<Page>
SECURITIES AND EXCHANGE COMMISSEION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<Table>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
</Table>
<Table>
STRATUS SERVICES GROUP, INC.
- -----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</Table>
Payment of Filing Fee (Check the appropriate box):
<Table>
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
$2,300,000--Sale Price to be Received by Registrant
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$2,300,000
----------------------------------------------------------
(5) Total fee paid:
$460.00
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</Table>
<Page>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 13, 2002
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 Wednesday, March 13, 2002 at 500 Craig Road, Suite
201, Manalapan, New Jersey 07726 at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to sell the assets of the Company's
Engineering Services Division to SEA Consulting Services Corporation, a
Delaware corporation (the "Purchaser"), pursuant to an Asset Purchase
Agreement among the Company, the Purchaser and certain other parties.
2. To elect a new Board of Directors of the Company.
3. To consider and vote upon a proposal to adopt the Company's 2002 Equity
Incentive Plan.
4. To consider and vote upon a proposal to approve the issuance to the
holders of the Company's Series A Convertible Preferred Stock, $.01 par
value per share (the "Preferred Stock"), of the full number of shares of
Common Stock, $.01 par value per share ("Common Stock"), to which such
holders are entitled upon conversion of the Preferred Stock.
5. To consider and vote upon a proposal to approve the issuance of up to
5,000,000 shares of Common Stock at prices which may be below the book
and market value of the Common Stock.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of Common Stock and Preferred Stock of record at the close of
business on February 12, 2002, are entitled to notice of and to vote at the
meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
J. TODD RAYMOND
GENERAL COUNSEL & SECRETARY
Manalapan, New Jersey
February 18, 2002
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.
<Page>
STRATUS SERVICES GROUP, INC.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
------------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
MARCH 13, 2002
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished to the holders of Stratus Services
Group, Inc. (the "Company" or "Stratus") Common Stock, $.01 par value per share
("Common Stock"), and Series A 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 March 13, 2002, 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 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
February 18, 2002. The executive offices of the Company are located at 500 Craig
Road, Suite 201, Manalapan, New Jersey 07726.
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 proposal to approve the
sale of the assets of the Company's Engineering Services Division, FOR the
election of the nominees for the Board of Directors named herein, FOR the
proposal to adopt the 2002 Equity Incentive Plan, FOR the proposal to approve
the issuance to the holders of the Company's Preferred Stock, of the full number
of shares of Common Stock to which such holders are entitled upon conversion of
the Preferred Stock and FOR the proposal to approve the issuance of up to
5,000,000 shares of Common Stock at prices which may be below the book and
market value of the Common Stock. 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 Preferred Stock, with each share entitling its owner to one
vote on an equal basis. On February 12, 2002, the number of outstanding shares
of Common Stock was 9,637,549 shares and the number of
<Page>
outstanding shares of Preferred Stock was 1,458,933 shares. Only stockholders of
record on the books of the Company at the close of business on February 12, 2002
will be entitled to vote at the meeting. The holders of a majority of the
outstanding shares of Common Stock and 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 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. The proposal to approve the sale of the assets of the Engineering
Services Division must be approved by the holders of a majority of the
outstanding shares of the Company's Common Stock and Preferred Stock voting as a
single class. The proposal to adopt the 2002 Equity Incentive Plan and the
proposal to approve the issuance of up to 5,000,000 shares of Common Stock at
prices which may be below the book and market value of the Common Stock must
each be approved by a majority of the votes cast at the meeting on such proposal
by the holders of the Common Stock and Preferred Stock voting as a single class.
The proposal to approve the issuance to the holders of the Preferred Stock of
the full number of shares of Common Stock to which such holders are entitled
upon conversion of the Preferred Stock must be approved by (i) a majority of the
votes cast at the meeting by the holders of Common Stock, voting as a separate
class, and (ii) the holders of a majority of the outstanding shares of Common
Stock and Preferred Stock, voting together as a single 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.
SUMMARY TERM SHEET
SALE OF ASSETS OF ENGINEERING SERVICES DIVISION
This Proxy Statement contains a proposal relating to a proposed sale of the
assets of our Engineering Services Division. This summary highlights selected
information from this Proxy Statement with respect to the proposed sale. To
better understand the asset sale, you should carefully read the section of this
Proxy Statement captioned "APPROVAL OF PROPOSAL TO SELL THE ASSETS OF THE
COMPANY'S ENGINEERING SERVICES DIVISION."
- We have entered into an agreement with SEA Consulting Services Corporation
for the sale of the assets of our Engineering Services Division. SEP, LLC,
a company formed by us for the sole purpose of completing the asset sale,
Charles Sahyoun, the President of our Engineering Services Division, and
Sahyoun Holdings LLC, a company owned by Mr. Sahyoun, also have entered
into the agreement. We currently own 70% of SEP, LLC and Sahyoun Holdings
LLC owns the other 30%. We transferred the 30% interest in SEP LLC in
consideration of, among other things, Mr. Sahyoun's agreement to cancel
certain options to purchase Common Stock and his agreement to guaranty
that we will receive $500,000 of future payments under the Asset Purchase
Agreement which would otherwise be subject to the profitability of the
Purchaser after the closing of the transaction. Mr. Sahyoun is the cousin
of our Chairman and Chief Executive Officer, Joseph J. Raymond and a
nominee for election to our Board of Directors. See "Parties to the
Transaction" and "Interests of Certain Persons in the Asset Sale."
2
<Page>
- An initial payment of $2,200,000 will be paid for the assets at closing,
which amount may be increased or decreased depending upon whether the net
equity of the business being transferred or net asset value of the assets
being sold is greater or less than $200,000 on the date of closing. A
second and third payment of $1,000,000 each will be made after closing.
Such payments may be increased or decreased depending upon whether the
profit of the purchaser is greater or less than $600,000 for each of the
first and last six months of 2002, respectively. Subsequent annual
payments may be made by the purchaser for the years 2003, 2004, 2005, 2006
and 2007, which are to be based on a multiple of the annual increases, if
any, of the purchaser's profits for such years. See "Description of the
Asset Purchase Agreement--Purchase Price."
- We will receive 80% of the initial payment of the purchase price, after
the satisfaction of the liabilities and expenses of SEP, LLC, and $250,000
of each of the second and third payments of the purchase price. We will
not receive any portion of the subsequent annual payments. See
"Description of the Asset Purchase Agreement--Purchase Price," "Allocation
and Indemnity Agreement" and "Interests of Certain Persons in the Asset
Sale."
- Mr. Sahyoun and his company, Sahyoun Holdings, LLC, will receive the
amount of the first, second and third payments not paid to us.
Mr. Sahyoun and his company have guaranteed the payment of the $250,000
payments to be made to us from the second and third payments, regardless
of the total amount of the second and third payments. See "Allocation and
Indemnity Agreement" and "Interests of Certain Persons in the Asset Sale."
- For three years after the asset sale, we have agreed not to offer or
assist any other company in offering engineering consulting services. See
"Description of the Asset Purchase Agreement--Covenant not to Compete."
- We have agreed to indemnify the purchaser for any breach of the
representations and warranties made by us in the asset purchase agreement
and for any liability not assumed by the purchaser. See "Description of
the Asset Purchase Agreement--Indemnification of Selling Parties."
- The closing of the asset sale is subject to the approval of our
stockholders as well as other conditions. See "Description of the Asset
Purchase Agreement--Conditions to Closing."
- We will use the monies received by us from the asset sale primarily to
reduce our trade payables and other indebtedness, and for working capital
purposes. See "Use of Proceeds of the Asset Sale."
- Our Board of Directors believes that the asset sale is in our best
interest and in the best interest of our stockholders because such sale
will enhance stockholder value by improving our liquidity and allowing us
to continue to focus on our core business of staff augmentation. In making
this determination, our Board received an opinion from Hornblower &
Weeks, Inc. as to the fairness of the asset sale to our stockholders. See
"Background and Reasons for the Asset Sale" and "Fairness Opinion."
- You will not be entitled to any dissenters' or appraisal rights under the
Delaware General Corporation Law in connection with this transaction. See
"No Dissenter's Rights."
- In the event the asset sale is not completed, we may have to raise
additional monies through the sale of our stock or assets in order for us
to address our working capital deficit. See "Consequences if Asset Sale is
not Approved."
3
<Page>
PROPOSAL NUMBER 1
APPROVAL OF PROPOSAL TO SELL THE ASSETS OF
THE COMPANY'S ENGINEERING SERVICES DIVISION
GENERAL
At the annual meeting, the stockholders of the Company will be asked to
consider and vote upon a proposal to approve the sale of substantially all of
the assets of the Company's Engineering Services Division (the "Asset Sale"),
which are currently held by SEP, LLC, a seventy percent (70%) owned subsidiary
of the Company formed to effect the Asset Sale, on the terms and conditions set
forth in the Asset Purchase Agreement, dated January 24, 2002, by and among SEP,
LLC, Charles Sahyoun, Sahyoun Holdings LLC, the Company and SEA Consulting
Services Corporation (the "Asset Purchase Agreement"). A general description of
the material terms of the Asset Purchase Agreement is presented below under the
caption "Description of the Asset Purchase Agreement."
THE PARTIES TO THE TRANSACTION
THE COMPANY
The Company is a national business services company engaged in providing
outsourced labor and operational resources on a long-term, contractual basis.
The Company's operations are functionally divided into three "service lines":
Staffing Services, Engineering Services and Information Technology Services.
The Company's Engineering Services Division (referred to sometimes herein as
the "Division") provides a broad range of engineering services to Fortune 100
companies, government agencies and educational institutions in electrical
engineering, instrumentation and controls, mechanical engineering, piping and
pipe support analysis, and civil, structural and architectural engineering. In
addition, the Engineering Services Division augments customers' in-house
engineering capability by supplying the Company's engineers as contract labor.
The principal executive offices of the Company are located at 500 Craig
Road, Manalapan, New Jersey 07726, and the telephone number for the Company at
such location is (800) 777-1557.
SEP, LLC
SEP, LLC, a New Jersey limited liability company (the "Seller"), was formed
by the Company for the sole purpose of effecting the Asset Sale. The Company
currently owns seventy percent (70%) of the outstanding equity interests of the
Seller. The other thirty percent (30%) of the outstanding equity interests of
the Seller is currently owned by Sahyoun, LLC, a New Jersey limited liability
company whose only member is Charles Sahyoun, President of the Engineering
Services Division. Contemporaneously with the execution of the Asset Purchase
Agreement, the Company transferred the assets of its Engineering Services
Division to the Seller. See "Interests of Certain Persons in the Asset Sale." In
the event that the Asset Sale is not consummated, the assets of the Engineering
Services Division will be transferred back to the Company.
The principal executive offices of the Seller are located at Century Plaza,
2525 Route 130, Building E, Cranbury, New Jersey 08512, and the telephone number
for the Seller at such location is (609) 409-9790.
CHARLES A. SAHYOUN AND SAHYOUN HOLDINGS LLC
Charles A. Sahyoun has been the President of the Engineering Services
Division since its inception in 1997. Sahyoun Holdings LLC is a New Jersey
limited liability company wholly owned by Mr. Sahyoun.
4
<Page>
SEA CONSULTING SERVICES CORPORATION
SEA Consulting Services Corporation, a Delaware corporation (the
"Purchaser"), was formed for the sole purpose of acquiring the assets of the
Seller. To date, the Purchaser has not had any operations, nor has it
established any offices or conducted any business except that related to the
negotiation and completion of the Asset Sale.
After the closing of the Asset Sale, the principal executive offices of the
Purchaser will be located at Century Plaza, 2525 Route 130, Building E,
Cranbury, New Jersey 08152 and the telephone number for the Purchaser at such
location will be (609) 409-9790.
THE ASSET SALE
Under the terms of the Asset Purchase Agreement, the Seller will sell to the
Purchaser substantially all of the assets used by the Company to conduct the
operations of its Engineering Services Division. Assets excluded from the
transaction include the Seller's accounts receivable. The Purchaser will also
assume certain obligations and duties of the Seller arising after the closing of
the Asset Sale. The Seller will retain responsibility for all of its other
liabilities not specifically assumed by the Purchaser.
The purchase price for the assets consists of: (i) an initial payment (the
"First Payment") of $2,200,000, subject to adjustment based on the lesser of the
net asset value or net equity position of the assets at closing; (ii) a second
payment (the "Second Payment") of $1,000,000, subject to adjustment based on the
profit of the Purchaser for the six (6) month period ending June 30, 2002;
(iii) a third payment (the "Third Payment") of $1,000,000, subject to adjustment
based on the profit of the Purchaser for the six (6) month period ending
December 31, 2002; and (iv) five subsequent annual payments (the "Subsequent
Payments") based on the profit of the Purchaser for the calendar years between
January 1, 2003 and December 31, 2007. Pursuant to an Allocation and Indemnity
Agreement entered into by the Company, Sahyoun Holdings LLC and Mr. Sahyoun (the
"Allocation and Indemnity Agreement"), the Company will receive (a) eighty
percent (80%) of the First Payment of the purchase price, after satisfaction by
Seller of the liabilities and expenses of Seller, and (b) $250,000 of each of
the Second Payment and Third Payment of the purchase price. Sahyoun Holdings LLC
and Mr. Sahyoun have guaranteed the $250,000 payments to be made to the Company
from each of the Second Payment and Third Payment of the purchase price. See
"Allocation and Indemnity Agreement."
The Company has agreed to refrain for a period of three (3) years after the
closing of the Asset Sale (the "Closing") from offering, or participating in any
other entity which offers, engineering consulting services.
In the Asset Purchase Agreement, the Seller, Sahyoun Holdings LLC,
Mr. Sahyoun and the Company (collectively, the "Selling Parties") make
representations and warranties customary for a transaction of this type. Each of
the Selling Parties has agreed to jointly and severally indemnify the Purchaser
for any breach of such representations and warranties and for any liabilities
not assumed by the Purchaser. Moreover, the Closing of the transactions
contemplated by the Asset Purchase Agreement is subject to conditions customary
for a transaction of this type. See "Description of the Asset Purchase
Agreement."
BACKGROUND AND REASONS FOR THE ASSET SALE
In late fiscal 2000, the Company's management commenced internal discussions
with respect to strategic alternatives that could enhance the value of the
Engineering Services Division. It was the consensus of management that the focus
of the Engineering Services Division had evolved into a more traditional project
or construction oriented engineering business and away from staff augmentation,
the Company's core business. Management also believed that a sale of the
Engineering Services Division
5
<Page>
would improve the Company's liquidity position and allow the Company to deploy
additional capital to accelerate the growth of its SMARTSolutions-TM- and
traditional staffing businesses. As a result, the Company's Board of Directors
authorized management to contact other engineering services firms to determine
whether any of such firms had an interest in acquiring the Engineering Services
Division.
Among the alternatives considered by the Board was a sale of the Engineering
Services Division to Mr. Sahyoun and other employees of the Division. In
January 2001, the Company entered into an agreement to sell the Division to a
company formed by Mr. Sahyoun and four other employees of the Division, which
entity intended to resell the Division to an affiliate of the Purchaser;
however, the terms of such resale could not be agreed upon and the agreement
between the Company and the entity formed by Mr. Sahyoun and the other employees
was terminated.
In November, 2001, the Company contacted representatives of the Purchaser to
discuss a potential sale of the Engineering Services Division by the Company.
Discussions ensued over the next several months as to the terms of a possible
transaction. These arms-length discussions ultimately led to the preparation and
negotiation of the Asset Purchase Agreement, which was approved by the Company's
Board of Directors on January 23, 2002. On February 14, 2002, Hornblower &
Weeks, Inc. delivered its opinion to the Board of Directors that the Asset Sale
was fair to the Company's stockholders from a financial point of view. See
"Fairness Opinion."
FAIRNESS OPINION
The Board of Directors retained Hornblower & Weeks, Inc., an investment
banking firm, as its financial advisor to render an opinion as to the fairness,
from a financial point of view, of the Asset Sale to the stockholders of the
Company. Hornblower & Weeks, Inc. had acted as underwriter in connection with
the Company's initial public offering of Common Stock in April 2000. Pursuant to
the terms of its engagement letter with the Company, Hornblower & Weeks, Inc.
was paid a fee of $30,000 in connection with the rendering of its fairness
opinion. In addition, the Company has agreed to reimburse Hornblower &
Weeks, Inc. for certain out-of-pocket expenses.
On February 14, 2002, Hornblower & Weeks, Inc. rendered its written opinion
that, as of such date, the consideration to be received by the Company in
connection with the Asset Sale was fair to the Company's stockholders from a
financial point of view. The full text of Hornblower & Weeks, Inc.'s written
opinion to the Board is attached hereto as Annex I and incorporated herein by
reference. Hornblower & Weeks, Inc. was not requested to and did not make any
recommendations to the Board of Directors as to the form or amount of
consideration to be received by the Company, which was determined by negotiation
between the Company and the Purchaser. No limitations were imposed on
Hornblower & Weeks, Inc. by the Board of Directors with respect to the
investigations made or the procedures followed by it in rendering its opinion.
In rendering its opinion, Hornblower & Weeks, Inc. reviewed, among other
things: (a) the financial terms of Asset Purchase Agreement and related
agreements; (b) a draft of the Proxy Statement, and (c) the past financial
position performance of the Company; (d) the intended continued business,
financial forecast and information pertaining to the Purchaser; (e) the
historical performance, stock prices and trading volume of the Company; and
(f) publicly available information on similar asset or stock sales of business
transactions comparable to the Asset Sale. In addition, Hornblower &
Weeks, Inc. held discussions with the management of the Company regarding the
Division's business, operating results, financial condition, and prospects, and
undertook other analyses, studies and investigations as it considered
appropriate.
In connection with its review, Hornblower & Weeks, Inc. relied, without
independent verification, upon the accuracy and completeness of the financial
and other information used by it in arriving at its opinion. Hornblower &
Weeks, Inc. did not undertake any independent valuations or appraisals of the
assets of the Division, nor was it furnished with any such valuations or
appraisals.
6
<Page>
The following summary is a general description of Hornblower &
Weeks, Inc.'s presentation to the Board on February [14], 2002 and does not
purport to be a complete description of the analyses performed or matters
considered by Hornblower & Weeks, Inc. in rendering its opinion. The preparation
of a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Furthermore, Hornblower & Weeks, Inc.
believes that its analyses must be considered as a whole and that selecting
portions of such analyses and the matters considered, without considering all
matters and analyses, could lead to inappropriate conclusions. In its analyses,
Hornblower & Weeks, Inc. made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company. Any estimates of value derived from
Hornblower & Weeks, Inc.'s analyses are not necessarily indicative of future
results or actual values, which may be more or less favorable than such
estimates. In addition, estimates relating to the value of businesses do not
purport to be appraisals nor necessarily reflect the prices at which such
businesses may actually be sold. Consequently, such estimates are inherently
subject to uncertainty.
The following is a brief summary of the material financial analysis
performed by Hornblower & Weeks, Inc. in connection with providing its opinion
to the Company's Board of Directors:
CORPORATE TRANSACTIONS: Hornblower & Weeks, Inc. reviewed over twenty
(20) transactions, including five (5) transactions involving companies that
provide engineering services which are of similar size to the Engineering
Division. These five transactions included:
- The acquisition of Sylvan Engineering Corporation by Reynolds, Smith and
Hills, Inc.
- The acquisition of Vectra Technologies, Inc. by Duke Engineering
Services, Inc.
- The acquisition of BL&P Engineers, Inc. by HLM Design, Inc.
- The acquisition of Nova Tech Engineering, Inc. by Pacific Aerospace &
Electronics, Inc.
The results of the analysis of the Asset Sale, as adjusted for the
allocation of a portion of the Purchase Price to Sahyoun Holdings, LLC, compared
to similar transactions, is summarized as follows:
<Table>
<Caption>
RANGE OF SIMILAR TRANSACTION RESULTS
ASSET SALE ------------------------------------
Price/Assets................ 11.96 .30 to 2.0
Price/Revenue............... .31 .27 to 1.2
Price/Earnings.............. 5.87 0.0 to 14.4
</Table>
Based upon this review, Hornblower & Weeks, Inc. concluded that the value
being received by the Company in the Asset Sale was within the range denoted by
these similar transactions.
ANALYSIS OF OPERATING RESULTS: Hornblower & Weeks, Inc. reviewed financial
information for fiscal 2000 and 2001. This information showed a decrease of
business of 2.5% from fiscal 2000 to 2001. In addition, projections completed
prior to the loss of a major customer of the Division showed a projected
increase in revenue of 26% in fiscal 2002 from fiscal 2001. In reviewing this
information, Hornblower & Weeks, Inc. considered that economic conditions, and
the events of September 11, 2001, made the achievement of the projected results
subject to many market conditions.
DISCOUNTED CASH FLOW ANALYSIS: Hornblower & Weeks, Inc. performed a
discounted cash flow analysis using projections supplied to it. In performing
the analysis, Hornblower & Weeks, Inc. considered that the attainment of the
projected growth by the Division would require additional financial and other
support from the Company, which could not be assured. In view of these
uncertainties, Hornblower & Weeks did not attribute significant weight to the
discounted cash flow analysis. Using a 20% discount rate, the three year present
value of projected net income yielded a result of approximately $2,100,000 and
the four year present value of net income yielded a result of approximately
$3,400,000.
7
<Page>
EFFECT OF ASSET SALE ON COMPANY STOCKHOLDERS: In its analysis,
Hornblower & Weeks considered the value of the accounts receivables being
retained by the Company. Hornblower & Weeks concluded that the portion of the
purchase price being received by the Company and the accounts receivables being
retained would provide the Company with the funds necessary to retain its
Preferred Stock and bring a majority of its accounts payable current. In
addition, the Asset Sale would provide the Company with capital to operate and
expand its core business.
DESCRIPTION OF THE ASSET PURCHASE AGREEMENT
PURCHASE AND SALE OF ASSETS
Under the terms of the Asset Purchase Agreement, the Seller will sell to the
Purchaser substantially all of the assets used by the Company to conduct the
operations of its Engineering Services Division. The assets to be acquired
pursuant to the Asset Purchase Agreement include, among others, all of the
inventory, work in progress, trade names, trademarks, copyrights, machinery,
equipment, furniture, franchises, licenses, including a royalty-free, perpetual
license to use the name "Stratus Engineering," leasehold interests in any real
or personal property, contractual rights, customer lists and good will used in
or relating to the operation of the Company's Engineering Services Division.
Assets excluded from the transaction include any accounts receivable and income
tax returns of the Seller. The Purchaser will also assume the obligations and
duties of the Seller arising after the Closing of the Asset Sale under certain
specified contracts. The Seller will retain responsibility for all of its other
liabilities.
PURCHASE PRICE
The purchase price for the assets consists of:
(i) the First Payment of $2,200,000, subject to (a) a downward adjustment
equal to the amount by which the net equity position or net asset value
of the assets at Closing, whichever is lower, is less than $200,000, and
(b) an upward adjustment equal to the amount by which the net equity
position or net asset value of the assets at Closing, whichever is lower,
is greater than $200,000 (pursuant to the Allocation and Indemnity
Agreement, the Company will receive eighty percent (80%) of the First
Payment, after satisfaction by Seller of the liabilities and expenses of
the Seller);
(ii) the Second Payment of $1,000,000, subject to (a) a downward adjustment
equal to the amount by which the Purchaser's profit for the six month
period ending June 30, 2002, as determined pursuant to the Asset Purchase
Agreement, is less than $600,000, and (b) an upward adjustment equal to
the amount by which the Purchaser's profit for the six month period
ending June 30, 2002, as determined pursuant to the Asset Purchase
Agreement, is greater than $600,000 (pursuant to the Allocation and
Indemnity Agreement, the Company will receive $250,000 of the Second
Payment, which amount is guaranteed by Sahyoun Holdings LLC and
Mr. Sahyoun);
(iii) the Third Payment of $1,000,000, subject to (a) a downward adjustment
equal to the amount by which the Purchaser's profit for the six month
period ending December 31, 2002, as determined pursuant to the Asset
Purchase Agreement, is less than $600,000, and (b) an upward adjustment
equal to the amount by which the Purchaser's profit for the six month
period ending December 31, 2002, as determined pursuant to the Asset
Purchase Agreement, is greater than $600,000 (pursuant to the Allocation
and Indemnity Agreement, the Company will receive $250,000 of the Third
Payment, which amount is guaranteed by Sahyoun Holdings LLC and
Mr. Sahyoun); and
(iv) the Subsequent Payments for the years ending December 31, 2003, 2004,
2005, 2006 and 2007, which are to be based on a multiple of the annual
successive increases, if any, in the
8
<Page>
Purchaser's profit for such years, as determined in accordance with the
Asset Purchase Agreement (the Company is not entitled to any portion of
the Subsequent Payments if and when earned or paid).
All payments of the purchase price will be made directly to the Seller. The
Company's portion of any payment of the purchase price will be paid to it in
accordance with the terms of the Allocation and Indemnity Agreement.
ASSUMPTION OF LIABILITIES
On the date of the Closing (the "Closing Date"), the Purchaser will assume
selected liabilities of the Seller, including the post-closing obligations and
duties of the Seller under specified contracts being assumed by the Purchaser.
The Purchaser shall have no liability for: obligations of the Seller to its
members, attorneys or accountants, the obligations for goods and services
provided prior to the Closing Date; any federal, state or local income, sales,
use and franchise taxes associated with the sale of the assets or the Seller's
operations; or any other liability, whether known or unknown, and whether actual
or contingent, including all accrued expenses, payroll and property taxes, trade
payables, leases on real or personal property, or any other liability not
expressly assumed under the Asset Purchase Agreement. All liabilities and
obligations not assumed by the Purchaser shall be the sole responsibility of,
and shall be satisfied by, the Seller, and the Selling Parties shall indemnify
the Purchaser in the event the Purchaser incurs any cost for any item not
specifically assumed by the Purchaser.
REPRESENTATIONS AND WARRANTIES
Under the Asset Purchase Agreement, the Selling Parties have represented and
warranted as to, among other things, the organization, standing and
qualification of the Seller, the Company and Sahyoun Holdings LLC; related party
transactions; capitalization of the Seller; authority of the Selling Parties;
financial statements of the Company; litigation; compliance with laws; absence
of undisclosed liabilities, changes or events; title to and condition of the
subject assets; rights and licenses of the Selling Companies; insurance;
environmental matters; employee benefits; customers and suppliers; records;
brokerage and finder's fees; and other customary matters.
THE CLOSING
The Closing of the Asset Sale shall take place within five business days
after the annual meeting if the Company's stockholders approve the Asset Sale.
At the Closing, the following shall occur:
- The Seller shall deliver bill(s) of sale and deeds for all of the assets
being sold and evidence that all liens on such assets not permitted in the
Asset Purchase Agreement have been released.
- The Seller and the Purchaser shall enter into an assignment and assumption
agreement, pursuant to which the Purchaser will assume certain obligations
of the Seller.
- The Company shall deliver a license agreement, pursuant to which the
Purchaser will have a royalty free, perpetual, world-wide exclusive use of
the name "Stratus Engineering."
- Purchaser shall pay Seller the First Payment of the purchase price in
immediately available funds.
- The Selling Parties shall deliver evidence that any approvals required to
consummate the Asset Sale have been obtained.
- Mr. Sahyoun and certain other employees of the Seller shall execute and
deliver non-solicitation and proprietary agreements.
- An executive officer of each of the Seller and the Company shall deliver a
certificate as to, among other things, the compliance by the Seller and
the Company of their covenants under the Asset Purchase Agreement, whether
any proceeding has been threatened or instituted to prevent
9
<Page>
or contest in any way the Asset Sale, and the status of the
representations and warranties of the Selling Parties as of the Closing
Date.
- The delivery of all consents and waivers of third parties and governmental
agencies and entities which are necessary for consummation of the Asset
Sale.
- The issuance of legal opinions by the respective counsels to the Selling
Parties.
- The delivery of general releases in favor of the Seller and Purchaser by
each of the Selling Parties, other than the Seller, pursuant to which each
Selling Party will release the Seller from any liability or obligation it
may have to such Selling Party through the Closing Date.
CONDUCT OF BUSINESS PRIOR TO CLOSING
Prior to Closing, the Seller is obligated to conduct its operations in the
ordinary and usual course of business and consistent with past practices. In
that connection, the Seller may not, without the consent of the Purchaser,
dissolve, liquidate, merge or consolidate with any other entity; sell, lease or
dispose of any of its assets, other than in the ordinary course of business;
amend, modify, change, alter, terminate, rescind or waive any rights or benefits
under any contract or agreement; amend, modify, change, alter or accelerate any
billing procedure or billing cycle or rescind or waive any financial commitment
or payment due; incur any indebtedness; or perform, take, enter into or incur or
permit to exist (except where any such existence could not be eliminated by the
application of the Selling Parties best efforts to so eliminate such existences)
any act, transaction, event or occurrence out of the ordinary course. In
addition, prior to the Closing, the Selling Parties shall give the Purchaser
prompt written notice of any action or occurrence which would make any of their
representations or warranties in the Asset Purchase Agreement no longer
accurate. Further, prior to Closing, the Purchaser's counsel, representatives
and agents shall have full access, during normal business hours, to all
properties, books and records of the Seller and the Company relevant to the
assets being sold. All information obtained from the Seller and the Company by
the Purchaser and its employees and representatives shall remain confidential.
CONDITIONS TO CLOSING
The Purchaser's obligation to purchase the assets and assume the liabilities
will cease upon the happening of any of the following events prior to the
Closing:
- A force majeure (Act of God) or other event beyond the control of the
parties occurs, which has a material adverse effect on the assets or the
net value thereof, or on the financial position or commercial prospects of
the Seller.
- All liens on the assets to be sold, other than those permitted in the
Asset Purchase Agreement, are not discharged.
- Any material adverse change in the business, properties, assets,
liabilities, prospects or condition (financial or otherwise) or results of
operations of the Seller occurs or any place of business of the Seller
shall have suffered a substantial fire or other casualty loss or damage.
- The stockholders of the Company do not approve the Asset Sale by
April 20, 2002.
- The Selling Parties fail to satisfy any condition to Closing applicable to
them set forth in the Asset Purchase Agreement.
- A third party institutes or threatens to institute litigation with respect
to the Asset Sale or any third party has sought or threatened to seek an
injunction to prevent the consummation of the Asset Sale.
10
<Page>
- The failure of ninety percent (90%) or more of the employees associated
with the business of the Engineering Services Division as of the date of
the Asset Purchase Agreement to accept at-will employment by the
Purchaser.
The obligations of the Selling Parties to complete the Asset Sale and the
other transactions contemplated by the Asset Purchase Agreement will cease upon
the happening of any of the following events prior to Closing:
- The Purchaser fails to satisfy any condition or make the deliveries
required of it under the Asset Purchase Agreement; or
- The institution or threat by a third party of litigation or an injunction
against the implementation of the transactions contemplated by the Asset
Purchase Agreement.
EMPLOYEE MATTERS AND FUTURE OPERATION OF BUSINESS
The Purchaser will offer at-will employment to the employees of the Company
associated with the Engineering Services Division. Effective as of the Closing,
all employees of the Company who accept employment by the Purchaser shall become
employees of the Purchaser. Pursuant to the Asset Purchase Agreement, the
Company has agreed to provide those employees of the Company who become
employees of the Purchaser coverage under its health plans, at Purchaser's
costs, until such time as the Purchaser obtains health benefits.
The Asset Purchase Agreement provides that Mr. Sahyoun will be employed by
the Purchaser and initially paid an annual salary of $175,000 per year.
Mr. Sahyoun shall also be entitled to bonuses based on the profits of the
Purchaser. See "Interests of Certain Persons in the Asset Sale." The Asset
Purchase Agreement also sets forth certain of the terms and conditions of
Mr. Sahyoun's employment with the Purchaser, including guidelines as to
Mr. Sahyoun's management of the future operations of the Purchaser.
NO SHOP PROVISION
Neither the Seller nor any of the other Selling Parties may engage in any
negotiations or discussions with any third party regarding the sale of the
Seller's assets or equity prior to the Closing, or if the Closing does not
occur, until April 23, 2002.
NO BILLING
The Selling Parties have agreed not to bill any customer of the Seller nor
solicit payment from any customer of the Seller with respect to work performed
by the Seller after the end of the last completed monthly billing cycle prior to
the Closing Date. In addition, the Selling Parties are prohibited from
accelerating the billing procedure for work-in-progress. Any payments received
by the Seller or the Company on account of work-in-progress shall be retained by
the Seller and included in the assets to be sold to Purchaser.
CONFIDENTIALITY
The Selling Parties and the Purchaser have agreed to keep confidential, to
the extent allowed by law, including federal and state securities laws, all
information learned about each other in connection with the Asset Sale. No press
release or other public announcement or disclosure regarding the Asset Sale may
be made by the Selling Parties without the prior review, and in some instances,
approval of the Purchaser.
COVENANT NOT TO COMPETE
The Company has agreed that for the three (3) year period which commenced
January 24, 2002, it will not (i) own, manage, operate, sell, control or
participate in the ownership, management, operation,
11
<Page>
sales or control of any business that solicits for the provision of or provides
engineering consulting services similar to or competitive with the services
currently being provided by the Seller, (ii) accept an engagement to provide
engineering consulting services to any third party, or (iii) interfere with the
relationships of the Purchaser with the customers, suppliers or other business
contacts of the Seller; provided, however, that the Company is not prohibited
from providing staff augmentation services or placing third party engineers on a
temporary basis to persons or entities, other than certain customers of the
Seller, under circumstances in which the Company does not provide engineering
consulting services. The other Selling Parties are also subject to non-compete
covenants similar to those applicable to the Company.
INDEMNIFICATION BY SELLING PARTIES
Each of the Selling Parties has agreed, jointly and severally, to save,
indemnify and hold harmless Purchaser, its affiliates and shareholders and their
respective directors, officers, shareholders, agents, successors, assigns and
affiliates (the "Purchaser Indemnified Parties"), from and against any and all
loss, liability, damages and expenses resulting from of arising out of or in
connection with:
- the existence of any lien on the assets to be sold, other than a lien
expressly assumed by the Purchaser;
- any breach or non-fulfillment of one or more of the representations and
warranties of the Selling Parties;
- a breach or non-fulfillment of any covenant or agreement to be performed
or complied with by any of the Selling Parties under the Asset Purchase
Agreement prior to or at the Closing;
- any matter or thing occurring prior to the Closing; and
- any and all actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses incident to any of the above matters.
In addition, each of the Selling Parties has agreed to severally indemnify
and hold harmless the Purchaser Indemnified Parties for any and all loss,
liability, damages and expenses resulting from or arising out of or in
connection with a breach or non-fulfillment of any post-Closing covenant or
agreement to be performed or complied with by such Selling Party under the Asset
Purchase Agreement, including any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses incident thereto or incurred
in investigating or attempting to avoid the same or to oppose the imposition
thereof.
The Selling Parties shall not be liable for indemnification claim(s) based
on the incorrectness or incompleteness of one or more of their representations
and warranties which in the aggregate are less than $37,000; provided, however,
that if the Purchaser's claim for indemnification exceed such amount, the
Selling Parties shall be liable for the full amount of all indemnification
claims starting at dollar one. The Purchaser also may set off the amount of any
indemnification claim payable under the Asset Purchase Agreement against any
payments that may be due to the Selling Parties from Purchaser, except no set
off may be made against the base fixed salary of Mr. Sahyoun.
INDEMNIFICATION BY PURCHASER
The Purchaser shall indemnify the Selling Parties for damages and expenses
resulting from or arising out of or in connection with a breach of any of the
Purchaser's covenants, or any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs or expenses incident thereto or incurred
in investigating or attempting to avoid the same or to oppose the imposition
thereof.
12
<Page>
ALLOCATION AND INDEMNITY AGREEMENT
Contemporaneously with the execution of the Asset Purchase Agreement, the
Company, Mr. Sahyoun and Sahyoun Holdings LLC entered into the Allocation and
Indemnity Agreement, which provides that after the satisfaction by Seller of all
indebtedness, liabilities and expenses of Seller, the Company will receive
eighty percent (80%) of the First Payment, and $250,000 of each of the Second
Payment and Third Payments. Mr. Sahyoun and Sahyoun Holdings LLC have jointly
and severally guaranteed the payment of each of the $250,000 installments to the
Company, regardless of the amount paid by Purchaser to Seller under the Asset
Purchase Agreement. Upon its receipt of the payments required under the
Allocation and Indemnity Agreement, the Company's interest in the Seller will
terminate and the Company will not be entitled to any additional payments under
the Asset Purchase Agreement.
Mr. Sahyoun and Sahyoun Holdings LLC have jointly and severally agreed to
indemnify the Company from and against all losses, damages, costs and expenses
arising out of or related to (i) breaches of any covenants or agreements to be
performed or complied with by Mr. Sahyoun or Sahyoun Holdings LLC prior to the
Closing, (ii) breaches of any agreements, certificates, documents or instruments
executed by Mr. Sahyoun or Sahyoun Holdings LLC delivered pursuant to or in
connection with the Asset Purchase Agreement prior to or at the Closing,
(iii) the breach or nonfulfillment of certain representations and warranties set
forth in the Asset Purchase Agreement, (iii) negligence of the Company or the
Engineering Services Division in conducting the business of the Engineering
Services Division, to the extent that any such losses relate to a claim of a
party other than the Company, (iv) illegal conduct or willful misconduct on the
part of the employees of the Engineering Services Division, (v) breaches prior
to the Closing of any contracts pertaining to the provision of engineering
services by the Engineering Services Division to a party other than the Company.
The obligation of Mr. Sahyoun and Sahyoun Holding LLC to provide indemnity apply
only to the extent that the Company's losses are not covered by insurance.
The Company has agreed to indemnify Mr. Sahyoun and Sahyoun Holdings LLC
from and against all losses, damages, costs and expenses arising out of or
related to (i) breaches of any covenants or agreements to be performed or
complied with the Company prior to Closing, (ii) breaches of any agreements,
certificates, documents or instruments executed by the Company prior to or at
the Closing, and (iii) the breach or nonfulfillment of certain representations
and warranties set forth in the Asset Purchase Agreement.
REGULATORY APPROVALS
None of the parties to the Asset Purchase Agreement must comply with any
federal or other state regulatory requirements in connection with the Asset
Sale.
INTERESTS OF CERTAIN PERSONS IN THE ASSET SALE
Contemporaneously with the execution of the Asset Purchase Agreement, the
Company contributed the assets of its Engineering Services Division to the
Seller, a New Jersey limited liability company of which the Company was the sole
member. At the same time, the Company transferred a thirty percent (30%)
interest in the Seller to Charles Sahyoun, the President of the Engineering
Services Division. The Company transferred this thirty percent (30%) interest in
the Seller to Mr. Sahyoun (i) in consideration for his agreement to cancel
options to acquire 385,448 shares of Common Stock having exercise prices ranging
from $1.10 to $6.00, (ii) in recognition of his contributions to the development
of the business of the Engineering Services Division, (iii) in recognition of
the significant role he played in arranging and negotiating the proposed Asset
Sale, (iv) in consideration of his agreement to guaranty a certain level of
contingent payments from the Purchaser and to indemnify the Company in the event
that the Company sustained losses attributable to breaches of certain
representations and warranties contained in the Asset Purchase Agreement or its
13
<Page>
obligation to indemnify the Purchaser for losses and damages arising out of
certain events prior to Closing, (v) in consideration of his agreement to enter
into a non-compete covenant with the Purchaser, and (vi) to accommodate the
Purchaser's requirement that Mr. Sahyoun have an interest in the contingent
portion of the consideration payable by Purchaser for the assets being sold.
Mr. Sahyoun has transferred his interest in the Seller to Sahyoun Holdings
LLC, a New Jersey limited liability company of which he is the sole member.
Pursuant to the Allocation and Indemnity Agreement, the Seller will
distribute, after satisfaction by Seller of all indebtedness, liabilities and
expenses of Seller, eighty percent (80%) of the First Payment (which First
Payment will be $2,200,000 assuming the Engineering Services Division has a net
equity and net asset value of $200,000 on the Closing Date) to the Company and
the remainder of the First Payment received pursuant to the Asset Purchase
Agreement to Sahyoun Holdings LLC. In addition, Seller will distribute to
Sahyoun Holdings LLC (a) all but $250,000 of each of the Second Payment and the
Third Payment received pursuant to the Asset Purchase Agreement (each of which
will be equal to $1,000,000 plus or minus the amount by which the Purchaser's
profit, as determined in accordance with the Asset Purchase Agreement, for the
applicable six month period differs from $600,000) and (b) all of the Subsequent
Payments received pursuant to the Asset Purchase Agreement (which Subsequent
Payments are based upon multiples of the annual increase, if any, in the
Purchaser's profits, as determined pursuant to the Asset Purchase Agreement,
during the five year period ending December 31, 2007 and are not possible to
predict). As a result of this arrangement, Sahyoun Holdings LLC may be entitled
to the payment of significant amounts under the Asset Purchase Agreement if the
Purchaser achieves successive increases in annual profit. Under the terms of the
Asset Purchase Agreement, Sahyoun Holdings LLC will not be entitled to any
Subsequent Payments or its allocable share of the Second and Third Payments if
Mr. Sahyoun's employment with Purchaser ceases for any reason other than death
or permanent disability prior to December 31, 2003.
The Asset Purchase Agreement provides that Mr. Sahyoun will be entitled to
an annual salary of $175,000 from the Purchaser and, provided that the Purchaser
meets certain earnings tests, a bonus of $25,000 on each June 30 and
December 31 during the term of his employment.
USE OF PROCEEDS OF THE ASSET SALE
The Company estimates that the proceeds from the Asset Sale will be
approximately $2,300,000, including approximately $1,800,000 from the First
Payment and $250,000 from each of the Second and Third Payments. The Company
will use the proceeds of the Asset Sale for working capital purposes and to
reduce indebtedness, including trade payables and a $600,000 promissory note
issued in an acquisition completed in fiscal 2001 which was originally due in
January 2002. The holder of this note has agreed to forbear from exercising
remedies under the note until April 2002.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information gives effect to the Asset Sale as if such transaction had occurred
on September 30, 2001 for balance sheet data and October 1, 2000 for statement
of operations data. These pro forma financial statements are presented for
illustrative purposes only, and are not necessarily indicative of the operating
results and financial position that might have been achieved had the Asset Sale
occurred on the dates indicated, nor are they necessarily indicative of
operating results and financial position which may occur in the future.
The historical statements of operations data for the periods presented are
derived from the historical financial statements of the Company. These pro forma
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2001.
14
<Page>
STRATUS SERVICES GROUP, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
<Table>
<Caption>
PRO FORMA ADJUSTMENT
--------------------------------------------------------------
STRATUS LESS:
SERVICES ENGINEERING SERVICES SALE PRO FORMA
GROUP, INC. DIVISION(1) PROCEEDS(2) TOTAL
----------- -------------------- ----------- -----------
Current Assets
Cash and cash equivalents................ $ 171,822 $ -- $1,496,000 $ 1,667,822
Accounts receivable...................... 8,540,112 -- -- 8,540,112
Unbilled receivables..................... 1,566,417 -- -- 1,566,417
Prepaid insurance........................ 1,436,278 -- -- 1,436,278
Investment............................... 1,166,046 -- -- 1,166,046
Prepaid expenses and other current
assets................................. 77,146 -- 250,000 327,146
----------- ---------- ---------- -----------
12,957,821 -- 1,746,000 14,703,821
Property and equipment, net of accumulated
depreciation............................. 1,612,216 185,000 -- 1,427,216
Intangible assets, net of accumulated
amortization............................. 7,078,428 -- -- 7,078,428
Deferred financing costs, net of
accumulated amortization................. 454,878 -- -- 454,878
Other assets............................... 164,815 14,610 250,000 400,205
----------- ---------- ---------- -----------
$22,268,158 $ 199,610 $1,996,000 $24,064,548
=========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loans payable (current portion).......... $ 347,289 $ -- $ -- $ 347,289
Notes payable--acquisitions (current
portion)............................... 1,110,726 -- -- 1,110,726
Line of credit........................... 7,306,581 -- -- 7,306,581
Insurance obligation payable............. 549,460 -- -- 549,460
Accounts payable and accrued............. 3,421,796 -- -- 3,421,796
Accrued payroll and taxes................ 1,461,738 -- -- 1,461,738
Payroll taxes payable.................... 306,230 -- -- 306,230
----------- ---------- ---------- -----------
$14,503,820 $ -- $ -- $14,503,820
Loans payable (net of current portion)..... 291,243 -- -- 291,243
Notes payable--acquisitions (net of current
portion)................................. 1,403,847 -- -- 1,403,847
Convertible debt........................... 1,125,399 -- -- 1,125,399
----------- ---------- ---------- -----------
17,324,309 -- -- 17,324,309
Series A voting redeemable convertible
preferred stock.......................... 2,792,000 -- -- 2,792,000
Temporary equity--put options.............. 869,000 -- -- 869,000
Stockholders' equity....................... 1,282,849 199,610 1,996,000 3,079,239
----------- ---------- ---------- -----------
Total stockholders equity................ $22,268,158 $ 199,610 $1,996,000 $24,064,548
=========== ========== ========== ===========
</Table>
See accompanying notes to unaudited pro forma financial statements.
15
<Page>
STRATUS SERVICES GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
LESS:
STRATUS ENGINEERING
SERVICES SERVICES PRO FORMA
GROUP, INC. DIVISION (3) TOTAL
----------- ------------ -----------
Revenues............................................... $64,271,705 $7,245,367 $57,026,338
Cost of revenues....................................... 51,021,613 4,947,328 46,074,285
----------- ---------- -----------
Gross profit........................................... 13,250,092 2,298,039 10,952,053
----------- ---------- -----------
Selling, general administrative expenses............... 15,211,887 1,790,253 13,421,634
Loss on impairment of goodwill......................... 700,000 -- 700,000
Other charges.......................................... 519,801 144,495 375,306
----------- ---------- -----------
....................................................... 16,431,688 1,934,748 14,496,940
----------- ---------- -----------
Earnings (loss) from operations........................ (3,181,596) 363,291 (3,544,887)
----------- ---------- -----------
Other income (expenses)
Finance charges, interest and financing costs........ (2,277,898) (217,361) (2,060,537)
Other income (expense)............................... (47,963) -- (47,963)
----------- ---------- -----------
....................................................... (2,325,861) (217,361) (2,108,500)
----------- ---------- -----------
Earnings (loss) before income taxes.................... (5,507,557) 145,930 (5,653,387)
Income taxes........................................... 340,000 -- 340,000
----------- ---------- -----------
Net earnings (loss).................................... (5,847,457) 145,930 (5,993,387)
Dividends and accretion on preferred stock........... (63,000) -- (63,000)
----------- ---------- -----------
Net earnings (loss) attributable to common
stockholders......................................... $(5,910,457) $ 145,930 $(6,056,387)
=========== ========== ===========
Net earnings (loss) per share attributable to common
stockholders (basic and diluted)..................... $ (.99) $ (1.01)
Weighted average shares, outstanding per common share
(basic and diluted).................................. 5,996,134 5,996,134
</Table>
See accompanying notes to unaudited pro forma financial statements.
16
<Page>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
The pro forma adjustments to the unaudited pro forma balance sheet, assuming
this transaction occurred on September 30, 2001, and the unaudited pro forma
statement of operations, assuming the transaction occurred on October 1, 2000,
are as follows:
(1) Adjustment to reflect the balance sheet of the Engineering Division sold
as part of the transaction.
(2) Adjustments to record the Company's 80% share of the cash proceeds of
$2,200,000, net of an estimated $330,000 professional fees and other
costs related to the transaction, and the additional proceeds to the
Company of $500,000 to be received, $250,000 on June 30, 2002 and
$250,000 on December 31, 2002, net of $199,610 of asset sold, resulting
in a gain of $1,796,390, which is shown as an increase to stockholders'
equity.
(3) Adjustment to eliminate results of operations of the Engineering
Services Division.
ACCOUNTING TREATMENT
Under generally accepted accounting principles, upon consummation of the
Asset Sale, the Company will remove the net assets sold from is balance sheet
and record the gain or loss on the sale, net of transaction and other related
costs, including applicable state and federal income taxes, on its statement of
operations.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated federal income tax consequences to
the Company of the Asset Sale is not intended as tax advice and is not intended
to be a complete description of the federal income tax consequences of the Asset
Sale. This summary is based upon the Internal Revenue Code of 1986 (the "Code"),
as presently effect, the rules and regulations promulgated thereunder, current
administrative interpretations and court decisions. No assurance can be given
that future legislation, regulations, administrative interpretations or court
decisions will not significantly change these authorities, possibly with
retroactive effect. No rulings have been requested or received from the Internal
Revenue Service ("IRS") as to the matters discussed and there is no intent to
seek any such ruling. Accordingly, no assurance can be given that the IRS will
not challenge the tax treatment of certain matters discussed or, if it does
challenge the tax treatment, that it will not be successful.
The proceeds from the Asset Sale will be a taxable sale by the Company upon
which gain or loss will be recognized by the Company. The amount of gain or loss
recognized by the Company with respect to the sale of a particular asset will be
measured by the difference between the amount realized by the Company on the
sale of that asset and the Company's tax basis in that asset. The amount
realized by the Company on the Asset Sale will include the amount of the cash
received and the fair market value of any other property received. For purposes
of determining the amount realized by the Company with respect to specific
assets, the total amount realized by the Company will be allocated among the
assets according to the allocation set forth in the Asset Purchase Agreement.
The Company's bases in its assets are generally equal to their cost, as adjusted
for certain items, such as depreciation. The determination of whether gain or
loss is recognized by the Company will be made with respect to each of the
assets to be sold. Accordingly, the Company may recognize gain on the sale of
certain assets and loss on the sale of certain others, depending on the amount
of consideration allocated to an asset as compared with the basis of that asset.
17
<Page>
NO DISSENTER'S RIGHTS
Stockholders of the Company will have no dissenter's rights under the
Delaware General Corporation Law or otherwise in connection with the Asset Sale.
CONSEQUENCES IF ASSET SALE IS NOT APPROVED
As of December 31, 2001, the Company had limited liquid resources. Current
liabilities were approximately $14,522,000 and current assets were approximately
$12,998,000. The difference of approximately $1,534,000 is a working capital
deficit which is primarily the result of losses the Company sustained over the
past year. If the Asset Sale is not approved by stockholders, the working
capital deficit will remain and the Company will seek to restructure or extend
the maturity date of the $600,000 note which previously became due in
January 2002; however, no assurance can be given that the holder will agree to
any such restructuring or extension or continue to forbear from exercising its
remedies. In addition, the Company will likely seek to raise capital through the
issuance of additional securities or seek other alternatives for disposing of
the Engineering Services Division; however, no assurance can be given that the
Company will be able to issue any such securities on reasonable terms or
identify other acquirors of the Engineering Services Division.
If the Asset Sale is not consummated, the assets of the Engineering Division
will be transferred by SEP, LLC to the Company.
VOTE REQUIRED
The Delaware General Corporation Law requires stockholder approval of a sale
of all or substantially all of a corporation's asset and properties. The Company
does not believe that the assets of the Engineering Services Division represent
all or substantially all of the Corporation's assets and properties, and, as a
result, does not believe that stockholder approval of the Asset Sale is required
under Delaware law; however, the Closing of the Asset Purchase Agreement is
conditioned upon the approval of the Asset Sale by the affirmative vote of the
holders of a majority of the outstanding Common Stock and Preferred Stock voting
together as a single class.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE ASSET SALE.
PROPOSAL NUMBER 2
ELECTION OF DIRECTORS
The Company's by-laws provide that the Board of Directors shall consist of
not fewer than 3 nor more than 7 members. The Board of Directors has fixed the
number of directors at six, all of whom are to be elected at the 2002 annual
meeting.
All incumbent directors have been nominated to stand for reelection at the
2002 annual meeting to hold office until the 2003 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 all incumbent directors. If
any incumbent director 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 incumbent director, if
elected, would be unable to serve as a director.
18
<Page>
NOMINEES
The name and age of each of the nominees for director, each of whom, except
Charles A. Sayhoun, currently serves on the Board, are set forth below.
Additional biographical information concerning each of the nominees and the
executive officers follows the table.
<Table>
<Caption>
NAME AGE POSITION
- ---- -------- --------
Joseph J. Raymond......................... 66 Chairman of the Board, President and Chief
Executive Officer
Michael J. Rutkin......................... 50 Director
Harry Robert Kingston..................... 79 Director
Donald W. Feidt........................... 69 Director
Sanford I. Feld........................... 73 Director
Charles A. Sahyoun........................ 50 President--Engineering Services Division
</Table>
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 J. RUTKIN has served as a Director of Stratus since November 1997
and was Chief Operating Officer and President from March 1997 to October 1998.
Since November 1998, Mr. Rutkin has served as General Manager/Chief Executive
Officer of Battleground Country Club. From 1996 to 1998, Mr. Rutkin served as
Vice President of Transworld Management Services, Inc. From February 1993 to
October 1996, he served as Chief Operating Officer of HealthCare Imaging
Services, Inc. Prior thereto, Mr. Rutkin was the Executive Vice President of
Advanced Diagnostic Imaging from February 1987 to February 1993. From
March 1981 to September 1984, he served as Director of New Business Development
for the United States Pharmaceutical Division of CIBA-Geigy. Mr. Rutkin is the
brother-in-law of Joseph J. Raymond.
HARRY ROBERT KINGSTON has served as a Director of Stratus since
November 1997. From 1977 until his retirement in 1989, he served as the
President and Chief Executive Officer of MainStream Engineering Company, Inc.,
an engineering staffing firm located in California. From 1965 to 1968, he served
as President and Partner of VIP Engineering Company, a subsidiary of CDI
Corporation, a staffing and engineering services business. From 1968 to 1977,
Mr. Kingston served as Vice President for CDI Corporation.
DONALD W. FEIDT has served as a Director of Stratus since November 1997.
From 1987 to December 1998, Mr. Feidt was a Managing Partner of Resource
Management Associates, an information technology consulting company. Since
December 1998, Mr. Feidt has served as a Vice President to the Chief Executive
Officer of Skila Inc., a global web-based business intelligence platform company
providing services to the medical industry.
SANFORD I. FELD has served as a Director of the Company since
November 1997. Mr. Feld is currently president of Leafland Associates, Inc., an
advisor to Feld Investment and Realty Management, a real estate development and
management company. He also serves as Chairman of
19
<Page>
Flavor and Food Ingredients, a private savory and flavor company. From 1973 to
1979, he served as Director of the Chelsea National Bank of New York City.
CHARLES A SAHYOUN has served as President of the Engineering Services
Division since December 1997. From September 1988 to December 1997, he was
employed in various capacities with Day & Zimmerman Utilities Services
Group, Inc., an engineering and design services company, including Vice
President of Business Development. Mr. Sahyoun is a cousin of Joseph J. Raymond.
MEETINGS OF THE BOARD OF DIRECTORS; COMMITTEES
During the fiscal year ended September 30, 2001, the Board of Directors held
nine meetings. During fiscal 2001, 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. Non-employee directors are paid a fee of $1000 per Board of Directors
or committee meeting attended in person and $500 per meeting attended
telephonically.
During fiscal 2001, the Board of Directors had two standing committees: the
Audit Committee and the Compensation Committee. The Audit Committee currently
consists of Mr. Kingston, Mr. Feidt and Mr. Feld. The Audit Committee's
principal functions include making recommendations to the Board of Directors
regarding the auditors to be engaged as the Company's independent public
accountants, reviewing the proposed plan and scope for the annual audit and the
results of and recommendations from such audit when completed, reviewing the
services rendered by the auditors and the fees charged for such services,
determining the effect, if any, of the performance of any non-audit services by
the Company's independent public accountants on the independence and objectivity
of such accountants, and reviewing the plan, scope and results of the Company's
internal audit operations. During fiscal 2001, the Audit Committee held one
meeting.
Messrs. Kingston, Feidt and Feld are members of the Compensation Committee.
The Compensation Committee reviews and approves compensation for executive
employees of the Company on a periodic basis, subject to approval of the Board
of Directors, and establishes and administers the Company's compensation
programs. The Compensation Committee will also administer the 2002 Equity
Incentive Plan if the proposal to adopt the plan is approved at the meeting.
During fiscal 2001, the Compensation Committee held one meeting.
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 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.
20
<Page>
PROPOSAL NUMBER 3
ADOPTION OF THE STRATUS SERVICES GROUP, INC.
2002 EQUITY INCENTIVE PLAN
INTRODUCTION
The Board of Directors has approved and adopted, subject to approval and
ratification by the stockholders, the 2002 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 5,000,000 shares.
SUMMARY OF PROVISIONS OF THE 2002 EQUITY INCENTIVE PLAN
GENERAL
The Equity Incentive Plan will be administered by the Compensation Committee
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 5,000,000 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, 2011 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 Committee, 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 Compensation Committee may grant either incentive stock
options or non-qualified stock options under the Equity Incentive Plan. Only
employees of the Company may be
21
<Page>
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 Compensation Committee'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 Compensation
Committee, 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 Compensation Committee. For purposes of the exercise price of an option,
"fair market value" shall mean the average of the high and low sales prices of
the Common Stock as reported on the Nasdaq Small Cap Market. The term of each
option granted to a participant pursuant to the Plan will be determined by the
Compensation Committee; 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 Compensation Committee 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 Compensation Committee;
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 Compensation Committee, upon exercise, an SAR may be settled in
cash, Common Stock or a combination of both.
RESTRICTED STOCK GRANTS. The Compensation Committee 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 Compensation Committee 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 Compensation
Committee. Subject to such restrictions, conditions and forfeiture provisions as
may be established by the Compensation Committee, 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 Compensation Committee 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
Compensation Committee may specify. At the time any deferred stock award is
granted, the Committee may provide that the Participant will receive an
instrument evidencing the Participant's right to future delivery of Deferred
Stock.
22
<Page>
OTHER INFORMATION
If there is a stock split, stock dividend or other relevant change affecting
the Company's Common Stock, appropriate adjustments will be made in the number
of shares of Common Stock or in the type of securities to be issued pursuant to
any award granted before such event. In the event of a merger, consolidation,
combination or other similar transaction involving the Company in which the
Company is not the surviving entity, either 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 Compensation Committee may arrange to have the surviving
entity grant replacement awards for all outstanding awards. 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
Compensation Committee 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 Compensation Committee 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
23
<Page>
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
24
<Page>
Plan, or which would have been issued if the Equity Incentive Plan had been in
effect during fiscal 2001, or the name or positions of, or respective amounts of
the allotment to, any persons who may participate.
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 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 2002 EQUITY INCENTIVE PLAN.
PROPOSAL NUMBER 4
PROPOSAL TO APPROVE ISSUANCE OF FULL NUMBER OF SHARES
OF COMMON STOCK UPON CONVERSION OF PREFERRED STOCK
BACKGROUND
In July 2001, the Company issued 850,837 shares of Preferred Stock to
Artisan (UK) plc ("Artisan") in exchange for 63,025,000 ordinary shares of
enterpriseAsia.com, a London AIM listed company ("EPA"). The 63,025,000 shares
of EPA received in the exchange represent approximately 26.3% of EPA's
outstanding shares. The Company also issued 900,000 shares of Common Stock to
Artisan.com Limited, an affiliate of Artisan, in July 2001 at an aggregate
purchase price of $900,000. In connection with these transactions, the Company
issued 608,096 shares of Preferred Stock and 30,000 shares of Common Stock as
finder's fees to third parties. These transactions are collectively referred to
herein as the "Exchange Transaction."
Holders of the Preferred Stock are entitled to cumulative dividends at a
rate of $.21 per share, payable annually on June 30 and December 31 of each
year, when and as declared by the Company's Board of Directors, in preference
and priority to any payment of any dividend on the Common Stock or any other
class or series of stock of the Company. Dividends may be paid, at the option of
the Company, either in cash or in shares of Preferred Stock, valued at $3.00 per
share, if the Common Stock issuable upon conversion of such Preferred Stock has
been registered for resale under the Securities Act of 1933, as amended. Holders
of Preferred Stock are entitled to a liquidation preference of $3.00 per share,
plus accrued and unpaid dividends.
The Preferred Stock is convertible into Common Stock at any time at the
option of the holder. The number of shares issuable upon conversion is
determined by multiplying the number of shares of Preferred Stock to be
converted by $3.00 and dividing the result by the conversion price then in
effect (the "Conversion Price"). As of February 12, 2002, the Conversion Price
was $3.00. As a result, as of February 12, 2002, each share of Preferred Stock
was convertible into one (1) share of Common Stock. If all of the shares of
Preferred Stock currently outstanding as of February 12, 2002 were converted,
the Company would be required to issue 1,458,933 shares of Common Stock.
Approval of the proposal to approve the issuance of the full number of
shares of Common Stock upon conversion of the Preferred Stock is being sought to
satisfy the stockholder approval requirements of the National Association of
Securities Dealers, Inc. (the "NASD") and the Company's listing agreement with
the Nasdaq Stock Market in the event that such conversions, when added to the
number of shares of Common Stock issued in the Exchange Transaction require that
more than 1,221,712 shares of Common Stock (approximately 19.9% of the shares of
Common Stock outstanding before the Exchange Transaction) be issued in
connection therewith.
25
<Page>
NASD REQUIREMENT AS TO STOCKHOLDER APPROVAL
The rules of the NASD provide that stockholder approval must be obtained in
connection with the acquisition of the stock or assets of another company where,
due to the present or potential issuance of common stock, or securities
convertible into or exercisable for common stock, (i) the common stock has or
will have upon issuance voting power equal to or in excess of 20% of the voting
power outstanding before the issuance of stock or securities convertible into or
exercisable for common stock or (ii) the number of shares of common stock to be
issued is or will be equal to or in excess of 20% of the number of shares of
common stock outstanding before the issuance of the stock or securities (the
"NASD Rule").
The Certificate of Designation, Preferences and Rights of the Preferred
Stock filed by the Company with the Office of the Secretary of State, State of
Delaware in connection with the Exchange Transaction (the "Certificate of
Designation") contains provisions which would prohibit the issuance of Common
Stock upon conversion of the Preferred Stock in excess of the limit imposed by
the NASD Rule. The failure to obtain stockholder approval of the full number of
shares of Common Stock issuable upon conversion of the Preferred Stock could
require the Company to redeem any shares of Preferred Stock which cannot be
converted as a result of the failure to obtain stockholder approval at a special
redemption price equal to the liquidation price of $3.00 per share plus
accumulated but unpaid dividends at a rate of 7% per annum.
CONSEQUENCES IF STOCKHOLDER APPROVAL NOT OBTAINED
If stockholder approval is not obtained, the Company will be prohibited
under the rules of the NASD and the terms of its listing agreement with the
Nasdaq Stock Market from issuing more than an aggregate of 1,221,712 shares of
Common Stock upon conversion of the Preferred Stock. If stockholder approval is
not obtained the Company could be required to redeem the shares of Preferred
Stock which cannot be converted as a result of the limit imposed by the NASD
rule at a price equal to the liquidation preference of $3.00 per share plus
accumulated and unpaid dividends on the Preferred Stock at a rate of 7% per
annum. No assurance can be given that the Company will have the funds required
to make payments to the holders of the Preferred Stock under such circumstances.
A failure to make the required payments would result in the Company being in
default of its obligations under the Certificate of Designation.
VOTE REQUIRED
Approval by the Company's stockholders of issuance of the full number of
shares of Common Stock upon conversion of the Preferred Stock requires the
affirmative vote of (i) a majority of the votes cast at the annual meeting by
the holders of Common Stock and Preferred Stock, voting together as a single
class, present in person or represented by proxy and entitled to vote and
(ii) a majority of the votes cast at the annual meeting by the holders of Common
Stock present in person or represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
ISSUANCE OF THE FULL NUMBER OF SHARES OF COMMON STOCK UPON
CONVERSION OF THE PREFERRED STOCK.
26
<Page>
PROPOSAL NUMBER 5
PROPOSAL TO APPROVE THE ISSUANCE OF UP TO 5,000,000 SHARES OF
COMMON STOCK AT PRICES WHICH MAY BE BELOW BOOK AND
MARKET VALUE OF THE COMMON STOCK
BACKGROUND
The Company is contemplating a transaction or series of transactions
pursuant to which it may sell up to 5,000,000 shares of Common Stock in private
transactions. These transactions may result in the issuance of shares
representing more than 20% of the Company's outstanding Common Stock and may be
at prices that are below the book or market value of the Common Stock on the
issuance date, but in no event will a sale be at a discount of greater than 25%
of the market value of the Common Stock on the date of issuance. As of the date
of this Proxy Statement, the Company has not entered into any agreements which
would obligate it to sell securities as discussed herein. As a result, the
Company is unable to provide additional details of any potential transactions at
this time. The Board of Directors will determine the terms of any such
transactions in its discretion.
REASONS FOR THE POTENTIAL SALES
As of December 31, 2001, the Company had limited liquid resources. Current
liabilities were approximately $14,522,000 and current assets were approximately
$12,998,000. The difference of approximately $1,534,000 is a working capital
deficit which is primarily the result of the losses the Company sustained over
the past year. This situation has made it difficult for the Company to make
timely payments to its vendors. The Company estimates that approximately
$1,800,000 of working capital will be received upon the closing of the proposed
sale of its Engineering Services Division if the Company's stockholders approve
the Asset Sale and the Asset Sale is consummated; however, no assurance can be
given that such Asset Sale will close. Even if the Company is successful in
completing the sale of the Engineering Services Division, the Board of Directors
believes it may be in the best interests of the Company to raise additional
funds to finance additional growth. The Company is seeking stockholder approval
of Proposal Number 5 to avoid delay and additional expense at a later date in
the event such stockholder approval would otherwise be required in connection
with a proposed financing transaction.
EFFECT ON EXISTING STOCKHOLDERS
The issuance of 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 Company's Common Stock.
NASD REQUIREMENT AS TO STOCKHOLDER APPROVAL
The rules of the NASD provide that stockholder approval must be obtained in
connection with a transaction other than a public offering involving the sale,
issuance or potential issuance of common stock equal to 20% or more of the
common stock or 20% or more of the voting power outstanding before the issuance
for less than the greater of the book or market value of the stock (the "20%
Rule"). Because of the restrictions of the 20% Rule, the Company may not raise
funds through the sale of equity securities without stockholder approval unless
(i) the transaction results in an issuance or potential issuance of a number of
shares of Common Stock which is less than 20% of the total number of shares
outstanding, (ii) securities are sold at the then current market price or
(iii) securities are sold in a public offering. Based upon current market
conditions, the Board of Directors believes that a sale of the Company's
securities in public markets or at the current market price of the Common Stock
would likely not be achievable. A public offering would involve substantial
delay and significant expense, and might be unsuccessful given current
conditions in the market for public company issuances.
27
<Page>
VOTE REQUIRED
Approval by the Company's stockholders of the proposal to approve the
issuance of up to 5,000,000 shares of Common Stock in private transactions at
prices which may be below the per share or market value of the Common Stock
requires the affirmative vote of a majority of the votes cast at the annual
meeting by the holders of Common Stock and Preferred Stock, voting as a single
class, present in person or by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
PROPOSAL TO APPROVE THE ISSUANCE OF UP TO 5,000,000 SHARES OF
COMMON STOCK AT PRICES WHICH MAY BE BELOW THE BOOK AND
MARKET VALUE OF THE COMMON STOCK.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information with respect to each person who,
as of February 12, 2002, is known by the Company to be the beneficial owner (as
defined in Rule 13d-3 ("Rule 13d-3") of the Securities Exchange Act of 1934) of
more than five percent (5%) of the Company's Common Stock. Except as set forth
in the footnotes to the table, the stockholders have sole voting and investment
power over such shares:
<Table>
<Caption>
COMMON STOCK PREFERRED STOCK
----------------------- -----------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP CLASS
- ------------------------ ---------- ---------- ---------- ----------
Joseph J. Raymond................................. 1,750,837(3) 16.7% 850,837(4) 58.3%
Artisan.com Limited............................... 1,988,039(1) 17.8 850,837(2) 58.3
Griffin Securities(5)............................. 608,096(6) 5.9 608,096 41.7
</Table>
- ------------------------
(1) Includes 850,837 shares of Common Stock issuable upon conversion, at the
holder's option, of an equal number of shares of Preferred Stock, which are
subject to a proxy granted by Artisan (UK) plc which gives Mr. Raymond the
right to vote these shares until July 2004 provided that he remains Chairman
of the Company's Board of Directors. Also, includes 693,782 shares of Common
Stock that are currently exercisable or may become exercisable within
60 days of February 12, 2002.
(2) Includes 850,837 shares of Preferred Stock which are subject to a proxy
granted by Artisan (UK) plc which gives Mr. Raymond the right to vote these
shares until July 2004 provided that he remains Chairman of the Company's
Board of Directors.
(3) Includes 850,837 shares of Common Stock issuable upon the conversion, at the
holders option, of an equal number of shares of Preferred Stock which are
held by Artisan (UK) plc, the parent company of Artisan.com Limited. Artisan
(UK) plc has granted Joseph J. Raymond a proxy to vote these shares as
described in note 1 above.
(4) These shares are held by Artisan (UK) plc, the parent company of Artisan.com
Limited. Artisan (UK) plc has granted Joseph J. Raymond a proxy to vote
these shares as described in note 1 above.
(5) Stephen Dean is the Chairman and a significant shareholder of each of
Artisan (UK) plc and Cater Barnard plc which indirectly owns 36% of Griffin
Securities. In addition, Mr. Dean is a director of Griffin Securities.
(6) Includes 608,096 shares of Common Stock issuable upon conversion of an equal
number of shares of Preferred Stock
28
<Page>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information, as of February 12, 2002 with
respect to the beneficial ownership (as defined in Rule 13d-3) of the Company's
Common Stock by each director and nominee for director, each of the Named
Executive Officers (as defined in the section captioned "Executive
Compensation") 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.
<Table>
<Caption>
COMMON STOCK PREFERRED STOCK
-------------------------- --------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP CLASS
- ------------------------ ---------- ---------- ---------- ----------
Joseph J. Raymond............................ 1,988,039(1) 16.7% 850,837(2) 58.3%
Charles A. Sahyoun........................... 205,000 2.1
Michael A. Maltzman.......................... 257,116(3) 2.6
Michael J. Rutkin............................ 213,075(4) 2.2
Sanford I. Feld.............................. 57,834(5) (6)
H. Robert Kingston........................... 43,333(7) (6)
Donald W. Feidt.............................. 30,000(8) (6)
All Directors and Executive Officers as a
Group (8 persons)(1)(2)(3)(4)(5)(7) and
(8)........................................ 2,909,179 26.8% 850,837 58.3%
</Table>
- ------------------------
(1) Includes 850,837 shares of Common Stock issuable upon conversion, at the
holder's option, of an equal number of shares of Preferred Stock, which are
subject to a proxy granted by Artisan (UK) plc which gives Mr. Raymond the
right to vote these shares until July 2004 provided that he remains Chairman
of the Company's Board of Directors. Also, includes 693,782 shares of Common
Stock that are currently exercisable or may become exercisable within
60 days of February 12, 2002.
(2) Includes 850,837 shares of Preferred Stock which are subject to a proxy
granted by Artisan (UK) plc which gives Mr. Raymond the right to vote these
shares until July 2004 provided that he remains Chairman of the Company's
Board of Directors.
(3) Includes 210,448 shares subject to currently exercisable stock options.
Excludes 175,000 shares subject to options that are not vested or
exercisable within 60 days of January 18, 2001.
(4) Includes 30,000 shares held by children of Michael Rutkin living in his
household and 10,000 shares held by his wife.
(5) Includes 49,167 shares subject to currently exercisable stock options and
warrants.
(6) Shares beneficially owned do not exceed 1% of the Company's outstanding
Common Stock.
(7) Includes 10,000 shares subject to currently exercisable options.
(8) Includes 114,782 shares that are beneficially owned by J. Todd Raymond, the
Company's General Counsel and Corporate Secretary, including 88,782 shares
subject to currently exercisable options.
29
<Page>
EXECUTIVE COMPENSATION
The following table provides certain summary information regarding
compensation paid by the Company during the fiscal years ended September 30,
1999, 2000 and 2001 to the Chief Executive Officer of the Company and to each of
the Company's other four most highly paid executive officers (together with the
Chief Executive Officer, the "Named Executive Officers"):
<Table>
<Caption>
LONG TERM
COMPENSATION
AWARDS
----------------
ANNUAL COMPENSATION NUMBER OF SHARES
---------------------------------- UNDERLYING STOCK
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) OPTIONS(#)
- --------------------------- ----------- --------- -------- ----------------
Joseph J. Raymond ............................. 2001 $175,000 -- 1,200,000
Chairman and Chief Executive Officer 2000 127,885 $ 25,900 1,102,115
1999 53,846 -- --
Michael A. Maltzman ........................... 2001 $165,000 -- 200,000
Treasurer and Chief Financial Officer 2000 155,039 $ 21,975 102,115
1999 145,550 7,500 --
Charles Sahyoun ............................... 2001 $190,577 $115,000 200,000
President, Engineering Services Division 2000 160,692 54,400 102,115
1999 159,284 -- --
</Table>
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is further information with respect to grants of stock options
in fiscal 2001 to the Named Officers by the Company which are reflected in the
Summary Compensation Table set forth under the caption "Executive Compensation."
<Table>
<Caption>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
----------------------------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED OPTION TERM
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE OR BASE -----------------------
NAME (#)(1) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE 5% 10% ($)
- ---- --------------- ---------------- ---------------- --------------- ---------- ----------
Joseph J. Raymond............. 1,000,000(1) 50% $1.10 4/03/11 $280,000 $510,000
200,000(2) 20 1.10 4/03/11 36,000 102,000
Michael A. Maltzman........... 200,000(2) 20 1.10 4/03/11 36,000 102,000
Charles Sahyoun............... 200,000(3) 20 1.10 4/03/11 36,000 102,000
</Table>
- --------------------------
(1) Options with respect to 500,000 shares are exercisable cumulatively in two
equal annual installments commencing on the date of grant. Options with
respect to the remaining 500,000 shares are exercisable cumulatively in five
equal annual installments, commencing on the date of grant. These options
become exercisable only after the Company achieves earnings of $1.00 per
share in a fiscal year.
(2) These options are exercisable cumulatively in two equal annual installments
commencing on the date of grant.
(3) These options, which were exercisable cumulatively in two equal annual
installments commencing on the date of grant, have been forfeited.
30
<Page>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Shown below is information with respect to options exercised by the Named
Executive Officers during fiscal 2001 and the value of unexercised options to
purchase the Company's Common Stock held by the Named Executive Officers at
September 30, 2001.
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS HELD AT IN-THE-MONEY
ACQUIRED FY-END (#) OPTIONS AT FY-END ($)(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Joseph J. Raymond................ -- -- 693,782 1,575,000 $ -- $ --
Charles Sahyoun.................. -- -- 210,442(2) 175,000(2) -- --
Michael A. Maltzman.............. -- -- 210,448 175,000 -- --
</Table>
No options were exercised by the Named Executive Officers during the fiscal
year ended September 30, 2001.
- ------------------------
(1) Represents market value of shares covered by in-the-money options on
September 30, 2001. The closing price of the Common Stock on such date was
$1.00. Options are in-the-money if the market value of shares covered
thereby is greater than the option exercise price.
(2) These options have been forfeited.
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 2002. 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 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.
In the event Stratus 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.
31
<Page>
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 or 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 gross sales of Stratus over the prior
twelve month period;
- Stratus requires Mr. Raymond to be based at any location other than within
50 miles of Stratus' current executive office location; and
- a Change in Control of Stratus, which includes the acquisition by any
person or persons acting as a group of beneficial ownership of more than
20% of the outstanding voting stock of Stratus, mergers or consolidations
of Stratus 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 the assets of Stratus, and certain changes in the
Stratus 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 Stratus 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.
The Company entered into employment agreements with each of the other two
(2) officers named in the Executive Compensation table set forth above. The
agreements with Mr. Sahyoun and Mr. Maltzman provide for base salaries of
$165,000 and $146,000, respectively. The agreement with Mr. Sahyoun entitles him
to a profit sharing award equal to 10% of the Engineering Services Division's
pre-tax income, but not in excess of his base salary. Mr. Maltzman is entitled
to profit sharing awards based upon the Company's overall profitability. Each of
these agreements is terminable by any party at any time without cause. However,
in the event that either of these agreements are terminated by the Company
without cause or by the executive with good reason, the executive will be
entitled to a severance payment equal to the greater of one month's salary for
each year worked or three months salary. In addition, the Company will pay the
executive any earned but unused vacation time and any accrued but unpaid profit
sharing. The Company is also required to maintain insurance and benefits for a
terminated executive during the severance period.
32
<Page>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors (the "Compensation
Committee" or the "Committee") has furnished the following report on executive
compensation.
The Compensation Committee is currently comprised of independent,
non-employee directors. It is charged with the responsibility of reviewing and
approving the compensation of the Company's officers and administration of the
Company's equity incentive plans.
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
33
<Page>
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. In April 2001, in recognition of the fact that
Mr. Raymond was not receiving a salary increase or any bonus for the past fiscal
year, the Board of Directors granted to Mr. Raymond options to acquire 1,200,000
shares of Common Stock at an exercise price of $1.10 per share under the 2001
Equity Incentive Plan.
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 2002 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
COMPENSATION COMMITTEE:
H. Robert Kingston
Donald W. Feidt
Sanford I. Feld
34
<Page>
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 April 26, 2000 (the date that the Company's Common Stock
began trading on the Nasdaq Stock Market) to September 30, 2001, 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 April 26, 2000 and that all
dividends were reinvested).
<Table>
<Caption>
FISCAL YEAR ENDING
---------------------------------
COMPANY/INDEX/MARKET 4/26/2000 9/30/2000 9/30/2001
- -------------------- --------- --------- ---------
Stratus Services Group, Inc................................. 100.00 76.79
Staffing Industry Report Index.............................. 100.00 93.74
NASDAQ Market Index......................................... 100.00 94.65
</Table>
35
<Page>
REPORT OF THE AUDIT COMMITTEE
The Audit Committee operates under a written charter adopted by the Board of
Directors which is annexed to this Proxy Statement as Exhibit A. Donald W.
Feidt, Sanford I Feld and H. Robert Kingston are the members of the Audit
Committee. The Audit Committee oversees the Company's financial reporting
process on behalf of the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting process including
the systems of internal controls. In fulfilling its oversight responsibilities,
the Audit Committee reviewed the audited financial statements in the Company's
Annual Report with management.
The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, the matters
required to be discussed by Statement on Accounting Standard No. 61
(Communications with Audit Committees). In addition, the Audit Committee has
discussed with the independent auditors the auditors' independence from
management and the Company including the matters in the written disclosures
required by the Independence Standards Board.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K for the year ended September 30, 2001
for filing with the Securities and Exchange Commission.
Donald W. Feidt, Audit Committee Member
Sanford I. Feld, Audit Committee Member
H. Robert Kingston, Audit Committee Member
36
<Page>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Jeffrey J. Raymond, the son of the Company's Chairman and Chief Executive
Officer, 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 $281,000 in fiscal 2001.
During fiscal 2000, the Company paid consulting fees of $119,000 to RVR
Consulting, Inc., a corporation of which Joseph J. Raymond, Jr., the son of
Joseph J. Raymond, the Company's Chairman and Chief Executive Officer, is an
officer and 50% shareholder.
In November 2000, the Company formed the Stratus Technology Services, LLC
joint venture ("STS") with Fusion Business Services, LLC ("Fusion"). Fusion owns
a 50% interest in STS. Jamie Raymond, son of Joseph J. Raymond, Chairman & CEO,
is the managing member of both Fusion and STS and J. Todd Raymond, Secretary and
General Counsel, holds a minority interest in Fusion.
Between September 21, 2001 and October 8, 2001 the Company sold a total of
383,000 shares of Common Stock to Charles A. Sahyoun, the President of the
Engineering Services Division, Jamie Raymond, the son of Joseph J. Raymond, and
three grandchildren of Joseph J. Raymond, Jeffrey J. Raymond, Jr., Nicole
Raymond, Jake Raymond and Jamie Raymond. The purchase price of the shares
acquired by these individuals ranged from $.93 to $1.43 per share.
See the section captioned "Interest of Certain Persons in the Asset Sale" in
the description of Proposal Number 1 for information pertaining to agreements
between the Company and Charles Sahyoun, the President of the Engineering
Services Division and the cousin of Joseph J. Raymond.
All prior and ongoing material transactions with related parties have been
reviewed and/or ratified by a majority of the Company's independent,
disinterested directors. The Company anticipates that from time to time it will
enter into additional transactions with related parties. However, all future
material transactions with related parties will be entered into on terms that
are no less favorable than those that can be obtained from unaffiliated third
parties. At all times, the Company's directors have access to the Company's
counsel to discuss Company related issues.
OTHER INFORMATION
ACCOUNTING MATTERS
Selection of the independent public accountants for the Company is made by
the Board of Directors. As previously stated under the caption "Election of
Directors," the Company's Board of Directors has an Audit Committee consisting
of outside directors, and the present members of the committee are
Mr. Kingston, Mr. Feidt and Mr. Feld. Amper Politziner Mattia, P.A. currently
serves as the Company's independent public accountants. The Audit Committee has
not yet selected the auditors for fiscal 2002. A representative of Amper
Politziner Mattia, P.A. 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.
During fiscal 2001, Amper, Politziner & Mattia, P.A. provided various audit
and non-audit services to the Company as follows:
(a) AUDIT FEES: Aggregate fees billed for professional services rendered for
the audit of the Company's fiscal year 2000 annual financial statements
and review of financial statements in the Company's Form 10-Q Reports:
$97,000.
(b) FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES: None.
(c) ALL OTHER FEES: $72,500 (which included no consulting services).
37
<Page>
The Audit Committee of the Board has considered whether provision of the
services described in sections (b) and (c) above is compatible with maintaining
the independent accountant's independence and has determined that such services
have not adversely affected Amper, Politziner & Mattia, P.A.'s independence.
STOCKHOLDER PROPOSALS
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 October 20, 2002. The Company's by-laws contain certain
procedures which must be followed in connection with stockholder proposals.
ANNUAL REPORT TO SHAREHOLDERS
The annual report to stockholders for the fiscal year ended September 30,
2001 accompanies this Proxy Statement. Amper, Politziner & Mattia, P.A. has
audited the financial statements of the Company for the three fiscal years ended
September 30, 2001, 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 500 Craig
Road, Suite 201, Manalapan, New Jersey 07726 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 the Company's 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 the Company's review of the copies of such
forms it has received, the Company believes that all of its 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 2001, except that each of Joseph J. Raymond, Charles Sahyoun, Michael A.
Maltzman, J. Todd Raymond, Sanford I. Feld and Donald W. Feidt are late in
filing the Forms 5 which were due for filing in November 2001.
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
February 18, 2002
38
<Page>
ANNEX I
February , 2002
Mr. Joseph Raymond, Chairman and CEO
Stratus Services Group, Inc.
500 Craig Road
Manalapan, NJ 07726
Re: Asset Purchase of the Stratus Engineering Division of Stratus Services
Group, Inc. ("Seller") to SEA Consulting Services Corporation ("Buyer")
Dear Mr. Raymond:
You have requested our opinion as the fairness, from a financial point of
view, to the shareholders of Seller of the consideration to be received by them
in connection with the Asset Purchase by the Buyer pursuant to the Asset
Purchase Agreement dated January 24, 2002 (the "Agreement").
We are acting here as an independent advisor to Seller and have not
participated in the planning and negotiation of the terms and conditions of the
transaction.
As is more fully described in the Agreement, Seller will receive
$2.3 million for the sale of Assets totaling approximately $200,000. Such
payment will be received as follows: First payment of approximately
$1.8 million, less expenses and offsets, at closing after shareholder approval,
second payment of approximately $250,000 after closing of the books for the
period ending June 30, 2002, and the third payment of $250,000 after closing of
the books for the period ending December 31, 2002. Each of the second and third
payments are guaranteed by Sahyoun Holdings, LLC (Management Team) without
regard to the actual earnings of the division for each subsequent payment
period. To induce the Management Team to complete the transaction and remain on
to manage the business, the Management Team will receive $400,000, less expenses
and offsets from the initial payment at losing, and any remaining payments
received from Buyer, in the second and third payment, less the $250,000 owed to
Seller. In addition, Management Team will receive earnout payments based on the
performance of the entity in a going forward basis.
In rendering this opinion, we have, among other things:
(i) Reviewed the financial terms of the Agreement and other associated
documents involved in the transaction.
(ii) Reviewed the draft of the Proxy statement to be sent to
shareholders of the Seller;
(iii) Reviewed and analyzed the past financial position and performance
of Seller that provided us information, and a basis to render this opinion;
(iv) Reviewed and studied intended continued business, financial
forecast and generally familiarized ourselves with the Buyer,
(v) Reviewed publicly available information on similar asset or stock
sales of business transactions, comparable to this transaction and
statistically compared this transaction to other comparable businesses.
We have also conducted discussions with members of senior management of
Seller and Management Team and conducted such other financial studies, analyses
and investigations as we deemed appropriate.
39
<Page>
In our review, we have assumed without independent verification, the
accuracy and completeness of financial and other information provided to us or
used publicly available information that we have not independently verified.
Based upon our analysis of the foregoing and upon such other factors as we
deem relevant, including our assessment of general economic, market and monetary
conditions, it is our opinion that the consideration to be received by the
Seller in the proposed transaction is fair to the shareholders of Seller from a
financial point of view.
If we can be of future assistance to Stratus Services Group, Inc., please
call me at .
Very truly yours,
- ------------------------------------
- ------------------------------------
40
<Page>
-Please Detach and Mail in the Envelope Provided-
STRATUS SERVICES GROUP, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MARCH 13, 2002
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF STRATUS SERVICES GROUP, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Joseph J. Raymond and J. Todd Raymond 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 February 12, 2002, at the annual
meeting of stockholders to be held at 500 Craig Road, Manalapan, New Jersey
on March 13, 2002 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.
(CONTINUED, AND TO BE DATED AND SIGNED ON OTHER SIDE)
<Page>
-Please Detach and Mail in the Envelope Provided-
[X] PLEASE MARK
YOUR VOTES AS IN
THIS EXAMPLE.
(This proxy is continued from reverse side)
FOR AGAINST ABSTAIN
(1) Approval of [_] [_] [_]
Asset Sale
WITHHOLD
FOR AUTHORITY
(2) Election of [_] [_]
Directors:
Joseph J. Raymond, Michael J. Rutkin,
Harry Robert Kingston, Donald W. Feidt,
Sanford I. Feld and Charles A. Sahyoun
FOR, except vote withheld from the following nominees:
- -----------------------------------------------------
FOR AGAINST ABSTAIN
(3) Approval of 2002 Equity Incentive Plan [_] [_] [_]
(4) Approval of full issuance of shares upon [_] [_] [_]
conversion of Series A Preferred Stock
(5) Approval of issuance of up to 5,000,000 [_] [_] [_]
common shares at prices below book and
market value
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.)