<Page>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<Table>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Under Rule 14a-12
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>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act
Rules 14(a)(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:
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total Fee Paid:
----------------------------------------------------------
/ / 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 SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 17, 2002
STRATUS SERVICES GROUP, INC.
To the Stockholders of
STRATUS SERVICES GROUP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of STRATUS
SERVICES GROUP, INC. (the "Company") will be held on Wednesday, July 17, 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 the proposal of the Board Directors to amend the
Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") of the Company to increase the number of the authorized
shares of the Company's Common Stock from 25,000,000 to 100,000,000.
2. To consider and vote upon a proposal to approve (a) the issuance of 47,000
shares of Series C Convertible Preferred Stock (the "Series C Preferred
Stock") to Artisan (UK) plc; and (b) the issuance of shares of Common Stock
upon the conversion of such Series C Preferred Stock.
3. To consider and vote upon the proposal of the Board of Directors to approve
the issuance of the full number of shares of Common Stock to which holders
of the Company's Series B Preferred Stock (the "Series B Preferred Stock")
are entitled upon the conversion of Series B Preferred Stock.
4. To consider and vote upon a proposal to approve the issuance of up to
50,000,000 shares of Common Stock, or securities convertible into up to
50,000,000 shares of Common Stock, at prices which may be below the book and
market value of the Common Stock.
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
In accordance with the provisions of the Company's By-laws, the Board of
Directors has fixed the close of business on June 14, 2002 as the date for
determining the stockholders of record entitled to receive notice of, and to
vote at, the Special Meeting and any adjournments thereof. A list of the
stockholders entitled to vote at the Special Meeting will be available for
inspection at the offices of the Company and at the Special Meeting.
STOCKHOLDERS ARE URGED TO FILL IN, DATE, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING PROXY IN THE ACCOMPANYING PREPAID ENVELOPE.
The enclosed Proxy is solicited by and on behalf of the Board of Directors
of the Company. All stockholders are cordially invited to attend the Special
Meeting in person. Whether you plan to attend or not, please date, sign and
return the accompanying proxy in the enclosed return envelope, to which no
postage need be affixed if mailed in the United States. The giving of a proxy
will not affect your right to vote in person if you attend the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
J. TODD RAYMOND
CORPORATE SECRETARY
Manalapan, New Jersey
June 21, 2002
<Page>
STRATUS SERVICES GROUP, INC.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
------------------------
PROXY STATEMENT
------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 17, 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 (the
"Common Stock"), Series A Preferred Stock, $.01 par value per share (the
"Series A Preferred Stock"), and Series B Preferred Stock, $.01 par value per
share (the "Series B Preferred Stock" and together with the Series A Preferred
Stock, the "Preferred Stock"), in connection with the solicitation of proxies on
behalf of the Board of Directors of the Company for use at a special meeting of
stockholders to be held on July 17, 2002, and at any adjournment thereof (the
"meeting" or "special meeting"), pursuant to the accompanying Notice of Special
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 June 26, 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 amend the
Certificate of Incorporation of the Company to increase the number of the
authorized shares of the Company's Common Stock from 25,000,000 to 100,000,000;
AGAINST the proposal to approve the issuance of 47,000 shares of the Series C
Convertible Preferred Stock (the "Series C Preferred Stock") to Artisan (UK) plc
("Artisan") and the issuance of shares of Common Stock upon the conversion of
such Series C Preferred Stock; FOR the proposal to approve the issuance of the
full number of shares of Common Stock to which the holders of the Company's
Series B Preferred Stock (the "Series B Preferred Stock") are entitled upon the
conversion of the Series B Preferred Stock; and FOR the proposal to approve the
issuance of up to 50,000,000 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.
<Page>
VOTING
The securities entitled to vote at the meeting consist of shares of Common
Stock, Series A Preferred Stock and Series B Preferred Stock, with each share of
Common Stock, Series A Preferred Stock and Series B Preferred Stock entitling
its owner to one vote. On June 14, 2002, the number of outstanding shares of
Common Stock was 11,552,567 shares, the number of outstanding shares of
Series A Preferred Stock was 1,458,933 shares and the number of outstanding
shares of Series B Preferred Stock was 263,300. Only stockholders of record on
the books of the Company at the close of business on June 14, 2002 will be
entitled to vote at the meeting. The holders of the outstanding shares of Common
Stock, Series A Preferred Stock and Series B 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
proposal to amend the Certificate of Incorporation must be approved by (i) the
holders of a majority of the outstanding shares of Common Stock and Series A
Preferred Stock, voting together as a single class; and (ii) a majority of the
outstanding shares of Common Stock, voting as a separate class. The proposal to
approve the issuance of the Series C Preferred Stock and the issuance of the
Common Stock upon conversion of the Series C Preferred Stock must be approved by
(i) the holders of a majority of the outstanding shares of Series A Preferred
Stock voting as a separate class, (ii) the holders of a majority of the
outstanding shares of Series B Preferred Stock, voting as a separate class; and
(iii) a majority of the votes cast at the meeting by the holders of Common Stock
and of the Series A Preferred Stock, voting together as a single class. The
proposal to approve the issuance of the full number of shares of Common Stock to
which holders of the Series B Preferred Stock are entitled upon the conversion
of the Series B Preferred Stock must be approved by a majority of the votes cast
at the meeting by the holders of Common Stock and Series A Preferred Stock
voting as a single class. The proposal to approve the issuance of up to
50,000,000 shares of Common Stock, or securities convertible into up to
50,000,000 shares of Common Stock, at prices which may be below the book and
market value of the Common Stock must be approved a majority of the votes cast
at the meeting by the holders of Common Stock and Series A 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,
abstentions and broker non-votes. 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.
2
<Page>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information with respect to each person who,
as of June 14, 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, Series A Preferred
Stock or Series B Preferred Stock. The holders of Series B Preferred Stock are
not entitled to any voting rights except as required by law. As a result, the
only proposal being considered at the meeting upon which holders of Series B
Preferred Stock are entitled to vote is the proposal to approve the issuance of
the Series C Preferred Stock, the Warrants and the Common Stock issuable upon
the conversion of the Series C Preferred Stock and exercise of Warrants. Except
as set forth in the footnotes to the table, the stockholders have sole voting
and investment power over such shares:
<Table>
<Caption>
SERIES A SERIES B
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
------------------------ --------------------- -----------------------
AMOUNT
AMOUNT AND AMOUNT AND
NATURE AND NATURE NATURE
OF OF OF
BENEFICIAL PERCENT OF BENEFICIAL PERCENT BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP OF CLASS OWNERSHIP CLASS
- ------------------------ ----------- ---------- ---------- -------- ---------- ----------
Joseph J. Raymond.................................... 7,302,023(1) 38.79% 1,458,933(2) 100.0% 32,000(3) 12.2%
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
Artisan.com Limited.................................. 2,275,933(4) 16.49% 1,375,933(5) 94.3% -- --
Dean House, Sovereign Court
Ermine Business Park
Huntington, Cambs PE28 6XU
Cater Barnard (USA) plc.............................. 83,000(6) (7) 83,000(8) 5.7% -- --
Lloyds House, #6 Lloyds Avenue
London, England, UK EC3N 3AX
Pinnacle Investment Partners, LP..................... 11,516,979(9) 49.99% -- -- 231,300 87.8%
110 Wall Street, 24th Floor
New York, New York 10005
</Table>
(1) Includes 900,000 shares of Common Stock owned by Artisan.com Limited
("Artisan.com"), 1,375,933 shares of Common Stock issuable upon the
conversion, at the holder's option, of an equal number of shares of
Series A Preferred Stock owned by Artisan.com and 83,000 shares of Common
Stock issuable upon the conversion, at the holder's option, of an equal
number of shares of Series A Preferred Stock owned by Cater Barnard (USA)
plc ("Cater Barnard"). All of such shares are subject to proxies granted by
Artisan.com and Cater Barnard which give Joseph J. Raymond the right to vote
these shares until July 2004 provided that he remains Chairman of the
Company's Board of Directors. Also includes (i) 1,422,222 shares of Common
Stock issuable as of June 14, 2002, upon conversion of 32,000 shares of
Series B Preferred Stock held by a corporation of which Mr. Raymond is the
sole owner and (ii) 3,168,782 shares of Common Stock subject to options
which are currently exercisable or may become exercisable within 60 days of
June 14, 2002. Excludes 850,000 shares of Common Stock subject to options
which are not vested or exercisable within 60 days of June 14, 2002.
(2) These shares are held by Artisan.com (1,375,933 shares) and Cater Barnard
(83,000 shares). Each of Artisan.com and Cater Barnard has granted
Mr. Raymond a proxy to vote these shares as described in note 1 above.
(3) These shares are held by a corporation wholly owned by Mr. Raymond.
(4) Includes 1,375,933 shares of Common Stock issuable upon conversion, at the
holder's option, of an equal number of shares of Series A Preferred Stock.
Artisan.com has granted Joseph J. Raymond a proxy to vote these shares as
described in note 1 above.
(5) Artisan.com has granted Mr. Raymond a proxy to vote these shares as
described in note 1 above.
(6) Represents 83,000 shares of Common Stock issuable upon the conversion, at
the holder's option, of an equal number of shares of Series A Preferred
Stock. Cater Barnard has granted Joseph J. Raymond a proxy to vote these
shares as described in note 1 above. Stephen Dean is the Chairman and a
significant shareholder of each of the parent company of Artisan.com and the
parent company of Cater Barnard.
(7) Shares beneficially owned do not exceed one percent (1%).
(8) Cater Barnard has granted Joseph J. Raymond a proxy to vote these shares as
described in note 1 above.
(9) Includes 10,280,000 shares of Common Stock issuable upon the conversion of
231,300 shares of Series B Preferred Stock (based upon the conversion price
of $0.1125 as of June 14, 2002).
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of June 14, 2002 with respect
to the beneficial ownership (as defined in Rule 13d-3) of the Company's Common
Stock, Series A Preferred Stock and
3
<Page>
Series B Preferred Stock by each director, each of the Company's current
executive officers who earned in excess of $100,000 in fiscal 2001 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>
SERIES A SERIES B
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
----------------------- --------------------- ---------------------
AMOUNT AMOUNT AMOUNT
AND NATURE AND NATURE AND NATURE
OF OF OF
BENEFICIAL PERCENT OF BENEFICIAL PERCENT BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS OWNERSHIP OF CLASS OWNERSHIP OF CLASS
- ------------------------ ---------- ---------- ---------- -------- ---------- --------
Joseph J. Raymond.................. 7,302,023(1) 38.79% 1,458,933(2) 100.0% 32,000(3) 12.2%
Michael A. Maltzman................ 682,116(4) 5.59% -- -- -- --
Michael J. Rutkin.................. 213,075(5) 1.82% -- -- -- --
Sanford I. Feld.................... 107,834(6) (9) -- -- -- --
H. Robert Kingston................. 93,333(7) (9) -- -- -- --
Donald W. Feidt.................... 80,000(8) (9) -- -- -- --
All Directors and Executive
Officers as a Group (7 persons)
(1)(2)(3)(4)(5)(6)(7)(8) and
(10)............................. 8,593,163 46.67% 850,837 58.3% -- --
</Table>
- ------------------------
(1) Includes 900,000 shares of Common stock owned by Artisan.com, 1,375,933
shares of Common Stock issuable upon the conversion, at the holder's option,
of an equal number of shares of Series A Preferred Stock owned by
Artisan.com and 83,000 shares of Common Stock issuable upon the conversion,
at the holder's option, of an equal number of shares of Series A Preferred
Stock owned by Cater Barnard U.S.A. All of such shares are subject to
proxies granted by Artisan.com and Cater Barnard U.S.A. which give Joseph J.
Raymond the right to vote these shares until July 2004 provided that he
remains Chairman of the Company's Board of Directors. Also includes
(i) 1,422,222 shares of Common Stock issuable as of June 14, 2002, upon
conversion of 32,000 shares of Series B Preferred Stock held by a
corporation of which Mr. Raymond is sole owner and (ii) 3,168,782 shares of
Common Stock subject to options which are currently exercisable or may
become exercisable within 60 days of June 14, 2002. Excludes 850,000 shares
of Common Stock subject to options which are not vested or exercisable
within 60 days of June 14, 2002.
(2) These shares are held by Artisan.com (1,375,933 shares) and Cater Barnard
(83,000 shares). Each of Artisan.com and Cater Barnard has granted
Mr. Raymond a proxy to vote these shares as described in note 1 above.
(3) These shares are held by a corporation wholly owned by Mr. Raymond.
(4) Includes 635,448 shares subject to currently exercisable stock options.
Excludes 50,000 shares subject to options that are not vested or exercisable
within 60 days of June 14, 2002.
(5) Includes 30,000 shares held by children of Michael Rutkin living in his
household and 10,000 shares held by his wife.
(6) Includes 49,167 shares subject to currently exercisable stock options and
warrants.
(7) Includes 60,000 shares subject to currently exercisable options.
(8) Includes 60,000 shares subject to currently exercisable options.
(9) Shares beneficially owned do not exceed 1% of the Company's outstanding
Common Stock.
(10) Includes 114,782 shares of Common Stock that are beneficially owned by J.
Todd Raymond, the Company's Corporate Secretary, including 88,782 shares
subject to currently exercisable options.
4
<Page>
PROPOSAL I
PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED COMMON
STOCK
GENERAL
The Board of Directors has determined that it would be in the best interest
of the Company to amend the Company's Certificate of Incorporation to increase
the number of authorized shares of the Company's Common Stock from 25,000,000 to
100,000,000. The text of the proposed Certificate of Amendment is attached
hereto as Exhibit A. As of June 14, 2002, there are 11,522,567 shares of the
Company's Common Stock outstanding, leaving 13,477,433 shares of Common Stock
authorized but unissued. However, as of June 14, 2002, the Company had
(i) reserved 7,000,000 shares of its Common Stock for issuance under its 1999,
2000, 2001 and 2002 Equity Incentive Plans, (ii) commitments to issue an
aggregate of 2,558,334 shares of Common Stock upon the exercise of non-plan
options and warrants; and (iii) commitments to issue at least 13,161,155 shares
of its Common Stock upon the conversion of its Series A and Series B Preferred
Stock.
In addition, subject to obtaining the requisite shareholder approval, the
proposed transaction with Artisan.com, if approved and completed, will result in
the creation of a class of Series C Preferred Stock and in the issuance of up to
47,000 shares of Series C Preferred Stock. The Series C Preferred Stock to be
issued, if fully converted, would require the issuance of at least an additional
6,266,666 shares of Common Stock. See "Proposal II".
Further, the Company has entered into an agreement with a placement agent
for the purpose of creating and offering up to $2,000,000 of Series D Preferred
Stock and corresponding Warrants which could, if the full amount of the
Series D Preferred Stock and Warrants are sold and the Preferred Stock and
Warrants are fully converted and exercised, require the issuance of at least an
additional 6,333,334 shares of Common Stock. This includes a Warrant to Purchase
1,000,000 shares of Common Stock to be issued to the placement agent in the
transaction, subject to certain conditions. See "Proposal IV".
The above commitments and potential transactions, in the aggregate, could
obligate the Company to issue up to 35,319,489 shares of the Company's Common
Stock while it has only 13,477,433 shares of authorized and unissued Common
Stock out of which it can satisfy such obligations.
In addition to satisfying the Company's current commitments as described
above, the Company may be required to raise additional capital to finance its
operations if and when a feasible business opportunity is presented to the
Company. Thus, one of the purposes of the proposed amendment includes providing
the Company with greater flexibility for entering into any opportunity that
might be presented to it. Currently, the Company is restricted in its financing
options due to the limited amount of authorized but unissued shares of Common
Stock provided for in its Certificate of Incorporation. The Board believes that
it is in the best interest of the Company to increase the number of authorized
shares of Common Stock to assure the availability of shares for such purposes.
PURPOSES AND EFFECTS OF INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
The proposed amendment of the Certificate of Incorporation would increase
the number of shares of Common Stock which the Company is authorized to issue
from 25,000,000 shares to 100,000,000 shares. If Proposal I is approved by the
shareholders of the Company, the additional 75,000,000 shares of Common Stock
authorized would be part of the existing class of Common Stock and, if and when
issued, would have the same rights and privileges as the shares of Common Stock
currently issued and outstanding.
6
<Page>
The Board believes that the proposed increase in the number of authorized
shares of Common Stock is advisable so that the Company will have sufficient
authorized capital to permit (i) the completion of the offering of the Common
Stock, or securities convertible into Common Stock, at prices which may be below
the book and market value of such Common Stock, (ii) future equity financings,
(iii) potential acquisitions of businesses for Common Stock, (iv) the grant of
additional stock options under its equity incentive plans, and (v) potential
issuances of shares of Common Stock upon conversion of the Company's Preferred
Stock and exercise of outstanding warrants and options to purchase Common Stock.
Approval of Proposal I by the stockholders of the Company will increase the
number of shares of Common Stock which the Company may issue without further
stockholder approval. The issuance of additional shares of Common Stock could
have the effect of delaying, deferring or preventing a change in control of the
Company and discouraging tender offers for the Company. In addition, the
issuance of additional shares of Common Stock will have a dilutive effect on the
current stockholders of the Company and could have an adverse impact on the
trading price of the Common Stock.
VOTE REQUIRED
Approval by the Company's stockholders of Proposal I requires approval by
(i) holders of a majority of the outstanding shares of Common Stock and
Series A Preferred Stock, voting together as a single class; and (ii) a majority
of the outstanding shares of Common Stock, voting as a separate class.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE FOR PROPOSAL I.
7
<Page>
PROPOSAL II
PROPOSAL TO APPROVE THE ISSUANCE OF SERIES C PREFERRED STOCK TO
ARTISAN AND THE ISSUANCE OF COMMON STOCK UPON CONVERSION OF
SERIES C PREFERRED STOCK
BACKGROUND
In July 2001, the Company issued 850,837 shares of Series A Preferred Stock
(the "Series A Preferred Stock") to Artisan.com 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 in July 2001, at an aggregate purchase price of $900,000.
In connection with these transactions, the Company issued 608,096 shares of
Series A Preferred Stock and 30,000 shares of Common Stock as finder's fees to
third parties. See "Description of Capital Stock--Series A Preferred Stock" for
a description of the terms of the Series A Preferred Stock.
The Company and Artisan, the parent company of Artisan.com, have entered
into a Subscription Agreement, effective as of March 28, 2002, subject to the
Company obtaining the requisite stockholder approval of Proposal II, which
provides that Artisan will purchase $4,700,000 (47,000 shares) of the Series C
Preferred Stock (the "Artisan Transaction"). The proceeds that the Company
receives from the sale of the Series C Preferred Shares will be used to redeem
the Company's outstanding Series A Preferred Stock and pay the accrued dividends
thereon. The closing of the Artisan Transaction is conditioned upon the receipt
of stockholder approval of the issuance of the Series C Preferred Stock and the
shares of Common Stock issuable upon conversion of the Series C Preferred Stock.
The Subscription Agreement and related documents memorializing the Artisan
Transaction also provide as follows: (1) Artisan grants Joseph Raymond, Sr., the
Chairman and President of the Company, a proxy to vote all of Artisan's
Series C Preferred Shares and Common Stock underlying the Series C Preferred
Stock, if converted, for a period of two (2) years provided that Mr. Raymond
remains Chairman of the Company's Board of Directors; (2) Artisan is entitled to
appoint one Director to the Company's Board of Directors and, in turn, the
Company is entitled to appoint one Director to Artisan's Board of Directors, and
(3) certain members of the family of Joseph J. Raymond provide Artisan with a
right of first refusal in the event they sell their shares in the Company.
The proposal to approve the issuance of the Series C Preferred Stock to
Artisan was originally endorsed by the Board because Artisan had presented to
and discussed with the Company a number of Term Sheets which contemplated a
series of transactions of which the Artisan Transaction was only a part. The
Board's expectations were that these other transactions in the series would
result in aggregate investments in the Company of approximately $6,000,000, not
including the funding being provided in the Artisan Transaction. Artisan has
advised the Company that it no longer intends to pursue these other transactions
with the Company, and, as a result, the Board believes that it would no longer
be in the best interests of the Company and its stockholders for the
stockholders to approve the proposal to issue such Series C Preferred Stock to
Artisan.
DESCRIPTION OF SERIES C PREFERRED STOCK
If the Artisan Transaction is approved and completed, the rights,
designations and preferences of the Series C Preferred Stock will be as
described below.
Holders of the Series C Preferred Stock will be entitled to cumulative
dividends at a rate of seven percent (7%) per annum, payable semi-annually, 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 the Series A or B
Preferred Stock of the Company. Dividends may be paid, at the option of the
Company, either in cash or in shares of Common Stock, valued at the Series C
Conversion Price (as defined below), if the Common Stock issuable upon
conversion of such Series C Preferred Stock has been
8
<Page>
registered for resale under the Securities Act of 1933. Holders of Series C
Preferred Shares will be entitled to a liquidation preference of $100.00 per
share plus accrued and unpaid dividends.
The Series C Preferred Stock will be convertible into Common Stock at any
time at the option of the holder. The number of shares issuable upon conversion
will be determined by multiplying the number of shares of Series C Preferred
Stock to be converted by $100.00 and dividing the result by the conversion price
then in effect (the "Series C Conversion Price"). Under the terms of the Artisan
Transaction, the Series C Conversion Price will be $0.75. As a result, each
share of Series C Preferred Stock will be convertible into one hundred
thirty-three (133) shares of Common Stock.
Holders of Series C Preferred Stock will be entitled to vote on all matters
submitted to a vote of the stockholders of the Company, with each share of
Series C Preferred Stock entitling the holder to a number of votes equal to the
number of full shares of Common Stock into which such share of Series C
Preferred Stock is then convertible. Initially, each share of Series C Preferred
Stock will represent 133 votes. The Series C Preferred Stock will vote together
with the Common Stock on each matter submitted to a vote of stockholders, except
that the holders of the Series C Preferred Stock will be entitled to vote
together as a single class on any (a) proposed amendment of the Company's
Certificate of Incorporation which would increase or decrease the aggregate
number of authorized shares of Series C Preferred Stock, (b) proposal to create
a new class of shares having rights and preferences equal to or having priority
over the Series C Preferred Stock or (c) proposed amendments of the Certificate
of Incorporation that could adversely affect the powers, preferences,
participations, rights, qualifications or restrictions of the Series C Preferred
Stock.
The Company will be required to register the shares of Common Stock issuable
upon conversion of the Series C Preferred Stock issued in the Artisan
Transaction under the Securities Act of 1933 (the "Securities Act") upon the
request of Artisan. If (a) the registration statement is not declared effective
by the Securities and Exchange Commission within 120 days after a request for
registration by Artisan, (b) sales cannot be made under an effective
registration statement, subject to certain exceptions, for any reason or
(c) the Common Stock is not included for trading on the OTC Bulletin Board, the
Nasdaq Stock Market or the New York Stock Exchange, then the Company will be
required to pay Artisan an amount equal to 2% of the amount of Artisan's
aggregate investment for any month or pro rata portion thereof during which any
of such events occurs or is continuing.
Because Artisan has advised the Company that it does not intend to proceed
with the other investment transactions that it proposed to and discussed with
the Company, and because the issuance of the Series C Preferred Stock to Artisan
pursuant to the Artisan Transaction and the full conversion of same could result
in the Company being required to issue 6,266,666 shares of Common Stock, and
result in substantial dilution to the Company's existing stockholders, the Board
recommends a vote "AGAINST" this Proposal II.
NASD REQUIREMENT AS TO STOCKHOLDER APPROVAL
The rules of the NASD provide that stockholder approval must be obtained
when the issuance or potential issuance will result in a change of control or in
connection with a transaction other than a public offering involving the sale,
issuance or potential issuance of Common Stock at a price less than the greater
of book or market value 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"). Although the Company's Common Stock
was recently delisted from the Nasdaq SmallCap Market, and the Company is not
currently subject to the NASD Rule, the Company is in the process of appealing
9
<Page>
the delisting. If the Company's Common Stock is reinstated for trading on the
Nasdaq SmallCap Market, the Company will again be subject to the NASD Rule.
If $4,700,000 of Series C Preferred Stock is issued in the Artisan
Transaction with a conversion price of $0.75 per share, the Company would be
required to issue at least 6,266,666 shares of Common Stock if all of the shares
of Series C Preferred Stock were converted. If (i) the NASD Rule is applicable
and (ii) the book or market value of the Common Stock exceeds $0.75 at the time
of the sale of the Series C Preferred Stock, the Company would be prohibited
from issuing, without stockholder approval, more than 2,309,295 shares of Common
Stock upon the conversion of the Series C Preferred Stock. As a result, the
closing of the Artisan Transaction is conditioned upon receipt of stockholder
approval.
The Artisan Transaction, if completed, will result in the sale of 47,000
shares of Series C Preferred Stock to Artisan. Each share of Series C Preferred
Stock will entitle the holder to a number of votes equal to the number of shares
of Common Stock into which the Series C Preferred Stock is convertible. Based
upon a conversion price of $.75 per share, the shares of Series C Preferred
Stock issued in the Artisan Transaction will represent the right to vote
6,266,666 shares. Assuming that the proceeds of the Artisan Transaction are used
to redeem the outstanding shares of Series A Preferred Stock, the shares of
Series C Preferred Stock issued in the Artisan Transaction will represent 38% of
the voting power of the Company's outstanding capital stock and, when combined
with the 900,000 shares of Common Stock owned by Artisan as of June 14, 2002,
will represent 43% of the voting power of the Company's capital stock.
In view of the fact that (i) Artisan and its affiliates, Cater Barnard,
currently own securities representing more voting power than any other
stockholder of the Company (approximately 18% of the voting power of the
Company's outstanding securities) and (ii) Artisan and Cater Barnard have
granted proxies to the Company's Chairman and President, Joseph J. Raymond, to
vote their shares and Artisan is required to grant Mr. Raymond a similar proxy
in connection with the Artisan Transaction, the Company does not believe that
the Artisan Transaction will result in a change in control. In addition, because
the $.75 conversion price of the Common Stock exceeds the book and market value
of the Common Stock at the time that the Artisan Agreement was executed, the
Company does not believe that the 20% limitation set forth in the NASD Rule is
applicable. Nevertheless, in view of potential uncertainty as to the
applicability of the NASD Rule, the closing of the Artisan Transaction has been
conditioned upon the receipt of stockholder approval.
For the reasons set forth above, and in particular the unwillingness of
Artisan to proceed with the other investments originally contemplated by the
parties and the potential dilution to existing stockholders if the Artisan
Transaction is approved and completed, the Board recommends a vote "AGAINST"
Proposal II.
VOTE REQUIRED
Approval by the Company's stockholders of the issuance of the Series C
Preferred Stock and the issuance of Common Stock upon conversion of the
Series C Preferred Stock requires the affirmative vote of (i) the holders of a
majority of the outstanding shares of Series A Preferred Stock voting as a
separate class, (ii) the holders of a majority of the outstanding shares of
Series B Preferred Stock voting as a separate class and (iii) a majority of the
votes cast at the annual meeting by the holders of Common Stock and the
Series A 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 "AGAINST" APPROVAL OF
THE ISSUANCE OF THE SERIES C PREFERRED STOCK AND THE ISSUANCE OF
SHARES OF COMMON STOCK UPON CONVERSION OF THE SERIES C
PREFERRED STOCK.
10
<Page>
PROPOSAL III
PROPOSAL TO APPROVE THE ISSUANCE OF FULL NUMBER OF SHARES OF
COMMON STOCK UPON CONVERSION OF SERIES B PREFERRED STOCK
BACKGROUND
In fiscal 2001 and the first quarter of fiscal 2002, the Company issued and
sold in a private placement to certain accredited investors $790,050 aggregate
principal amount of 6% Convertible Debentures (the "Debentures"). The Company
had previously sold $1,922,400 aggregate principal amount of Debentures in
December 2000 and received stockholder approval of the issuance of the full
number of shares issuable upon conversion at its 2001 Annual Meeting of
Stockholders. At the Company's 2002 Annual Meeting of Stockholders, stockholders
were asked to vote upon a proposal to approve the issuance of the full number of
shares of Common Stock upon conversion of the $790,050 principal amount of
Debentures issued in fiscal 2001 and 2002. This approval was obtained at the
2002 Annual Meeting of Stockholders.
In March 2002, the Company entered into an agreement with the holder (the
"Debenture Holder") of all but $40,000 of its outstanding Debentures pursuant to
which it issued to the Debenture Holder 231,300 shares of Series B Preferred
Stock in exchange for (i) $456,499 aggregate principal amount of Debentures,
(ii) the cancellation of a $400,000 promissory note previously issued by the
Company to the Debenture Holder and (iii) $300,000 in cash. In addition, the
Debenture Holder converted, between January 2002 and March 2002, $643,501
principal amount of Debentures into 1,736,979 shares of Common Stock. As a
result of these transactions, only $40,000 of Debentures remains outstanding.
In addition to the transactions described above, in March 2002, Transworld
Management Services, Inc., a corporation wholly owned by Joseph J. Raymond, Sr.,
the Chairman and President of the Company, and the holder of a $160,000
promissory note previously issued by the Company, exchanged the note for 32,000
shares of Series B Preferred Stock.
NASD REQUIREMENT AS TO STOCKHOLDER APPROVAL
The NASD Rule provides that stockholder approval must be obtained in
connection with a transaction other than a public offering involving the sale or
issuance of Common Stock (or securities convertible into or exercisable for
Common Stock) equal to 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.
Although the Company's Common Stock was recently delisted from the Nasdaq
SmallCap Market, and the Company is not currently subject to the NASD Rule, the
Company is in the process of appealing the delisting. If the Company's Common
Stock is reinstated for trading on the Nasdaq Stock Market, the Company will
again be subject to the NASD Rule.
As more particularly described below under the caption "Description of
Series B Preferred Stock", the Series B Preferred shares are convertible into
Common Stock in accordance with the terms and conditions of the Certificate of
Designations, Preferences and Rights which created the Series B Preferred Stock.
The number of shares of Common Stock into which each share of Series B Preferred
Stock is convertible depends, in part, upon the "Conversion Price" in effect at
the time of the conversion. Under the terms of the Series B Preferred Stock, the
"Conversion Price" is the lesser of (1) $4.65 and (2) 75% of the closing price
of a share of Common Stock on the trading day immediately preceding the
applicable conversion date and, accordingly, the number of shares of Common
Stock issuable upon the conversion of the Series B Preferred Stock will vary
inversely with the market price of the Common Stock. As a result, it is not
possible to determine at this time the number of shares of Common Stock issuable
upon conversion of the Series B Preferred Stock.
The Series B Preferred Stock contains provisions which would prohibit the
issuance of Common Stock upon conversion of the Series B Preferred Shares in
excess of the limit imposed by the NASD
11
<Page>
Rule. As described in greater detail below under "Description of Series B
Preferred Stock", the failure to obtain stockholder approval would result in the
Company being unable to issue the full number of shares of Common Stock issuable
upon conversion of the Series B Preferred Stock in excess of the limit imposed
by the NASD Rule.
DESCRIPTION OF SERIES B PREFERRED STOCK
The shares of Series B Preferred Stock have a stated value of $5 per share.
Holders of the Series B Preferred Stock are entitled to cumulative dividends at
a rate of 6% of the stated value per annum, payable when and as declared by the
Board of Directors. Dividends may be paid in cash or, at the option of the
Company, in shares of Common Stock, under certain circumstances. Holders of
Series B Preferred Stock are entitled to a liquidation preference of $5.00 per
share plus accrued dividends. If dividends are paid in Common Stock then the
number of shares issuable on account of such interest will equal the cash amount
of the interest divided by the Conversion Price (as defined below) then in
effect on the conversion date. Subject to certain limitations on conversion
discussed below, the Series B Preferred Stock is convertible into shares of
Common Stock at the option of the holder, in whole or in part, at any time. The
number of shares of Common Stock into which each share of Series B Convertible
Preferred Stock is convertible is determined by dividing the aggregate
liquidation preference of the shares being converted by the lesser of (i) $4.65
or (ii) 75% of the average closing price of the Common Stock on the trading day
immediately preceding the date of conversion (the "Conversion Price").
Accordingly, the number of shares of Common Stock issuable upon conversion of
the Series B Preferred Stock will vary inversely with the market price of the
Common Stock. As a result, it is not possible to determine at this time the
exact number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock.
A holder may not convert Series B Stock or receive shares of Common Stock as
dividends in connection with Series B Preferred Stock to the extent such
conversion or receipt of such dividends would result in the holder, together
with any affiliate, beneficially owning in excess of 4.999% of the then issued
and outstanding shares of Common Stock (including shares issuable upon
conversion of, and payment of dividends on, the Series B Preferred Stock held by
such holder). A holder of Series B Preferred Stock may waive this restriction,
upon not less than 61 days prior notice to the Company.
If the Company's Common Stock is then listed for trading on the Nasdaq
SmallCap Market or the Nasdaq National Market and the Company has not obtained
the required stockholder approval, then the Company may not issue in excess of
1,927,570 shares of Common Stock (the "Issuable Maximum"; which equals 19.999%
of the number of shares of Common Stock outstanding on the trading day
immediately preceding March 11, 2002, the date that the Company originally
issued the Series B Preferred Stock) upon conversions of the Series B Preferred
Stock at a price per share that is less than the closing price on the trading
day immediately preceding the date of original issue (the "Original Issue
Date").
If on the date of any proposed conversion of the Series B Preferred Stock
(A) the Common Stock is listed for trading on the Nasdaq SmallCap Market or
Nasdaq National Market, (B) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding Series B Preferred Stock together
with any shares of Common Stock previously issued upon conversion of the
Series B Preferred Stock would exceed the Issuable Maximum, and (C) the Company
shall not have previously obtained the vote of stockholders, if any, as may be
required by any applicable rules and regulations, then the Company is required
to issue to the Series B Preferred Stockholder requesting a conversion a number
of shares of Common Stock equal to such holder's pro-rata portion of the
Issuable Maximum and, with respect to the remainder of the aggregate principal
amount of the Series B Preferred Stock then held by such stockholder for which a
conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of such stockholder's pro-rata portion of
the Issuable Maximum,
12
<Page>
the Company is to use its best efforts to obtain the stockholder approval
applicable to such issuance as soon as is reasonably possible.
CONSEQUENCES IF STOCKHOLDER APPROVAL NOT OBTAINED
If stockholder approval is not obtained, the Company may 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 approximately 1,927,570
shares of Common Stock upon conversion of the Series B Preferred Stock. If the
Company is not subject to the NASD Rule, it will be required to issue the full
number of shares of Common Stock upon conversion of the Series B Preferred Stock
notwithstanding the absence of stockholder approval.
EFFECTS OF CONVERSION OF SERIES B PREFERRED STOCK ON HOLDERS OF COMMON STOCK
The issuance of Common Stock upon the conversion of the Series B Preferred
Stock will have no effect on the rights or privileges of existing stock holders
except to the extent that the interest of each stockholder in the economic
results and voting rights of the Company are diluted pro rata based on the
number of shares owned by existing stockholders prior to any issuance.
As noted above, the exact number of shares issuable upon conversion of the
Series B Preferred Stock cannot currently be determined but such issuances of
Common Stock will vary inversely with the market price of the Common Stock. The
current holders of Common Stock will be diluted by issuances of Common Stock
upon conversion of the Series B Preferred Stock and may be substantially diluted
depending on the future market price of the Common Stock. On June 14, 2002, the
closing price of the Common Stock on the NASD OTC Bulletin Board was $0.15 per
share. If such market price were used to determine the number of shares of
Common Stock issuable as of a Conversion Date, the Company would issue a total
of at least approximately 11,702,222 shares of Common Stock if all Series B
Preferred Stock were converted. To the extent that the lowest reported sales
price of the Common Stock is higher than $0.15 during any period used for
measuring the Conversion Price of the Series B Preferred Stock, the Company
would issue fewer shares of Common Stock. Conversely, to the extent that the
closing price of the Common Stock for the trading day immediately preceding the
date of conversion is lower than $0.15 during any such period, the Company would
issue more shares of Common Stock.
The information set forth above is not intended to constitute a prediction
as to the future market price of the Common Stock.
If the Company's Common Stock is reinstated for trading on the Nasdaq Stock
Market, the Company will be required to seek approval from its stockholders to
approve the issuance of shares of Common Stock upon conversion of the Series B
Preferred Stock in excess of the limits imposed by the rules of the Nasdaq Stock
Market and the Company is thus hereby seeking this approval.
VOTE REQUIRED
Approval by the Company's stockholders of issuance of the full number of
shares of Common Stock upon conversion of the Series B Preferred Stock requires
the affirmative vote of a majority of the votes cast at the special meeting by
the holders of Common Stock and holders of the Series A 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" APPROVAL OF THE
ISSUANCE OF THE FULL NUMBER OF SHARES OF COMMON STOCK UPON
CONVERSION OF THE SERIES B PREFERRED STOCK.
13
<Page>
PROPOSAL IV
PROPOSAL TO APPROVE THE ISSUANCE OF UP TO 50,000,000 SHARES OF COMMON STOCK
OR SECURITIES CONVERTIBLE INTO UP TO 50,000,000 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 50,000,000 shares of Common Stock or
securities convertible into up to 50,000,000 shares of Common Stock in private
transactions at an aggregate offering price not to exceed $5,000,000. 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 initial issuance. Except as described below under
the caption "Placement Agent Agreement and Proposed Offering of Series D
Preferred Stock", as of the date of this Proxy Statement, the Company has not
entered into agreements which would obligate it to sell all of the securities as
discussed herein. As a result, the Company is unable to provide additional
details of all potential transactions at this time. The Board of Directors will
determine the terms of any such transactions in its discretion. Any such
transaction would be completed within 90 days of the date of the Special
Meeting.
At the Company's Annual Meeting of Stockholders held on March 28, 2002, the
Company's stockholders authorized the Company to issue up to 5,000,000 shares of
Common Stock or securities convertible into up to 5,000,000 shares of Common
Stock in private transactions at an aggregate offering price not to exceed
$2,000,000. Any such transaction was to have occurred by June 26, 2002. No such
transactions have been completed. Since the date of the 2002 Annual Meeting of
Stockholders, the market price of the Company's Common Stock has declined. As a
result, the Company is seeking authorization to issue shares in excess of the
number and dollar amount previously approved as, due to recent market conditions
and the current trading price of the Company's Common Stock, the issuance of
shares in excess of that amount will be necessary to raise the capital needed by
the Company.
REASONS FOR THE POTENTIAL SALES
As of March 31, 2002, the Company had limited liquid resources. Current
liabilities were approximately $16,200,000 and current assets were approximately
$15,200,000. The difference of approximately $1,000,000 is working capital
deficit which is primarily the result of the losses the Company sustained during
the three quarters prior to the quarter ended March 31, 2002. This situation has
made if difficult for the Company to make timely payments to its vendors.
The Board of Directors believes that it is in the best interests of the
Company to raise additional funds so that its working capital deficit can be
reduced or eliminated. The Company is seeking stockholder approval of Proposal
Number IV to avoid delay and additional expense at a later date in the event
such stockholder approval would otherwise be required in connection with any
private placement 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.
14
<Page>
PLACEMENT AGENT AGREEMENT AND PROPOSED OFFERING OF SERIES D PREFERRED STOCK
As set forth in Proposal I above, the Company has entered into an agreement
with a placement agent (the "Placement Agent Agreement") for the purposes of
offering up to $2,000,000 of Series D Preferred Stock and corresponding Warrants
which could, if the full amount of the Series D Preferred Shares and Warrants
are sold, and if the shares of Series D Preferred Stock and Warrants are fully
converted and exercised, require the issuance of at least an additional
6,333,334 shares of Common Stock (the "Series D Offering"). The closing of the
Series D Offering is conditioned upon the receipt of stockholder approval of the
issuance of the Series D Preferred Stock, the Warrants and the shares of Common
Stock issuable upon conversion of the Series D Preferred Stock and exercise of
the Warrants.
The Placement Agent Agreement provides that the Series D Preferred Stock
will have terms substantially as described below. The purchase price for each
share of Series D Preferred Stock will be $10.50 per share. Holders of the
Series D Preferred Stock will be entitled to cumulative dividends at the rate of
seven percent (7%) per annum, payable semi-annually, when and as declared by the
Company's Board of Directors, in preference and priority to any payment of any
dividends on the Common Stock of the Company but subordinate in preference and
priority to any payment of any dividend on the Series A, B and C Preferred
Stock. Dividends may be paid, at the option of the Company, either in cash or in
shares of Common Stock, valued at the Series D Conversion Price (as defined
below), if the Common Stock issuable upon conversion of such Series D Preferred
Stock has been registered for resale under the Securities Act of 1933. Holders
of Series D Preferred Stock will be entitled to a liquidation preference of
$10.50 per share, plus accrued and unpaid dividends, but such liquidation
preference is subordinate to any liquidation preference of the Series A, B and C
Preferred Stock.
The liquidation preference will be guaranteed by Joseph J. Raymond, Chairman
and President of the Company; provided, however, that the guarantee will
terminate any time after six months of issuance of the Series D Preferred Stock
if (i) the closing bid price of the Common Stock is at least 100% of the
Series D Conversion Price for the 20 consecutive trading days immediately
preceding such termination and (ii) the shares of Common Stock issuable upon
conversion of the Series D Preferred Stock and the Warrants are freely
transferable.
The holders of Series D Preferred Stock will be entitled to vote on all
matters submitted to a vote of stockholders of the Company, with each share of
Series D Preferred Stock entitling the holder to a number of votes equal to the
number of full shares of Common Stock into which such share of Series D
Preferred Stock is then convertible. The Series D Preferred Stock will vote
together with the Common Stock as a single class on each matter submitted to a
vote of the stockholders, except that the approval of two-thirds of the
outstanding shares of Series D Preferred Stock voting as a single class will be
required to (i) amend, alter or repeal the rights, preferences and designations
of the Series D Preferred Stock, (ii) sell all or substantially all of the
Company's assets or effect a merger or consolidation or any other transaction
resulting in the acquisition of a majority of the then outstanding voting stock
of the Company by another entity, (iii) liquidate, dissolve, wind-up or
recapitalize or reorganize the Company or any of is subsidiaries, (iv) declare
any dividends or distributions on the Common Stock or change the rights or terms
of Preferred Stock, (v) authorize, create or issue shares of any class of stock
having rights, preferences or privileges superior or on a parity with the
Series D Preferred Stock, (vi) increase or decrease the authorized number of
shares of Common Stock or Preferred Stock and (vii) commence any voluntary
bankruptcy proceeding or otherwise take any action to declare the Company or any
of its subsidiaries insolvent.
The Series D Preferred Stock will be convertible into Common Stock at any
time after six months from the date of issuance at the option of the holder. The
Series D Preferred Stock will be automatically converted into Common Stock if
(i) the closing bid price of the Common Stock is at least 300% of the Series D
Conversion Price for 20 consecutive trading days immediately before the six
15
<Page>
month anniversary of issuance and (ii) during such six month period the shares
of Common Stock issuable upon the conversion of the Series D Preferred Stock and
exercise of the Warrants are freely transferable. The number of shares, issuable
upon conversion will be determined by multiplying the number of shares of
Series D Preferred Stock to be converted by $10.50 and dividing the result by
the Conversion Price then in effect. Initially, the Series D Conversion Price
will be $0.75 and each share of Series D Preferred Stock will be convertible
into fourteen (14) shares of Common Stock. Thus, if all of the shares of
Series D Preferred Stock proposed to be sold (190,476 shares) were indeed sold
and were converted at the initial Series D Conversion Price, the Company would
be required to issue at least 2,666,667 shares of Common Stock. The Series D
Conversion Price will be subject to adjustment on a weighted average basis if
the Company sells Common Stock at a price per share lower than the Series D
Conversion Price.
As discussed below, it is anticipated that these terms relative to the
proposed Series D Conversion Price could change due to changes in the market
price of the Company's Common Stock.
A holder may not convert Series D Preferred Stock or receive shares of
Common Stock as payment of dividends in connection with Series D Preferred Stock
to the extent such conversion or receipt of such dividends would result in the
holder, together with any affiliate, beneficially owning in excess of 9.999% of
the then issued and outstanding shares of Common Stock (including shares
issuable upon conversion of, and payment of interest on, the Series D Preferred
Stock held by such holder). A holder of Series D Preferred Stock may waive this
restriction. In addition to receiving shares of Series D Preferred Stock, each
investor in the private placement will receive a Warrant to purchase at $.80 per
share, the number of shares of Common Stock issuable upon conversion of the
shares of Series D Preferred Stock purchased by the investor. As a result, if
all $2,000,000 of Series D Preferred Stock is sold, the Company would be
required to issue at least an additional 2,666,667 shares of Common Stock upon
exercise of such Warrants.
The Company will have the right to redeem the Warrants for a redemption
price of $.05 per Warrant, after one year from the date of closing if (i) the
closing bid price of the Common Stock is at least 250% of the exercise price of
the Warrant for the 20 consecutive trading days ending 3 trading days before the
date the Company provides written notice of redemption to the holders of the
Warrants and (ii) during the preceding six month period the shares of Common
Stock issuable upon the conversion of the Series D Preferred Stock and exercise
of the Warrants are freely tradable.
The placement agent in the private placement will also receive a five
(5) year Warrant to purchase 1,000,000 shares of Common Stock on the identical
terms of the Warrants to be issued to the Investors in the offering, except that
the placement agent's Warrants shall be non-redeemable and shall have a cashless
exercise provision. However, if within ninety (90) days of the commencement of
the offering period the placement agent is unable to raise at least $1,500,000,
then the number of Warrants shall be decreased proportionately in relation to
the actual amount raised in the offering. Nevertheless, there will be no
decrease in the number of Warrants if the placement agent is unable to raise the
$1,500,000 due to a restriction imposed to prevent a violation of applicable
exchange listing rules.
Thus, if all of the Series D Preferred Stock was converted into Common Stock
at the proposed Series D Conversion Price of $0.75 per share, and all of the
warrants were exercised, the Company would be required to issue in excess of at
least 6,333,334 shares of Common Stock. The Company will be required to register
the shares of Common Stock issuable upon the conversion of the Series D
Preferred Stock and exercise of the Warrants for public sale under the
Securities Act and keep such registration effective for a period of two years.
In recent weeks, the market price of the Company's Common Stock has been
substantially less than the proposed Series D Conversion Price of $0.75 per
share. As of June 14, 2002, the last reported sale price of the Common Stock on
the OTC Bulletin Board was $0.15. As a result, it is unlikely that the proposed
offering of the Series D Preferred Stock will proceed on the terms set forth in
the
16
<Page>
Placement Agent Agreement. If the terms of the Series D Offering are amended, a
vote in favor of Proposal IV will represent a vote in favor of the issuance of
the Series D Preferred Stock and Warrants provided that (i) no more than
50,000,000 shares of Common Stock are issuable upon conversion of the Series D
Preferred Stock and exercise of the Warrants, (ii) the Series D Conversion Price
and exercise price of the Warrants is at no more than a 25% discount to the
market value of the Common Stock, (iii) no more than $5,000,000 of Series D
Preferred Stock is sold, and (iv) the Series D Offering is completed by
October 15, 2002.
PLACEMENT AGENT COMPENSATION
The placement agent for the Private Placement described above will receive
aggregate commissions of 10% of the gross proceeds from the sale of the
Series D Preferred Stock and Warrants, plus a 3% non-accountable expense
allowance. In addition, the Company is required to pay the placement agent's
reasonable legal fees in connection with the offering up to $25,000, plus $5,000
for due diligence. If the placement agent raises at least $1,500,000 in the
Series D Offering, it will have a right of first refusal to act as placement
agent in connection with other offerings of securities by the Company during the
12 month period following the closing of the Series D Offering.
EFFECTS OF CONVERSION OF SERIES D PREFERRED STOCK AND WARRANTS ON HOLDERS OF
COMMON STOCK
The issuance of Common Stock upon the conversion of the Series D Preferred
Stock and Warrants will have no effect on the rights or privileges of existing
stockholders except to the extent that the interest of each stockholder in the
economic results and voting rights of the Company are diluted pro rata based on
the number of shares owned by existing stockholders prior to any issuance.
USE OF PROCEEDS
The Company estimates that the aggregate net proceeds received by it from
the issuance of $2,000,000 aggregate principal amount of Series D Preferred
Stock and Warrants and any other issuance of securities authorized upon the
approval of Proposal IV will be used to pay off outstanding indebtedness of the
Company and for general working capital purposes.
NASD REQUIREMENT AS TO STOCKHOLDER APPROVAL
The NASD Rule provides that stockholder approval must be obtained in
connection with a transaction other than a public offering involving the sale or
issuance of Common Stock (or securities convertible into or exercisable for
Common Stock) equal to 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. If
the NASD Rule is applicable, 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. Although the Company's Common Stock was recently
delisted from the Nasdaq SmallCap Market, and the Company is not currently
subject to the NASD Rule, the Company is in the process of appealing the
delisting. If the Company's Common Stock is reinstated for trading on the Nasdaq
SmallCap Market, the Company will again be subject to the NASD Rule.
As more particularly described below under the caption "Placement Agent
Agreement and Proposed Offering of Series D Preferred Stock", the Series D
Preferred Stock is expected to be
17
<Page>
convertible into Common Stock in accordance with the terms and conditions stated
in the proposed Certificate of Designations, Preferences and Rights of the
Series D Preferred Stock. The number of shares of Common Stock into which each
share of Series D Preferred Stock will be convertible will depend, in part, upon
the "Series D Conversion Price" in effect at the time of the conversion. Under
the proposed terms of the Series D Preferred Stock, the "Series D Conversion
Price" will be $.75 per share. Because the proposed Series D Conversion Price
substantially exceeds recent trading prices and the current book value of the
Common Stock, it is not anticipated that the issuance of the Series D Preferred
Stock will require stockholder approval under the NASD Rule, if applicable;
however, as discussed above, it is unlikely that the Series D Offering will
proceed on the terms contemplated by the Placement Agent Agreement. As a result,
it is anticipated that the terms of the Series D Offering could change due to
changes in the market for the Company's Common Stock. If the terms of the
Placement Agent Agreement are modified to reflect a conversion price that more
closely approximates the then current market price of the Company's Common
Stock, in no event will the Company, if it is subject to the NASD Rule, agree to
sell shares at prices at a discount of greater than 25% of the market value of
the Common Stock on the date of issuance.
If $2,000,000 of the Series D Preferred Stock is sold in the Series D
Offering with a conversion price of $0.75 per share, the Company would be
required to issue at least 2,666,667 shares of Common Stock and Warrants to
acquire at least 3,666,667 shares of Common Stock. If (i) the NASD Rule is
applicable and (ii) the book or market value of the Common Stock exceeds $0.75
at the time of the sale of the Series D Preferred Stock, the Company would be
prohibited from issuing, without stockholder approval, shares of Series D
Preferred Stock to the extent that such shares represented 20% or more of the
Company's outstanding voting securities or the shares of Common Stock issuable
upon conversion of the Series D Preferred Stock and exercise of the warrants
represented 20% or more of the shares of Common Stock outstanding at the time of
sale. As a result, the closing of the Series D Offering is conditioned upon the
receipt of stockholder approval.
VOTE REQUIRED
Approval by the Company's stockholders of the issuance of up to 50,000,000
shares of Common Stock or securities convertible into up to 50,000,000 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 special meeting by the holders of Common Stock and
holders of the Series A Preferred Stock, voting together as a single class,
present in person or represented by proxy and entitled to vote. If the Company
is not subject to the NASD Rule, the Board of Directors may, in its discretion,
elect to proceed with offerings of Common Stock or securities convertible into
Common Stock, notwithstanding the absence of stockholder approval of Proposal
IV, if it deems any such offering to be in the best interests of the Company and
its stockholders. Any such offering will be on terms deemed appropriate by the
Board of Directors, and may exceed or differ from the general parameters
described in this Proposal IV.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ISSUANCE OF
UP TO 50,000,000 SHARES OF COMMON STOCK AT PRICES WHICH MAY BE BELOW THE BOOK
AND MARKET VALUE OF THE COMMON STOCK
18
<Page>
PRICE RANGE OF COMMON STOCK; DIVIDEND POLICY.
On April 11, 2000 the Company's registration statement on Form SB-2
(Commission File No. 333-83255) for its initial public offering (the "IPO") of
Common Stock became effective and the Common Stock commenced trading on the
Nasdaq SmallCap Market under the symbol "SERV" on April 26, 2000. On
February 27, 2002, the Common Stock was delisted from the Nasdaq SmallCap
Market, and is currently trading on the NASD OTC Bulletin Board under the symbol
"SERV". There were approximately 1,611 holders of record of Common Stock as of
June 14, 2002. This number includes the number of stockholders whose shares were
held in "nominee" or "street name. The table below sets forth, for the periods
indicated, the high and low sales prices of the Common Stock as reported by the
Nasdaq Stock Market and by the NASD OTC Bulletin Board.
<Table>
<Caption>
SALES PRICES
-------------------
FISCAL YEAR 2000 HIGH LOW
- ---------------- -------- --------
Quarter Ended June 30, 2000 (from April 26, 2000)........... $9.00 $5.875
Quarter Ended September 30, 2000............................ 7.00 4.25
</Table>
<Table>
<Caption>
FISCAL YEAR 2001 HIGH LOW
- ---------------- -------- --------
Quarter Ended December 31, 2000............................. 6.75 3.625
Quarter Ended March 31, 2001................................ 4.875 1.3125
Quarter Ended June 30, 2001................................. 2.05 1.16
Quarter Ended September 30, 2001............................ 1.90 1.00
</Table>
<Table>
<Caption>
FISCAL YEAR 2002 HIGH LOW
- ---------------- -------- --------
Quarter Ended December 31, 2002............................. 1.19 0.51
Quarter Ended March 31, 2002................................ 1.00 0.25
Quarter Ending June 30, 2002 (through June 14, 2002)........ 0.75 0.15
</Table>
On June 14, 2002, the closing price of the Common Stock as reported by the
NASD OTC Bulletin Board, was $0.15 per share. The Company has never paid
dividends on the Common Stock and the Company intends to retain earnings, if
any, to finance future operations and expansion. In addition, the Company's
credit agreement restricts the payment of dividends. Therefore, the Company does
not anticipate paying any cash dividends in the foreseeable future. Any future
payment of dividends will depend upon the financial condition, capital
requirements and earnings of the Company as well as other factors that the Board
of Directors deems relevant.
19
<Page>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.01 per share. Each share of Common Stock entitles the holder thereof to
one vote on all matters submitted to the shareholders. The Common Stock does not
have cumulative voting rights, the shares are not subject to redemption, and
there are no pre-emptive rights. All shares of Common Stock outstanding are
fully paid and non-assessable. Holders of Common Stock are entitled to receive
dividends out of funds legally available therefor when as and if declared by the
Board of Directors. The Company has not paid any dividends on its Common Stock
and the payment of cash dividends on the Common Stock is unlikely for the
foreseeable future. Upon any liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share pro rata in any
distribution to the holders of Common Stock. In the event of any such
liquidation, dissolution or winding up of the Company, holders of Series A and B
Preferred Stock and, if issued, Series C and D Preferred Stock will be entitled
to receive an amount equal to the applicable liquidation preference as described
below and elsewhere in the Proxy Statement prior and in preference to any
distribution to the holders of Common Stock.
As of June 14, 2002, there were 1,611 record holders of the Company's Common
Stock.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 5,000,000 shares of
preferred stock, $.01 par value, which preferred stock may from time-to-time be
divided into and issued in series. The different series of preferred stock shall
be established and the designations, and the variations in the relative rights
and preferences as between the different series shall be fixed and determined by
the Board of Directors.
The Company's Amended and Restated Certificate of Incorporation authorizes
the Board of Directors to issue shares of preferred stock in one or more series
with such dividend liquidation, conversion, redemption and other rights as the
Board establishes at the time stockholder approval is not required to issue
preferred stock. To the extent that the Company issues additional shares of
preferred stock, the ownership interest and voting power of existing
shareholders could be diluted.
The preferred stock could be issued in one or more series with such voting,
conversion and other rights as would discourage possible acquirers from making a
tender offer or other attempt to gain control of the Company even if such
transaction was generally favorable to our stockholders. In the event of a
proposed merger, tender offer or other attempt to gain control of the Company
which the Board does not approve, it might be possible for the Board to
authorize the issuance of a series of preferred stock with rights and
preferences that could impede the completion of such a transaction. The Board
could authorize holders of the preferred stock to vote, either separately or as
a class or with the holders of Common Stock on any merger, sale or exchange of
assets or other extraordinary corporate transactions. Preferred stock may be
used to discourage possible acquirers from making a tender offer or other
attempt to gain control of the Company with a view to imposing a merger or sale
of all or any part of the Company's assets, even though a majority of
stockholders may deem such acquisition attempts to be desirable.
Preferred stock may also be used as consideration for any acquisition that
the Company undertakes, either alone or in combination with shares, notes or
other assets including cash or other liquid security.
SERIES A PREFERRED STOCK
The Certificate of Designation, Preferences and Rights of the Series A
Preferred Stock filed with the Office of the Secretary of State, State of
Delaware on July 2, 2001 authorizes one million, four
20
<Page>
hundred fifty-eight thousand, nine hundred thirty-three (1,458,933) shares of
Series A Preferred Stock, par value $.01 per share, stated value of $3.00 per
share. As of June 14, 2002, there were 1,458,933 shares of Series A Preferred
Stock issued and outstanding. An Amendment to the Certificate of Designation of
the Series A Preferred Stock was filed on April 5, 2002, but this Amendment had
no effect on the number of shares authorized and issued and outstanding.
Holders of the Series A 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 Series A Preferred Stock, valued at
$3.00 per share, if the Common Stock issuable upon conversion of such Series A
Preferred Stock has been registered for resale under the Securities Act of 1933.
Holders of Series A Preferred Stock are entitled to a liquidation preference of
$3.00 per share, plus accrued and unpaid dividends.
The Series A 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 Series A Preferred Stock to be
converted by $3.00 and dividing the result by the conversion price then in
effect (the "Series A Conversion Price"). As of June 14, 2002, the Series A
Conversion Price was $3.00. As a result, as of June 14, 2002, each share of
Series A Preferred Stock was convertible into one (1) share of Common Stock. If
all of the shares of Series A Preferred Stock currently outstanding as of
June 14, 2002 were converted, the Company would be required to issue 1,458,933
shares of Common Stock.
In March 2002, the Company and the holders of the Company's Series A
Preferred Stock agreed to an amendment of the Certificate of Designation which
will permit the Company to pay the redemption price of the Series A Preferred
Stock through the issuance of shares of the Company's Common Stock. For purposes
of determining the number of shares which the Company will be required to issue
if it chooses to pay the redemption price in shares of Common Stock, the Common
Stock will have a value equal to the average closing price of the Common Stock
during the five trading days immediately preceding the date of redemption.
On March 28, 2002, the Company's stockholders granted approval to the
Company's proposal in its Proxy Statement dated March 8, 2002 to issue the full
number of shares of Common Stock upon conversion of the Series A Preferred
Stock.
SERIES B PREFERRED STOCK
The Certificate of Designation, Preferences and Rights of the Series B
Preferred Stock filed March 14, 2002 with the Office of the Secretary of State,
State of Delaware authorizes five hundred thousand (500,000) shares of Series B
Preferred Stock, par value $.01 per share, stated value $5.00 per share. As of
June 14, 2002, there were 263,300 shares of Series B Preferred Stock issued and
outstanding. See "Proposal II--Description of Series B Preferred Stock" for a
description of the terms of the Series B Preferred Stock.
SERIES C PREFERRED STOCK
The proposed Certificate of Designation, Preferences and Rights of the
Series C Preferred Stock, which has not yet been filed with the Office of the
Secretary of State, State of Delaware, authorizes four hundred thousand
(400,000) shares of Series C Preferred Stock, par value $.01 per share, stated
value $100.00 per share. As of June 14, 2002, there were no shares of Series C
Preferred Stock issued and outstanding. See Proposal II--Description of
Series C Preferred Stock" for a description of the proposed terms of the
Series C Preferred Stock.
21
<Page>
SERIES D PREFERRED STOCK
The proposed Certificate of Designation, Preferences and Rights of the
Series D Preferred Stock, which has not yet been filed with the Office of the
Secretary of State, State of Delaware, authorizes four hundred thousand
(400,000) shares of Series D Preferred Stock, par value $.01 per share, stated
value $10.50 per share. As of June 14, 2002, there were no shares of Series D
Preferred Stock issued and outstanding. See "Proposal IV--Placement Agent
Agreement and Proposed Offering of Series D Preferred Stock" for a description
of the proposed terms of the Series D Preferred Stock.
STOCKHOLDER PROPOSALS
Stockholder proposals for presentation at the Company's next annual meeting
of stockholders must be received by the Company at its principal executive
offices for inclusion in its proxy statement and form of proxy relating to that
meeting no later than November 8, 2002. The Company's By-laws contain certain
procedures which must be followed in connection with shareholder proposals.
EXPERTS
The financial statements of the Company as of September 30, 2001 and 2000
and for the fiscal years ended September 30, 2001, 2000 and 1999 incorporated by
reference in this Proxy Statement have been audited by Amper, Politziner &
Mattia, P.A., independent public auditors, and have been incorporated herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing. A representative of Amper, Politziner & Mattia, P.A.
will be present at the meeting to answer questions and will have an opportunity
to make a statement, if desired.
INCORPORATION OF FINANCIAL INFORMATION
The following financial statements and other portions of the Company's
Annual Report on Form 10-K/A for the fiscal year ended September 30, 2001 as
filed with the Securities and Exchange Commission (the "Commission") on
March 5, 2002 (the "Form 10-K"), Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2002, filed with the Commission on May 15, 2002 (the
"Form 10-Q"), Current Report on Form 8-K/A filed with the Commission on
March 5, 2002 (the "Form 8-K/A") and Current Report on Form 8-K filed with the
Commission on April 4, 2002 (the "Form 8-K"), copies of which are being
delivered with the Proxy Statement, are incorporated by reference herein:
- financial statements and supplementary financial information of the
Company appearing on pages F-1 through F-28 of the Form 10-K and in
Part I, Item 1 of the Form 10-Q;
- management's discussion and analysis of financial condition and results of
operations appearing in Part II, Item 7 of the Form 10-K and Part 1, Item
2 of the Form 10-Q;
- quanitative and qualitative disclosures about market risk appearing in
Part II, Item 7A of the Form 10-K and Part 1, Item 3 of the Form 10-Q
- financial statements appearing in the Form 8-K/A; and
- financial statements appearing in the Form 8-K.
All documents filed with the Commission by the Company pursuant to sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the date of this Proxy Statement and prior to the date of the meeting are
incorporated herein by reference. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained in another subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement.
22
<Page>
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 FILL IN, SIGN AND SEND IN THEIR PROXIES IN THE
ENCLOSED ENVELOPE 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
23
<Page>
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STRATUS SERVICES GROUP, INC.
TO: Secretary of State
State of Delaware
Pursuant to the provisions of Section 242 of the General Corporation Law of
the State of Delaware, Stratus Services Group, Inc., a corporation organized
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), executes this Certificate of Amendment to its Amended and
Restated Certificate of Incorporation. The Corporation's Certificate of
Incorporation was filed and recorded in the Office of the Secretary of State of
the State of Delaware on March 11, 1997 and an Amended and Restated Certificate
of Incorporation was filed with the Office of the Secretary of State of the
State of Delaware on March 31, 2000.
1. NAME OF CORPORATION: The name of the Corporation is Stratus Services
Group, Inc.
2. BOARD APPROVAL: The Board of Directors of said Corporation has consented to,
authorized by unanimous written consent and passed resolutions declaring
that the amendment to the Amended and Restated Certificate of Incorporation
contained herein is advisable and decided to present such amendment to the
stockholders of the Corporation at the Special Meeting of shareholders.
3. NOTICE TO SHAREHOLDERS OF RECORD: Upon notice given to each stockholder of
record entitled to vote on such amendment to the Amended and Restated
Certificate of Incorporation in accordance with the requirements of the Act,
the Special Meeting of the stockholders of the Corporation was held on
July 17, 2002, at which meeting holders representing quorum power were
present in person or represented by proxy, and the number of votes cast for
the amendment by the stockholders of the Corporation and each class of
stockholders entitled to vote separately on the amendment was sufficient for
approval by the stockholders and each such class.
4. DATE OF ADOPTION AND TEXT OF AMENDMENT: The following amendment to the
Restated Certificate of Incorporation of the Corporation (the "Amendment")
was adopted by the Company's stockholders at a meeting of stockholders duly
held on July 17, 2002.
(a) Section 4.1 of Article IV of the Restated Certificate of Incorporation
is amended to provide in its entirety as follows:
"Section 4.1. TOTAL NUMBER OF SHARES OF STOCK: The total number of
shares of all classes of stock which the Corporation has the
authority to issue is One Hundred Five Million (105,000,000) shares
consisting of One Hundred Million (100,000,000) shares of Common
Stock $.01 par value per share (the "Common Stock"), and Five Million
(5,000,000) shares of Preferred Stock, $.01 par value per share."
<Page>
5. APPROVAL OF AMENDMENTS: The foregoing amendments were duly adopted in
accordance with Section 242(b) of the Delaware General Corporation Law on
July 17, 2002.
IN WITNESS WHEREOF, this Certificate of Amendment has been duly executed by
an authorized officer of the Corporation as of the day of , 2002.
<Table>
ATTEST: STRATUS SERVICES GROUP, INC.
By:
Its:
</Table>
<Page>
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
STRATUS SERVICES GROUP, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 17, 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 Michael A. Maltzman and each of them, the true
and lawful attorneys, agents and proxies of the undersigned, with full power
of substitution, to vote with respect to all the shares of Common Stock of
STRATUS SERVICES GROUP, INC., standing in the name of the undersigned at the
close of business on June 14, 2002, at the special meeting of stockholders to
be held at the Company's headquarters, 500 Craig Road, Manalapan, New Jersey
on July 17, 2002 at 10:00 a.m. and at any and all adjournment or 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
PROPOSALS 1, 3 AND 4 AND AGAINST PROPOSAL 2 DESCRIBED ON THE REVERSE SIDE OF
THIS PROXY. (SEE REVERSE SIDE)
(SEE REVERSE SUDE)
<Page>
Please Detach and Mail in the Envelope Provided
PLEASE MARK YOUR
|X| VOTES AS INDICATED
IN THIS EXAMPLE
1. APPROVAL TO AMEND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. APPROVAL OF THE ISSUANCE OF THE SERIES C PREFERRED STOCK AND THE
ISSUANCE OF SHARES OF COMMON STOCK UPON CONVERSION OF THE SERIES C
PREFERRED STOCK.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. APPROVAL OF THE ISSUANCE OF THE FULL NUMBER OF SHARES OF COMMON STOCK
UPON CONVERSION OF THE SERIES B PREFERRED STOCK.
FOR AGAINST ABSTAIN
|_| |_| |_|
4. APPROVAL OF THE ISSUANCE OF UP TO 50,000,000 SHARES OF COMMON STOCK,
OR SECURITIES CONVERTIBLE INTO COMMON STOCK, AT PRICES WHICH MAY BE
BELOW BOOK AND MARKET VALUE.
FOR AGAINST ABSTAIN
|_| |_| |_|
_______________________________ _____________________ Date: _____________, 2002
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.)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.