EXHIBIT 3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF SERIES A PREFERRED STOCK OF
STRATUS SERVICES GROUP, INC.
The undersigned, the Secretary and General Counsel of Stratus Services
Group, Inc. (the "Corporation"), a corporation organized and existing under the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
That, pursuant to the authority conferred on the Board of Directors by the
Amended and Restated Certificate of Incorporation of the Corporation and Section
151 of the General Corporation Law of the State of Delaware, on June 21, 2001,
the Board of Directors of the Corporation did unanimously approve the adoption
of the following resolution providing for the designations, preferences and
other rights, and the qualifications, limitations or restrictions thereof, of
the Series A Preferred Stock of the Corporation:
RESOLVED, that pursuant to the authority vested in the Board of Directors
in accordance with the provisions of the Amended and Restated Certificate of
Incorporation of the Corporation, there is hereby established a series of
Preferred Stock to which the following provisions shall be applicable:
The shares of this series shall be designated the "Series A Preferred
Stock" (the "SERIES A PREFERRED STOCK") and shall consist of One Million Four
Hundred and Fifty Eight Thousand Nine hundred and Thirty-three (1,458,933)
shares, with a par value of $.01 per share and a stated value of $3.00 per share
and $4,376,799 in the aggregate. A statement of the relative powers, dividends,
preferences, rights, qualifications, limitations and restrictions of the Series
A Preferred Stock is as follows:
1. DIVIDENDS.
(a) The holders of the Series A Preferred shall be entitled to receive
out of any assets legally available therefore cumulative dividends
at the rate of $0.21 per share per annum, payable semi-annually on
June 30 and December 31 of each year, when and as declared by the
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 Corporation. Such dividends shall accrue on any given share
from the day of original issuance of such share and shall accrue
from day to day whether or not earned or declared. If at any time
dividends on the outstanding Series A Preferred Stock at the rate
set forth above shall not have been paid or declared and set apart
for payment with respect to all preceding periods, the amount of the
deficiency shall be fully paid or declared and set apart for
payment, but without interest, before any distribution, whether by
way of dividend or otherwise, shall be declared or paid upon or set
apart for the shares of any other class or series of stock of the
Corporation.
(b) Any dividend payable on a dividend payment date more than 90 days
after the date of issuance may be paid, at the option of the
Corporation, either (i) in cash or
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(ii) in shares of Series A Preferred Stock value at $3.00 per share
if the Common Stock issuable upon conversion of such shares has been
registered for resale under the Securities Act of 1933, as amended
(the "Act"), and the registration statement including a current
prospectus with respect thereto remains in effect at the date of
delivery of such shares, and if the Corporation shall have given
written notice of its intention to pay such dividend in stock to all
holders of the Series A Preferred Stock at least 10 days before the
record date of such dividend.
2. VOTING. Holders of Series A Preferred Stock shall be entitled to notice of
any shareholders' meeting. Except as otherwise required by law, at any
annual or special meeting of the Corporation's shareholders, or in
connection with any written consent in lieu of any such meeting, each
outstanding share of Series A Preferred Stock shall be entitled to the
number of votes equal to the number of full shares of Common Stock into
which such share of Series A Preferred Stock is then convertible
(calculated taking into account the provisions of Section 5(g) and by
rounding any fractional share down to the nearest whole number) on the
date for determination of shareholders entitled to vote at the meeting.
Initially, each share of Series A Preferred Stock shall have one vote.
Except as otherwise required by law, the Series A Preferred Stock and the
Common Stock shall vote together as a single class on each matter
submitted to the shareholders, and not by separate class or series. The
holders of the Series A Preferred Stock shall be entitled to vote
separately as a class on any (a) proposed amendment to this Statement of
Rights and Preference of Preferred Stock (the "STATEMENT") which would
increase or decrease the aggregate number of authorized shares of Series A
Preferred Stock, (b) proposal to create a new class of shares having
rights and preferences equal to or having priority over the Series A
Preferred Stock or (c) proposed amendments of this Statement that could
adversely affect the powers, preferences, participations, rights,
qualifications or restrictions of the Series A Preferred Stock. Any matter
on which the holders of the Series A Preferred Stock are entitled to vote
as a class requires the affirmative vote of holders owning a majority of
the issued and outstanding shares of Series A Preferred Stock.
3. LIQUIDATION PREFERENCE.
(a) SERIES A PREFERRED STOCK. Upon the occurrence of a Liquidating Event
(as defined below), whether voluntary or involuntary, the holders of
the Series A Preferred Stock shall be entitled to receive, out of
the assets of the Corporation available for distribution to its
shareholders or from the proceeds from such Liquidating Event, and
prior to and in preference to any payment or distribution made in
respect of the Common Stock or any other class or series of stock of
the Corporation, $3.00 in cash, securities or other property (based
upon the Market Price thereof for such securities and the fair
market value thereof for such other property, in each case
calculated as of the date of such Liquidating Event) for each share
of Series A Preferred Stock (together with all accrued and unpaid
dividends thereon) (the "SERIES A LIQUIDATION PREFERENCE"). If, upon
such Liquidating Event, the assets distributable to the holders of
the Series A Preferred Stock shall be insufficient to permit the
payment in full of the Series A Liquidation Preference, the assets
of the Corporation shall be distributed to the holders of the Series
A Preferred Stock
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ratably until the holders shall have received the full amount to
which they would otherwise be entitled.
(b) VALUATION OF SECURITIES. For purposes of this Section 3, if any
asset distributed to shareholders upon the occurrence of any
Liquidating Event consists of property other than cash or
securities, the value of such distribution shall be deemed to be the
fair market value thereof at the time of such distribution, as
determined in good faith by the Board of Directors of the
Corporation. Any securities to be delivered pursuant to this Section
3 shall be valued as follows:
(i) Securities not subject to an investment letter or other
similar restrictions on free marketability covered by Section
3(b)(ii) hereof shall be valued at the Market Price (as
defined below); and
(ii) Securities subject to investment letter or other restrictions
on free marketability (other than restrictions arising solely
by virtue of a stockholder's status as an affiliate or former
affiliate) shall be valued at an appropriate discount from the
Market Price, as reasonably determined by the Board of
Directors in good faith, to reflect the adjusted fair market
value thereof.
For purposes of this Statement, "MARKET PRICE" of any security means the average
of the closing prices of such security's sales on the principal securities
exchanges on which such security may at the time be listed, or, if there has
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or,
if on any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of five days consisting of the day prior to the day as of which
Market Price is being determined and the four consecutive business days prior to
such day. If at any time such security is not listed on any securities exchange
or quoted in the NASDAQ System or the over-the-counter market, the Market Price
shall be the fair value thereof determined in good faith by the Corporation's
Board of Directors
(c) LIQUIDATING EVENT. Any of the following shall be considered a
"LIQUIDATING EVENT", and shall entitle the holders of the Series A
Preferred Stock and the Common Stock to receive at the closing, in
cash, securities or other property, amounts as specified in Sections
3(a) (valued as provided in Section 3(b) above):
(i) any liquidation, dissolution or winding up of the Corporation;
or
(ii) a sale, lease or other disposition of all or substantially all
the Corporation's assets PROVIDED, HOWEVER, that if the
holders of a majority of the shares of Series A Preferred
Stock so elect by giving written notice to the Corporation
before the effective date of any such sale, lease or
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disposition that would otherwise be a Liquidating Event as
defined herein, such sale, lease or other disposition or
consolidation shall not be deemed a Liquidating Event and the
provisions of Section 5(e) below shall apply.
(d) NOTICE OF LIQUIDATION EVENT. The Corporation shall give to each
holder at least thirty (30) days prior written notice of any
Liquidating Event by delivery of such notice via first class mail,
postage prepaid, at the holder's address as set forth in the records
of the Corporation; PROVIDED, HOWEVER, that any holder of Series A
Preferred Stock may convert its shares of Series A Preferred Stock
to Common Stock at any time prior to the payment date stated in such
notice.
4. REDEMPTION. Except to the extent already redeemed pursuant to Section
5(a), the Series A Preferred Stock shall be subject to redemption by the
Corporation for the aggregate stated value plus all accumulated but unpaid
(whether or not declared) dividends at 7% per annum, on June 30, 2008.
5. CONVERSION OF SERIES A PREFERRED STOCK. Each holder of shares of Series A
Preferred Stock shall have the right to convert such shares into shares of
the Common Stock of the Corporation as follows:
(a) OPTIONAL CONVERSION. Commencing on October 1, 2001, all or any
portion of shares of the Series A Preferred Stock, at the option of
the holders, may be converted into fully paid and nonassessable
shares (calculated as to each conversion to the largest whole share)
of Common Stock of the Corporation by multiplying the number of
shares of Series A Preferred Stock to be converted TIMES $3.00 and
dividing the result by the Conversion Price (as defined below) then
in effect.
(b) CONVERSION PRICE. The initial conversion price per share of Series A
Preferred Stock (the "CONVERSION PRICE") shall be equal to $3.00.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. In the event that the
Corporation at any time or from time to time shall effect a
subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification
or otherwise), or in the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the
Conversion Price in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate.
(d) EXTRAORDINARY EVENT. Prior to the consummation of any Extraordinary
Event (as defined below), the Corporation shall make appropriate
provisions (in form and substance reasonably satisfactory to the
holders of a majority of the Series A Preferred Stock then
outstanding) to ensure that each of the holders of Series A
Preferred Stock shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately
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theretofore acquirable and receivable upon the conversion of such
holder's Series A Preferred Stock, such shares of stock, securities
or assets as such holder would have received in connection with such
Extraordinary Event if such holder had converted its Series A
Preferred Stock immediately prior to such Extraordinary Event. In
each such case, the Corporation shall also make appropriate
provisions (in form and substance reasonably satisfactory to the
holders of a majority of the Series A Preferred Stock then
outstanding) to ensure that the provisions of this Section 5 shall
thereafter be applicable to the Series A Preferred Stock). The
Corporation shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if
other than the Corporation) resulting from such consolidation or
merger or the entity purchasing such assets assumes by written
instrument (in form and substance reasonably satisfactory to the
holders of a majority of the Series A Preferred Stock then
outstanding), the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire. For
purposes of this Section 5, "EXTRAORDINARY EVENT" means the
occurrence or consummation of a transaction or series of related
transactions (other than any such transaction that is treated as a
Liquidating Event) resulting in: (i) a merger, consolidation, sale
or reorganization in which the Corporation or any of its
subsidiaries is not the surviving corporation; or (ii) a sale, lease
or exchange, directly or indirectly, of all or substantially all of
the property and assets of the Corporation, whether or not in the
ordinary course of business.
(e) CERTAIN EVENTS. If any event occurs of the type contemplated by the
provisions of this Section 5 but not expressly provided for by such
provisions (including, without limitation, stock dividend, partial
liquidation, in kind dividend, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features),
then the Corporation's Board of Directors shall make an appropriate
adjustment in the Conversion Price so as to protect the rights of
the holders of Series A Preferred Stock in a manner consistent with
the other provisions of this Designation of Series A Preferred
Stock; PROVIDED, HOWEVER, that no such adjustment shall increase the
Conversion Price as otherwise determined pursuant to this Section 5
or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series A Preferred Stock.
(f) CONVERSION PROCEDURE.
(i) Except as otherwise provided herein, each conversion of Series
A Preferred Stock shall be deemed to have been effected as of
the close of business on the date on which the certificate or
certificates representing the Series A Preferred Stock to be
converted have been surrendered for conversion at the
principal office of the Corporation. At the time any such
conversion has been effected, the rights of the holder of the
shares converted as a holder of Series A Preferred Stock shall
cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock are to
be issued upon such conversion shall
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be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby.
(ii) Notwithstanding any other provision hereof, if a conversion of
Series A Preferred Stock is to be made in connection with an
Extraordinary Event or any other transaction affecting the
Corporation or any holder of Series A Preferred Stock, the
conversion of any shares of Series A Preferred Stock may, at
the election of the holder thereof, be conditioned upon the
consummation of such transaction, in which case such
conversion shall be deemed to be effective immediately prior
to the consummation of such transaction.
(iii) Promptly (and in any event within five (5) business days in
the case of Section 5(f)(iii)(A) below) after a conversion has
been effected, the Corporation shall deliver to the converting
holder:
(A) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination
or denominations as the converting holder has specified;
and
(B) a certificate representing any shares of Series A
Preferred Stock which were represented by the
certificate or certificates delivered to the Corporation
in connection with such conversion but which were not
converted.
(iv) The issuance of certificates for shares of Common Stock upon
conversion of Series A Preferred Stock shall be made without
charge to the holders of such Series A Preferred Stock for any
issuance tax in respect thereof (so long as such certificates
are issued in the name of the record holder of such Series A
Preferred Stock) or other cost incurred by the Corporation in
connection with such conversion and the related issuance of
shares of Common Stock. Upon conversion of each share of
Series A Preferred Stock, the Corporation shall take all such
actions as are necessary in order to ensure that the Common
Stock issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable, free and clear
of all taxes (other than any taxes relating to any dividends
paid with respect thereto), liens, charges and encumbrances
with respect to the issuance thereof.
(v) The Corporation shall not close its books against the transfer
of Series A Preferred Stock or of Common Stock issued or
issuable upon conversion of Series A Preferred Stock in any
manner which interferes with the timely conversion of Series A
Preferred Stock. The Corporation shall assist and cooperate
with any holder of such shares required to make any
governmental filings or obtain any governmental approval prior
to or in connection with any conversion of such shares
hereunder (including,
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without limitation, making any filings required to be made by
the Corporation).
(g) LIMITATION ON NUMBER OF CONVERSION SHARES. The Corporation shall not
be obligated to issue, in the aggregate, more than 1,221,712 shares
of Common Stock (which equals 19.999% of the number of shares of
Common Stock outstanding as of June 26, 20001) as presently
constituted (the "NASDAQ Cap") upon (1) conversion of the Series A
Preferred Stock and (2) the issuance of shares of Common Stock under
the Subscription Agreement dated June 26, 2001 to Artisan.com
Limited, if issuance of a larger number of shares would constitute a
breach of the Corporation's obligations under its agreements with
the National Association of Securities Dealers, Inc. (the "NASD") or
the Nasdaq Stock Market ("NASDAQ") or the rules of such
organizations. Such maximum number of shares of Common Stock shall
be proportionately and equitably adjusted in the event of stock
splits, stock dividends, reverse stock splits, reclassifications or
other such events, in such manner as the Board of Directors of the
Corporation shall reasonably determine. If the Corporation is unable
to obtain the requisite stockholder approval concerning the issuance
of shares of Common Stock in connection with the events specified in
clauses (1) and (2) above to satisfy all NASD and NASDAQ
requirements prior to 365 days after the date of the original
issuance of the Series A Preferred Stock, the Corporation shall then
redeem, at a "Special Redemption Price" equal to the Liquidation
Preference of such shares, plus accumulated but unpaid dividends
(whether or not declared) at 7% per annum, any shares of Series A
Preferred Stock which cannot be converted as result of the failure
to obtain such stockholder approval. Any redemption effected
pursuant to the preceding sentence shall require no more than 10
days' notice and the redemption date (the "Redemption Date") shall
be not more than 380 days after the date of issuance. Such
redemption shall be made pro rata based on the number of shares of
the Series A Preferred Stock outstanding at 11:59 p.m. on the day
prior to the Redemption Date and as early as practicable on the
Redemption Date the Corporation shall notify each holder of Series A
Preferred Stock by the most rapid means of communication available
to the Corporation, which may be facsimile transmission, of the pro
rata number of shares to be redeemed from each holder. Such notice
shall be binding upon holders who have submitted their stock
certificates for redemption prior to the receipt of such notice, as
well as on holders who submit their stock certificates thereafter.
If there shall be a default in payment of the Special Redemption
Price, the amount so payable shall bear daily interest from and
after the Redemption Date at the rate of one-tenth of one percent
per day until paid. Shares so redeemed shall be deemed to have been
redeemed at the opening of business on the Redemption Date and shall
no longer be treated as outstanding shares except for purposes of
receiving the Special Redemption Price.
(h) NO FRACTIONAL SHARES. No fractional share shall be issued upon the
conversion of any share or shares of Series A Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional
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share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in
cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors).
(i) NO IMPAIRMENT. The Corporation will not, by amendment of this
Statement or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action (other than actions taken in good faith),
avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all
times in good faith assist in carrying out all the provisions of
this Section 5 and in taking all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders
of the Series A Preferred Stock against impairment.
(j) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this
Section 5, the Corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof
and prepare and furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property
that at the time would be received upon the conversion of the Series
A Preferred Stock.
(k) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities
for the purpose or determining the holders thereof who are entitled
to receive any dividend or other distribution, any security or right
convertible into or entitling the holder thereof to receive
additional shares of Common Stock, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Series A Preferred Stock,
at least 10 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the
purpose of such dividend.
(l) RESERVATION OF COMMON STOCK. The Corporation shall, at all times
when the Series A Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the
purpose of effecting the conversion of the Series A Preferred Stock,
such number of its duly authorized shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which
would cause the effective purchase price for the Series A Preferred
Stock to be less than the par value of the shares of Series A
Preferred Stock, the Corporation shall take any corporate action
which may, in the opinion of its counsel, be necessary in
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order that the Corporation may validly and legally issue fully paid
and nonassessable shares of such Common Stock at such effective
purchase price.
6. RETIREMENT OF SHARES. Any shares of Series A Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation shall be deemed retired
and shall be cancelled and may not under any circumstances thereafter be
reissued or otherwise disposed of by the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations, Preferences and rights to be signed by J. Todd Raymond, its
Secretary and General Counsel, this 2nd day of July, 2001.
Stratus Services Group, Inc.
By: /s/ J. Todd Raymond
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Name: J. Todd Raymond
Title: Secretary and General Counsel
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