<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
Schedule 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, For Use of
the Commission only (as
permitted by Rule 14a-
6(e)(2)
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
DIGITAL SOLUTIONS, INC.
(Name of the Corporation as Specified in Charter)
Donald T. Kelly, Secretary
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box)
/X/ No Fee Required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(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:
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
/ / 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 form or
schedule and the date of filing.
(1) Amount previously paid:
(2) Form schedule or registration number:
(3) Filing party:
(4) Dated filed:
<PAGE> 2
TEAMSTAFF, INC.
(FORMERLY DIGITAL SOLUTIONS, INC.)
300 Atrium Drive
Somerset, New Jersey 08873
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on March 17, 1999
To the Shareholders of TEAMSTAFF, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
TEAMSTAFF, INC., formerly Digital Solutions, Inc. (the "Company") will be held
at the Somerset Marriott, 110 Davidson Avenue, Somerset, New Jersey 08873 on
March 17, 1999 at 11:00 AM New Jersey Time, for the following purposes:
1. To consider and act upon a proposal to effect an amendment to the
Certificate of Incorporation of the Company to provide for a classified Board of
Directors and related matters, all as set forth in the form of Amended and
Restated Certificate of Incorporation in Appendix A annexed hereto; and
2. To elect a Board of Directors consisting of seven Directors in
staggered terms of one to three years or, in the alternative, if Proposal 1
above is not adopted, to elect seven Directors to hold office until the next
Annual Meeting of Shareholders and until their successors are only elected and
qualified for a term of one year; and to transact such other business as may
properly be brought before the meeting or any adjournment thereof.
The close of business on February 17, 1999 has been fixed as the record
date ("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 Company, in writing, prior to the Annual Meeting of Shareholders.
By Order of the Board of Directors
Donald T. Kelly
Secretary
Dated: February 18, 1999
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
TEAMSTAFF, INC.
(FORMERLY DIGITAL SOLUTIONS, INC.)
300 Atrium Drive
Somerset, New Jersey 08873
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 17, 1999
This proxy statement and the accompanying form of proxy have been
mailed to the shareholders of Common Stock of record of February 17, 1998 (the
"Record Date") of TEAMSTAFF, INC., formerly Digital Solutions, Inc., a New
Jersey Corporation (the "Company") in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Annual Meeting
of shareholders to be held on March 17, 1999 at 11:00 a.m. and at any
adjournment thereof.
SOLICITATION, VOTING AND REVOCABILITY OF PROXY
Shares of the Company's Common Stock par value $.001 per share
represented by a properly executed Proxy in the accompanying form will, unless
contrary instructions are specified in the Proxy, be voted as follows: (I) FOR
the proposal to amend the Company's Certificate of Incorporation to provide for
a classified Board of Directors, and further providing that any amendment to
such provision be effective only upon the affirmative vote of 66 2/3% of the
issued and outstanding shares entitled to vote thereon; (ii) FOR the election of
seven Directors in staggered terms of one to three years. 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 Company 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 of the Company. Election of directors is by plurality
vote, with the seven nominees receiving the highest vote totals to be elected as
directors of the Company. 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 Company 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 Company's common stock held of
record by such persons, and the Company may reimburse them for reasonable
out-of-pocket
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<PAGE> 4
expenses incurred by them in so doing.
The annual report to shareholders for the fiscal year ended September
30, 1998, including financial statements, accompanies this proxy statement.
The principal executive offices of the Company are located at 300
Atrium Drive, Somerset, New Jersey 08873; the Company's telephone number is
(732) 748-1700.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Arthur Andersen
LLP., Certified Public Accountants, as independent accountants of the Company
for the fiscal year ending September 30, 1999. 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 Company'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 17, 1999 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 17, 1999, 27,617,241 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 17,
1999 with respect to each director, each of the named executive officers as
defined in Item 402(a)(3), and directors and executive officers of the Company
as a group, and to the persons known by the Company to be the beneficial owner
of more than five percent of any class of the Company's voting securities.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF COMPANY'S
NAME OF SHAREHOLDER PRESENTLY OWNED(1) OUTSTANDING STOCK
<S> <C> <C>
Karl W. Dieckmann(2) 325,743 1.18%
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
Senator John H. Ewing(3) 128,125 *
76 Claremont Road
Bernardsville, NJ 07924
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF COMPANY'S
NAME OF SHAREHOLDER PRESENTLY OWNED(1) OUTSTANDING STOCK
<S> <C> <C>
William J. Marino(4) 93,617 *
c/o Blue Cross/Blue Shield
of New Jersey
3 Penn Plaza East
Newark, NJ 07105
Donald W. Kappauf(5) 601,248 2.2%
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
Donald T. Kelly(6) 88,850 *
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
Charles R. Dees, Jr. Ph.D.(7) 7,074 *
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
Martin J. Delaney(8) 116,823 *
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
Kirk Scoggins(9) 3,286,931 11.9%
c/o Digital Solutions, Inc.
300 Atrium Drive
Somerset, NJ 08873
Warren M. Cason(10) 2,220,654 8%
400 N. Ashley Drive, Suite 2300
Tampa, FL 33602
Warren M. Cason Jr.(11) 1,843,889 6.7%
as Trustee of the
Dorothy C. Cason
1997 Three Year
Grantor Retained
Annuity Trust
c/o Warren M. Cason
400 N. Ashley Drive, Suite 2300
Tampa, FL 33602
</TABLE>
* Less than 1 percent.
(1) Ownership consists of sole voting and investment power except as
otherwise noted.
(2) Includes options to purchase 15,000 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.
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<PAGE> 6
(3) Includes options to purchase 20,000 shares of the Company's common
stock, and warrants to purchase 2,500 shares of common stock, and
excludes unvested options to purchase 5,000 shares of common stock.
(4) Includes options to purchase 15,000 shares of the Company's common
stock, and excludes unvested options to purchase 5,000 shares of common
stock.
(5) Includes options to purchase 222,500 shares of the Company's common
stock, and excludes unvested options to purchase 125,000 shares of
common stock.
(6) Includes options to purchase 80,000 shares of common stock, and
excludes unvested options to purchase 50,000 shares of common stock.
(7) Includes options to purchase 5,000 shares of common stock, and excludes
unvested options to purchase 1,250 shares of common stock.
(8) Includes options to purchase 5,000 shares of common stock, and excludes
unvested options to purchase 1,250 shares of common stock.
(9) Mr. Scoggins received these shares as a former owner of the TeamStaff
Companies which were acquired by the Company on January 25, 1999. Mr.
Scoggins also joined the Company's Board of Directors on January 25,
1999. Of the 3,286,931 shares currently owned by Mr. Scoggins, 587,552
Shares have been placed in escrow to indemnify the Company for certain
representations regarding TeamStaff Companies made by the former owners
of the TeamStaff Companies. Excludes Unvested options to purchase
100,000 shares. See "Certain Relationships and Related Transactions."
(10) Mr. Cason received these shares as a former owner of the TeamStaff
Companies which were acquired by the Company on January 25, 1999. Of
the 2,220,654 shares currently owned by Mr. Cason, 396,950 have been
placed in escrow to indemnify the Company for certain representations
regarding TeamStaff Companies made by the former owner of the TeamStaff
Companies. See "Certain Relationships and Related Transactions."
(11) This Trust received these shares as a former owner of the TeamStaff
Companies which were acquired by the Company on January 25, 1999. Of
the 1,843,889 shares currently owned by this Trust, 329,665 have been
placed in escrow to indemnify the Company for certain representations
regarding TeamStaff Companies made by the former owner of the TeamStaff
Companies. See "Certain Relationships and Related Transactions."
CERTAIN REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers, and persons who own, directly or
indirectly, more than 10% of a registered class of the Company'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 Company. Officers, directors and greater than 10% shareholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms that they file. Based solely on review of the copies of such
reports received by the Company, the Company believes that all Section 16(a)
filing requirements applicable to officers, directors and 10% shareholders were
complied with during the 1998 fiscal year.
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<PAGE> 7
PROPOSAL I
AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION PROVIDING FOR A CLASSIFIED
BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously determined that
certain amendments to the Company's Certificate of Incorporation are advisable,
and accordingly, has voted to recommend them to the shareholders for adoption.
Shareholders are urged to carefully read the materials that follow as they
involve matters of particular importance. The full text of the proposed
amendment to the Certificate of Incorporation is set forth in the form of
Amended and Restated Certificate of Incorporation contained in Appendix A to
this Proxy Statement.
BACKGROUND OF THE PROPOSED AMENDMENT
The Board of Directors of the Company has determined that it would be
in the best interests of the Company to provide for the classification of its
Board of Directors in its Certificate of Incorporation. An amendment to the
Certificate of Incorporation of the Company to effect a change in the structure
of the Board of Directors is therefore required. This amendment is being
submitted to shareholders as Proposal I. The proposed amendment has certain
anti-takeover aspects. Discussions of possible advantages and disadvantages of
Proposal I and of other actions taken by the Board which could have
anti-takeover aspects are discussed in this section. The proposed Amendment
would provide that the Board of Directors be divided into classes of Directors
with different terms.
The proposed amendment has a number of purposes, among them to promote
continuity and stability at the Board level, to effectively reduce the
possibility that a third party could effect a sudden or surprise change in
majority control of the Board of Directors without the support of the incumbent
Board, and to reduce the likelihood of sudden disruption of the Company's
long-term policies.
In order to prevent a person from obtaining control of the Company and
immediately replacing the entire Board or specific members thereof, the Board
has recommended amending the Certificate of Incorporation to divide the Board of
Directors into three classes with staggered three-year terms and to implement
certain supplementary provisions to facilitate continuity in the leadership of
the Company. The classification of the Board and staggering of the terms of the
Directors may prevent a potential acquirer of the Company from electing a
majority of Directors of its own choosing until after at least two successive
Annual Meetings of
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<PAGE> 8
Shareholders. In addition, to prevent a potential acquirer of the Company from
circumventing the purposes of classifying and staggering the Board, the proposed
amendment provides that: (1) Directors may be removed by the shareholders only
for cause by the affirmative vote of the holders of at least 66 2/3% of the
combined voting power of all outstanding stock; (2) any vacancy on the Board
shall be filled only by the remaining Directors then in office, whether or not
there is a quorum; and (3) the Shareholder vote required to alter, amend or
repeal the foregoing amendment to the Certificate of Incorporation, and related
amendment to the Bylaws is increased from a majority to 66 2/3% of the combined
voting power of the Company's outstanding voting stock.
In addition, Proposal I is intended to provide the Board of Directors
and the shareholders with the means to counter takeover tactics that the Board
deems essentially unfair, and to enhance the ability of the Board, and
ultimately the shareholders, to negotiate with any potential acquiring company
or group from the strongest tactical position. However, takeovers or changes in
management of the Company that are proposed and effected without prior
consultation and negotiation with the Company's Board of Directors are not
necessarily detrimental to the Company and its shareholders. Adoption of this
proposal may have significant effects on the ability of shareholders to change
the composition of the Board and to benefit from a transaction opposed by the
incumbent Board even if a majority of the shareholders deem such transaction to
be in their best interests. Shareholders are urged to read this section of the
Proxy Statement carefully.
Further, while the proposed amendment would make it more difficult for
a substantial shareholder to seize control of the Company, thereby encouraging
negotiation with the Board of Directors, it is also possible in such a
negotiation that the interests of existing management and the Board in retaining
their positions or the Company's independence may diverge from the interests of
some shareholders. The proposed amendment, although it may have an anti-takeover
effect, is not in response to any efforts of which the Company is aware to
obtain control of the Company.
If the amendment described in Proposal I is adopted by the
shareholders, the Amended and Restated Certificate of Incorporation in the form
annexed as Appendix A with the proposed amendments incorporating those changes
will be filed with the Secretary of State of the State of New Jersey immediately
following the Annual Meeting.
AMENDMENT PROPOSED BY THE BOARD OF DIRECTORS
Classification of the Board. The proposed amendment to the Certificate
of Incorporation provides that the Board shall be divided into three classes of
Directors, each class to be as nearly equal in number as possible but to contain
not less than one Director. If Proposal I is adopted, the Directors elected at
this meeting will be divided into three classes to
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<PAGE> 9
serve for terms expiring in 2000 (Class 3), 2001 (Class 2) and 2002 (Class 1),
respectively. Thereafter, each class of Directors will serve for staggered
three-year terms. The members of each proposed class of directors are set forth
under the heading "Election of Directors."
Increased Shareholder Vote for Alteration, Amendment or Repeal of
Proposed Amendment. Assuming the amendment is approved at the annual meeting,
the approval of the holders of at least 66 2/3% of the combined voting power of
the Company's voting stock would be required in the future for the amendment or
repeal of the proposed amendment to the Certificate of Incorporation discussed
above. The requirement of an increased Shareholder vote is designed to prevent a
Shareholder with a simple majority of the voting power of the voting stock from
avoiding the requirements of the proposed amendment by simply repealing them.
Additionally, the proposed amendment provides that Directors may be removed by
the shareholders only for cause by the affirmative vote of the holders of at
least 66 2/3% of the combined voting power of all outstanding stock. These
provisions could also have the practical effect of precluding Shareholder action
to amend the specified provisions of the Amended and Restated Certificate of
Incorporation, even in the absence of a possible change in control and
regardless of the advantage to shareholders of such an amendment.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of
Common Stock, voting as a single class, issued and outstanding as of the Record
Date and entitled to vote at the Meeting is required for the approval of this
Proposal I.
THE BOARD OF DIRECTORS DEEMS PROPOSAL I TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
PROPOSAL II
ELECTION OF DIRECTORS
GENERAL
The discussion provided herein relates to the election of Directors of
the Company. If the shareholders approve Proposal I amending the Company's
Certificate of Incorporation to provide for a classified Board of Directors,
then shareholders will be voting for seven (7) nominees with terms of one (1) to
three (3) years. If Proposal I is not adopted, then shareholders will be voting
for seven (7) directors with a term of one (1) year until the next Annual
Meeting of Shareholders, all as further described below.
Shareholders are being solicited to approve an amendment to the
Company's Certificate of Incorporation to incorporate provisions concerning the
classification of the Board of Directors
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<PAGE> 10
be made in the Company's Certificate of Incorporation (Proposal I) and also
providing that any further amendment to such provision be effected by the
affirmative vote of at least 66 2/3% of the issued and outstanding shares of
capital stock entitled to vote. See hereinafter Proposal I. If Proposal I is
adopted, the Certificate of Incorporation will be amended in the form of Article
SIXTH as contained in the Amended and Restated Certificate of Incorporation set
forth as Appendix A annexed hereto to conform it to the terms of Proposal I,
including a provision that the affirmative vote of 66 2/3% of the shareholders
will be required to amend this provision in the future.
A board of seven 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 qualified in the event
Proposal I is not adopted and to hold office for the terms indicated in the
event Proposal I is adopted. The affirmative vote of a plurality of the
outstanding shares of Common Stock entitled to vote thereon, voting together as
a single class at the Annual Meeting of Shareholders is required to elect the
directors. All proxies received by the Board of Directors will be voted for the
election as directors of the nominees listed below if no direction to the
contrary is given. In the event that 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. No family relationship exists between
any nominee for election as a director.
The following table sets forth certain information as of February 17,
1999 with respect to the nominees for election as directors of the Company.
<TABLE>
<CAPTION>
POSITION WITH COMPANY: DIRECTOR CONTINUOUSLY
NAME PRINCIPAL OCCUPATION; AND AGE SINCE
<S> <C> <C>
Karl W. Dieckmann Chairman of the Board of Directors; 70 1990
John H. Ewing Director; 78 1990
William J. Marino Director; 55 1995
Donald W. Kappauf President and Chief Executive Officer,
Director; 52 1998
Charles R. Dees, Jr. Director; 58 1998
Martin J. Delaney Director; 55 1998
</TABLE>
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<PAGE> 11
<TABLE>
<CAPTION>
POSITION WITH COMPANY: DIRECTOR CONTINUOUSLY
NAME PRINCIPAL OCCUPATION; AND AGE SINCE
<S> <C> <C>
Kirk A. Scoggins President-PEO Division, Director; 39 1999
</TABLE>
If Proposal I is not adopted by shareholders, the aforementioned
Directors will be 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.
John H. Ewing, has been a Director of the Company since April, 1990.
Mr. Ewing was a State Senator for the state of New Jersey from 1978 to 1998.
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.
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.
Charles R. Dees, Jr. joined the Board of Directors in July, 1998.
Since 1997, Mr. Dees has been the Senior Vice President for Institutional
Advancement of Fairleigh Dickinson University. From 1995 to 1997, Mr. Dees was
the Campus Executive, Teaneck-Hackensack Campus of Fairleigh Dickinson
University; and from 1994 to 1997 he was also the Vice president for
Institutional Advancement for Fairleigh Dickinson University. Mr. Dees was a
Private Consultant for a contract search company from 1993 to 1994. Mr. Dees
also served from 1982 to 1993 as the Vice Chancellor for University Affairs at
Seton Hall university. From 1978 to 1982 Mr. Dees served in the U.S. Department
of Education as the Executive Assistant to the Assistant Secretary for
Post-Secondary Education, the Deputy Director, Office of Policy Development,
and Acting Deputy Director, Division of Institutional Development. Mr. Dees
obtained a Ph.D. in 1973 from the University of Pittsburgh in Higher Education
Administration, a Masters in Education from Duquesne in 1964 and a Bachelor of
Arts degree from LaSalle University in 1961.
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<PAGE> 12
Martin J. Delaney joined the Board of Directors in July, 1998. Mr.
Delaney is a prominent healthcare executive presently serving as President, CEO
and a director of the Winthrop-South Nassau University Health System, Inc., in
Long Island, New York.
Kirk A. Scoggins joined the Board of Directors in January, 1999. From
1990 to 1999, Mr. Scoggins was the President and CEO of the TeamStaff Companies.
From 1994 to 1998, Mr. Scoggins was a member of the Executive Committee of the
Board of Directors and Immediate Past President of the National Association of
Professional Employer Organizations and is also a founding member and Past
President of the Florida Association of Professional Employer Organizations.
If Proposal I is adopted, the Board of Directors will be divided into
three classes of Directors. The nominees for Class 1, if elected, will serve for
a term expiring at the 2002 Annual Meeting of Shareholders, Class 2 will serve
for a term expiring at the 2001 Annual Meeting of Shareholders and Class 3 will
serve for a term expiring at the 2000 Annual Meeting of Shareholders, and in
each case, until their successors are duly elected and qualified. At each
subsequent Annual Meeting of Shareholders, one class of Directors will be
elected for a term of three years and until their successors are duly elected
and qualified.
If Proposal I is adopted, shareholders will elect Directors for the
Classes and terms as follows:
<TABLE>
<CAPTION>
Director Class Term Expires
<S> <C> <C>
Karl W. Dieckmann 1 2002
Donald W. Kappauf 1 2002
John H. Ewing 2 2001
William J. Marino 1 2002
Kirk A. Scoggins 3 2000
Charles R. Dees, Jr. 2 2001
Martin J. Delaney 3 2000
</TABLE>
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<PAGE> 13
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has three committees: Audit, Compensation and
Nominating Committees. During fiscal year 1998, the Board of Directors held five
meetings. The Audit Committee met on one occasion and the Nominating Committee
met on three occasions. The Compensation Committee met on two 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 Karl W.
Dieckmann, John E. Ewing, William J. Marino. The Audit Committee acts to: (i)
review with management the finances, financial condition and interim financial
statements of the Company; (iii) review with the Company'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 Company'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 Company.
Nominating Committee. The members of the Nominating Committee are Karl
W. Dieckmann, Donald W. Kappauf 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.
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.
11
<PAGE> 14
COMPENSATION OF DIRECTORS
Directors who are employees of the Company are not compensated for
services in such capacity. Non-employee directors receive $1,000 for each Board
meeting attended and $500 for non-Board meeting attended and $400 for each
Committee 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 earned by the Company during the years ended September 30,
1998, 1997 and 1996 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 during the last fiscal year.
<TABLE>
<CAPTION>
NAME AND ANNUAL COMPENSATION LONG TERM COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS OTHER OPTIONS/SAR'S
<S> <C> <C> <C> <C> <C>
George J. Eklund, (1)
Director 1998 $210,000 $0 $0 0
1997 $210,000 $0 $0 0
1996 $207,924 $100,000 $0 300,000
Donald W. Kappauf, (2)
Chief Executive Officer 1998 $173,308 $89,670 $16,991 200,000
1997 $121,154 $25,000 $0 0
1996 $110,000 $20,000 $0 0
Donald T. Kelly, (3)
Chief Financial Officer 1998 $151,038 $45,000 $0 50,000
1997 $90,865 $20,000 $0 30,000
</TABLE>
(1) Mr. Eklund's employment with the Company commenced on September 19,
1994. He assumed the position of Chief Executive Office in March 1996.
In December 1997 due to health concerns, his position changed. Mr.
Eklund resigned as Director as of January 14, 1999.
(2) The 1997 salary includes Mr. Kappauf's compensation for the executive
vice president position he assumed on August 27, 1997. His compensation
in 1997, prior to becoming
12
<PAGE> 15
executive vice president was $105,288. Compensation for 1996 was for
his position as Division Vice President. Other compensation includes
car and car insurance.
(3) Mr. Kelly was granted a sign on bonus of $20,000 at employment, on
January 20, 1997.
The Company provides normal and customary life and health insurance
benefits to all of its employees including executive officers. The Company has
no retirement or pension plan other than a 401(k), which is voluntary.
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, 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NO. OF SECURITIES
UNDERLYING OPTIONS PERCENTAGE OF TOTAL
GRANTED OPTIONS/GRANTED IN EXERCISE OF BASE
NAME FISCAL YEAR PRICE PER SHARE EXPIRATION DATE
<S> <C> <C> <C> <C>
Donald Kappauf 100,000 38% $1.9375 08/27/2002
Donald Kappauf 100,000 38% $1.9375 01/02/2003
Donald Kelly 50,000 19% $1.9375 01/02/2003
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AS OF
OPTIONS/SARS SEPTEMBER 30, SEPTEMBER 30, 1998
1998 EXERCISABLE/
SHARES ACQUIRED EXERCISABLE/ UNEXERCISABLE
ON UNEXERCISABLE (1)
NAME EXERCISE VALUE REALIZED
<S> <C> <C> <C> <C>
George J. Eklund 0 0 380,000/120,000 $0/$0
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AS OF
OPTIONS/SARS SEPTEMBER 30, SEPTEMBER 30, 1998
1998 EXERCISABLE/
SHARES ACQUIRED EXERCISABLE/ UNEXERCISABLE
ON UNEXERCISABLE (1)
NAME EXERCISE VALUE REALIZED
<S> <C> <C> <C> <C>
Donald W. Kappauf 0 0 175,000/125,000 $0/$0
Donald T. Kelly 0 0 45,000/35,000 $0/$0
</TABLE>
(1) Based upon a closing bid price of the Common Stock at $1 1/16 per share
on September 30, 1998.
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 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
14
<PAGE> 17
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 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
15
<PAGE> 18
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.
16
<PAGE> 19
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 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 no longer serves as President and Chief Executive Officer
of the Company. Mr. Eklund remains a Director and preforms special projects work
for compensation. Mr. Eklund will continue to receive his salary and certain
other benefits as provided in his original employment agreement. Effective
January 14, 1999, Mr. Eklund resigned as a Director of the Company.
Effective December 16, 1997, the Company entered into a verbal
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. In December 1998, the Board granted Mr. Kappauf a bonus in the
amount of $89,670 with respect to fiscal year 1998.
Concurrent with the Company's acquisition of the ten privately held
companies operating under the tradename The TeamStaff Companies which was
effective January 25, 1999, the Company entered into a two year employment
agreement with Mr. Kirk A. Scoggins, the former President and a principal
shareholder of the TeamStaff Companies, whereby Mr. Scoggins is employed by the
Company as the President of its professional employer organization business.
Under the terms of his employment agreement, Mr. Scoggins will receive a base
salary of $175,000 and options to acquire 100,000 shares of the Company's Common
Stock. The options will vest over two years and have an exercise price of
$1.5312 per share. In addition, debt in the amount of $135,000 previously owed
by Mr. Scoggins to the TeamStaff Companies has been forgiven. The Company also
agreed to pay the automobile expenses of Mr. Scoggins in the amount of $800 per
month. The agreement with Mr. Scoggins contains certain non-compete and
non-disclosure provisions upon terms acceptable to the parties for a period of
two years following termination of his employment. The Company has also
appointed Mr. Scoggins to its Board of Directors and has agreed to consider
appointing a second person mutually acceptable to the Company and the former
owners of the TeamStaff Companies. The Company has agreed to use its best
efforts to obtain the election of Mr. Scoggins to its Board of Directors for the
two year period ending January 25, 2001. See "Certain Relationships and Related
Transactions."
17
<PAGE> 20
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth herein is a line graph comparing the total returns (assuming
reinvestment of dividends) of the Company's common stock, the Standard and Poor
Industrial Average, and an industry composite consisting of a group of two peer
issuers selected in good faith by the Company. The Company's common stock is
listed for trading in the Nasdaq SmallCap market and is traded under the symbol
"DGSI".
5 YEAR CUMULATIVE TOTAL RETURN SUMMARY
______________________________________________________________________________
______________________________________________________________________________
STARTING
BASIS
DESCRIPTION 1993 1994 1995 1996 1997 1998
- ----------- -------- ------- ------- ------- ------- -------
DIGITAL SOLUTIONS ($) $100.00 $155.60 $133.37 $355.56 $125.96 $ 62.95
S & P 500 ($) $100.00 $103.69 $134.53 $161.88 $277.36 $247.92
PEER GROUP ONLY ($) $100.00 $113.15 $147.33 $206.17 $225.53 $374.30
18
<PAGE> 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective as of January 25, 1999, the Company consummated its
acquisition of the TeamStaff Companies. As a result of the acquisition, the 10
TeamStaff Companies became wholly-owned subsidiaries of the Company.
The TeamStaff Companies are comprised of the following corporations:
TeamStaff Holding Company, Inc. ("THC"), The TeamStaff Companies, Inc. ("TSC"),
Employer Support Services, Inc, ("ESS"), TeamStaff U.S.A., Inc. ("TUSA"),
TeamStaff I, Inc. ("TSI"), TeamStaff II, Inc. ("TSI II"), TeamStaff III, Inc.
("TSI III"), TeamStaff IV, Inc. ("TSIV"), TeamStaff V, Inc. ("TSV") and
TeamStaff Insurance Service, Inc. ("TIS"). Each of the TeamStaff Companies are
Florida corporations with its principal address at 1211 N. Westshore Blvd.,
Suite 806, Tampa, Florida 33607. TeamStaff also has offices in Raleigh/Durham,
NC; Dallas, TX; Atlanta, GA; and Jacksonville, FL.
As a result of the acquisition, the combined companies' PEO business
will be based in Tampa. Mr. Kirk Scoggins, the former president and a principal
shareholder of the TeamStaff Companies, has been appointed President of the
combined companies' professional employment organization ("PEO") division and
joined the Board of Directors of the Company effective as of January 25, 1999.
Effective on the closing, the Company entered into a two year employment
agreement with Mr. Scoggins. In addition to the foregoing, the Company has
agreed to forgive approximately $135,000 owed by Mr. Scoggins to the TeamStaff
Companies provided Mr. Scoggins is employed by the Company for the next two
years.
The combined companies will have revenues of approximately $240 million
and approximately 11,000 worksite employees, ranking the combined company among
the top 15 PEOs in the United States. PEOs provide outsourcing of human
resource, payroll, benefits, and workmen's compensation protection to small and
medium sized businesses. The TeamStaff Companies serve a variety of industries,
including golf course management, resort property management, manufacturing,
distribution and service industries.
Pursuant to the terms of the acquisition, the Company issued 8,233,334
million shares of its common stock in exchange for all of the common stock of
TeamStaff and approximately $3.1 million in cash for all the preferred stock
(and accrued dividends) and for payment of outstanding debt owed by the
TeamStaff Companies to its shareholders. Digital also paid $750,000 for certain
legal, accounting investment banking expenses of the former owners of the
TeamStaff Companies. Additionally, Digital issued approximately 311,000 shares
of common stock to its investment banking firm for services rendered in
connection with the acquisition.
Pursuant to the terms of the acquisition agreements, the former owners
of the TeamStaff Companies agreed to indemnify Digital, subject an initial
"basket' of $100,000, for claims of up to approximately $2,000,000 for various
types of claims for breaches of representations and warranties. The former
owners placed 1,471,800 shares of Common Stock into escrow in order to provide
limited
19
<PAGE> 22
security for claims of indemnification brought by Digital for breaches of
representations or warranties by the TeamStaff Companies.
In addition, pursuant to the acquisition agreements, the former owners
of the TeamStaff Companies have agreed to vote all shares of Digital owned by
them during the two year period following the acquisition, in favor of
management's nominees to the Board of Directors at all special or annual
meetings of Digital's shareholders.
The shares issued to the former TeamStaff Companies' owners are
"restricted shares" under the Securities Act of 1933, as amended (the "Act").
Pursuant to the terms of the acquisition agreements entered into between the
Company and the former owners, the Company has agreed to use its best efforts to
have declared effective by the SEC, on the first anniversary of the closing, a
registration statement under the Act covering the resale by the former owners of
one-third of the shares of the Company's Common Stock issued to the former
owners. In addition, the Company has agreed to use its best efforts to have
registration statements for one third of the shares declared effective by the
SEC on each of the second and third anniversary dates of the closing.
Digital received an increase of its present lending facility with
FINOVA Capital Corporation in order to fund the acquisition and to increase its
funding generally. The facility is comprised of (i) a three year term loan, with
a five year amortization and a balloon payment at the end of three years, in
the amount of $2.5 million; (ii) a one year bridge loan in the amount of
$750,000 and (iii) an increase in Digital's revolving line of credit from $2
million to $2.5 million. The term loan bears an interest rate of prime plus 3
percent; the bridge loan bears an interest rate of 12 percent; and the revolving
loan bears an interest rate of prime plus 1 percent. In addition, the Company
will incur annual "success" fee payments of $200,000, $225,000 and $250,000,
respectively, on the first, second and third anniversary dates of the loan
facility.
At a Special Meeting of Shareholders of Digital Solutions held in
December 1998, the transaction was approved by holders of approximately 60
percent of Digital's common stock, representing 91 percent of the shares voted
at the Special Meeting.
For information concerning employment agreements with and compensation
of the COMPANY's executive officers and directors, see "Executive Compensation."
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's
2000 Annual Meeting of Shareholders must be received by the Company on or before
November 19, 1999 to be eligible for inclusion in the Company's proxy statement
and form of proxy to be used in connection with the 2000 Annual Meeting of
Shareholders.
20
<PAGE> 23
FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM l0-K FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1998 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL
BE FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS TO SHAREHOLDERS WITHOUT CHARGE
UPON WRITTEN REQUEST THEREFORE SENT TO DONALD T. KELLY, SECRETARY, TEAMSTAFF,
INC., 300 ATRIUM DRIVE, SOMERSET, NEW JERSEY 08873. Each such request must set
forth a good faith representation that as of February 17, 1999, the person
making the request was the beneficial owner of common stock of the Company
entitled to vote at the Annual Meeting of Shareholders.
III. 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 18, 1999 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.
21
<PAGE> 24
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TEAMSTAFF, INC.
To: Secretary of State
State of New Jersey
Pursuant to the Provisions of Section 14A:9-2(4) and Section
14A:9-4(3), Corporations, General, of the New Jersey Statutes, the undersigned
corporation executes the following Certificate of Amendment to its Amended and
Restated Certificate of Incorporation:
1. The name of the corporation is TeamStaff, Inc.
2. The following amendment to the Amended and Restated
Certificate of Incorporation was unanimously approved by the
Board of Directors and thereafter duly adopted by a majority
of the shareholders of the corporation at the Annual Meeting
of Shareholders held on the 17th day of March, 1999:
Resolved, that Article SIXTH of the Amended and Restated
Certificate of Incorporation be amended to read as follows:
"SIXTH: the following provisions are inserted for the
management of the business and for the conduct of the affairs
of the Corporation, and for further definition, limitation and
regulation of the powers of the Corporation and of its
directors and stockholders.
(1) The number of directors of the Corporation shall be such
as from time to time shall be fixed by, or in the manner provided in
the by-laws but shall not be less than three. The directors shall be
divided into three classes, designated Class 1, Class 2 and Class 3.
Each class shall consist, as nearly as may be possible, of one-third of
the total number of directors constituting the entire Board of
Directors, but in no event shall any class include less than one
director. At the 1999 Annual Meeting of Shareholders, Class 1 directors
shall be elected for a three-year term, Class 2 directors for a
two-year term and Class 3 directors for a one-year term. At each
succeeding annual meeting of shareholders beginning at the 2000 annual
meeting, successors to the class of directors whose term expires at the
annual meeting shall be elected for a three-year term. A director shall
hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible.
(2) Newly created directorship resulting from any increase in
the authorized
<PAGE> 25
number of directors constituting the entire Board of Directors or
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or any other cause
shall be filled only by the affirmative vote of a majority of the
remaining directors then in office, even if less than a quorum, or by
the sole remaining director. Directors elected to fill vacancies shall
hold office for the remainder of the full term of the class of
directors in which the vacancy occurred and until such director's
successor shall be elected and shall qualify. The directors of any
class of directors of the Corporation may be removed by the
shareholders only for cause by the affirmative vote of the holders of
at least 66 2/3% of the combined voting power of all outstanding
voting stock. For the purpose of this Article SIXTH, "cause" shall
mean the willful failure of a director to perform in any substantial
respect such director's duties to the Corporation, willful malfeasance
by a director in the performance of his duties to the Corporation
which is materially and demonstrably injurious to the Corporation, the
commission by a director of an act of fraud in the performance of his
duties, the conviction of a director for a felony punishable by
confinement for a period in excess of one year, or the ineligibility
of a director for continuation in office under any applicable rules,
regulations or orders of any federal or state regulatory authority.
(3) Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of preferred stock or preference shares
issued by the Corporation shall have the right to vote separately by
class or series to elect directors at an annual or special meeting of
shareholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of
this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this
Article SIXTH unless expressly provided by such terms.
(4) Where the term "Board of Directors" is used in this
Certificate of Incorporation, such term shall mean the Board of
Directors of the Corporation; provided, however, that to the extent any
committee of directors of the Corporation is lawfully entitled to
exercise the powers of the Board of Directors, such committee may
exercise any right or authority of the Board of Directors under this
Certificate of Incorporation.
(5) Notwithstanding any other provisions of this Certificate
of Incorporation or the By-Laws of this Corporation (and
notwithstanding the fact that a lesser percentage or separate class
vote may be specified by law, this Certificate of Incorporation, the
By-Laws of the Corporation or otherwise), the affirmative vote of the
holders of at least 66 2/3% of the combined voting power of all
outstanding voting stock shall be required to adopt any provisions
inconsistent with, or to amend or repeal, Paragraph 2, 3, 4 or 5 of
this Article SIXTH.
3. The only class of securities of the corporation entitled to
vote upon the amendment was the Common Stock. The number of
shares of Common Stock entitled to vote upon the amendment was
27,617,241.
<PAGE> 26
4. The number of shares voting for and against such amendment is
as follows:
Number of Shares Voting For Number of Shares Voting Against
Amendment Amendment
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment to the Amended and Restated Certificate of Incorporation as of the
17th day of March, 1999.
TEAMSTAFF, INC. TEAMSTAFF, INC.
By:_________________________ By:________________________
Donald W. Kappauf, President Donald T. Kelly, Secretary
<PAGE> 27
TEAMSTAFF, INC.
(FORMERLY DIGITAL SOLUTIONS, INC.)
ANNUAL MEETING OF SHAREHOLDERS -- MARCH 17, 1999
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 TeamStaff, Inc. owned by the undersigned at the Annual Meeting
of Shareholders of TeamStaff, Inc. to be held on March 17, 1999 and at any
adjournments thereof, hereby revoking any proxy heretofore given. The
undersigned instructs such proxies to vote:
I. Proposal to Amend and Restate the Certificate of Incorporation of the
Corporation to classify the Board of Directors into three classes.
[ ] For [ ] Against [ ] Abstain
II. Election of Directors
Set forth below are two alternatives. Alternative A sets forth the names and
classes of nominees who will be elected to the Board of Directors if the
Shareholder has voted FOR Proposal I. Alternative B sets forth the names and
classes of nominees who will be elected if the Shareholder has voted AGAINST or
to ABSTAIN from Proposal I.
FOR all Nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all
to the contrary below) [ ] nominees listed below [ ]
(Instruction: Please check appropriate box. To withhold authority for any
individual nominee, strike a line through the nominee's name in the list below)
ALTERNATIVE A (IF VOTED FOR PROPOSAL I)
Class I Class 2 Class 3
------- ------- -------
Karl W. Dieckmann John Ewing Martin A. Delaney
Donald W. Kappauf Charles R. Dees, Jr. Kirk A. Scoggins
William J. Marino
ALTERNATIVE B (IF VOTED AGAINST OR ABSTAIN PROPOSAL I)
Karl W. Dieckmann John Ewing William J. Marino
Charles R. Dees, Jr. Martin A. Delaney Kirk A. Scoggins
Donald W. Kappauf
(Instruction: To withhold authority for any individual nominee, strike a line
through the nominee's name in the list below.)
<PAGE> 28
(Continued and to be signed on reverse side)
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 18, 1999 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 seven 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.
