which properly come before the meeting.
Date_____________________________________________
Signed___________________________________________
(Please date and sign exactly as accounts. Each
joint owner should sign. Executors,
administrators, trustees, etc. should also so
indicate when signing.)
The proxy is solicited on behalf of the Board of
Directors. Please sign and return in the enclosed
envelope.
