Document:

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:                             Series
E Registration Penalties; Stratus Services Group, Inc. (“Stratus”)

 

Dear Mr. Janish:

 

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

 

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

 

The Series E
shareholders 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 the
effectiveness of such Registration Statement was suspended on December 1, 2002,
the Effective Date of a certain Asset Purchase Agreement (“APA”) between
Stratus and Elite Personnel Services, Inc. (“Elite”), that Stratus failed to
fulfill its obligations pursuant to Section 5(b)(ii) of the SPA to “use its
best efforts to cause such suspension to terminate at the earliest possible
date”.

 

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

 

While Stratus
does not admit that it failed to fulfill its contractual obligations pursuant
to 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 further
consideration 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 receive
these monies as additional shares of Series E preferred Stock, i.e., 4,477 shares.  Moreover, Pinnacle has also agreed to waive
any rights to the accrued dividends on such Series E Preferred Stock,

 

 

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

 

By signing
below, you acknowledge on behalf of the Series E shareholders, payment of such
4,477 shares of Series E Preferred Stock shall constitute payment in full for
all amounts due and owing to the Series E shareholders through and including
the 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.

  

 

2Exhibit 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:                             Stratus
Services Group, Inc.; Series A Transaction

 

Gentlemen:

 

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

 

As Artisan is
aware, Stratus is currently working towards the filing of an S-1 Registration
Statement for a continuous offering of units to consist of Stratus common stock
and warrants, the precise terms of which have not yet been finalized (the
“Continuous Offering”).  As discussed
with Artisan, Stratus is willing to agree to redeem the Series A stock, subject
to the terms and conditions set forth below, in the event that Stratus through
its underwriters completes a Continuous Offering raise in an aggregate amount
of at least $4.0 million (for purposes of this letter agreement only the
receipt of such $4.0 million in the aggregate by the underwriters shall mean
the  “Initial Closing”).

 

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

 

1.                                       Within
fifteen (15) days after the completion of the Initial Closing of the Continuous
Offering, Stratus will pay to Artisan the lump sum of Five Hundred Thousand
Dollars ($500,000.00).

 

 

2.                                       Within
eighteen (18) months from the date of this Agreement, Stratus shall either, at
its 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 of
such eighteen (18) month period, deliver to Artisan shares of common stock
registered for resale and freely tradeable with an aggregate value of
$250,000.00, based on the average of the closing bid prices for Stratus’ common
stock for the thirty (30) consecutive trading days prior to the expiration of
such eighteen (18) month period.

 

No interest
will 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 a
lump sum payment of $300,000 cash only, plus default interest, at a rate of
eighteen percent (18%) calculated on a daily basis, from the date of the
default until the default is cured.

 

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

 

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

 

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

 

(b)                                 Any common stock held
by Artisan as of the date of the signing of this Agreement, shall be subject to
lock-up for a period of one hundred thirty-five (135) days from the completion
of the Initial Closing of the Continuous Offering.  Thereafter, assuming the completion of a 1-for-4 reverse split by
Stratus in connection with the Continuous Offering, Artisan shall be entitled
to 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. if
25,000 shares are not sold in month one 50,000 shares may not be sold in month
two), this

 

2

 

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

 

4.                                       All of the
foregoing is contingent upon the following:

 

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

 

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

 

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

 

5.                                       If
Stratus does not deliver the $500,000 and 5.5% of its outstanding common stock
within fifteen (15) days of the Initial Closing, or if the Initial Closing does
not take place within nine (9) months of the date of this Agreement, then
Artisan will have the right to immediately terminate this Agreement, with no
further obligations hereunder and without prejudicing any of its available
rights and remedies under applicable law or equity.

 

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

 

3

 

If you are in
agreement with the following, please sign below where indicated and return a
copy 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

  

 

4

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