SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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Stratus Services Group, Inc. |
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 5, 2006
STRATUS SERVICES GROUP, INC.
To the Stockholders of
STRATUS SERVICES GROUP, INC.:
The Annual Meeting of the Stockholders of STRATUS SERVICES GROUP, INC. (the "Company") will be held on Thursday, October 5, 2006 at Battleground Country Club, 40 Millhurst Road, Manalapan, New Jersey 07726 at 10:00 a.m., local time, for the following purposes:
1. | To elect three (3) directors of the Company. |
2. | To consider and vote upon a proposal to adopt the Company's 2006 Equity Incentive Plan. |
3. | To consider and vote upon a proposal of the Board of Directors to amend the Amended and Restated Certificate of Incorporation of the Company to increase the number of authorized shares of the Company’s Common Stock from 100,000,000 to 500,000,000 shares. |
4. | To consider and vote upon a proposal of the Board of Directors to amend the Amended and Restated Certificate of Incorporation to eliminate the provision which prohibits stockholders from taking action by written consent. |
5. | To transact such other business as may properly come before the meeting or any adjournment thereof. |
Holders of Common Stock and Series F Preferred Stock of record at the close of business on August 11, 2006, are entitled to notice of and to vote at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
J. TODD RAYMOND
Secretary
Shrewsbury, New Jersey
September __, 2006
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. IF YOU ARE UNABLE TO DO SO, PLEASE MARK, SIGN AND DATE THE ACCOMPANYING PROXY AND MAIL IT AT ONCE IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED.
STRATUS SERVICES GROUP, INC.
149 Avenue at the Commons, Suite 4
Shrewsbury, New Jersey 07702
PROXY STATEMENT
Annual Meeting of Stockholders
October 5, 2006
GENERAL INFORMATION
This Proxy Statement is furnished to the holders of Stratus Services Group, Inc. (the "Company" or "Stratus") Common Stock, $.04 par value per share ("Common Stock"), and Series F Preferred Stock, $.01 par value per share ("Preferred Stock"), in connection with the solicitation of proxies for use at the annual meeting of stockholders to be held on October 5, 2006, and at any adjournment thereof (the "meeting" or "annual meeting"), pursuant to the accompanying Notice of Annual Meeting of Stockholders. Holders of Common Stock and Series F Preferred Stock are referred to herein collectively as the "stockholders." Forms of proxies for use at the meeting are also enclosed. The Company anticipates mailing this Proxy Statement to its stockholders on or about September __, 2006. The executive offices of the Company are located at 149 Avenue at the Commons, Suite 4, Shrewsbury, New Jersey 07702.
Stockholders may revoke the authority granted by their execution of proxies at any time before the effective exercise of proxies by filing written notice of such revocation with the secretary of the meeting. Presence at the meeting does not of itself revoke the proxy; however, a vote cast at the meeting by written ballot will revoke the proxy. All shares represented by executed and unrevoked proxies will be voted in accordance with the specifications therein. Proxies submitted without specification will be voted FOR the election of the nominees for the Board of Directors named herein, FOR the proposal to adopt the 2006 Equity Incentive Plan, FOR the proposal to amend the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to increase the number of authorized shares of the Company’s Common Stock from 100,000,000 to 500,000,000 shares; and FOR the proposal to amend the Company’s Certificate of Incorporation to eliminate the provision which prohibits stockholders from acting by written consent. Management is not aware at the date hereof of any matters to be presented at the meeting other than the matters described above. If any other matter is properly presented, the persons named in the proxy will vote thereon according to their best judgment.
Proxies for use at the meeting are being solicited by the Board of Directors of the Company. The cost of preparing, assembling and mailing the proxy material is to be borne by the Company. It is not anticipated that any compensation will be paid for soliciting proxies, and the Company does not intend to employ specially engaged personnel of the Company or other paid solicitors in the solicitation of proxies. It is contemplated that proxies will be solicited
principally through the mail, but directors, officers and employees of the Company may, without additional compensation, solicit proxies personally or by telephone, facsimile transmission or letter.
VOTING
The voting securities entitled to vote at the meeting consist of shares of Common Stock and Series F Preferred Stock. Each share of Common Stock entitles its owner to one vote. Each outstanding share of Series F Preferred Stock entitles its owner to a number of votes equal to the number of full shares of Common Stock into which such share of Series F Preferred Stock was convertible as of August 11, 2006. On August 11, 2006, the number of outstanding shares of Common Stock was 65,479,756 shares and the number of outstanding shares of Series F Preferred Stock was 6,000 shares. Each outstanding share of Series F Convertible Preferred Stock was convertible into 250 full shares of Common Stock as of August 11, 2006 and, as a result, each share of Series F Preferred Stock entitles its owner to 250 votes per share. The 6,000 shares of Series F Preferred Stock outstanding as of August 11, 2006 entitle the owner thereof to an aggregate of 1,500,000 votes at the meeting. Only stockholders of record on the books of the Company at the close of business on August 11, 2006 will be entitled to vote at the meeting. The holders of the outstanding shares of Common Stock and Series F Preferred Stock, considered as one class, entitled to cast a majority of the votes represented by such shares, present in person or by proxy, will constitute a quorum at the meeting. The affirmative vote of a plurality of the shares of Common Stock and Series F Preferred Stock, voting together as a single class, present in person or represented by proxy and entitled to vote, is required for the election of directors. The proxy card provides space for a stockholder to withhold votes for any nominee for the Board of Directors. Each of the proposal to adopt the 2006 Equity Incentive Plan, the proposal to amend the Certificate of Incorporation to increase the number of authorized shares of the Company’s Common Stock and the proposal to amend the Certificate of Incorporation to eliminate the provision which prohibits stockholders from taking action by written consent must be approved by a majority of the votes cast at the meeting on such proposal by the holders of the Common Stock and Series F Preferred Stock voting as a single class. In addition, the proposal to amend the Certificate of Incorporation to increase the number of authorized shares of Common Stock must also be approved by the holders of a majority of the outstanding shares of Common Stock voting as a separate class.
All votes will be tabulated by the inspector of election appointed at the meeting who will separately tabulate affirmative votes, negative votes, authority withheld for any nominee for director, abstentions and broker non-votes. Authority withheld will be counted toward the tabulation of the votes cast on the election of directors and will have the same effect as a negative vote. Under Delaware law, any proxy submitted and containing an abstention or broker non-vote will not be counted as a vote cast on any matter to which it relates and, accordingly, will have no effect on the outcome of the vote. Abstentions and broker non-votes will be counted for purposes of determining whether a quorum is present at the annual meeting.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Company's by-laws provide that the Board of Directors shall consist of not fewer than three nor more than seven members. The Board of Directors has fixed the number of directors at three, all of whom are to be elected at the 2006 annual meeting.
Nomination Process
The Company does not have a standing nominating committee or a nominating committee charter. Currently, it chooses to rely on the expertise of its independent director, Norman Goldstein, who considers the criteria set forth below, to propose nominees for director and the judgment of the Board in determining the nominees for election. The sole independent director of the Board currently meets the standards for independence as set forth in the rules of the Nasdaq Stock Market. The nominees named herein were proposed and recommended for approval by the full Board by Mr. Goldstein.
The members of the Board as a whole believe that, at a minimum, the Board should be comprised of directors who have expertise that may be useful to the Company as well as directors who have in the past exhibited the highest personal and professional ethics. When considering nominees for director, the independent director considers several factors, including (i) relevant business experience; (ii) independence from management; (iii) judgment, skill, integrity and reputation; (iv) existing commitments and potential conflicts of interest; (v) financing and accounting background; and (vi) the size and composition of the Board. In cases where an individual is a sitting director of the Company who is up for re-election at the annual meeting, the independent director also considered the director’s past performance on the Board. The Board seeks to identify individuals who satisfy these criteria from among persons known to them.
The independent director of the Board will also consider nominees for director suggested by shareholders of the Company. The process by which a stockholder of the Company may suggest a nominee for director of the Company can be found under “Shareholder Proposals and Nominees for Director.” The independent director will apply the same criteria described above to any candidate suggested by a shareholder as well as evaluate any additional information required to be submitted therewith. The Company does not pay any fees to third parties to identify, evaluate or assist in identifying or evaluating potential nominees.
Nominees
Both incumbent directors have been nominated to stand for reelection at the 2006 annual meeting to hold office until the 2007 annual meeting. It is the intention of the persons named in the accompanying proxy to vote, unless otherwise instructed, in favor of the election of the three (3) nominees for director named herein. If any nominee should be unable to serve, the proxies will be voted for the election of a substitute nominee, if any, designated by the Board of Directors. The Company is not aware of any reason why any nominee, if elected, would be unable to serve as a director.
The name and age of each of the nominees for director, each of whom, except Michael Maltzman, currently serves on the Board, are set forth below. Additional biographical information concerning each of the nominees follows the table.
Name | Age | Position |
| Joseph J. Raymond | 71 | Chairman of the Board, President and Chief Executive Officer |
| Michael A. Maltzman | 58 | Chief Financial Officer and Treasurer |
Norman Goldstein | 65 | Director |
Set forth below is certain biographical information with respect to the nominees for election to the Board of Directors.
Joseph J. Raymond has served as Chairman of the Board and Chief Executive Officer of Stratus since its inception in 1997. Prior thereto, he served as Chairman of the Board, President and Chief Executive Officer of Transworld Home Healthcare, Inc. (NASDAQ:TWHH), a provider of healthcare services and products, from 1992 to 1996. From 1987 through 1997, he served as Chairman of the Board and President of Transworld Nurses, Inc., a provider of nursing and paraprofessional services, which was acquired by Transworld Home Healthcare, Inc. in 1992.
Michael A. Maltzman has served as Treasurer and Chief Financial Officer of Stratus since August 1997, when it acquired Royalpar Industries, Inc. Mr. Maltzman served as Chief Financial Officer of Royalpar Industries, Inc. from 1994 until 1997. From June 1988 to July 1993, he served as Vice President and Chief Financial Officer of Pomerantz Staffing Services, Inc., a nationwide staffing company. Prior thereto, he was a partner with Eisner & Lubin, a New York accounting firm. Mr. Maltzman directs the corporate services department of the Company, handling financial, SEC, legal, payroll and billing, as well as investor relations functions. Mr. Maltzman is a Certified Public Accountant.
Norman Goldstein is currently the President and CEO of NGA Inc., which is an export/import company primarily dealing in the importation, sale, and distribution of all types of flat glass products throughout the USA. NGA also supplies products for distributors for supermarkets and drugstore chains. This company, and a similar predecessor company have been in these businesses for more than 37 years.
Meetings of the Board of Directors; Committees
During the fiscal year ended September 30, 2005, the Board of Directors held 13 meetings. During fiscal 2005, each member of the Company's current Board of Directors attended at least 75% of the meetings of the Board of Directors and all of the meetings of the committees on which he served. Directors who are employees of the Company are not compensated for serving on the Board of Directors. A total of $96,000 was paid to non-employee directors in fiscal 2005. For the fiscal year ended September 30, 2006, non-employee directors are paid a fee of $1,000 per Board of Directors or committee meeting attended in person and $500 per meeting attended telephonically.
During fiscal 2005, the Board of Directors had two standing committees: the Audit Committee and the Compensation Committee. During fiscal 2005 and until November 30, 2005 the Audit Committee consisted of Mr. Michael Rutkin, Mr. Donald Feidt and Mr. Sanford Feld. Each of such individuals resigned their positions as Directors effective November 30, 2005 and, as a result, the Board of Directors does not currently have an Audit Committee. During fiscal 2005, the Audit Committee held three meetings.
Messrs. Feidt and Feld served as members of the Compensation Committee during fiscal 2005 and until their resignations as Directors effective November 30, 2006. The Compensation Committee reviewed and approved compensation for executive employees of the Company on a periodic basis, subject to approval of the Board of Directors, and established and administered the Company's compensation programs. During fiscal 2005, the Compensation Committee held no meetings, but acted by unanimous written consent on one occasion.
Vote Required
Election by the Company’s stockholders of a nominee for the Board of Directors requires the affirmative vote of a plurality of the votes cast at the annual meeting by the holders of shares of Common Stock and Series F Preferred Stock, voting together as a single class, present in person or represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH NOMINEE FOR THE BOARD OF DIRECTORS.
PROPOSAL NUMBER 2
ADOPTION OF THE STRATUS SERVICES GROUP, INC.
2006 EQUITY INCENTIVE PLAN
Introduction
The Board of Directors has approved and adopted, subject to approval and ratification by the stockholders, the 2006 Equity Incentive Plan (the “Equity Incentive Plan” or the “Plan”). The Board of Directors believes that the Equity Incentive Plan can be an effective means of attracting, motivating and retaining key employees and directors. In addition, the Board of Directors believes that the Equity Incentive Plan will provide a method whereby key employees and directors can share in the long-term growth in the Company.
The aggregate number of shares reserved for issuance under the Equity Incentive Plan is 20,000,000 shares.
Summary of Provisions of the 2006 Equity Incentive Plan
General
The Equity Incentive Plan will be administered by the Board of Directors or, if in existence, the Compensation Committee of the Board of Directors (such party administering the Plan to be referred to herein as the “Administrator”) which will be authorized to grant (i) “incentive stock options” within the meaning of Section 422 of the Code, (ii) nonqualified stock options, (iii) stock appreciation rights (“SARs”), (iv) restricted stock grants, (v) deferred stock awards and (vi) other stock based awards to employees of the Company and its subsidiaries. The Compensation Committee will determine (a) the recipients of awards under the Plan (“Awards”), (b) the times at which Awards will be made, (c) the size and type or types of Awards to be made to each recipient and (d) will set forth in each such Award the terms, conditions and limitations applicable to the Award granted. The Compensation Committee will have full and exclusive power to interpret the Plan, to adopt rules, regulations and guidelines relating to the Plan, to grant waivers of Plan restrictions and to make all of the determinations necessary for its administration.
The aggregate number of shares of Common Stock reserved for issuance pursuant to Awards granted under the Plan is 20,000,000 shares. The maximum number of shares of the Company's Common Stock which may be issued to the Chief Executive Officer of the Company pursuant to various Awards may not exceed thirty-five percent (35%) of the total number of shares of the Company’s Common Stock reserved for issuance under the Plan. The maximum number of shares of the Company’s Common Stock which may be issued to any other employee or participant under the Plan may not exceed twenty percent (20%) of the total number of shares of the Company’s Common Stock reserved for issuance under the Plan. The Equity Incentive Plan will terminate on December 31, 2015 unless earlier terminated by the Board of Directors.
Those eligible to receive Awards under the Plan (each, a “Participant” and collectively, the “Participants”) will be persons in the employ of the Company, or any of its subsidiaries, designated by the Committee (“Employees”) and other persons or entities who, in the opinion of
the Administrator, are in a position to make a significant contribution to the success of the Company or its subsidiaries, including, without limitation, consultants and agents of and advisors to the Company or any subsidiary. A “subsidiary” for purposes of the Plan will be a present or future corporation of which the Company owns or controls, or will own or control, more than 50% of the total combined voting power of all classes of stock or other equity interests.
Awards Under the Equity Incentive Plan
Stock Options. The Administrator may grant either incentive stock options or non-qualified stock options under the Equity Incentive Plan. Only employees of the Company may be granted incentive stock options. The exercise price of each option shall be equal to the “fair market value” (as defined below) of the Common Stock on the date the option is granted to the Participant; provided, however, that (i) in the Administrator’s discretion, the exercise price of a non-qualified option may be less than the fair market value of the Common Stock on the date of grant; (ii) with respect to a Participant who owns more than 10% of the total combined voting power of all classes of stock of the Company, the exercise price of an incentive stock option granted to such Participant shall not be less than 110% of the fair market value of the Common Stock on the date the option is granted; and (iii) with respect to any option repriced by the Administrator, the exercise price shall be equal to the fair market value of the Common Stock on the date such option is repriced unless determined otherwise by the Administrator. For purposes of the exercise price of an option, “fair market value” shall mean the closing sales price of the Common Stock as reported on the principal securities exchange on which the Company’s Common Stock is listed, or if not so listed, the last sale price (or the average of the high asked and low bid prices of the Common Stock if sale price information is not reported) of the Common Stock as reported by the Nasdaq Stock Market, by the NASD OTC Bulletin Board or similar quotation service. The term of each option granted to a participant pursuant to the Plan will be determined by the Administrator; provided, however, that in no case shall an option be exercisable more than ten years (five years in the case of an incentive stock option granted to a ten-percent stockholder) from the date of the grant.
Stock Appreciation Rights. An SAR is an Award entitling the recipient to receive payment, in cash and/or shares of Common Stock, determined in whole or in part by reference to appreciation in the value of a share of Common Stock. An SAR entitles the recipient to receive in cash and/or shares of Common Stock, with respect to each SAR exercised, the excess of the fair market value of a share of Common Stock on the date of exercise over the fair market value of a share of Common Stock on the date the SAR was granted.
The Administrator may grant SARs either alone or in combination with an underlying stock option. The term of an SAR and the time or times at which an SAR shall be exercisable shall be set by the Administrator; provided, that an SAR granted in tandem with an option will be exercisable only at such times and to the extent that the related option is exercisable. An SAR granted in tandem with an incentive stock option may be exercised only when the market price of the shares of Common Stock subject to the incentive stock option exceeds the exercise price of the incentive stock option, and the SAR may be for no more than 100% of the difference between the exercise price of the underlying incentive stock option and the fair market value of the Common Stock subject to the underlying incentive stock option at the time the SAR is
exercised. At the option of the Administrator, upon exercise, an SAR may be settled in cash, Common Stock or a combination of both.
Restricted Stock Grants. The Administrator may grant shares of Common Stock under a restricted stock grant which sets forth the applicable restrictions, conditions and forfeiture provisions which shall be determined by the Administrator and which can include restrictions on transfer, continuous service with the Company or any of its subsidiaries, achievement of business objectives, and individual, subsidiary and Company performance. Shares of Common Stock may be granted pursuant to a restricted stock grant for no consideration or for any consideration as determined by the Administrator. Subject to such restrictions, conditions and forfeiture provisions as may be established by the Administrator, any Participant receiving an Award of Restricted Stock will have all the rights of a stockholder of the Company with respect to the shares of Restricted Stock, including the right to vote the shares and the right to receive any dividends thereon.
Deferred Stock Awards. The Administrator may grant shares of Common Stock under a deferred stock award, with the delivery of such shares of Common Stock to take place at such time or times and on such conditions as the Administrator may specify. At the time any deferred stock award is granted, the Administrator may provide that the Participant will receive an instrument evidencing the Participant’s right to future delivery of Deferred Stock.
Adjustments
The number or kind of shares covered by outstanding awards under the Equity Incentive Plan and, if applicable, the prices per share applicable thereto, are subject to adjustment in the event of stock dividends, stock splits, combinations of shares, recapitalizations, mergers, consolidations, spin-offs, reorganizations, liquidations, issuances of rights or warrants, and similar events. In the event of any such transaction or event, the Administrator, in its discretion, may provide in substitution for any or all outstanding awards under the Equity Incentive Plan such alternative consideration (including cash), if any, as it may determine to be equitable in the circumstances and may require the surrender of all Awards so replaced. The Administrator may also make or provide for such adjustments in the number of shares available under the Equity Incentive Plan and the other limitations contained in the Equity Incentive Plan as the Administrator may determine appropriate to reflect any transaction or event described above.
In the event of a proposal, which is approved by the Company’s Board of Directors, of any merger or consolidation in which the Company is not the surviving entity, any sale of substantially all of the Company’s assets or any other transaction or series of related transactions as a result of which any shares of Common Stock would be converted into cash, securities or other property of another corporation or entity (other than a merger or consolidation in which the holders of Common Stock immediately prior to the merger or consolidation continue to own at least 50% of the Common Stock after the merger or consolidation, or if the Company is not the surviving corporation, at least 50% of the Common Stock, or other voting securities of the surviving corporation or other business entity immediately after the merger or consolidation) or any sale of substantially all of the Company’s assets or any other transaction or series of transactions as a result of which a single person or several persons, acting in concert own a majority of the Company’s outstanding Common Stock, then all outstanding stock options and
SARs shall become exercisable immediately and all restricted stock grants and deferred stock awards shall immediately become free of all restrictions and conditions, or the Administrator may arrange to have the surviving entity grant replacement awards for all outstanding awards.
Other Information
Upon termination of service prior to age 65 for any reason other than death or disability, stock options and SARs which are exercisable as of the date of such termination may be exercised within three months of the date of termination, and any restricted stock grants and deferred stock awards which are still subject to any restriction or condition shall be forfeited to the Company. Upon death or disability or voluntary or involuntary termination of service after age 65, all stock options and SARs become immediately exercisable and may be exercised for a period of six months (in the case of death or disability) or three months (in the case of termination for reasons other than death or disability) after the date of termination, and all restricted stock grants and deferred stock awards shall become immediately free of all restrictions and conditions. The Administrator has the discretionary authority to alter or establish the terms and conditions of an award in connection with termination of service. The Board of Directors may amend, suspend or terminate the Equity Incentive Plan, except that no action may, without the consent of a participant, adversely alter or impair any Award previously granted to a participant under the Plan without such participant's consent.
Federal Income Tax Consequences
Stock Options. The grant of an incentive stock option or a non-qualified stock option does not result in income for the grantee or in a deduction for the Company.
The exercise of a non-qualified stock option results in ordinary income for the grantee and a business deduction for the Company measured by the difference between the option’s exercise price and the fair market value of the shares of Common Stock received at the time of exercise. If the Company is required to withhold income taxes in connection with the exercise of a non-qualified stock option, the Administrator may, in its discretion, permit such withholding obligation to be satisfied by the delivery of shares of Common Stock held by the grantee or to be delivered to the grantee upon exercise of the option.
The exercise of a qualified incentive stock option does not result in income for the grantee or in a business deduction for the Company provided that the employee does not dispose of the shares of Common Stock acquired upon exercise within two years after the date of grant of the option and one year after the transfer of the shares of Common Stock upon exercise, and provided further that the employee is employed by the Company or a subsidiary of the Company from the date of grant until three months before the date of exercise. If these requirements are met, the employee’s basis in the shares of Common Stock would be the exercise price. Any gain related to the subsequent disposition of shares of Common Stock will be taxed to the employee as a long-term capital gain and the Company will not be entitled to any deduction. The excess of the fair market value of the Common Stock on the date of exercise over the exercise price is an item of tax preference for the employee, potentially subject to the alternative minimum tax.
If an employee should dispose of the shares of Common Stock acquired pursuant to the exercise of an incentive stock option prior to the expiration of either of the designated holding periods, the employee recognizes ordinary income and the Company is entitled to a business deduction in an amount equal to the lesser of the fair market value of the shares of Common Stock on the date of exercise minus the option exercise price or the amount realized on disposition of the shares of Common Stock minus the option exercise price. Any gain in excess of the ordinary income recognized by the employee is taxable as long-term or short-term capital gain, depending on the holding period. If an option, intended to be an incentive stock option, does not satisfy all of the requirements of an incentive stock option pursuant to Section 422 of the Code when granted, the employee recognizes ordinary income upon exercise of the option and the Company is entitled to a business deduction in an amount equal to the fair market value of the shares of Common Stock on the exercise date minus the option exercise price. Income tax withholding would be required. In the event an option intended to be an incentive stock option does not qualify as such when granted or when exercised, the Board of Directors believes that any related deduction should not be subject to the annual $1 million per capita limitation on employee remuneration for certain executive officers of the Company imposed by Section 162(m) of the Code. The Board of Directors believes that the income recognized by an employee or other participant upon the exercise of an option granted under the Equity Incentive Plan should be qualified performance-based compensation and, therefore, an exception to the limitations imposed on the Company by Section 162(m) of the Code with respect to the deductibility of a Named Executive Officer’s compensation during a particular calendar year.
SAR: The grant of an SAR does not result in income for the grantee or in a business deduction for the Company for federal income tax purposes. Upon the exercise of an SAR, the grantee recognizes ordinary income and the Company is entitled to a business deduction measured by the fair market value of the shares of Common Stock plus any cash received. Income tax withholding would be required for employees of the Company and its subsidiaries. The Board of Directors believes that any income related to the exercise of SARs should be exempt from the $1 million limit of Section 162 (m) of the Code pursuant to the performance-based compensation exception.
Restricted Stock Grants and Deferred Stock Award. If the shares of Common Stock issued pursuant to a restricted stock grant or deferred stock award are subject to restrictions resulting in a “substantial risk of forfeiture” pursuant to the meaning of such term under Section 83 of the Code, the restricted stock grant or deferred stock award does not result in income for the grantee or in a business deduction for the Company for federal income tax purposes at the time of the grant or award unless the recipient files a written election with the Internal Revenue Service pursuant to Section 83(b) of the Code to be taxed on the date of issuance on the difference between the then fair market value of the shares awarded and the price the recipient paid for the shares. If there are no such restrictions, conditions, limitations or forfeiture provisions, the grantee recognizes ordinary income and the Company is entitled to a business deduction upon receipt of the shares of Common Stock. Dividends paid to the grantee while the stock remained subject to any restrictions would be treated as compensation for federal income tax purposes. If an election under Section 83(b) is not made, at the time the restrictions lapse, the grantee receives ordinary income and the Company is entitled to a business deduction, subject to the $1 million deduction limitation under Section 162(m), measured by the fair market
value of the shares of Common Stock at the time of lapse. Income tax withholding would be required for employees of the Company and its subsidiaries.
Other Stock Based Awards. Any employee of the Company or any of its subsidiaries who receives shares of Common Stock as bonus compensation or in lieu of the employee’s cash compensation shall recognize ordinary income, and the Company shall be entitled to a business deduction, subject to the $1 million deduction limitation under Section 162(m), measured by the fair market value of the shares of Common Stock issued to the employee.
New Plan Benefits
At this time, no awards have been granted under the Equity Incentive Plan, and it is not possible to state the terms or benefits of any individual awards which may be issued under the Equity Incentive Plan, or which would have been issued if the Equity Incentive Plan had been in effect during fiscal 2005, or the name or positions of, or respective amounts of the allotment to, any persons who may participate.
Compliance with Section 409A of the Code
The American Jobs Creation Act of 2004, enacted on October 22, 2004, revised the federal income tax law applicable to certain types of awards that may be granted under the Equity Incentive Plan. To the extent applicable, it is intended that the Equity Incentive Plan and any grants made under the Equity Incentive Plan comply with the provisions of Section 409A of the Code. The Equity Incentive Plan and any grants made under the Equity Incentive Plan will be administered in a manner consistent with this intent, and any provision of the Equity Incentive Plan that would cause the Equity Incentive Plan or any grant made under the Equity Incentive Plan to fail to satisfy Section 409A shall have no force and effect until amended to comply with Section 409A (which amendment may be retroactive to the extent permitted by Section 409A and may be made by the Administrator without the consent of the Participants). Any reference to Section 409A will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.
Vote Required
Approval and adoption by the Company’s stockholders of the Equity Incentive Plan requires the affirmative vote of a majority of the votes cast at the annual meeting by the holders of shares of Common Stock and Series F Preferred Stock, voting together as a single class, present in person or represented by proxy and entitled to vote thereon.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL AND ADOPTION OF THE 2006 EQUITY INCENTIVE PLAN.
PROPOSAL NUMBER 3
PROPOSAL TO AMEND THE COMPANY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
General
The Board of Directors has determined that it would be in the best interest of the Company to amend the Company’s Certificate of Incorporation to increase the number of authorized shares of the Company’s Common Stock from 100,000,000 to 500,000,000 shares. The text of the proposed Certificate of Amendment is attached hereto as Exhibit A. As of August 11, 2006, there are 65,479,756 shares of the Company’s Common Stock outstanding, leaving 34,520,244 shares of Common Stock authorized but unissued. However, as of August 11, 2006, the Company had (i) reserved 1,750,000 shares of its Common Stock for issuance under its 1999, 2000, 2001 and 2002 Equity Incentive Plans, (ii) commitments to issue an aggregate of 19,222,570 shares of Common Stock upon the exercise of non-plan options and warrants; (iii) commitments to issue 1,500,000 shares of its Common Stock upon the conversion of its Series F Preferred Stock and (iv) a commitment to issue 15,947,500 shares of its Common Stock under a Convertible Note.
The above commitments and potential transactions, in the aggregate, could obligate the Company to issue up to 38,420,070 shares of the Company’s Common Stock while it has only 34,520,244 shares of authorized and unissued Common Stock out of which it can satisfy such obligations.
In addition to satisfying the Company’s current commitments as described above, the Company may be required to raise additional capital to finance its operations if and when a feasible financing opportunity is presented to the Company. In addition, the Company may be presented with opportunities to acquire other businesses using its Common Stock as part or all of the purchase price. Thus, one of the purposes of the proposed amendment includes providing the Company with greater flexibility for entering into any opportunity that might be presented to it. Currently, the Company is restricted in its options due to the limited amount of authorized but unissued shares of Common Stock provided for in its Certificate of Incorporation. The Board believes that it is in the best interest of the Company to increase the number of authorized shares of Common Stock to assure the availability of shares for such purposes.
Purposes and Effects of Increasing the Number of Authorized Shares of Common Stock
The proposed amendment of the Certificate of Incorporation would increase the number of shares of Common Stock which the Company is authorized to issue from 100,000,000 shares to 500,000,000 shares. If Proposal 3 is approved by the shareholders of the Company, the additional 400,000,000 shares of Common Stock authorized would be part of the existing class of Common Stock and, if and when issued, would have the same rights and privileges as the shares of Common Stock currently issued and outstanding.
The Board believes that the proposed increase in the number of authorized shares of Common Stock is advisable so that the Company will have sufficient authorized capital to permit
(i) future equity financings, (ii) potential acquisitions of businesses for Common Stock, (iii) the grant of additional stock options under its equity incentive plans, and (iv) potential issuances of shares of Common Stock upon conversion of the Company’s Series F Preferred Stock and Convertible Note and exercise of outstanding warrants and options to purchase Common Stock.
Approval of Proposal Number 3 by the stockholders of the Company will increase the number of shares of Common Stock which the Company may issue without further stockholder approval. The issuance of additional shares of Common Stock could have the effect of delaying, deferring or preventing a change in control of the Company and discouraging tender offers for the Company. In addition, the issuance of additional shares of Common Stock will have a dilutive effect on the current stockholders of the Company and could have an adverse impact on the trading price of the Common Stock.
Vote Required
Approval by the Company’s stockholders of Proposal Number 3 requires approval by (i) holders of a majority of the outstanding shares of Common Stock and Series F Preferred Stock, voting together as a single class; and (ii) a majority of the outstanding shares of Common Stock, voting as a separate class.
THE COMPANY’S BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NUMBER 3.
PROPOSAL NUMBER 4
PROPOSAL TO AMEND THE COMPANY’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO ELIMINATE THE PROVISION WHICH PROHIBITS STOCKHOLDERS FROM ACTING BY WRITTEN CONSENT
General
Article 5 of the Company’s Certificate of Incorporation (“Article 5”) provides as follows:
ARTICLE V
STOCKHOLDER ACTIONS AND MEETINGS OF STOCKHOLDERS
Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV hereof, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office or by the Chief Executive Officer of the Corporation. Elections of directors need not be by written ballot, unless otherwise provided in the Bylaws.
If Proposal 4 is adopted and approved by the Company’s stockholders, Article 5 would be amended to delete the first sentence thereof which provides that except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV of the Certificate of Incorporation, any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. The text of the proposed amendment to the Certificate of Incorporation which would amend Article V is attached hereto as Exhibit B.
Purpose and Effect of Eliminating the Provision which Prohibits Stockholders from Acting by Written Consent
The purpose of Proposal 4 is to provide the Company with greater flexibility in the manner in which matters may be approved by the Company’s stockholders. Section 228(a) of the Delaware General Corporation Law (the “DGCL”) provides as follows:
(a) Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.
The first sentence of Article V, which prohibits stockholders from acting by written consent, could delay or defer a takeover attempt that stockholders may consider in their best interests including attempts that might result in a premium over the market price for the shares held by the stockholders. This provision may also make it more difficult to remove incumbent management.
If Proposal 4 is adopted and approved by the Company’s stockholders, actions otherwise required to be taken at an annual or special meeting of stockholders could be taken pursuant to Section 228 of the DGCL without a meeting and without prior notice to all stockholders if approved by written consent of holders of not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, subject to certain rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as discussed below. These actions could include, among other things, amendments to the Company’s Certificate of Incorporation, mergers, consolidations, sales of assets and other matters that require the approval of the Company’s stockholders. Other than as described in this Proxy Statement, no such matters are being contemplated at this time.
The Company’s Common Stock is currently registered under Section 12(g) of the Exchange Act. Under Rule 14c-2 promulgated under the Exchange Act, the Company would be required to transmit to each holder of Common Stock entitled to vote or give an authorization or consent on a matter acted upon by stockholders a written information statement containing information specified in Schedule 14C under the Exchange Act at least 20 days prior to the date on which the corporate action may be taken. No such prior notice would be required to be given if the Company terminates registration of its Common Stock under Section 12(g) of the Exchange Act and is therefore no longer subject to the SEC’s reporting requirements. As a result, under these circumstances, significant corporate actions could be taken by the written consent of holders of a majority of the Company’s outstanding shares of common stock without prior notice to, or the consent of, the Company’s other stockholders.
Vote Required
Approval by the Company’s stockholders of Proposal Number 4 requires approval by holders of a majority of the outstanding shares of Common Stock and Series F Preferred Stock, voting together as a single class.
THE COMPANY’S BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NUMBER 4.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information, as of August 11, 2006 with respect to (a) each person who is known by us to be the beneficial owner (as defined in Rule 13d-3 (“Rule 13d-3”) of the Exchange Act) of more than five percent (5%) of the Company’s Common Stock and Series F Preferred Stock and (b) the beneficial ownership of Common Stock and Series F Preferred Stock by each director, the Company’s Chief Executive Officer and the other of the Company’s current executive officers of the Company who earned in excess of $100,000 in fiscal 2005 and by all directors and executive officers as a group. Except as set forth in the footnotes to the table, the stockholders have sole voting and investment power over such shares.
| | | | Series F | |
| | Common Stock | | Preferred Stock | |
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | | % of Class | | Amount and Nature of Beneficial Ownership | | % of Class | |
| Joseph J. Raymond | 6,998,495 | (1) | 10.4 | % | 6,000 | (2) | 100.0 | % |
| Pinnacle Investment Partners, LLP | 7,275,528 | (3) | 9.99 | | - | | - | |
| Michael A. Maltzman | 3,511,667 | (4) | 5.3 | | - | | - | |
| Norman Goldstein | 2,240,275 | | 3.4 | | - | | - | |
| Jamie Raymond | 3,000,000 | | 4.6 | | - | | - | |
| All Directors and Executive Officers as a Group (6 Persons) (1)(2)(4) and (5) | 15,750,437 | | 22.6 | % | 6,000 | | 100.0 | % |
(1) | Includes 1,500,000 shares of common stock issuable as of August 11, 2006, upon conversion of 6,000 shares of Series F Preferred Stock and (ii) 285,250 shares of common stock and 570,500 shares of common stock issuable pursuant to warrants owned by a corporation of which Mr. Raymond is the sole owner. |
(2) | These shares are owned directly by Mr. Raymond. |
(3) | Represents shares issuable upon conversion of secured Convertible Note and subject to warrants which are currently exercisable. |
(4) | Includes 750,000 shares subject to options which are currently exercisable or may become exercisable within 60 days of August 11, 2006. |
EXECUTIVE COMPENSATION
The following table provides certain summary information regarding compensation paid by the Company during the fiscal years ended September 30, 2003, 2004 and 2005 to our Chief Executive Officer of the Company and to each of the Company’s other executive officers who earned in excess of $100,000 during fiscal 2005 (together with the Chief Executive Officer, the “Named Officers”):
| | | | | Long Term Compensation Awards |
| | | | | Number of Shares |
| | Annual Compensation | Underlying Stock |
| Name and Principal Position | Fiscal Year | Salary($) | Bonus ($) | Options (#) |
| Joseph J. Raymond | 2005 | 160,385 | 10,000 | - |
| Chairman and Chief Executive | 2004 | 54,167 | - | - |
| Officer | 2003 | 94,231 | - | 1,102,115 |
| | | | | |
| Michael A. Maltzman | 2005 | 172,308 | 27,450 | 750,000 |
| Treasurer and Chief Financial | 2004 | 165,000 | - | - |
| Officer | 2003 | 165,000 | - | 385,448 |
| | | | | |
| Jamie Raymond | 2005 | 126,760 | - | - |
| President of STS (1) | 2004 | - | - | - |
| | 2003 | - | - | - |
(1) Jamie Raymond was not considered an executive officer until December 31, 2005.
__________
Option Grants in Last Fiscal Year
Shown below is further information with respect to grants of stock options in fiscal 2005 to the Named Officers by the Company which are reflected in the Summary Compensation Table set forth under the caption “Executive Compensation.”
| | | Individual Grants | | |
Name | | Number of Securities Underlying Options Granted (#) | | Percent of Total Options Granted to Employees in Fiscal Year | | Exercise or Base Price ($/Sh) | | Expiration Date | | |
| |
| |
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term |
5% | | 10% |
| Joseph J. Raymond | | - | | - | | | - | | - | | | - | | | - |
| | | | | | | | | | | | | |
| Michael A. Maltzman | | 750,000 | | 71% | | .26 | | 2015 | | 122,636 | | 310,772 |
| | | | | | | | | | | | | |
| Jamie Raymond | | - | | - | | - | | - | | - | | - |
Option Exercises and Fiscal Year-End Values
Shown below is information with respect to options exercised by the Named Executive Officers during fiscal 2005 and the value of unexercised options to purchase the Company’s Common Stock held by the Named Executive Officers at September 30, 2005.
Name | Shares Acquired on Exercise(#) | | Number of Securities Underlying Unexercised Options at FY End (#) | Value of Unexercised In-The-Money Options at FY End ($)(1) |
| |
Value Realized($) |
Exercisable | | Unexercisable | Exercisable | | Unexercisable |
| Joseph J. Raymond | - | - | 713,029 | | 250,000 | $ | 0 | | $ | 0 |
| | | | | | | | | |
| Michael A. Maltzman | - | - | 921,362 | | 0 | 0 | | 0 |
| | | | | | | | | |
| Jamie Raymond | - | - | 58,029 | | 0 | 0 | | 0 |
No options were exercised by the Named Executive Officers during the fiscal year ended September 30, 2005.
(1) | Represents market value of shares covered by in-the-money options on September 30, 2005. The closing price of the Common Stock on such date was $.07. Options are in-the-money if the market value of shares covered thereby is greater than the option exercise price. No options held by the Named Officers as of September 30, 2005 were in-the-money. |
Employment Agreements
In September 1997, the Company entered into an employment agreement (the “Raymond Agreement”) with Joseph J. Raymond, Chairman and Chief Executive Officer, which had an initial term that expired in September 2000. The Raymond Agreement has been extended through September 30, 2007. Pursuant to the Raymond Agreement and subsequent amendments, Mr. Raymond is entitled to a minimum annual base salary of $175,000 which is reviewed periodically and subject to such increases as the Board of Directors, in its sole discretion, may determine. During the term of the Raymond Agreement, if the Company’s profitable, Mr. Raymond is entitled to a bonus/profit sharing award equal to .4% of our gross margin, but not in excess of 100% of his base salary. If we are not profitable, he is entitled to a $10,000 bonus. Mr. Raymond is eligible for all benefits made available to senior executive employees, and is entitled to the use of an automobile. In fiscal 2002, 2003 and 2004, Mr. Raymond voluntarily waived a substantial portion of his minimum annual base salary.
In the event the Company terminates Mr. Raymond without “Good Cause”, Mr. Raymond will be entitled to severance compensation equal to 2.9 times his base salary then in effect plus any accrued and unpaid bonuses and unreimbursed expenses. As defined in the Raymond Agreement “Good Cause” shall exist only if Mr. Raymond:
• | willfully or repeatedly fails in any material respect to perform his obligations under the Raymond Agreement, subject to certain opportunities to cure such failure; |
| | |
• | is convicted of a crime which constitutes a felony or misdemeanor or has entered a plea of guilty or no contest with respect to a felony or misdemeanor during his term of employment; |
| | |
• | has committed any act which constitutes fraud or gross negligence; |
| | |
• | is determined by the Board of Directors to be dependent upon alcohol or drugs; or |
| | |
• | breaches confidentiality or non-competition provisions of the Raymond Agreement. |
Mr. Raymond is also entitled to severance compensation in the event that he terminates the Raymond Agreement for “Good Reason” which includes:
• | the assignment to him of any duties inconsistent in any material respect with his position or any action which results in a significant diminution in his position, authority, duties or responsibilities; |
| | |
• | a reduction in his base salary unless his base salary is, at the time of the reduction, in excess of $200,000 and the percentage reduction does not exceed the percentage reduction of our gross sales over the prior twelve month period; |
| | |
• | We require Mr. Raymond to be based at any location other than within 50 miles of our current executive office location; and |
| | |
• | a Change in Control of our Company, which includes the acquisition by any person or persons acting as a group of beneficial ownership of more than 20% of our outstanding voting stock, mergers or consolidations of our company which result in the holders of Stratus’ voting stock immediately before the transaction holding less than 80% of the voting stock of the surviving or resulting corporation, the sale of all or substantially all of our assets, and certain changes in the our Board of Directors. |
In the event that the aggregate amount of compensation payable to Mr. Raymond would constitute an “excess parachute payment” under the Internal Revenue Code of 1986, as amended (the “Code”), then the amount payable to Mr. Raymond will be reduced so as not to constitute an “excess parachute payment.” All severance payments are payable within 60 days after the termination of employment.
Mr. Raymond has agreed that during the term of the Raymond Agreement and for a period of one year following the termination of his employment, he will not engage in or have any financial interest in any business enterprise in competition with the Company that operates anywhere within a radius of 25 miles of any offices maintained by the Company as of the date of the termination of employment.
On April 13, 2005, the Company entered into a new three (3) year employment agreement with Michael A. Maltzman, CFO (the “Agreement”). Mr. Maltzman’s prior agreement was terminable by either party without cause at any time. However, in the event that Mr. Maltzman’s prior agreement had been terminated without cause or by Mr. Maltzman with good reason, Mr. Maltzman would have been entitled to a severance payment equal to the greater of one month’s salary for each year worked or three months’ salary.
Under the new Agreement, Mr. Maltzman is entitled to a minimum annual salary of $175,000 for year one of the Agreement, $185,000 for year two of the Agreement, and $190,000 in year three of the agreement. This base salary is to be reviewed periodically and subject to such increases as the Board of Directors, in its sole discretion, may determine. During the term of the Agreement, if the Company is profitable, Mr. Maltzman is entitled to a bonus of three-tenths of one percent (3/10%) of the Company’s reported gross profits, for each financial quarter, such bonus to be payable within forty-five (45) days of completion of the applicable quarter, and such other bonus or bonuses as the Board in its discretion may determine to award him from time to time.
As further consideration for entering into the Agreement, Mr. Maltzman received immediately exercisable options to purchase 750,000 shares of the Company’s common stock, at an exercise price equal to the market price on the date of grant. Mr. Maltzman also received 250,000 shares of restricted Company common stock, vested evenly over a three (3) year period, and restricted as to transfer until vested. The Company paid Mr. Maltzman an additional cash bonus of thirty-eight percent (38%) of the taxable income resulting to Mr. Maltzman from the
grant of such restricted stock. Mr. Maltzman is eligible for all benefits made available to senior executive employees, and is entitled to an automobile allowance.
In the event the Company terminates Mr. Maltzman without “Good Cause”, Mr. Maltzman will be entitled to severance compensation equal to the base salary then in effect, through the remainder of the three (3) year term, payable on a bi-monthly basis, plus any accrued and unpaid bonuses and unreimbursed expenses. As defined in the Agreement “Good Cause” shall exist only if Mr. Maltzman willfully or repeatedly fails in any material respect to perform his obligations under the Agreement, subject to certain opportunities to cure such failure; is convicted of a crime which constitutes a felony or misdemeanor or has entered a plea of guilty or no contest with respect to a felony or misdemeanor during his term of employment; has committed any act which constitutes fraud or gross negligence; or breaches confidentiality or non-competition provisions of the Agreement. Mr. Maltzman is also entitled to severance compensation in the event that he terminates the Agreement for “Good Reason” which includes the assignment to him of any duties inconsistent in any material respect with his position or any action which results in a significant diminution in his position, authority, duties or responsibilities; a reduction in his base salary unless his base salary is, at the time of the reduction in excess of $190,000 and the percentage reduction does not exceed the percentage reduction of the Company’s gross sales over the prior twelve month period; the Company requires Mr. Maltzman to be based at any location other than within 20 miles of its current executive office location; and, if the Agreement is not assumed by the surviving corporation, a Change in Control of the Company, which includes the acquisition by any person or persons acting as a group of beneficial ownership of more than 20% of the Company’s outstanding voting stock, mergers or consolidations of the Company which result in the holders of the Company’s voting stock immediately before the transaction holding less than 80% of the voting stock of the surviving or resulting corporation, the sale of all or substantially all of the Company’s assets, and certain changes in the Company’s senior management or Board of Directors.
In the event that the aggregate amount of compensation payable to Mr. Maltzman would constitute an “excess parachute payment” under the Internal Revenue Code of 1986, as amended, then the amount payable to Mr. Maltzman will be reduced so as not to constitute an “excess parachute payment.” Additionally, in the event that the aggregate severance and other compensation would be deemed “non-qualified deferred compensation” subject to any taxes, penalties, and/or interest for which Mr. Maltzman could be found liable if the same is deemed to be “non-qualified deferred compensation”, the Company shall reimburse Mr. Maltzman for any and all such additional taxes, penalties and interest.
Mr. Maltzman has agreed that during the term of the Agreement and for a period of one year following the termination of his employment, he will not engage in or have any financial interest in any business enterprise in competition with the Company that operates anywhere within a radius of 75 miles of any office maintained by the Company as of the date of termination.
BOARD OF DIRECTORS REPORT ON COMPENSATION
Each of the members of the Compensation Committee of the Company’s Board of Directors resigned as a member of the Board of Directors effective November 30, 2005. As a result, the following report on executive compensation is being provided by the Board of Directors.
General Compensation. The Company's compensation policy is designed to attract and retain qualified key executives critical to the Company's growth and long-term success. It is the objective of the Board to have a portion of each executive's compensation contingent upon the Company's performance as well as upon the individual's personal performance. Accordingly, each executive officer's compensation package is comprised of three elements: (i) base salary which reflects individual performance and expertise, (ii) variable bonus awards payable in cash and tied to the achievement of certain performance goals that the Board establishes from time to time for the Company and (iii) long-term stock-based incentive awards which are designed to strengthen the mutuality of interests between the executive officers and the company's stockholders.
The summary below describes in more detail the factors which the Board of Directors considers in establishing each of the three primary components of the compensation package provided to the executive officers.
Base Salary. The level of base salary is established primarily on the basis of the individual's qualifications and relevant experience, the strategic goals for which he or she has responsibility, the compensation levels at companies which compete with the Company for business and executive talent, and the incentives necessary to attract and retain qualified management. Base salary is adjusted annually to take into account the individual's performance and to maintain a competitive salary structure.
Cash-Based Incentive Compensation. Cash bonuses are awarded on a discretionary basis to executive officers on the basis of their success in achieving designated individual goals and the Company's success in achieving specific company-wide goals, such as customer satisfaction, revenue growth and earnings growth.
Long-Term Incentive Compensation. The Company has utilized its equity incentive plans to provide executives and other key employees with incentives to maximize long-term stockholder value. Awards under these plans by the Board take the form of stock options designed to give the recipient a significant equity stake in the Company and thereby closely align his or her interests with those of the Company's stockholders. Factors considered in making such awards include the individual's position in the Company, his or her performance and responsibilities, and industry practices and norms. Long-term incentives granted in prior years and existing level of stock ownership are also taken into consideration.
Each option grant allows the executive officer to acquire shares of Common Stock at a fixed price per share (generally, the fair market value on the date of grant) over a specified period of time (generally up to 10 years). The options typically vest in periodic installments over
a four-year period. Accordingly, the option will provide a return to the executive officer only if the market price of the Common Stock appreciates over the option term.
Compensation of Executive Officer. In September 1997, the Board of Directors approved an employment agreement between the Company and Mr. Raymond which provides for a minimum base salary of $175,000 per year, which is reviewed periodically and subject to such increases as the Board of Directors, in its sole discretion, may determine. See "Employment Agreements" for a more detailed description of Mr. Raymond's employment agreement. During the term of this employment agreement, if Stratus is profitable, Mr. Raymond is entitled to a bonus/profit sharing award equal to .4% of Stratus' gross margin, but not in excess of 100% of his base salary. If Stratus is not profitable, he is entitled to a $10,000 bonus. Mr. Raymond is eligible for all benefits made available to senior executive employees, and is entitled to the use of an automobile. During fiscal 2005, Mr. Raymond received only $160,385 of the annual base salary owed to him under the Employment Agreement. Mr. Raymond received the $10,000 bonus he is entitled to under the Employment Agreement in fiscal 2005.
Deductibility of Executive Compensation. In 1993, the Code was amended to add Section 162(m). Section 162(m) places a limit of $1,000,000 on the amount of compensation that may be deducted by the Company in any year with respect to certain of the Company's highest paid executives. Certain performance based compensation that has been approved by stockholders is not subject to the deduction limit. The Company believes that compensation paid to its officers under all of its equity based compensation plans (including the 2005 Equity Incentive Plan if approved by the Company's stockholders), except the 2000 Equity Incentive Plan, will qualify as performance based compensation, and will therefore be exempt from the $1,000,000 deduction limit.
Respectfully submitted by the
Board of Directors:
Joseph J. Raymond, Director
Norman Goldstein, Director
PERFORMANCE GRAPH
Set forth below is a performance graph which compares the percentage change in the cumulative total stockholder return on the Common Stock of the Company for the period from October 1, 2000 to September 30, 2005, with the cumulative total return over the same period on the Nasdaq Market Index and the Staffing Industry Report Stock Index over the same period (assuming the investment of $100 in the Company's Common Stock, the Nasdaq Market Index and the Staffing Industry Report Stock Index on October 1, 2000 and that all dividends were reinvested).
| | FISCAL YEAR ENDING |
| Company/Index/Market | 10/01/2000 | 9/30/2001 | 9/30/2002 | 9/30/2003 | 9/30/2004 | 9/30/2005 |
Stratus Services Group, Inc. | 100.00 | 18.60 | 2.79 | 5.77 | 3.26 | 0.30 |
Staffing Industry Report Index | 100.00 | 54.89 | 52.65 | 67.77 | 70.94 | 80.95 |
NASDAQ Market Index | 100.00 | 52.90 | 45.16 | 63.18 | 71.07 | 83.61 |
REPORT OF THE BOARD OF DIRECTORS WITH
RESPECT TO FINANCIAL STATEMENTS FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 2005
Each member of the Audit Committee of the Company’s Board of Directors resigned as a member of the Board of Directors effective November 30, 2005. As a result, this report on matters related to the Company’s financial statements for the fiscal year ended is being provided by the Board of Directors.
The Board of Directors has reviewed and discussed the audited financial statements of the Company for the fiscal year ended September 30, 2005 with the Company’s management. The Board of Directors has discussed with E. Randall Gruber, CPA, P.C., the Company’s independent auditors, those matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Board of Directors has also received the written disclosures and the letter from E. Randall Gruber, P.C. required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees), and the Board of Directors has discussed the independence of E. Randall Gruber, CPA, P.C. with that firm. E. Randall Gruber, CPA, P.C. confirmed, in its professional judgment, that it is not aware of any relationship between E. Randall Gruber, CPA, P.C. and the Company that would reasonably bear on its independence.
Based on the Board’s review and discussions noted above, the Board recommended that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended September 30, 2005 that was filed with the SEC on August 15, 2006.
Respectfully submitted by the
Board of Directors
Joseph J. Raymond, Director
Norman Goldstein, Director
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Jeffrey J. Raymond, the son of Joseph J. Raymond, the Company’s Chairman, President and Chief Executive Officer (the “CEO”), serves as a consultant to the Company pursuant to an agreement which requires him to supervise the collection of certain accounts receivable, to use his best efforts to maintain relationships with certain clients and to assist in due diligence investigations of acquisitions of other companies. Total consulting fees paid to Jeffrey Raymond were $186,151 in fiscal 2005.
During fiscal year 2004, the Company paid consulting fees of $50,000 to RVR Consulting, Inc., a corporation of which Joseph J. Raymond, Jr., the son of Joseph J. Raymond, is an officer and 100% stockholder.
As of September 30, 2005, the Company owed $41,000 under a demand note bearing interest at 10% per annum to a corporation owned by a son of Joseph J. Raymond, $14,125 to a trust formed for the benefit of a family member of a former member of the Company’s Board of Directors under a promissory note bearing interest at 12% per annum which became due in August 2005 and $41,598 to Michael Rutkin, a former member of the Company’s Board of Directors, under a promissory note bearing interest at 12% per annum which became due in full in May 2006.
During the year ended September 30, 2050, Joseph J. Raymond loaned us an aggregate of $665,000, of which $650,000 was repaid prior to September 30, 2005. Of this amount, $250,000 bore interest at 12% per annum and the balance as non-interest bearing.
During the year ended September 30, 2005, the Company entered into various agreements with ALS, LLC (“ALC”) and its subsidiary, Advantage Services Group, LLC (“Advantage”). Joseph J. Raymond, Jr., a son of the CEO, holds a 50% interest in ALS. Pursuant to these agreements, ALS and Advantage agreed to provide payroll outsourcing services for all of the Company’s in-house staff and customer staffing requirements. The Company paid agreed upon rates, plus burden (payroll taxes and workers’ compensation insurance) plus a fee ranging between 2% and 3% of pay rates to ALS and Advantage. The total amount charged by ALS and Advantage under these agreements was $102,825,000 in the year ended September 30, 2005.
On August 22, 2003, the Company completed the sale of substantially all of the tangible and intangible assets, excluding accounts receivable, of its Miami Springs, Florida office to ALS. Pursuant to the terms of the Asset Purchase Agreement between the Company and ALS, the purchase price for the purchased assets, which was determined by arms-length negotiations, was $128,000, which was paid by a promissory note which bore interest at the rate of 7% per year, with payments over a 60 month period. The amount of the monthly payments due under the note was the greater of $10 per month or 20% of the monthly net profits generated by the staffing business originating from the purchased assets, commencing October 31, 2003. This obligation was satisfied in connection with the closing of the sale of the Company’s Northern California business to ALS in June 2005 as described below.
In June 2005, the Company sold substantially all of the assets, excluding accounts receivable, of six of its northern California offices to ALS. The purchase price of the assets was $3,315,719, which represented the balance due by the Company to ALS as of the close of business on May 3, 2005, less $600,000. Accordingly, on the effective date of the transaction, $3,315,719 due to ALS was deemed paid and canceled. In addition, all amounts due to the Company from ALS as of the effective date were deemed paid in full. Such amounts aggregating $376,394 were comprised of a note receivable ($122,849), accounts receivable ($50,000) and other receivables ($203,545). ALS and the Company’s lender also entered into a transaction pursuant to which ALS contributed $600,000 in exchange for a junior participation interest in amounts borrowed under the line of credit. ALS was also required to pay to the Company $600,000 as contingent purchase price, which was required to be paid to the Company or offset against balances due by the Company to ALS, when ALS was repaid the junior participation interest and all other amounts due by the Company to ALS were current and paid in full.
In connection with the June 2005 transaction, the Company and ALS entered into a non-compete and non-solicitation agreement pursuant to which the Company agreed not to compete with ALS with the customers of and in the geographic area of the Northern California offices, and ALS agreed not to compete with the Company with respect to certain customers and accounts, including, accounts serviced by the Company’s remaining offices, for a period of two years. The sale resulted in a gain of $2,239,108.
In December 2005, the Company sold substantially all of the assets of certain of its other offices located in California and Arizona, excluding accounts receivable, to ALS. Pursuant to the terms of an Asset Purchase Agreement between the Company and ALS dated December 2, 2005 (the “Asset Purchase Agreement”), the purchase price for the assets was payable as follows:
| | · | $250,000 was payable over the 60 days following December 2, 2005, at a rate no faster than $125,000 per 30 days; |
| | · | $1,000,000 payable by ALS is being paid directly to certain taxing authorities to reduce the Company’s tax obligations; and |
| | · | $3,537,000 was paid by means of the cancellation of all net indebtedness owed by the Company to ALS outstanding as of the close of business on December 2, 2005. |
In addition to the foregoing amounts, ALS also assumed the Company’s obligations to pay $798,626 due under a certain promissory note issued by the Company in connection with an acquisition to a third party. As a result of the sale of assets to ALS in December 2005, all sums due and owing to ALS by the Company were deemed paid in full and no further obligations remain.
In December 2005, the Company sold substantially all of the assets of three of its California offices to Accountabilities, Inc. Jeffrey J. Raymond is employed by an entity, which serves as a consultant to Accountabilities, Inc. Pursuant to the terms of an Asset Purchase Agreement between the Company and AI (the “AI Asset Purchase Agreement”), AI has agreed
to pay to the Company an earnout amount equal to two percent of the sales of these California offices for the first twelve month period after the effective date of the transaction; one percent of the sales of the California offices for the second twelve month period after the effective date; and one percent of the sales of the California offices for the third twelve month period after the effective date. In addition, a Demand Subordinated Promissory Note between the Company and AI dated September 15, 2005, which had an outstanding principal balance of $125,000 at the time of closing, was deemed paid and marked canceled.
In November 2000, the Company formed a joint venture with Fusion Business Services, LLC, known as Stratus Technology Services, LLC. Jamie Raymond, son of Joseph J. Raymond, the Company’s Chairman, President and Chief Executive Officer, is the managing member of Fusion, which owns a 50% interest in Stratus Technology Services, LLC. Since December 2005, substantially all of the Company's operations have been conducted through Stratus Technology Services, LLC.
OTHER INFORMATION
Accounting Matters
Selection of the independent public accountants for the Company is made by the Board of Directors. The Company's Board of Directors does not currently have an Audit Committee.
Effective January 6, 2006, the Company dismissed its independent auditor, Amper, Politziner & Mattia, P.C. (“Amper”).
Amper’s reports on the Company’s financial statements for the year ended September 30, 2004 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that Amper’s report on the Company’s Form 10-K for the year ended September 30, 2004 raised substantial doubt about the Company’s ability to continue as a going concern.
In connection with its audit of, and in the issuance of its report on the Company’s financial statements for the year ended September 30, 2004, Amper delivered a letter to the Audit Committee of the Company’s Board of Directors and management that identifies certain items that it considers to be material weaknesses in the effectiveness of its internal controls pursuant to standards established by the Public Company Accounting Oversight Board. A “material weakness” is a reportable condition in which the design or operation of one or more of the specific control components has a defect or defects that could have a material adverse effect on the Company’s ability to record, process, summarize and report financial data in the financial statements in a timely manner. The material weaknesses identified were: (1) limited resources and manpower in the finance department; (2) inadequacy of the financial review process as it pertains to various account analyses; and (3) inadequate documentation of financial procedures as it relates to certain accounting estimates and accruals. While the Company believes that it has adequate policies, it agreed with Amper, that its implementation of those policies should be improved. The impact of the above conditions were relevant to the fiscal year ended September 30, 2004 only and did not affect the results of the fiscal year ended September 30, 2005 or any prior period.
The decision to change accountants was approved by the Company’s Board of Directors.
During the two most recent fiscal years and the subsequent interim period through January 6, 2006, there were no disagreements between the Company and Amper on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Amper, would have caused Amper to make reference to the subject matter of the disagreements in connection with their reports on the financial statements for such periods.
On January 6, 2006, the Company engaged E. Randall Gruber, CPA, P.C., certified public accountant (“Randall Gruber”) as the Company’s independent accountant to report on the Company’s balance sheet as of September 30, 2005, and the related combined statements of income, stockholders’ equity and cash flows for the year then ended. The decision to appoint Randall Gruber was approved by the Company’s Board of Directors.
During the Company’s two most recent fiscal years and any subsequent interim period prior to the engagement of Randall Gruber, neither the Company nor anyone on the Company’s behalf consulted with Randall Gruber regarding either (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements or (ii) any matter that was either the subject of a “disagreement” or a “reportable event,” as those terms are defined in Regulation S-K, Items 304(a)(1)(iv) and 304(a)(1)(v).
The Company’s financial statements as of and for the fiscal year ended September 30, 2004 were restated subsequent to the filing of the Company’s report on Form 10-K for the fiscal year ended September 30, 2004, and the Company’s Annual Report on Form 10-K/A for the fiscal year ended September 30, 2005 contains the opinion of Randall Gruber with respect to the Company’s financial statements as of and for the fiscal years ended September 30, 2005 and 2004, respectively.
A representative of Randall Gruber will be present at the meeting and will have an opportunity to make a statement if the representative desires to do so. Said representative will also be available to respond to appropriate questions from stockholders of the Company.
The following table sets forth the aggregate fees billed to us for the years ended September 30, 2005 and September 30, 2004 by Amper, the Company’s independent auditor for the fiscal year ended September 30, 2004 and until the dismissal of that firm in January 2006:
| | | | 2005 | | | 2004 | |
| | | | | | | | |
| Audit Fees | | $ | 109,775 | | $ | 205,100 | |
| Audit-Related Fees | | | 30,587 | | | 123,502 | |
| Tax Fees | | | 25,420 | | | 26,554 | |
| All Other Fees | | | -0- | | | -0- | |
| | | | | | | | |
The following table sets forth the aggregate fees billed to the Company for the audit of the fiscal years ended September 30, 2005 and September 30, 2004 by Gruber, who currently serves as the Company’s independent auditor.
| | | | 2005 | | | 2004 | |
| | | | | | | | |
| Audit Fees | | $ | 45,000 | | $ | 20,000 | |
| Audit-Related Fees | | | -0- | | | -0- | |
| Tax Fees | | | -0- | | | -0- | |
| All Other Fees | | | -0- | | | -0- | |
| | | | | | | | |
Audit fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the reviews of the financial statements included in our Forms 10-Q and Forms 8-K for the fiscal year. Audit Related Fees represent amounts charged for
reviewing various registration statements filed by us with the Securities and Exchange Commission during the year and audits of 401K plans. Before Amper was engaged by us to render audit or non-audit services, the engagement was approved by our Audit Committee. Our Board of Directors is of the opinion that the Audit Related Fees charged by Amper were consistent with Amper maintaining its independence from us.
The Audit Committee of the Board has considered whether provision of the non-audit services described above is compatible with maintaining the independent accountant's independence and has determined that such services did not adversely affect Amper's independence.
Stockholder Proposals and Nominees for Director
Stockholder proposals for presentation at the Company's next annual meeting must be received by the Company (Attn: Secretary) at its principal executive offices for inclusion in its proxy statement and form of proxy relating to that meeting no later than May 13, 2007. The Company's by-laws contain certain procedures which must be followed in connection with stockholder proposals.
The Board will also consider nominees for director suggested by shareholders of the Company applying the same criteria for nominees described under “Election of Directors—Nomination Process” and considering the additional information required below. A shareholder who wishes to suggest a nominee for director should write to the Company’s Corporate Secretary and include the following information: (1) the name and contact information for the nominee; (2) a statement of the nominee’s business experience and educational background; (3) a detailed description describing any relationship between the nominee and the proposing shareholder; (4) a statement by the shareholder explaining why he or she believes that the nominee is qualified to serve on the Board and how his or her service would benefit the Company; and (5) a statement that the nominee is willing to be considered and willing to serve as a director of the Company if nominated and elected. A shareholder wishing to suggest a nominee for director for possible consideration at the Company’s 2007 annual meeting of shareholders must submit the required information to the Company and such information must be received by the Company by May 13, 2007. The Board retains complete discretion for making nominations for election as a member of the Board.
Annual Report to Shareholders
The annual report to stockholders for the fiscal year ended September 30, 2005 accompanies this Proxy Statement. Randall Gruber has audited the financial statements of the Company for the fiscal years ended September 30, 2005 and 2004, which financial statements are contained in the annual report to stockholders. Such annual report, including the audited financial statements contained therein, is not incorporated in this Proxy Statement and is not deemed to be a part of the proxy soliciting material. Additional reports are available without charge upon request by writing to the Company at 149 Avenue at the Commons, Suite 4, Shrewsbury, New Jersey 07702 Attn: Investor Relations or email at InvestorRelations@stratusservices.com.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the “SEC”). Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on our review of the copies of such forms we have received, we believe that all of Company’s executive officers, directors and greater than ten percent stockholders complied with all filing requirements applicable to them with respect to events or transactions during fiscal 2005, except that Norman Goldstein filed a Form 3 due for filing in August 2005 in January 2006.
Other Business
The Board of Directors knows of no business that will come before the meeting for action except as described in the accompanying Notice of Meeting. However, as to any such business, the persons designated as proxies will have discretionary authority to act in their best judgment.
ALL STOCKHOLDERS ARE URGED TO MARK, SIGN, DATE AND SEND IN THEIR PROXIES IN THE ENCLOSED ENVELOPE WITHOUT DELAY TO AMERICAN STOCK TRANSFER AND TRUST COMPANY, 6201 15TH AVENUE, BROOKLYN, NEW YORK 11219, ATTN: MAILROOM INSIDE DELIVERY, 1ST FLOOR. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED.
BY ORDER OF THE BOARD OF DIRECTORS
J. TODD RAYMOND
Secretary
September __, 2006
Exhibit A
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STRATUS SERVICES GROUP, INC.
TO: Secretary of State
State of Delaware
Pursuant to the provisions of Section 242 of the General Corporation Law of the State of Delaware, Stratus Services Group, Inc., a corporation organized under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), executes this Certificate of Amendment to its Amended and Restated Certificate of Incorporation.
| 1. | NAME OF CORPORATION: The name of the Corporation is Stratus Services Group, Inc. |
| 2. | BOARD APPROVAL: The Board of Directors of said Corporation has consented to, authorized by unanimous written consent and passed resolutions declaring that the amendment to the Amended and Restated Certificate of Incorporation contained herein is advisable and decided to present such amendment to the stockholders of the Corporation at the Annual Meeting of shareholders. |
| 3. | NOTICE TO SHAREHOLDERS OF RECORD: Upon notice given to each stockholder of record entitled to vote on such amendment to the Amended and Restated Certificate of Incorporation in accordance with the requirements of the Act, the Annual Meeting of the stockholders of the Corporation was held on October 5, 2006, at which meeting holders representing quorum power were present in person or represented by proxy, and the number of votes cast for the amendment by the stockholders of the Corporation and each class of stockholders entitled to vote separately on the amendment was sufficient for approval by the stockholders and each such class. |
| 4. | DATE OF ADOPTION AND TEXT OF AMENDMENT: The following amendment to the Amended and Restated Restated Certificate of Incorporation of the Corporation (the “Amendment”) was adopted by the Company’s stockholders at a meeting of stockholders duly held on October 5, 2006. |
Section 4.1 of Article IV of the Restated Certificate of Incorporation is amended to provide in its entirety as follows:
“Section 4.1. TOTAL NUMBER OF SHARES OF STOCK: The total number of shares of all classes of stock which the Corporation
has the authority to issue is Five Hundred Five Million (505,000,000) shares consisting of Five Hundred Million (500,000,000) shares of Common Stock $.04 par value per share (the “Common Stock”), and Five Million (5,000,000) shares of Preferred Stock, $.04 par value per share.”
| 5. | APPROVAL OF AMENDMENTS: The foregoing amendments were duly adopted in accordance with Section 242(b) of the Delaware General Corporation Law on October 5, 2006. |
IN WITNESS WHEREOF, this Certificate of Amendment has been duly executed by an authorized officer of the Corporation as of the 5th day of October, 2006.
| | | |
| ATTEST: | STRATUS SERVICES GROUP, INC. |
|
|
|
| | By: | |
| Name: | |
| Title: | |
Exhibit B
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STRATUS SERVICES GROUP, INC.
TO: Secretary of State
State of Delaware
Pursuant to the provisions of Section 242 of the General Corporation Law of the State of Delaware, Stratus Services Group, Inc., a corporation organized under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), executes this Certificate of Amendment to its Amended and Restated Certificate of Incorporation.
| 6. | NAME OF CORPORATION: The name of the Corporation is Stratus Services Group, Inc. |
| 7. | BOARD APPROVAL: The Board of Directors of said Corporation has consented to, authorized by unanimous written consent and passed resolutions declaring that the amendment to the Amended and Restated Certificate of Incorporation contained herein is advisable and decided to present such amendment to the stockholders of the Corporation at the Annual Meeting of shareholders. |
| 8. | NOTICE TO SHAREHOLDERS OF RECORD: Upon notice given to each stockholder of record entitled to vote on such amendment to the Amended and Restated Certificate of Incorporation in accordance with the requirements of the Act, the Annual Meeting of the stockholders of the Corporation was held on October 5, 2006, at which meeting holders representing quorum power were present in person or represented by proxy, and the number of votes cast for the amendment by the stockholders of the Corporation and each class of stockholders entitled to vote separately on the amendment was sufficient for approval by the stockholders and each such class. |
| 9. | DATE OF ADOPTION AND TEXT OF AMENDMENT: The following amendment to the Amended and Restated Certificate of Incorporation of the Corporation (the “Amendment”) was adopted by the Company’s stockholders at a meeting of stockholders duly held on October 5, 2006. |
Article V of the Restated Certificate of Incorporation is amended to provide in its entirety as follows:
ARTICLE V
SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office or by the Chief Executive Officer of the Corporation. Elections of directors need not be by written ballot, unless otherwise provided in the Bylaws.
| 10. | APPROVAL OF AMENDMENTS: The foregoing amendments were duly adopted in accordance with Section 242(b) of the Delaware General Corporation Law on October 5, 2006. |
IN WITNESS WHEREOF, this Certificate of Amendment has been duly executed by an authorized officer of the Corporation as of the 5th day of October, 2006.
| | | |
| ATTEST: | STRATUS SERVICES GROUP, INC. |
|
|
|
| | By: | |
| Name: | |
| Title: | |
B-2
STRATUS SERVICES GROUP, INC.
Proxy for Annual Meeting of Stockholders to be held on October 5, 2006
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF STRATUS SERVICES GROUP, INC.
P R O X Y | KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Joseph J. Raymond and Michael A. Maltzman and each of them, the true and lawful attorneys, agents and proxies of the undersigned, with full power of substitution, to vote with respect to all the shares of Common Stock of STRATUS SERVICES GROUP, INC., standing in the name of the undersigned at the close of business on August 11, 2006, at the annual meeting of stockholders to be held at Battleground Country Club, 40 Millhurst Road, Manalapan, New Jersey on October 5, 2006 and at any and all adjournments thereof, with all powers that the undersigned would possess if personally present and especially (but without limiting the general authorization and power hereby given) to vote as indicated on the reverse side hereof. Said proxies are authorized to vote in their discretion upon any other matters which may come before the meeting. The shares represented by this Proxy will be voted in the manner directed, and if no instructions to the contrary are indicated, will be voted FOR the election of the nominees and FOR each of the other proposals described on the reverse side of this Proxy. |
----------------------------------------- Fold and Detach Here -------------------------------------
(This proxy is continued from reverse side)
| x | Please mark your |
| votes as in this example. |
| | FOR | WITHHOLD AUTHORITY | |
(1) Election of Directors: Joseph J. Raymond, Michael A. Maltzman and Norman Goldstein FOR, except vote withheld from the following nominees: _____________________________________________ _____________________________________________ | ¨ | ¨ | |
| | | | |
| | FOR | AGAINST | ABSTAIN |
(2) Approval of 2006 Equity Incentive Plan | ¨ | ¨ | ¨ |
| | | | |
| | FOR | AGAINST | ABSTAIN |
(3) Proposal to amend the Company’s Amended and Restated Certificate of Incorporation to increase authorized Common Stock | ¨ | ¨ | ¨ |
| | | | |
| | FOR | AGAINST | ABSTAIN |
(4) Proposal to amend the Company’s Amended and Restated Certificate of Incorporation to eliminate provision which prohibits stockholders from taking action by written consent | ¨ | ¨ | ¨ |
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSING ENVELOPE.
Signature(s) of Stockholder(s)
___________________________________________________________________________
(Joint owners must EACH sign. Please sign EXACTLY as your name(s) appear(s) on this card. When signing as attorney, trustee, executor, administrator, guardian or corporate officer, please give your FULL title.)
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