**Exhibit 10.16**

 
|                               | July 22, 2003 |
|------------------------------------|---------------|
|                               |
| Mr. Christopher Janish             |
| Pinnacle Investment Partners, L.P. |
| The Trump Building                 |
| 40 Wall Street, 33rd Floor         |
| New York, New York 10005           |

 

**Re:****                             SeriesE Registration Penalties; Stratus Services Group, Inc. (“Stratus”)**

 

Dear Mr. Janish:

 

As theauthorized representative of Pinnacle Investments Partners, L.P. (“Pinnacle”),the majority holder of the Series E Preferred Stock, you advised Stratus, at ameeting with Stratus senior management held on July 9, 2003, of certain issuesthat the Series E shareholders had regarding registration penalties.

 

Specificallyyou advised that the Series E shareholders were claiming entitlement to certainpenalties, pursuant to Paragraph 5(b) of the Stock Purchase Agreement (the“SPA”) executed by and among Stratus and each of the respective Series Einvestors, for failing to timely terminate the suspension of the S-1Registration Statement filed by Stratus with the SEC on September 27, 2002,which was declared effective on October 25, 2002.

 

The Series Eshareholders do not contend they are entitled to any penalty under Section 5(b)(i) of the SPA because the registration statement was timely filed.  They do contend, however, that, when theeffectiveness of such Registration Statement was suspended on December 1, 2002,the Effective Date of a certain Asset Purchase Agreement (“APA”) betweenStratus and Elite Personnel Services, Inc. (“Elite”), that Stratus failed tofulfill its obligations pursuant to Section 5(b)(ii) of the SPA to “use itsbest efforts to cause such suspension to terminate at the earliest possibledate”.

 

The S-1Registration Statement was suspended on December 1, 2002 due to the necessityof Stratus providing certain financial statements of the Elite businessacquired.  Stratus filed such statementsthereafter by virtue of a Form 8-K/A with the SEC on January 30, 2003.  The suspension of the Registration Statementhas not been terminated.

 

While Stratusdoes not admit that it failed to fulfill its contractual obligations pursuantto the SPA to use such “best efforts” to terminate the suspension of the S-1,in the interest of amicably settling this matter, and for the furtherconsideration of future investments by the Series E shareholders, including,but not limited to, Pinnacle, the parties have agreed to pay the sum of$447,735 to the Series E shareholders, as of July 31, 2003.  However, Pinnacle has agreed to receivethese monies as additional shares of Series E preferred Stock, i.e., 4,477 shares.  Moreover, Pinnacle has also agreed to waiveany rights to the accrued dividends on such Series E Preferred Stock,

 

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which amounted to $84,943 as ofJune 30, 2003 ($64,108 Pinnacle; $20,835 other investors).

 

By signingbelow, you acknowledge on behalf of the Series E shareholders, payment of such4,477 shares of Series E Preferred Stock shall constitute payment in full forall amounts due and owing to the Series E shareholders through and includingthe date hereof.

 
|   | Very truly yours,       |
|--------|-------------------------|
|   |                    |
|   |                    |
|   | /s/ Joseph J. Raymond   |
|   | Joseph J. Raymond       |
|   | Chief Executive Officer |

 

 
| **AGREED TO AND ACCEPTED BY:**     |
|------------------------------------|
|                               |
| Pinnacle Investment Partners, L.P. |
|                               |
|                               |
| By:                                | /s/ Christopher Janish |   |
| Name:  Christopher Janish     |
| Title:  Fund Manager          |

 

 
| cc:    | Mr. Michael A. Maltzman       |
|--------|-------------------------------|
|   | Mr. Jeffrey Raymond           |
|   | Mr. Joseph J. Raymond, Jr.    |
|   | Suzette Nanovic Berrios, Esq. |

 

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