**Exhibit 10.17**

 
|                                 | July 31, 2003 |
|--------------------------------------|---------------|
|                                 |
| **Via Fax:  011 1 480 436 231** |
|                                 |
| Board of Directors                   |
| Artisan (UK) plc                     |
| Dean House, Sovereign Court          |
| Ermine Business Park, Huntingdon     |
| Cambridgeshire PE29 6 XU             |
| England                              |

 

**Re:****                             StratusServices Group, Inc.; Series A Transaction**

 

Gentlemen:

 

Please letthis serve as memorialization of the Agreement between Stratus Services Group,Inc. (“Stratus”) and Artisan (UK) plc (“Artisan”), the sole beneficialshareholder of Stratus’ issued and outstanding Series A Preferred Stock (the“Series A Stock”).

 

As Artisan isaware, Stratus is currently working towards the filing of an S-1 RegistrationStatement for a continuous offering of units to consist of Stratus common stockand warrants, the precise terms of which have not yet been finalized (the“Continuous Offering”).  As discussedwith Artisan, Stratus is willing to agree to redeem the Series A stock, subjectto the terms and conditions set forth below, in the event that Stratus throughits underwriters completes a Continuous Offering raise in an aggregate amountof at least $4.0 million (for purposes of this letter agreement only thereceipt of such $4.0 million in the aggregate by the underwriters shall meanthe  “Initial Closing”).

 

Assuming thatthis Initial Closing of the Continuous Offering is indeed completed, theparties hereto hereby agree that, upon the Initial Closing of the ContinuousOffering, the Series A Stock shall be redeemed in full by Stratus andthereafter cancelled, pursuant to the following terms:

 

1.                                       Withinfifteen (15) days after the completion of the Initial Closing of the ContinuousOffering, Stratus will pay to Artisan the lump sum of Five Hundred ThousandDollars ($500,000.00).

 

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2.                                       Withineighteen (18) months from the date of this Agreement, Stratus shall either, atits option (i) pay Artisan the sum of Two Hundred Fifty Thousand Dollars($250,000.00), or (ii) within three (3) business days from the expiration ofsuch eighteen (18) month period, deliver to Artisan shares of common stockregistered for resale and freely tradeable with an aggregate value of$250,000.00, based on the average of the closing bid prices for Stratus’ commonstock for the thirty (30) consecutive trading days prior to the expiration ofsuch eighteen (18) month period.

 

No interestwill accrue on this obligation over such eighteen (18) month period; however,in the event that Stratus shall default on its obligations to pay such$250,000.00 in cash or in stock, then Artisan shall be entitled to receive alump sum payment of $300,000 cash only, plus default interest, at a rate ofeighteen percent (18%) calculated on a daily basis, from the date of thedefault until the default is cured.

 

3.                                       Artisanor its designee, will receive within fifteen (15) days of the completion of theInitial Closing of the Continuous Offering a number of shares of common stockequal to five and one-half percent (5.5%) of the issued and outstanding sharesof Stratus common stock, as of the completion date of the Initial Closing ofthe Continuous Offering.  Additionally,upon final completion of the Continuous Offering (the “Final Closing”), Artisanshall receive such number of shares of common stock, subject to reduction forany outstanding underwater options and warrants (the “Reduction Amount”) (seeattached Exhibit A for a summary of all such options and warrants), as willresult in Artisan holding, as of the date of the Final Closing, an amount ofcommon shares equal to five and one half percent (5.5%) of Stratus’ commonstock, on a fully diluted basis, taking into account any still outstandingconvertible securities but specifically excluding the Reduction Amount.

 

In conjunctionwith this issuance of common stock, Artisan will agree to execute a lock-upagreement with Stratus (the “Lock-Up Agreement”) with the following terms:

 

(a)                                  Any common stockissued in connection with this Agreement shall be subject to a lock-up for aperiod of fourteen (14) months following issuance, however, Artisan will retainthe voting rights to same; and

 

(b)                                 Any common stock heldby Artisan as of the date of the signing of this Agreement, shall be subject tolock-up for a period of one hundred thirty-five (135) days from the completionof the Initial Closing of the Continuous Offering.  Thereafter, assuming the completion of a 1-for-4 reverse split byStratus in connection with the Continuous Offering, Artisan shall be entitledto sell up to 25,000 shares of common stock per month.  While the shares  released from the lock-up do not aggregate monthly, (i.e. if25,000 shares are not sold in month one 50,000 shares may not be sold in monthtwo), this

 

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25,000 per month share limitation shall in all respects be releasedwithin one (1) year from the date of the signing of this Agreement.  Further, in the event that the reverse splitdeviates in any manner from the contemplated 1 for 4, then the amount of sharesto be released monthly from the lock-up shall be adjusted proportionately aswell (i.e., assuming a reverse split of 1 for 3, the amount of shares to bereleased monthly from lock-up would be 33,333).

 

4.                                       All of theforegoing is contingent upon the following:

 

(a)                                  Approval by the Boardof Directors of Stratus within two (2) business days of the date hereof;

 

(b)                                 Approval by the Boardof Directors of Artisan within two (2) business days of the date hereof;

 

(c)                                  Completion of theInitial Closing of the Continuous Offering.

 

5.                                       IfStratus does not deliver the $500,000 and 5.5% of its outstanding common stockwithin fifteen (15) days of the Initial Closing, or if the Initial Closing doesnot take place within nine (9) months of the date of this Agreement, thenArtisan will have the right to immediately terminate this Agreement, with nofurther obligations hereunder and without prejudicing any of its availablerights and remedies under applicable law or equity.

 

6.                                       Uponexecution of this Agreement, Stratus will deliver into escrow all voting rightsto the Series A Stock and the common stock held by Artisan as of the date ofthe signing of this agreement.  Upon thecompletion of the Initial Closing and the delivery of the lump sum payment andcommon shares by Stratus pursuant to the terms of Items 1 through 4 above,Stratus shall deliver from escrow to Artisan any voting rights that Stratusand/or Joseph J. Raymond, Sr., Stratus’ Chairman, President and CEO, may havewith respect to the Artisan Series A stock and common shares.

 

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If you are inagreement with the following, please sign below where indicated and return acopy to the undersigned.

 
|   | Very truly yours,                |
|--------|----------------------------------|
|   |                             |
|   | **Stratus Services Group, Inc.** |
|   |                             |
|   | By:                              | ***s/Joseph J.  Raymond*** |   |
|   | Name:  Joseph J. Raymond    |
|   | Title:   CEO      |

 

 
| **AGREED TO AND ACCEPTED:**                |
|--------------------------------------------|
|                                       |
| **Artisan (UK) plc**                       |
|                                       |
| By:                                        | ***s/Chris Musselle*** |   |
| Name:  Chris Musselle                 |
| Title:   Financial Director |

 

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