As Filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-83255
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STRATUS SERVICES GROUP, INC.
(Name of small business issuer in its charter)
Delaware 7363 223499261
(State or jurisdiction
of incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification Number)
500 Craig Road
Manalapan, New Jersey 07726
(732) 866-0300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Joseph J. Raymond
Chairman and Chief Executive Officer
Stratus Services Group, Inc.
500 Craig Road
Manalapan, New Jersey 07726
(732) 866-0300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications to:
John A. Aiello, Esq. Hank Gracin, Esq.
Giordano, Halleran & Ciesla, P.C. Lehman & Eilen, LLP
125 Half Mile Road, P.O. Box 190 50 Charles Lindbergh Blvd., Suite 505
Middletown, New Jersey 07748 Uniondale, New York 11553
(732) 741-3900 (516) 222-0888
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_| ___________
If this Form is a post-effective amendment filed pursuant to Rule
462 (c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| ______________
If this Form is a post-effective amendment filed pursuant to Rule
462 (d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| ______________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. |_|
Calculation of Registration Fee
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of each Class of Maximum Maximum
Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered Per Share (1) Offering Price(1) Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share 1,725,000 Shares(2) $7.50 $12,937,500 $3,597
- --------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants 150,000 Wrts(3) --- --- (4)
- --------------------------------------------------------------------------------------------------------------------
Common Stock Underlying
Underwriter's Warrants 150,000 Shares $8.25 $1,237,500 $344
- --------------------------------------------------------------------------------------------------------------------
Total $3,941
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Includes 225,000 shares subject to over-allotment option.
(3) To be issued for nominal consideration to the Underwriter.
(4) Pursuant to Rule 457(g), no separate registration fee for the warrants is
required.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
The information in this Prospectus is not complete and may be changed. These
securities may not be sold until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Preliminary Prospectus is
not an offer to sell nor does it seek an offer to buy these securities, in any
jurisdiction where the offer or sale is not permitted.
Subject to Completion, Dated September 3, 1999
PROSPECTUS
1,500,000 SHARES
STRATUS SERVICES GROUP, INC.
COMMON STOCK
----------------------------------------
This is an initial public offering of shares of common stock of
Stratus Services Group, Inc. All of the 1,500,000 shares of common stock are
being sold by Stratus Services Group, Inc.
Prior to this offering, there has been no public market for the
common stock. Stratus currently estimates that the initial public offering price
will be between $6.00 and $9.00 per share. We have applied for quotation of our
common stock on the Nasdaq Smallcap Market under the symbol "SMSL."
----------------------------------------
See "Risk Factors" beginning on page 4 to read about factors you should
consider before buying shares of common stock.
----------------------------------------
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved these securities, or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
<TABLE>
<CAPTION>
===========================================================================================================================
Underwriting Discounts and Proceeds, before expenses, to
Price to Public Commissions Stratus Services Group, Inc.
<S> <C> <C> <C>
Per Share............ $ $ $
Total................ $ $ $
===========================================================================================================================
</TABLE>
The underwriter may, subject to the terms of the underwriting
agreement, purchase up to an additional 225,000 shares from Stratus at the
initial public offering price, less the underwriting discount.
----------------------------------------
The underwriter expects to deliver the shares against payment in New York
on _______, 1999.
HORNBLOWER & WEEKS, INC.
The date of this Prospectus is ________ ___, 1999.
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock. In this prospectus, references to
"Stratus," "Stratus Services Group," "we," "us" and "our" refer to Stratus
Services Group, Inc.
----------------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.......................................................... 2
Risk Factors................................................................ 4
Use of Proceeds............................................................. 9
Dividend Policy............................................................. 9
Dilution.................................................................... 10
Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 11
Business.................................................................... 16
Management.................................................................. 25
Certain Relationships and Related Party Transactions........................ 31
Principal Stockholders...................................................... 32
Description of Securities................................................... 34
Shares Eligible for Future Sale............................................. 36
Underwriting................................................................ 38
Legal Matters............................................................... 39
Experts..................................................................... 39
Available Information....................................................... 40
Index to Financial Statements............................................... F-1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information elsewhere in this prospectus.
You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk Factors," before investing
in our common stock.
The Company
Stratus Services Group, Inc. is a New Jersey based provider of
temporary staffing and engineering services. We currently operate through a
network of fifteen offices in ten states. We provide a wide range of commercial
staffing services including light industrial, clerical, distribution, technical,
specialty and other professional services. We also have a dedicated engineering
services staff providing a broad range of staffing, project consulting and
outsourcing services. Our SMARTSolutions(TM) service provides a structured
program to monitor and enhance the productivity of a customer's labor resources.
As of August 31, 1999, we were providing approximately 1300 staffing employees
to more than 200 businesses.
Our strategy is to continue to expand operations through internal
growth and strategic acquisitions.
Our executive offices are located at 500 Craig Road, Manalapan, New
Jersey. Our phone number is (732) 866-0300.
The Offering
Shares of Common Stock Offered.................................1,500,000 shares.
Shares to be Outstanding After this Offering...................5,602,470 shares.
Use of Proceeds................................................For repayment of
debt, capital
expenditures,
working capital,
including
possible
acquisitions of
complementary
businesses and
general corporate
purposes. See
"Use of
Proceeds."
Proposed Nasdaq National Market Symbol.........................SMSL.
The above information is based on shares outstanding as of August
31, 1999 and excludes 600,667 shares issuable upon the exercise of options and
warrants to acquire our common stock that were outstanding as of August 31, 1999
and 150,000 shares issuable pursuant to warrants to be issued to the underwriter
in connection with this offering. The information also assumes that the
underwriter will not exercise its option to purchase additional shares of common
stock in the offering.
Unless otherwise indicated, all information contained in this
prospectus, including per share data and information relating to the number of
shares authorized and outstanding, has been adjusted to reflect a proposed two
(2) for three (3) reverse split of our common stock and certain proposed
amendments to our certificate of incorporation and bylaws.
2
<PAGE>
Summary Financial Information
The following tables summarize the financial data for our business.
You should read this information with the discussion in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and notes to those statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
August 11, 1997 June 30,
Inception to Year Ended -----------------------------------
September 30, 1997 September 30, 1998 1998 1999
------------------ ------------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues .......................... $ 2,442,191 $ 24,919,639 $ 18,062,534 $ 21,263,817
Gross profit ...................... 436,344 4,589,921 3,303,293 4,420,491
Operating income (loss) ........... (355,072) (1,041,099) 41,765 (710,654)
Other income (loss) (54,322) (1,438,696) (1,141,657) (968,151)
Net income (loss) ................. (409,394) (2,479,795) (1,099,892) (1,678,805)
Net loss per common Share - Basic . $ (.20) $ (.69) $ (.31) $ (.44)
Net loss per common share - Diluted $ (.20) $ (.69) $ (.31) $ (.44)
Weighted average shares outstanding
per common share -
Basic 2,027,124 3,602,086 3,562,439 3,783,714
Diluted 2,027,124 3,602,086 3,562,439 3,841,181
</TABLE>
As of June 30,
1999
--------------
(Unaudited)
Selected Balance Sheet Data:
Cash ..................................................... $ 41,441
Accounts receivable ...................................... 707,559
Other assets ............................................. 3,321,363
Total assets ............................................. 4,070,363
Notes and loans payable .................................. 2,434,375
Accrued payroll and taxes ................................ 906,562
Due to factor ............................................ 495,482
Accounts payable, accrued expenses and other ............. 1,979,700
Total liabilities ........................................ 5,816,119
Temporary equity ......................................... 520,000
Stockholders' equity (deficit) ........................... (2,265,756)
3
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk.
You should consider carefully the following information about these risks,
together with the other information contained in this prospectus, before you
decide to buy our common stock. If any of the following risks actually occur,
our business, results of operations or financial condition would likely suffer.
In this case, the market price of our common stock could decline, and you may
lose all or part of the money you paid to buy our common stock.
Financial Risks
We have a history of net losses and if we do not become profitable
in the future, our financial condition and our stock price could suffer.
We cannot assure investors that we will become profitable in the
future. We have incurred net losses in recent periods, including net losses of
$409,394 in our inception period from August 11, 1997 through September 30,
1997, $2,479,795 in the year ended September 30, 1998 and $1,678,805 in the nine
months ended June 30, 1999. As a result of our losses we have a stockholders
deficit of $2,265,756 as of June 30, 1999. We can provide no assurances that our
operations will be profitable in the future.
Our technical default under a factoring agreement will affect our
growth and our financial viability if it continues.
We are in technical default under a factoring agreement and could be
called at any time to repurchase receivables that we have factored. If we are
called to repurchase the receivables, the potential to grow the business will be
limited and our financial viability could be affected.
There are doubts as to our ability to continue in business.
Our auditors have qualified our Financial Statements for the year
ended September 30, 1998 with a qualification which raises doubts as to our
ability to continue as a going concern. While we have plans to use the funds
raised from this offering to increase sales and reduce debt in order to reduce
the demand on working capital, there can be no assurance as to when these plans
will be implemented and if implemented, whether they will be successful.
If we do not generate cash sufficient to fund our operations, we may
need additional financing to continue in business.
To date, we have been unable to fund our operations with the cash
generated from our business and have funded operations from the sale of equity
securities and the incurrence of debt. If our cash flows continue to be
insufficient to fund operations, we may need to fund our growth through
additional debt or equity funding. If adequate funds are not available on
acceptable terms, we may not be able to fund our expansion, develop our products
and services or respond to competitive pressures. We cannot be certain that
additional financing will be available when and to the extent required or that,
if available, it will be on acceptable terms. If we raise additional funds by
issuing equity or convertible debt securities, the percentage ownership of our
stockholders will be diluted. Furthermore, any new securities could have rights,
preferences and privileges senior to those of the common stock.
4
<PAGE>
Potential 401(k) benefit plan compliance costs could reduce the
proceeds available from this offering.
To correct the potential non-compliance of our 401(k) benefit plan
identified in our audit, we may be required to make a contribution to the
benefit plan on behalf of all qualifying employees and to satisfy any penalties
that may be imposed by the Internal Revenue Service, thereby reducing our
available working capital. We are unable to estimate at this time the extent of
any possible costs.
We may have sold securities in violation of applicable securities
laws, which could give purchasers of these securities the right to seek refunds
or damages, which could reduce the proceeds available from this offering.
In issuing securities prior to this offering, we relied upon certain
provisions of federal and state securities laws which provide "private placement
exemptions" from the registration requirements of the securities laws. Because
we may not have complied with all of the applicable exemption requirements,
certain investors who acquired our securities may have a right to obtain a
recovery of the consideration paid in connection with their purchase of our
securities or, if they have already sold the securities, to recover damages
against us. We estimate that these refunds or damages could total up to
approximately $500,000. In addition, we could be subject to additional
liabilities if state or federal authorities were to assert violations of the
securities laws against us.
Business Model Risks
Delays implementing our internal growth strategy may reduce anticipated cash
flow and place a strain on our management resources, which could adversely
affect our operating performance.
Any significant delay in the opening of new offices or the failure
of new offices to achieve anticipated performance levels could adversely impact
our operations and expansion plans and have a material adverse effect on our
business. We have grown in recent years by opening new offices and increasing
the volume of services provided through existing offices. We cannot assure you
that we will continue to be able to maintain or expand our market presence in
current locations or to successfully enter other markets.
Future acquisitions could increase the risk of our business.
As part of our business strategy, we expect to review acquisition
prospects that would complement our existing business. We anticipate that we
will acquire other businesses or assets meeting our strategic goals that can be
purchased on terms acceptable to us. We may not locate suitable acquisition
opportunities. Any future acquisitions would expose us to increased risks,
including:
o issuances of equity securities that may dilute existing
stockholders;
o increased debt obligations or contingent liabilities;
o risks associated with the assimilation of new operations;
o the diversion of resources from our existing operations;
o the inability to retain the customers of acquired businesses
and generate sufficient revenues from new operations to offset
associated acquisition costs;
o the maintenance of uniform standards, controls, procedures and
policies; and
o the impairment of relationships with employees and customers
as a result of any integration of new management personnel.
If these risks materialize, future acquisitions could require
additional capital investment or result in additional operating losses,
amortization of goodwill and other intangible assets or other charges against
earnings.
5
<PAGE>
Risks Relating to Operations
If we are not able to hire and retain a sufficient number of
qualified temporary employees, our business may suffer.
Since our "product" is the temporary employees we provide to our
clients, our future success will depend on our ability to attract, train, retain
and motivate suitably qualified personnel. Competition for such personnel in the
staffing services industry is particularly intense. We compete with other
temporary staffing companies, as well as our customers and other employers for
qualified personnel. If we are unable to continue to recruit additional
qualified personnel our business and planned growth could suffer.
We are directly liable for worksite employee payroll regardless of
whether we are paid by our customers, potentially reducing available working
capital.
As the direct employer we are obligated to pay the salaries, wages
and related benefit costs and payroll taxes of worksite employees and must pay
the costs even if the customer does not make timely payment to us. A failure to
recover employee payroll and benefits costs from the customer could have a
material adverse effect on our financial condition or results of operations.
This may result in a significant drain on available working capital and cash
reserves.
We are liable for relationships between our customer and our
employees, potentially exposing us to monetary damages.
The failure of our employees to follow policies and guidelines may
result in negative publicity, monetary damages or fines. We may be exposed to
potential liability to our customers with respect to any claims arising out of
the services performed by our temporary staffing employees, such as misuse of
client information or theft of client property. We are also exposed to potential
claims by our temporary staffing employees for discrimination and harassment in
the customer's workplace and violations of other employment-related laws and
regulations.
Malpractice claims against us could increase our operating costs.
In the event that we experience a large claim, frequent claims or
some other event occurs that causes the rates for the professional malpractice
insurance to increase, there could be a material adverse effect on our business,
operating results and financial condition. Providing engineering and other
professional services entails a risk of claims of professional malpractice and
similar claims which could have a material adverse effect on our business,
operating results and financial condition. Although we do and will continue to
maintain insurance that we believe is adequate as to risks and amount, we cannot
assure you that future claims will not exceed the coverage amounts or that the
insurance policies will indemnify us in any particular circumstance.
Because a small number of customers account for a substantial
portion of our revenues, our revenues could suffer if we lose a major customer.
For the year ended September 30, 1998 and the nine months ended June
30, 1999, our five largest clients accounted for approximately 49% and 42% of
our revenues. The loss of or a material reduction in revenues from one or more
large clients could have a material adverse effect on our business. Our
contracts to perform services may be canceled or modified by clients at will
without penalty.
6
<PAGE>
Breaches or failure of our Internet based management information
system could harm our operations.
Security breaches of our management information system or an
extensive failure of the system could significantly harm our business by
affecting our monitoring of the financial and operating performance of the
business. As our management information system connecting all our offices and
operations is an Internet based system, any failure of the Internet or any
security measures we employ could affect our ability to monitor and control our
operations and could also result in our confidential information or our clients'
confidential information being accessed by unauthorized viewers, exposing us to
potential liability.
The Year 2O00 problem could cause us to suffer business interruptions, or
shutdown, reputational harm or legal liability, and as a result, material
financial jobs.
We rely on information technology supplied by third parties, and our third party
suppliers and vendors also are dependent on information technology systems and
on their own third party vendors' systems. The Year 2000 problem could cause us
to suffer business interruptions, or shutdown, reputational harm or legal
liability, and as a result, material financial loss.
We have evaluated our internal information technology systems and contacted our
information technology suppliers and third party suppliers and vendors to
ascertain their Year 2000 status. However, we cannot guarantee that our own
systems will be Year 2000 compliant, that any of our third party suppliers and
vendors will be Year 2000 compliant in a timely manner, or that there will not
be significant interrelated operational problems among information technology
systems.
Risks Related to Government Regulation
Regulatory and legal uncertainties could harm our business.
The implementation of unfavorable governmental regulations or
unfavorable interpretations of existing regulations by courts or regulatory
bodies, could require us to incur significant compliance costs, cause the
development of the affected markets to become impractical or otherwise adversely
affect our financial performance.
Risks Related to Our Structure
Our officers, directors and senior management employees own a large
percentage of our common stock and could significantly influence the outcome of
actions requiring stockholder approval.
Upon consummation of this offering, directors, officers and senior
management employees of Stratus will control approximately 44% of our
outstanding voting stock. As a result, if they act together, they may have the
ability to significantly influence the outcome of all matters requiring
stockholder approval, including the election and removal of directors and any
merger, consolidation or sale of all or substantially all of our assets, and the
ability to control our management and affairs. Such control could discourage
others from initiating potential merger, takeover or other change of control
transactions. As a result, the market price of our common stock could be
adversely affected.
Anti-takeover provisions affecting us could prevent or delay a
change of control and this could affect our stock price.
Our certificate of incorporation and bylaws include provisions that
may discourage, delay or prevent a change in control that some stockholders may
consider favorable. As a result, these provisions could limit the price that
investors are willing to pay in the future for shares of common stock.
You will experience immediate and substantial dilution in the net
tangible book value of the shares you purchase.
The initial public offering price is expected to be substantially
higher than the net tangible book value of each outstanding share of common
stock. Purchasers of common stock in this offering will suffer immediate and
substantial dilution. The dilution will be $6.68 per share in the net tangible
book value of the common stock from the expected initial public offering price.
If the outstanding options and warrants to purchase shares of common stock are
exercised, there would be further dilution.
7
<PAGE>
Future sales of our common stock could cause the market price to
drop significantly even if our business is doing well.
Sales of a substantial number of shares of common stock in the
public market following this offering could cause the market price of our common
stock to decline. After this offering, we will have outstanding 5,602,470 shares
of common stock assuming no exercise of warrants and options. The 1,500,000
shares offered for sale through the underwriters will be freely tradable. Of the
remaining 4,102,470 shares of common stock outstanding after this offering,
approximately 1,189,200 (or 21%) will be eligible for sale in the public market
beginning 12 months after the effective date of this prospectus and
approximately 2,913,270 (or 52%) shares will become eligible for sale 24 months
after the effective date of this prospectus.
No public market for our common stock currently exists and our stock price may
fluctuate after this offering. As a result, investors in our common stock may
not be able to resell their shares at or above the initial public offering
price.
The market price for our common stock will vary from the initial public
offering price. The market price of our common stock may fluctuate significantly
in response to a number of factors, some of which are beyond our control,
including:
o variations in quarterly operating results;
o changes in financial estimates by securities analysts;
o changes in market valuations of staffing companies;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o loss of a major customer;
o additions or departures of key personnel;
o sales of common stock in the future; and
As a result, investors in our common stock may not be able to resell their
shares at or above the initial public offering price. In the past, securities
class action litigation has often been brought against a company following
periods of volatility in the market price of its securities. We may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and divert our management's attention and resources, which
could negatively impact our business, operating results and financial condition.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.
Some of the statements under the "Prospectus Summary", "Risk
Factors", "Use of Proceeds", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Business" and elsewhere in this
prospectus constitute forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels or activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by
terminology such as "may", "will", "should", "could", "expects", "plans",
"anticipates", "believes", "estimates", "predicts", "potential", or "continue"
or the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. Moreover, neither we, nor any
other person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
8
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 1,500,000 shares of common
stock being offered by us are estimated to be approximately $9,200,000. This
estimate is based on an assumed public offering price of $7.50 per share, after
deducting the estimated underwriting discounts and commissions and the estimated
offering expenses.
The principal purposes of this offering are to:
o repay approximately $1,050,000 of outstanding debt incurred to
support our operations which bears the interest rate of 18%
per annum and which becomes due upon completion of this
offering.
o Pay $1,326,000, in satisfaction of the balance of the purchase
price for the acquisition of B&R Employment, Inc., a staffing
company acquired in January 1999, which bears interest at a
rate of 10% per annum and which becomes due on the earlier of
March 1, 2000 or 30 days after the completion of this
offering.
o Pay outstanding indebtedness to attorneys of $249,000 incurred
in connection with various litigation;
o Pay $839,000 to the factor for settlement of recourse
obligation;
o Purchase $150,000 of computers and other equipment;
o Pay $170,000 of accrued compensation to three of our
executives;
o Pay $100,000 for marketing and promotion;
o Pay $75,000 to expand our internet presence.
The balance of the funds will be used for working capital and
general corporate purposes. We may also use a portion of the net proceeds to
acquire additional businesses that we believe will complement our current or
future business. However, we have no specific plans, agreements or commitments
to do so and although we are in frequent discussion with potential acquisition
targets, at this time there are no discussions that we believe can be considered
likely to result in a transaction. The amounts that we actually expend for
general corporate purposes will vary significantly depending on a number of
factors, including future revenue growth, if any, and the amount of cash we
generate from operations. As a result, we will retain broad discretion in the
allocation of a portion of the net proceeds of this offering. Pending these
uses, we will invest the net proceeds in short-term, interest-bearing,
investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain any future earnings for financing growth
and do not expect to pay any dividends in the foreseeable future.
9
<PAGE>
DILUTION
At June 30, 1999 we had a negative net tangible book value of
$(4,700,000) or approximately ($1.14) per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities and divided by the total number of shares of
common stock. Dilution in pro forma net tangible book value per share represents
the differences between the amount per share paid by purchasers of shares of
common stock in this offering and the pro forma net tangible book value per
share of common stock immediately after the completion of this offering. After
giving effect to the sale of the 1,500,000 shares of common stock offered by us
at an assumed initial public offering price of $7.50 per share, and after
deducting the underwriting discount and estimated offering expenses payable by
us, our pro forma net tangible book value at June 30, 1999 would have been
approximately $4.6 million or $.82 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $1.96 per share to
existing stockholders and an immediate dilution of $6.68 per share to new
investors of common stock. The following table illustrates this dilution on a
per share basis:
Assumed initial public offering price per share .... $7.50
Net tangible book value per share as
of June 30, 1999 ............................. (1.14)
Increase per share attributable to new
investors .................................... 1.96
Pro forma net tangible book value per share after
this offering .................................... .82
Dilution per share to new investors ................ $6.68
The following table summarizes on a pro forma basis after giving
effect to the offering (based on an assumed initial public offering price of
$7.50 per share), as of June 30, 1999, the differences between the existing
stockholders and new investors with respect to the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid:
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration Per Share
--------------------- ----------------------- -------------
Number Percent Amount Percent
--------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders 4,080,804 73.1% $ 3,414,000 23.3% $ .84
New Investors ....... 1,500,000 26.9% 11,250,000 76.7% 7.50
--------- ----- ---------- -----
Total ............. 5,580,804 100.0% 14,664,000 100.0%
========= ===== ========== =====
</TABLE>
The foregoing discussions and tables are based upon the number of
shares actually issued and outstanding on June 30, 1999 and assumes no exercise
of any of the options and warrants outstanding as of June 30, 1999. To the
extent these options and warrants are exercised, there will be further dilution
to investors.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Prospectus.
Introduction
We provide a wide range of staffing and engineering services
nationally through a network of fifteen offices in ten states. Although we were
incorporated on March 11, 1997, operations effectively commenced on August 11,
1997 with the acquisition of certain operating assets of Royalpar Industries,
Inc. and its subsidiaries. Since August 1997, through internal growth and two
acquisitions, which were completed in August 1998 and January 1999, we have
grown from the original five Royalpar offices in five states.
We recognize revenues based on hours worked by assigned personnel.
Generally, we bill our customers a pre-negotiated fixed rate per hour for the
hours worked by our temporary employees. We are responsible for workers'
compensation, unemployment compensation insurance, Medicare and Social Security
taxes and other general payroll related expenses for all of the temporary
employees we place. These expenses are included in the cost of revenue. Because
we pay our temporary employees only for the hours they actually work, wages for
our temporary personnel are a variable cost that increases or decreases in
proportion to revenues. Gross profit margin varies depending on the type of
services offered. Our Engineering Services typically generate higher margins
while Staffing Services typically generates lower margins. In some instances,
temporary employees placed by us may decide to accept an offer of permanent
employment from the customer and thereby "convert" the temporary position to a
permanent position. Fees received from such conversions are included in our
revenues. Selling, general and administrative expenses include payroll for
management and administrative employees, office occupancy costs, sales and
marketing expenses and other general and administrative costs.
Results of Operations
The following table sets forth certain selected operating results
for the period from inception of operations on August 11, 1997 through September
30, 1997, for the fiscal year ended September 30, 1998 and for the nine months
ended June 30, 1998 and 1999.
<TABLE>
<CAPTION>
August 11, 1997 to Year ended Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1998 June 30, 1998 June 30, 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ............... $ 2,442,191 100.0% $ 24,919,639 100.0% $18,062,534 100.0% $21,263,817 100%
Cost of Revenues ....... 2,005,847 82.1% 20,329,718 81.6% 14,759,241 81.7% 16,843,326 79.3%
Gross Profit ........... 436,344 17.9% 4,589,921 18.4% 3,303,293 18.3% 4,420,491 20.7%
Selling, general and
administrative
expenses ............. (739,431) 30.3% (4,852,269) -19.5% (3,201,538) -17.7% (4,404,428) 20.7%
Depreciation and
amortization ......... (1,985) -0.1% (108,306) -0.4% (30,139) -0.2% (131,717) -0.6%
Provision for recourse
obligation ........... (50,000) -2.0% (670,445) -2.7% (29,851) -0.2% (595,000) -2.8%
Earnings (Loss) from
operations ........... (355,072) -14.5% (1,041,099) -4.2% 41,765 0.2 (710,654) -3.4%
Other income (expenses):
Finance charges ........ (39,078) -1.6% (524,649) -2.1% (342,614) -1.9% (539,463) -2.5%
Interest expense ....... (15,244) -0.6% (48,170) -0.2% (32,629) -0.2% (209,679) -1.0%
Other income ........... -- 0.0% 33,729 0.1% 31,586 0.2% 18,155 0.1%
Other (expenses) ....... -- 0.0% (899,606) -3.6% (798,000) -4.4% (237,164) -1.1%
----------- ----- ------------ ----- ------------ ---- ------------ ----
Net (loss) ............. ($ 409,394) -16.7% ($ 2,479,795) -10.0% ($ 1,099,892) -6.1% ($ 1,678,805) -7.9%
=========== ====== ============ ====== ============ ===== ============ =====
</TABLE>
11
<PAGE>
Year Ended September 30, 1997 Compared to Year Ended September 30, 1998
Revenues. We effectively commenced operations with the acquisition
of certain operating assets of Royalpar on August 11, 1997. Revenues for the
fiscal period beginning October 1, 1996, predating our acquisition of Royalpar,
and ending on September 30, 1997, were $18,947,269 representing revenues of
$16,505,078 prior to the acquisition and $2,442,191 subsequent to the
acquisition. Revenues for the fiscal period beginning on October 1, 1997 and
ending on September 30, 1998 were $24,919,639. Revenues increased by $5,972,370
or 31.5% from 1997. Revenues increased primarily due to the commencement of the
Engineering Services Division in January 1998.
Gross Profit. Gross profit increased 54.9% to $4,589,921 in 1998
from $2,963,428 in 1997. Gross profit as a percentage of revenues increased to
18.4% in 1998 from 15.6% in 1997. This increase was due to the elimination of
some customers with low gross margins and the start-up of the higher-margin
Engineering Services Division.
Selling, General and Administrative Expenses. We incurred
nonrecurring and pre-operating and startup costs in connection with our
acquisition of certain operating assets of Royalpar. These costs amounted to
$94,063 and represented 3.9% of revenues for the period from August 11, 1997
through September 30, 1997. This amount included costs such as legal costs and
state application fees. These costs for the year ended September 30, 1998 were
not significant. Our selling, general and administrative expenses, not including
depreciation and amortization, for the fiscal year ended September 30, 1998 were
$4,852,569 or 19.5% of revenues. In anticipation of making acquisitions and
introducing our SMARTSolutions program, we incurred significant costs beginning
in the third quarter of 1998, without a corresponding increase in revenues.
These costs included salaries of certain key employees retained in anticipation
of these projects. We believe that revenues can increase significantly without
incurring a proportionate increase in selling, general and administrative
expenses.
We believe that a substantial portion of the selling, general and
administrative expenses included in the year ended September 30, 1997 for the
period October 1, 1996 through August 10, 1997 for Royalpar are unique to
Royalpar and, in management's opinion are not reflective of those costs
necessary to operate and manage our business.
Depreciation and Amortization. Depreciation and amortization
expenses aggregated $108,306 in the year ended September 30, 1998. This amount
includes $67,650 of amortization of goodwill in connection with the acquisition
of certain operating assets of Royalpar. During the year ended September 30,
1998, we determined that the recoverability of the goodwill was impaired and
accordingly, charged the remaining balance of approximately $64,000 of goodwill
to operations.
Provision for recourse obligation. Provision for recourse obligation
in the year ended September 30, 1998 was $670,445, or 2.7% of revenues. This
cost is the estimated amount of uncollectible accounts receivable sold to a
factor which the factor may obligate us to repurchase. Almost all of this amount
was due to the uncertainty of recoverability of one account and a group of
psychiatric clinics.
Finance charges. Finance charges is comprised of the discount fees
and other costs associated with our accounts receivable that are sold to a
factor. This agreement, which expires August 10, 2000, provides that we sell
substantially all of our accounts receivable to the factor. The factor purchases
the accounts receivable at a discount of 1.3% and further discounts the amount
purchased by .43% for each day the accounts receivable purchased remain
outstanding after 30 days. Finance charges in the year ended September 30, 1998
were $524,649. As a percentage of revenues, finance charges increased to 2.1% in
the year ended September 30, 1998 from 1.6% for the period August 11, 1997
through September 30, 1997. This increase was due to the increase in the average
days' outstanding of the accounts receivable sold.
Other Expenses. Other expenses in the year ended September 30, 1998
is comprised of the following:
Settlement of litigation and associated legal and other costs $798,000
Leased equipment abandonment 73,894
Office closing costs 27,712
--------
Total $899,606
========
12
<PAGE>
Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30,
1998
Revenues. Revenues increased 17.7% to $21,263,817 for the nine
months ended June 30, 1999 from $18,062,534 for the nine months ended June 30,
1998. Revenues increased primarily due to the commencement of the Engineering
Services Division in January 1998. As a result, results for the nine months
ended June 30, 1999 reflect nine months of operations of the Engineering
Services Division compared to six months for the nine months ended June 30,
1998. The increase in revenues was also due to the implementation of our first
SMARTSolutions programs in December 1998.
Gross Profit. Gross profit increased 33.8% to $4,420,491 for the
nine months ended June 30, 1999 from $3,303,293 for the nine months ended June
30, 1998. Gross profit as a percentage of revenues increased to 20.7% for the
nine months ended June 30, 1999 from 18.3% for the nine months ended June 30,
1998. This increase was due to the commencement of the Engineering Services
Division in January 1998, which services had higher gross margins than the other
services we provided.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, not including depreciation and amortization, increased
37.6% to $4,404,428 for the nine months ended June 30, 1999 from $3,201,538 for
the nine months ended June 30, 1998. Selling, general and administrative
expenses as a percentage of revenues increased to 20.7% for the nine months
ended June 30, 1999 from 17.7% for the nine months ended June 30, 1998. The
primary reason for this increase was that, in anticipation of making
acquisitions and introducing our SMARTSolutions program, we incurred significant
costs without a corresponding increase in revenues.
Depreciation and Amortization. Depreciation and amortization
expenses increased 337.0% to $131,717 for the nine months ended June 30, 1999
from $30,139 for the nine months ended June 30, 1998. Depreciation and
amortization expenses as a percentage of revenues increased to 0.6% for the nine
months ended June 30, 1999 from 0.2% for the nine months ended June 30, 1998.
This increase was primarily due to the amortization of goodwill associated with
the acquisition of certain assets of B&R and certain accounts of Adapta Services
Group, Inc. ("Adapta") in January 1999 and April 1999, respectively.
Provision for recourse obligation. Provision for recourse obligation
increased to $595,000 for the nine months ended June 30, 1999 from $29,851 for
the nine months ended June 30, 1998. Provision for recourse obligation as a
percentage of revenues increased to 2.8% for the nine months ended June 30, 1999
from 0.2% for the nine months ended June 30, 1998. The amount for the nine
months ended June 30, 1999 was attributable to additional sales of accounts
receivable to the factor, generated during this period, from the accounts
previously discussed under this caption in the year ended September 30, 1998
analysis.
Finance charges. Finance charges increased 57.5% to $539,463 for the
nine months ended June 30, 1999 from $342,614 for the nine months ended June 30,
1998. As a percentage of revenues, finance charges increased to 2.5% for the
nine months ended June 30, 1999 from 1.9% for the nine months ended June 30,
1998. This increase was due to the increase in average days' outstanding of the
accounts receivable sold, primarily caused by the accounts discussed under
"Provision for recourse obligation".
Other Expenses. Other expenses were $237,164 or 1.1% of revenues for
the nine months ended June 30, 1999 and $798,000 or 4.4% of revenues for the
nine months ended June 30, 1998. Other expenses for the nine months ended June
30, 1999 are comprised of $173,112 for legal fees in connection with our
administrative actions pertaining to the attempted unionization of a customer
facility, $27,000 for legal fees for collection matters and $37,052 for
additional costs associated with the impairment of the JPI assets. Other
expenses for the nine months ended June 30, 1998 is comprised of costs
associated with the settlement of litigation.
Interest expense. Interest expense increased 542.6% to $209,679 for
the nine months ended June 30, 1999 from $32,629 for the nine months ended June
30, 1998. As a percentage of revenues, interest expense increased to 1.0% for
the nine months ended June 30, 1999 from 0.2% for the nine months ended June 30,
1998. This increase was due to increased borrowings necessary to satisfy a
litigation settlement and a working capital shortfall.
Net loss. As a result of the foregoing, the net loss increased 52.6%
to $1,678,805 for the nine months ended June 30, 1999 from $1,099,892 for the
nine months ended June 30, 1998. The net loss as a percentage of revenues
increased to 7.9% for the nine months ended June 30, 1999 from 6.1% for the nine
months ended June 30, 1998. We have a net loss carryforward for Federal income
tax purposes of $1,709,000 at September 30, 1998.
13
<PAGE>
Liquidity and Capital Resources
Net cash used in operating activities was $43,373 in the period from
the commencement of operations on August 11, 1997 to September 30, 1997,
$639,488 in the year ended September 30, 1998 and $950,313 and $1,046,105 in the
nine months ended June 30, 1998 and 1999, respectively. Approximately $527,000
and $122,000 of the cash used in operating activities in the year ended
September 30, 1998 and the nine months ended June 30, 1999, respectively, was
for the settlement of litigation and related costs.
Net cash used in investing activities was $151,689 in the period
from the commencement of operations on August 11, 1997 to September 30 1997,
$186,477 in the year ended September 30, 1998 and $37,722 and $387,191 in the
nine months ended June 30, 1998 and 1999, respectively. Cash used in investing
activities for the periods presented was attributable to the acquisitions and
capital expenditures. The acquisition of Royalpar and J.P. Industrial LLC
resulted in a use of cash of $150,000 and $89,688 in the period ended September
30, 1997 and the year ended September 30, 1998, respectively. The acquisition of
certain assets of B & R and certain accounts of Adapta resulted in a use of cash
of $169,931 in the nine months ended June 30, 1999.
Net cash provided by financing activities was $287,934 in the period
ending September 30, 1997, $983,080 in the year ended September 30, 1998 and
$900,730 and $1,224,750 in the nine months ended June 30, 1998 and 1999,
respectively. The sources of cash provided by financing activities for the
periods presented were from the net proceeds of borrowings and private
placements of our common stock and debt.
Our principal uses of cash are to fund temporary employee payroll
expense and employer related payroll taxes; investment in capital equipment;
start-up expenses of new offices; expansion of services offered; and costs
relating to other transactions such as acquisitions and legal expenses.
Temporary employees are paid weekly. Although, we sell substantially all of our
accounts receivable to a factor, the factor initially only remits to us 90% of
the face amount of the accounts receivable purchased. The net balance after the
purchase fee and other costs of the factor are remitted to us after the factor
receives the customer remittance which is generally 45 days from the time work
was performed by the temporary employees. Due to the failure of certain
customers to pay amounts owed to us, we are currently in default of our
agreement with the factor to whom we sell our receivables. At this time, the
factor has not elected to exercise its remedies against us.
Expansion of our services requires expenditures for marketing and
personnel costs at varied levels up to six months in advance of generating any
revenues. While there can be no assurance, we believe that the proceeds of this
offering, funds currently on hand and funds to be provided by operations will be
sufficient to meet our need for working capital for the next 12 months. Our
estimate of the time that the proceeds of this offering, funds currently on hand
and funds provided by operations will be sufficient to meet our working capital
needs is a forward-looking statement that is subject to risks and uncertainties.
Actual results and working capital needs could differ materially from those
estimated due to a number of factors.
14
<PAGE>
Year 2000 Readiness Disclosure
We have tested all of our desktop computers and computers used in
our centralized network for Year 2000 compliance with Year 2000 compliance
testing software. All units are Year 2000 compliant. There are a number of
non-information embedded systems impacting on our operations over which we have
no control, including building security and telephone. We have surveyed the
system providers or those responsible for the maintenance of the systems who
have indicated that the systems are Year 2000 compliant. All software programs
on which we rely are warranted by the manufacturer or vendor to be Year 2000
compliant.
We have surveyed our vendors and customers to assess their Year 2000
compliance status. If our customers are not Year 2000 compliant, they may
experience disruptions to operations, material costs to remedy problems and
litigation costs. In addition, these customers may delay payment of outstanding
accounts, which would affect our operations. We are also subject to external
forces that might generally affect industry and commerce, such as utility,
transportation company or Internet interruptions caused by Year 2000 compliance
failures. As a result, our business, financial condition and results of
operations could be seriously impacted.
We have funded our Year 2000 plan from cash balances. It is not
possible to identify the costs expended to address the Year 2000 problem as the
review was conducted as part of our installation and usual maintenance program.
We do not expect to expend further funds in addressing the Year 2000 problem
except where additional assets are acquired that could be affected by the Year
2000 problem. In such a case, a Year 2000 review will be conducted on that
asset.
As all of our hardware systems have been tested to be Year 2000 compliant
and all software on which our operations are dependent is warranted to be Year
2000 compliant, a Year 2000 contingency plan was not considered to be necessary.
We believe that the most significant Year 2000 problems which could affect us
are those relating to our customers or to external forces that might generally
affect industry and commerce, such as utility or transportation company
interruptions.
15
<PAGE>
BUSINESS
General
We were incorporated in March 1997 and purchased certain assets of
Royalpar Industries, Inc. and subsidiaries, corporations that were the subject
of a bankruptcy proceeding, in August 1997. The purchase provided a foundation
to become a national provider of comprehensive staffing services through five
offices in Arizona, California, Colorado, New Jersey, and Texas. Subsequently we
opened or purchased additional offices in Florida, Oregon and Delaware. As of
August 31, 1999, we were operating through a network of fifteen offices in ten
states including Staffing Services offices in Arizona, California, Colorado,
Delaware, Florida, New Jersey and Texas; Engineering Services offices in
California, New Jersey, and Oregon and SMARTSolutions programs at client
facilities in New Jersey, Michigan and Missouri.
We believe that as businesses increasingly outsource a wider range
of human resource functions in order to focus on their core operations, they
will require more sophisticated and diverse services from their staffing
providers. We have structured Stratus to endeavor to service these needs. In
addition to supplying temporary workers for short-term needs, our Staffing
Services Division also provides extended-term temporary employees,
temporary-to-permanent placements, recruiting, permanent placements, payroll
processing, on-site supervising and human resource consulting. Our Engineering
Services Division provides a full range of services including staff augmentation
and in-house design work. Through our SMARTSolutions Division, we provide a
comprehensive, customized staffing program designed to reduce labor and
management costs and increase workforce efficiency.
Our emphasis on providing comprehensive staffing solutions is
intended to appeal to a broad range of potential clients, including regional and
national companies. It is our intent to provide companies with a single-source
solution to their staffing needs by combining, integrating and cross-selling
services already provided by our three divisions. It is anticipated that
cross-marketing will enable us to reduce our business development costs and
serve larger companies seeking comprehensive staffing services on a regional or
national basis. We believe that a comprehensive service offering approach will
assist us in establishing multiple contacts within existing and new clients that
should contribute to more extensive and longer-term relationships.
Staffing Services Industry Overview
The staffing industry encompasses a wide range of services to
businesses, professional and service organizations and government agencies. The
U.S. staffing industry has grown rapidly in recent years as organizations have
sought to reduce costs and improve operating efficiency by outsourcing human
resource functions. Staffing Industry Analysts, Inc. estimates that gross
revenues across the entire U.S. staffing industry have grown since 1991 at a
compound annual growth rate of 18.8%, from approximately $31.4 billion in 1991
to approximately $75 billion in 1998. The National Association of Temporary
Staffing Services reports that more than 90% of all businesses used temporary
staffing employees in 1998.
The U.S. staffing industry is highly fragmented and has begun to
experience consolidation, particularly with respect to temporary staffing
companies. Recent industry reports indicate that over 9,300 companies provide
temporary staffing services in the United States. Many of these companies are
small, owner-operated businesses with limited access to capital for development
and expansion. We believe that the industry is consolidating in response to:
o the increased demands of companies for a single supplier of a full
range of staffing and human resource services,
o increased competition from larger, better capitalized competitors
and
o owners' desires for liquidity.
Although some consolidation activity has already occurred, we believe that
consolidation in the U.S. staffing
16
<PAGE>
industry will continue and that there will be numerous available acquisition
candidates.
Historically, the demand for temporary staffing employees has been
driven by a need to temporarily replace regular employees. More recently,
competitive pressures have forced businesses to focus on reducing costs,
including converting fixed labor costs to variable and flexible costs.
Increasingly, the use of temporary staffing employees has become widely accepted
as a valuable tool for managing personnel costs and for meeting specialized or
fluctuating employment requirements. Organizations have also begun using
temporary staffing to reduce administrative overhead by outsourcing operations
that are not part of their core business operations, such as recruiting,
training and benefits administration. By utilizing staffing services companies,
businesses are able to avoid the management and administrative costs that would
be incurred if full time employees were employed. An ancillary benefit,
particularly for smaller businesses, is that use of temporary personnel reduces
certain employment costs and risks, such as, workers' compensation and medical
and unemployment insurance, that a temporary personnel provider can spread over
a much larger pool of employees.
Since 1990, the staffing industry has seen an evolution of services
move away from "temp help" or supplemental staffing, to more permanent staffing
relationships. The industry has developed specialization among various sectors
and can be classified into four categories: integrated staffing service
providers, professional services providers, information technology providers and
commodity providers.
Integrated staffing services provide a vendor-on-premise acting as
the general contractor managing the workforce and maintaining the payroll.
Through this arrangement, providers are able to establish long-term
relationships with their customers, reduce cyclicality of employees, and
maintain relationships with customers that are less price sensitive.
The professional services provider supplies employees in the fields
of engineering, finance, legal, accounting, and other professions. In general,
these services are less cyclical than the light industrial and clerical segments
and carry higher margins. Information technology companies offer technical
employees to maintain and implement all forms of information systems.
The commodity segment of the staffing industry is the traditional
temporary employer business in which an employee of the service is placed at the
customer for a short period. It is characterized by intense competition and low
margins. This sector is most exposed to economic cycles and price competition to
win market share. Growth in this segment has been constrained over the past
three years due to a competitive labor market for low-end workers.
The staffing industry has been significantly impacted over the past
three years by a limited supply of workers. Low unemployment rates nationally
and regionally have resulted in companies being unable to access a sufficient
supply of workers. The labor shortage at the low end of the labor market could
constrain staffing industry growth in the traditional staffing segments of
clerical and light industrial.
Services
SMARTSolutions. SMARTSolutions is a customized staffing program
designed to reduce labor and management costs and increase workforce efficiency.
The programs typically require an eight-week implementation process beginning
with an operational assessment of the client's tasks and processes conducted by
the SMARTSolutions implementation team. The team compiles and analyzes the data
and then presents its recommendations to the client's senior management.
Together they establish an implementation timeline with target dates and
responsibility checklists. Once the timeline is approved, a workforce training
curriculum or SMARTTraining Program is developed and implemented by a team of
associates headed by the On-site Manager provided by Stratus. Monthly
performance is reported to the client through SMARTReports that track workforce
performance, analyze that performance against the pre-determined goals and
adjust programs to meet evolving customer needs.
The typical SMARTSolutions client is a large-scale employer with a
workforce of greater than 50 people dedicated to specific work functions that
involve repetitive tasks measurable through worker output.
17
<PAGE>
SMARTSolutions is designed to be most effective in manufacturing, distribution
and telemarketing operations.
Engineering Services. Engineering Services requires highly
specialized and technically skilled employees that demand significantly higher
hourly rates than traditional temporary staffing services. Engineering Services
augments customers' in-house engineering capability by supplying Stratus
engineers as contract labor. We will also take the lead role as the project
manager on specific engagements and provide a full range of services that
include design requirements, scheduling, drawing and specification management,
field supervision and quality assurance. On large engagements, we may take
responsibility for specific areas of the engagement only, or supply staff to the
project manager.
In addition to staff augmentation, we provide a broad range of
project support to Fortune 100 companies, government agencies and educational
institutions in electrical engineering, instrumentation and controls, mechanical
engineering, piping & pipe support analysis, civil, structural and architectural
engineering. We have developed an expertise providing services to utilities and
cogeneration facility operators, and are one of a small number of engineering
staffing firms in the United States with a "Class A Nuclear Certification"
qualifing us to provide staffing services to nuclear power plants. Projects
typically last six months to one year and may require the services of several
specialized professionals.
Staffing Services. Staffing Services includes both personnel
placement and employer services such as payrolling, outsourcing, on-site
management and administrative services. Payrolling, which is also referred to as
employee leasing, typically involves the transfer of a customer's employees to
our payroll. Outsourcing represents a growing trend among businesses to contract
with third parties to provide a particular function or business department for
an agreed price over a designated period. On-site services involves locating a
Stratus employee at the customer's place of business to manage all of the
customer's temporary staffing requirements. Administrative services include
skills testing, drug testing and risk management services. Skills testing
available to Stratus customers includes cognitive, personality and psychological
evaluation and drug tests that are confirmed through an independent certified
laboratory.
Staffing Services can also be segmented by assignment types into
supplemental staffing, long-term staffing and project staffing. Supplemental
staffing provides workers to meet variability in employee cycles, and
assignments typically range from days to months. Long-term staffing provides
employees for assignments that typically last three to six months but can
sometimes last for years. Project staffing provides companies with workers for a
time specific project and may include providing management, training and
benefits.
Strategy
We intend to expand operations by internal growth and through acquisition.
Internal Growth Strategy. Internal growth is expected to be generated from
implementation of the following strategies:
o Increasing Penetration of Existing Markets. We continually seek to
add new customers and offices in existing geographic markets through
increased marketing and, where appropriate, the introduction of
complimentary or specialty services. We recently implemented an
incentive program for local managers and sales staff that focuses on
new business development within existing markets. However, we also
focus on creating and developing the long-term client relationships
that we believe are essential to growth and the successful
implementation of our cross-selling strategy.
o Entering New Markets. We intend to open new branches in markets not
currently served by existing offices. Initially new offices will be
established when demand warrants, such as where a number of
SMARTSolutions programs have been implemented in a defined
geographical area. However, where we believe an area has either
economic or strategic importance, an office may be established even
though we have no existing presence in the area.
18
<PAGE>
o Expanding Service Offerings. We offer a wide range of staffing
services to our clients, all of which are available on a stand alone
basis or as part of a more comprehensive staffing solution. This
gives us the flexibility to provide customized service based on the
client's individual requirements. As part of this process, we will
seek to expand the range of services available to our clients
through the development of additional services as client needs
warrant.
o Cross-Selling Services. We actively seek to cross-sell Staffing
Services, Engineering Services, and SMARTSolutions to existing
customers.
Acquisition Strategy. The staffing services industry in the United States is
highly fragmented, thereby offering significant opportunities for us to
complement our internal growth by pursuing strategic acquisitions. The key
objectives of our acquisition program are:
o to enter new geographic markets;
o to expand our presence in our current markets;
o to expand our presence in existing niche markets, and
o to further broaden our range of staffing services.
We have developed a comprehensive acquisition and integration
strategy to develop both existing and new markets. The strategy will be
implemented and supported by a team with previous experience in sourcing,
negotiating, structuring and integrating acquisitions of diverse sizes and
multiple geographic locations. Our focus will be to target companies that have a
history of growth and profitability, strong first and second tier management, a
reputation for quality services and the infrastructure necessary to be a core
business into which other operations may be consolidated.
Ideal acquisitions will be immediately accretive to earnings, with
revenues between $5 million and $25 million and earnings before interest and
taxes of 4.5% to 7% of revenues. In addition to traditional staffing services
companies, we will focus on acquiring Information Technology services firms with
the goal of eventually creating an Information Technology Division once business
levels warrant. As consideration for future acquisitions, we intend to use
various combinations of stock, cash and debt. The consideration for each future
acquisition will vary on a case-by-case basis, with the major factors in
establishing the purchase price being historical operating results, future
prospects of the business to be acquired and the ability of that business to
complement the services we offer and to implement additional service offerings.
We believe we can achieve significant cost savings and operating efficiencies by
combining a number of general and administrative functions at the parent company
level.
As part of the integration process, we provide immediate support to
the acquired company through sales and operations training, risk management,
compliance support and access to management information systems. In addition, we
are currently in the process of developing a revised Policies and Procedures
manual through Quality Assurance Teams, that takes advantage of the industry
knowledge of many of the people who have joined us over the past year. The goal
of these Teams is to review, revise, and implement an effective set of policies
and procedures designed to standarize our operations across the country, thereby
gaining additional operating efficiencies. We also view this process as the
first step towards gaining ISO9000 certification.
Pursuant to our acquisition strategy, in August 1998, we acquired
the assets of J.P. Industrial, LLC, an Oregon Engineering Services firm. We made
this acquisition to expand our presence in the engineering services intensive
power generation and paper/wood product industries in the Pacific Northwest. In
January 1999, we completed the acquisition of the assets of B & R Employment,
Inc., a Wilmington, Delaware based provider of traditional staffing services,
giving us an immediate presence in the industrial and banking center of
Delaware. Although smaller in size than the target acquisitions, these
acquisitions enabled us to enter industrial and geographic markets targeted by
our management team as attractive areas for expansion. Pro forma financial
19
<PAGE>
information giving effect to our acquisition of B & R is included on pages F-31
through F-33 of this prospectus.
Operations
Operations are classified into SMARTSolutions. Engineering Services
and Staffing Services, each reporting to a Division President who reports
directly to the Chief Executive Officer.
We believe acquisitions will contribute significantly to our growth.
To maximize the likelihood of successful acquisitions and their integration into
the existing operations, we have formed a dedicated acquisitions team consisting
of five employees and two external consulting groups reporting directly to the
Chief Executive Officer.
The Chief Financial Officer oversees the traditional financial
fiduciary functions, manages general administrative duties, human resources,
risk management and the legal department. As all administrative functions report
to the Chief Financial Officer, the administrative obligations of the Chief
Executive Officer and Division Presidents are minimized, enabling them to focus
on the generation of revenue. The Chief Marketing Officer is responsible for
overseeing national sales training and development, developing large corporate
accounts, selling the SMARTSolutions programs and overseeing all of the sales
and marketing activities of the branch offices.
The Staffing Services branches all report to the President of the
Staffing Services Division. Typically each individual branch has a Branch
Manager responsible for the daily operating activity of the branch, maintaining
customer relationships and generating new sales in the region with the support
of branch salespeople. The placement and recruiting of personnel in the branch
offices is handled by recruiting coordinators and supported by administrative
assistants.
Branch offices are supported through centralized functions at
corporate headquarters that include marketing, recruiting, training and
retention programs, workers' compensation and other insurance services, accounts
payable, purchasing, credit, legal review and other administrative support
services. Each branch office is networked to our centralized computer system and
utilizes industry-specific software that provides information on customer
requirements, available applicants, staffing employees on assignment and other
information which facilitates efficient response to customer job orders.
Although many of the support functions are centralized, local
managers have the flexibility and limited authority to price services and
respond to specific customer requirements. Regular manager meetings are held
with regional managers where goals are set, progress is checked and follow
through on corporate initiatives is reviewed.
Sales And Marketing
General. Our marketing professionals have developed a marketing plan which
establishes minimum numbers of targeted customer sales visits, customer service
visits, and minimum sales volume to be achieved on a weekly basis.
Implementation of the plan is monitored by the Chief Marketing Officer who
reviews information provided in weekly sales activity reports. Branch sales
professionals and Branch Managers are responsible for weekly and monthly sales
management reporting and participate in periodic sales and customer retention
training programs.
We have developed individual marketing programs and objectives for
each Division.
SMARTSolutions. SMARTSolutions is marketed to companies that have a
workforce devoted to repetitive tasks and can benefit from proactive workforce
management. As such, it requires a significantly different marketing strategy
than traditional staffing services. A dedicated team has been established to
market SMARTSolutions nationally. That team, headed by the Chief Marketing
Officer, develops quarterly marketing plans complete with quantifiable goals and
objectives, that it presents to the Chief Executive Officer. Once the Chief
Marketing Officer obtains approval, he and the team immediately implement the
plan. We maintain a database of prospective customers that the national
marketing team will solicit through direct mailings to senior corporate
management, personal sales calls, cross-selling to existing customers and
networking through professional organizations.
20
<PAGE>
Although the marketing team will approach clients directly, it
primarily utilizes Branch staff to identify companies within their geographic
regions that could benefit from the implementation of a SMARTSolutions program.
After a potential client has been identified, the team assumes responsibility
for the SMARTSolutions sale process. A significant portion of the leads for
SMARTSolutions sales have come from "word of mouth" recommendations from current
SMARTSolutions customers.
Engineering Services. Marketing of Engineering Services is focused on
addressing the engineering needs typical of specific customers. In marketing to
potential customers, the Engineering Services staff identifies the requirements
of its customers and promotes service offerings designed to meet those
requirements. In addition to personal sales visits, targeted mailings and
telephone solicitations, our Engineering Services personnel actively promote our
services by cross-selling complementary services to existing customers and
participating in industry trade associations. As is the case with
SMARTSolutions, we anticipate that with the extensive experience of the
Engineering Services Division management team, word of mouth and personal
contacts will provide the majority of the sales leads.
Staffing Services. Staffing Services are marketed through our network of
offices whose managers, supported by the national marketing staff, make regular
personal sales visits to existing accounts and prospects. New customers are
obtained through customer referrals, telemarketing and advertising in a variety
of local and regional media, including radio, direct mail, the Yellow Pages,
newspapers, magazines and trade publications and sponsoring of job fairs and
other community events.
Customers. During the nine months ended June 30, 1999 our top 5 customers
accounted for 42% of our revenue and only two customers accounted for more than
10% each of our revenue.
Personnel
A key factor contributing to future growth and profitability will be
the ability to recruit and retain qualified personnel. To attract personnel, we
employ recruiters, called "Staffing Specialists" who regularly visit schools,
churches and professional associations and present career development programs
to various organizations. In addition, applicants are obtained from referrals by
existing staffing employees and from advertising on radio, television, in the
Yellow Pages, newspapers and through the Internet. Each applicant for a Staffing
Services position is interviewed with emphasis on past work experience, personal
characteristics and individual skills. We maintain software-testing and training
programs at our offices for applicants and employees who may be trained and
tested at no cost to the applicant or customer.
Engineering Services and consulting personnel are targeted and
recruited for specific engagements. We usually advertise for professionals who
possess specialized education, training or work experience. Engineering Services
recruiting efforts also rely upon industry contacts, personal networks and
referrals from existing and former Engineering Services personnel.
To promote loyalty and improve retention among our employees and to
differentiate ourselves from competing staffing firms, we offer a comprehensive
benefits package after ninety days of employment. The benefits package includes
paid time off, holiday and vacation time, medical coverage, dental, vision,
prescription, mental health, life insurance, disability coverage and a 401(k)
defined contribution plan. The length of assignment for employees generally
ranges from six months to five years depending on the client requirements.
At August 31, 1999, we were providing over 1,300 temporary staffing
employees and professionals to more than 200 clients and employed approximately
65 internal staff.
None of our employees, including our temporary staffing employees
and consultants are represented by a collective bargaining agreement. However,
in January 1999, we received notice that the workforce of one of our customer
facilities had petitioned the National Labor Relations Board to certify a vote
for representation by the United Auto Workers. Despite our efforts to conduct an
anti-union campaign, the vote was held and the workforce
21
<PAGE>
voted in favor of union representation; however, our client subsequently
determined to cease operations at the facility at which the union certification
was being pursued.
Infrastructure
Over the past two years, we have expended significant financial
resources and devoted a substantial amount of time developing and implementing
systems and infrastructure, introducing reporting lines of responsibility and
recruiting management to enable us to manage operations and growth in an
efficient manner.
We have installed a variety of management information systems to
enable the different levels of the Management team to monitor economic
performance and business operations on a continuous basis.
Branch offices are supported through centralized functions at
corporate headquarters that include marketing, recruiting, training and
retention programs, workers' compensation and other insurance services, accounts
payable, purchasing, credit, legal review and other administrative support
services. Each branch office is networked to our computer system and
industry-specific software that provides information on customer requirements,
available applicants, staffing employees on assignment and other information
which facilitates efficient response to customer job orders.
By developing an efficient platform from which to operate and expand
our operations, we anticipate gaining economies of scale as we grow.
Workers' Compensation and Payroll
The maintenance of workers' compensation and health insurance plans
that cover worksite employees is a significant aspect of our business. We have
retained the services of an insurance consultant to assist us in obtaining a
cost-effective workers' compensation program and have created a dedicated
workers' compensation team that analyzes the claims and makes recommendations
regarding reducing our exposure. In addition, the team provides safety programs
to each of the locations. Furthermore, as a value-added service to our clients,
we provide safety inspections at client locations to help determine potential
risks for employee injury and to assist clients in making their workplace safer.
Facilities
We own no real property, but lease space for our corporate
headquarters and all of our branch offices. Our corporate headquarters, which is
comprised of 6,300 square feet of office space located in Manalapan, New Jersey,
is leased pursuant to an agreement which expires on May 31, 2001. Branch office
leases have terms of various lengths. All facilities are adequate for our
existing needs and we do not expect any difficulty in identifying and leasing
additional office space as we expand in existing and new markets.
Competition
We compete with other companies in the recruitment of qualified
personnel, the development of client relationships and the acquisition of other
staffing and professional service companies. A large percentage of temporary
staffing and consulting companies are local operators with fewer than five
offices that have developed strong local customer relationships within local
markets. These operators actively compete with us for business and, in most of
these markets, no single company has a dominant share of the market. We also
compete with larger, full-service and specialized competitors in national,
regional and local markets. The principal national competitors include
AccuStaff, Inc., Manpower, Inc., Kelly Services, Inc., The Olsten Corporation,
Interim Services, Inc., and Norrell Corporation, all of which have greater
marketing, financial and other resources than Stratus. We believe that the
primary competitive factors in obtaining and retaining clients are the number
and location of offices, an understanding of clients' specific job requirements,
the ability to provide temporary personnel in a timely manner, the monitoring of
the quality of job performance and the price of services. The primary
competitive factors in obtaining qualified candidates for temporary employment
assignments are wages, responsiveness to work schedules and number of hours of
work available.
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<PAGE>
We also compete for acquisition candidates. We believe that further
industry consolidation will continue during the next several years. However,
there is likely to be significant competition that could lead to higher prices
being paid for such businesses.
Regulation
Staffing services firms are generally subject to one or more of the
following types of government regulation: (1) regulation of the
employer/employee relationship between a firm and its temporary employees; and
(2) registration, licensing, record keeping and reporting requirements. Staffing
services firms are the legal employers of their temporary workers. Therefore,
these firms are governed by laws regulating the employer/employee relationship,
such as tax withholding and reporting, social security or retirement,
anti-discrimination and workers' compensation. State mandated workers'
compensation and unemployment insurance premiums have increased in recent years
and have directly increased our cost of services. In addition, the extent and
type of health insurance benefits that employers are required to provide
employees have been the subject of intense scrutiny and debate in recent years
at both the national and state level. Proposals have been made to mandate that
employers provide health insurance benefits to staffing employees, and some
states could impose sales tax, or raise sales tax rates on staffing services.
Further increases in such premiums or rates, or the introduction of new
regulatory provisions, could substantially raise the costs associated with
hiring and employing staffing employees.
Certain states have enacted laws which govern the activities of
"Professional Employer Organizations," which generally provide payroll
administration, risk management and benefits administration to client companies.
These laws vary from state to state and generally impose licensing or
registration requirements for Professional Employer Organizations and provide
for monitoring of the fiscal responsibility of these organizations. We believe
that Stratus is not a Professional Employer Organization and not subject to the
laws which govern such organizations; however, the definition of "Professional
Employer Organization" varies from state to state and in some states the term is
broadly defined. If we are determined to be a Professional Employer
Organization, we can give no assurance that we will be able to satisfy licensing
requirements or other applicable regulations. In addition, we can give no
assurance that the states in which we operate will not adopt licensing or other
regulations affecting companies which provide commercial and professional
staffing services.
Intellectual Property
We have filed for Federal Trademark registration of SMARTSolutions,
SMARTReport, SMARTTraining, our slogan, name and logo. No assurance can be given
that this registration will be obtained or if obtained, will be effective to
prevent others from using the mark concurrently or in certain locations.
Currently, we are asserting common law protection by holding the marks out to
the public as the property of Stratus. However, no assurance can be given that
this common law assertion will be effective to prevent others from using the
mark concurrently or in other locations. In the event another party asserts
ownership to a mark, we may incur legal costs to enforce any unauthorized use of
the marks or defend ourselves against any claims.
Legal and Administrative Proceedings
We are always subject to the risk that we may be a party to legal
proceedings. The temporary staffing industry is subject, in particular, to
potential liability to customers arising in connection with the services
performed by our temporary staffing employees and claims of temporary staffing
employees relating to the customers' workplace. In addition, over the past few
years there has been an increase in the number of lawsuits brought by temporary
workers against staffing companies and their clients. Many of these suits seek
payments for the difference in benefits received from the staffing company as
compared to those which they would have received had they worked directly for
the customer. While we believe we are sufficiently insulated from such suits and
that we have adequate coverage under our insurance policies, we can give no
assurance that the actual liability and costs will not exceed the insurance
coverage. Currently, we are a named party to one such suit which was filed in
the Superior Court of the State of California for the County of Los Angeles in
June, 1998. We are one of 112 named
23
<PAGE>
defendants and 188 unnamed defendants in Dewayne Cargill Et al v. Metropolitan
Water District of Southern California, Et al, where the plaintiffs are seeking
general damages. This case was brought against Stratus as successor in interest
to Mainstream Engineering, Inc., one of the Royalpar subsidiaries. We are
prepared to file a motion if plaintiff's do not agree to voluntary dismissal as
according to the Royalpar Asset Purchase Agreement we did not assume this
liability and do not believe we are a successor in interest. In the event that
we are unsuccessful with that argument and ultimately end up with liability, we
believe our exposure should not be significant as we have never done business
with Metropolitan and Mainstream did minimal business with Metropolitan.
We are currently a party to the following other litigation:
Stratus Services Group, Inc. v. J.P. Industrial, LLC, John Pearson,
and Manfred Goedecke. We brought this action, in the Circuit Court for the State
of Oregon, Clackamas County, in April 1999, against the former owners of JP
Industrial, LLC, an engineering company we acquired in 1998, after we discovered
that they were conducting business in violation of their employment agreements
and in the case of Mr. Pearson, in violation of the Asset Purchase Agreement.
Mr. Person and Mr. Godeke have asserted a counterclaim for approximately
$220,000, which represents the balance of the purchase price of the acquired
business and certain other alleged damages, including unpaid wages, violation of
right of privacy, damage to reputation, loss of property, lost revenues and
punitive damages. Although we can give no assurance, we believe that recoveries
for damages we have suffered as a result of breaches of the acquisition
agreement will exceed any liability we may suffer in the counterclaims. This
case is scheduled for mediation and/or arbitration in November 1999.
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<PAGE>
MANAGEMENT
Our directors and executive officers as of August 31, 1999 are as
follows:
Name Age Position
- --------------------- --- -------------------------------------------------
Joseph J. Raymond 62 Chairman of the Board and Chief Executive Officer
Michael A. Maltzman 51 Chief Financial Officer and Treasurer
J. Todd Raymond, Esq. 30 General Counsel and Corporate Secretary
Charles Sahyoun 47 President, Engineering Services Division
Mark S. Levine 37 Chief Marketing Officer
A. George Komer 47 President, Staffing Services Division
Michael J. Rutkin 47 Director
H. Robert Kingston 75 Director
Donald W. Feidt 63 Director
Sanford Feld 69 Director
Joseph J. Raymond has served as Chairman of the Board and Chief
Executive Officer of Stratus since its inception in 1997. Prior thereto, he
served as Chairman of the Board, President and Chief Executive Officer of
Transworld Home Healthcare, Inc. (NASDAQ:TWHH), a provider of healthcare
services and products, from 1992 to 1996. From 1987 through 1997, he served as
Chairman of the Board and President of Transworld Nurses, Inc., a provider of
nursing and paraprofessional services, which was acquired by Transworld Home
Healthcare, Inc. in 1992.
Michael A. Maltzman has served as Treasurer and Chief Financial
Officer of Stratus since September 1997 when it acquired the assets of Royalpar
Industries, Inc. Mr. Maltzman served as Chief Financial Officer of Royalpar,
which filed for protection under United States Bankruptcy Code in 1997, from
April 1994 to August 1997. From June 1988 to July 1993, he served as Vice
President and Chief Financial Officer of Pomerantz Staffing Services, Inc., a
national staffing company. Prior thereto, he was a Partner with Eisner & Lubin,
a New York accounting firm. Mr. Maltzman is a Certified Public Accountant.
J. Todd Raymond has served as General Counsel and Secretary of the
Company since September 1997. He is the nephew of Joseph J. Raymond. From
December 1994 to January 1996, Mr. Raymond was an associate and managing
attorney for Pascarella & Oxley, a New Jersey general practice law firm. Prior
thereto, Mr. Raymond acted as in-house counsel for Raymond & Perri, an
accounting firm. From September 1993 to September 1994, Mr. Raymond was an
American Trade Policy Consultant for Sekhar-Tunku Imran Holdings Sdn Berhad, a
Malaysian multi-national firm.
Charles Sahyoun has served as President of Stratus' Engineering
Services Division since December 1997. From September 1988 to December 1997, he
was employed in various capacities with Day & Zimmerman Utilities Services
Group, Inc., an engineering and design services company, including Vice
President of Business Development. Mr. Sahyoun is a cousin of Joseph J. Raymond.
Mark Levine has served as the Chief Marketing Officer of Stratus
since April 1998. From April 1996 to April 1998, he served as Regional Vice
President of Corestaff, Inc., a staffing services company. Prior thereto, he
served as Regional Manager for Norrell Services, Inc., an international staffing
firm, from 1993 to 1996. From 1983 to 1993, Mr. Levine was Assistant Vice
President of United States Sales for Dunn & Bradstreet.
A. George Komer has served as President of Stratus' Staffing
Services Division since May 1998. Prior thereto, Mr. Komer was a Regional Vice
President for Corestaff, Inc. from October 1996 to April 1998. From 1993 to
1996, Mr. Komer served as the MIS Director of Norrell Corporation, an
international staffing firm. Prior thereto, he served as Vice President and
Chief Operating Officer of Duck Head Apparel Company. From 1982 to 1986, he
served as a Management Consultant with Touche Ross & Co. Mr. Komer served as
Director of Internal Consulting for
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Rolands, Inc. an Atlanta based conglomerate, from February 1987 to February
1993. From March 1981 to September 1984, he was employed as an industrial
engineer with Eli Lilly & Company.
Michael J. Rutkin has served as a Director of Stratus since November
1997 and was Chief Operating Officer and President from March 1997 to October
1998. Since November 1998, Mr Rutkin has served as General Manager/Chief
Executive Officer of Battleground Country Club. From 1996 to 1998, Mr. Rutkin
served as Vice President of Transworld Management Services, Inc. From February
1993 to October 1996, he served as Chief Operating Officer of HealthCare Imaging
Services, Inc. Prior thereto, Mr. Rutkin was the Executive Vice President of
Advanced Diagnostic Imaging from February 1987 to February 1993. From March 1981
to September 1984, he served as Director of New Business Development for the
United States Pharmaceutical Division of CIBA-Geigy. Mr. Rutkin is the
brother-in-law of Joseph J. Raymond.
Harry Robert Kingston has served as a Director of Stratus since
November 1997. From 1977 to 1989, he served as the President and Chief Executive
Officer of MainStream Engineering Company, Inc., an engineering staffing firm
located in California. From 1965 to 1968, he served as President and Partner of
VIP Engineering Company, a subsidiary of CDI Corporation, a staffing and
engineering services business. Prior thereto, Mr. Kingston served as Vice
President for CDI Corporation.
Donald W. Feidt has served as a Director of Stratus since November
1997. From 1987 to December 1998, Mr. Feidt was a Managing Partner of Resource
Management Associates, an information technology consulting company. Since
December 1998, Mr. Feidt has served as a Vice President to the Chief Executive
Officer of Skila Inc., a global web-based business intelligence platform company
providing services to the medical industry.
Sanford I. Feld has served as a Director of the Company since
November 1997. Mr. Feld is currently president of Leafland Associates, Inc., an
advisor to Feld Investment and Realty Management, a real estate development and
management company. He also serves as Chairman of Flavor and Food Ingredients, a
private savory and flavor company. From 1973 to 1979, he served as Director of
the Chelsea National Bank of New York City.
Board Committees
The Board of Directors has established a Compensation Committee and
an Audit Committee to assist it in the discharge of its duties. The Compensation
Committee's principal function is to establish the compensation for the
executive officers of the Company and to establish and administer the Company's
compensation programs. H. Robert Kingston, Donald W. Feidt and Sanford Feld
currently serve on the Compensation Committee. The Audit Committee's principal
functions include making recommendations to the Board regarding the annual
selection of independent public accountants, reviewing the proposed scope of
each annual audit and reviewing the recommendations of the independent public
accountants as a result of their audits of our financial statements. H. Robert
Kingston, Donald W. Feidt and Sanford Feld currently serve as members of the
Audit Committee. The Board of Directors may from time to time establish other
committees to facilitate the management of Stratus.
Executive Compensation
The following table provides certain summary information regarding
compensation paid by us during the period from our inception in March 1997
through September 30, 1997 and during the fiscal year ended September 30, 1998
to our Chief Executive Officer and to each of our other four most highly paid
executive officers (together with the Chief Executive Officer, the "Named
Executive Officers").
26
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
----------------
Annual Compensation
-------------------------------------
Number of Shares
Underlying Stock
Name and Principal Position Fiscal Year Salary(s) Bonus($) Options(#)
- --------------------------- ----------- --------- -------- ----------------
<S> <C> <C> <C> <C>
Joseph J. Raymond 1998 $ 45,308 $ 10,000 --
Chairman 1997 -- -- 166,667
Michael A. Maltzman
Treasurer and Chief Financial 1998 133,704 7,500 --
Officer 1997 14,131 -- 83,333
Charles Sahyoun
President, Engineering Services 1998 107,284 35,000 83,333
Division 1997 -- -- --
Mark Levine 1998 66,635 50,000 83,333
Chief Marketing Officer 1997 -- -- --
A. George Komer 1998 63,462 50,000 83,333
President, Staffing Services Division 1997 -- -- --
</TABLE>
Employment Agreements
In September 1997, we entered into an employment agreement with
Joseph J. Raymond, our Chairman and Chief Executive Officer, which has an
initial term that expires in September 2000. Pursuant to the agreement, Mr.
Raymond is entitled to a minimum annual base salary of $275,000 which is
reviewed periodically and subject to such increases as the Board of Directors,
in its sole discretion, may determine. Mr. Raymond has waived the payment of
salary until such time as we complete this offering. During the term of the
agreement, if Stratus is profitable, Mr. Raymond is entitled to a bonus/profit
sharing award equal to .4% of Stratus' gross margin, but not in excess of 100%
of his base salary. If Stratus is not profitable, he is entitled to a $10,000
bonus. Mr. Raymond is eligible for all benefits made available to senior
executive employees, and is entitled to the use of an automobile. Mr. Raymond is
entitled to severance compensation equal to 2.9 times his base salary then in
effect, plus any accrued and unpaid bonuses and unreimbursed expenses, in the
event that Stratus terminates his employment without "Good Cause." As defined in
the Agreement "Good Cause" shall exist only if Mr. Raymond:
o willfully or repeatedly fails in any material respect to perform his
obligations under the Agreement subject to certain opportunities to
cure such failure;
o is convicted of a crime which constitutes a felony or misdemeanor or
has entered a plea of guilty or no contest with respect to a felony
or misdemeanor during his term of employment;
o has committed any act which constitutes fraud or gross negligence;
o is determined by the Board of Directors to be dependent upon alcohol
or drugs; or
o breaches confidentiality or non-competition provisions of the
employment agreement.
27
<PAGE>
Mr. Raymond is also entitled to severance compensation in the event
that he terminates the agreement for "Good Reason" which includes:
o the assignment to him of any duties inconsistent in any material
respect with his position or any action which results in a
significant diminution in his position, authority, duties or
responsibilities;
o a reduction in his base salary unless his base salary is, at the
time of the reduction, in excess of $200,000 and the percentage
reduction does not exceed the percentage reduction of gross sales of
Stratus over the prior twelve month period;
o Stratus requires Mr. Raymond to be based at any location other than
within 50 miles of Stratus' current executive office location; and
o a Change in Control of Stratus, which includes the acquisition by
any person or persons acting as a group of beneficial ownership of
more than 20% of the outstanding voting stock of Stratus, mergers or
consolidations of Stratus which result in the holders of Stratus'
voting stock immediately before the transaction holding less than
80% of the voting stock of the surviving or resulting corporation,
the sale of all or substantially all of the assets of Stratus, and
certain changes in the Stratus Board of Directors.
In the event that the aggregate amount of compensation payable to Mr. Raymond
would constitute an "excess parachute payment" under the Internal Revenue Code,
then the amount payable to Mr. Raymond will be reduced so as not to constitute
an "excess parachute payment." All severance payments are payable within 60 days
after the termination of employment.
Mr. Raymond has agreed that during the term of the agreement and for
a period of one year following the termination of his employment, he will not
engage in or have any financial interest in any business enterprise in
competition with Stratus that operates anywhere within a radius of 25 miles of
any offices we maintain as of the date of the termination of employment.
We have entered into employment agreements with each of the other
officers named in the Executive Compensation table set forth above. These
agreements provide for an annual base salary as follows: Mr. Sahyoun - $165,000;
Mr. Levine - $165,000; Mr. Komer - $165,000; and Mr. Maltzman - $146,000. As
part of their employment agreements, Mr. Levine and Mr. Komer were each granted
signing bonuses of $50,000. The agreement with Mr. Sahyoun entitles him to a
profit sharing award equal to 10% of the Engineering Services Division's pre-tax
income, but not in excess of his base salary. Mr. Levine and Mr. Komer are
entitled to profit sharing awards based upon a percentage of the gross margin of
the accounts under their responsibility. Mr. Maltzman is entitled to profit
sharing awards based upon our overall profitability. In the event that any of
the agreements are terminated by Stratus without cause or by the executive with
good reason, the executive will be entitled to a severance payment equal to the
greater of one month's salary for each year worked or three months salary. In
addition, Stratus will pay the executive any earned but unused vacation time and
any accrued but unpaid profit sharing. We are also required to maintain
insurance and benefits for the executive during the severance period.
Compensation of Directors
Except for the reimbursement of out-of-pocket expenses, our
directors are not currently compensated for serving on the Stratus Board of
Directors or any committee of the Board. It is anticipated that non-management
Directors will be paid a fee of $500 per Board and Committee meeting attended
when we become profitable.
Option Grants in the Last Fiscal Year
Shown below is further information with respect to grants of stock
options in the fiscal year ended September 30, 1998 to the Named Executive
Officers which are reflected in the Summary Compensation Table
28
<PAGE>
under the caption "Executive Compensation."
<TABLE>
<CAPTION>
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in Fiscal
Name Granted Year Exercise Price Expiration Date
- --------------- -------------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C>
George Komer 83,333 24.5% $ 3.00 5/7/02
Mark Levine 83,333 24.5% $ 3.00 4/17/02
Charles Sayhoun 83,333 24.5% $ 3.00 12/1/01
</TABLE>
Aggregate Option Exercises in Twelve Months Ended September 30, 1998 and Year
End Option Values
The following table provides certain information with respect to
options to purchase common stock held by the Named Executive Officers at
September 30, 1998. The value of unexercised options has been determined by
using the price per share of common stock ($3.75) paid by investors in our
private offering that was completed in September 1998.
<TABLE>
<CAPTION>
Number of Underlying Value of Unexercised
Unexercised In-the-Money Options at
Options at September 30, 1998 September 30, 1998
--------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph J. Raymond 33,333 133,334 $ 74,999 $166,667
George Komer -- 83,333 -- 62,500
Mark Levine -- 83,333 -- 62,500
Charles Sayhoun 20,833 62,500 15,625 46,875
Michael A. Maltzman 20,833 62,500 15,625 46,875
</TABLE>
No options were exercised by the Named Executive Officers during the fiscal year
ended September 30, 1998.
The Equity Incentive Plan
General. The Stratus Equity Incentive Plan is administered by the
Compensation Committee, which is authorized to grant (i) "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code, (ii)
nonqualified stock options, (iii) stock appreciation rights, (iv) restricted
stock grants, (v) deferred stock awards, and (vi) other stock based awards to
employees of Stratus and its subsidiaries and other persons and entities who, in
the opinion of the Compensation Committee, are in a position to make a
significant contribution to the success of Stratus and its subsidiaries. The
Compensation Committee determines (i) the recipients of awards, (ii) the times
at which awards will be made, (iii) the size and type of awards, and (iv) the
terms, conditions, limitations and restrictions of awards. Awards may be made
singly, in combination or in tandem. We have reserved 500,000 shares for
issuance under the Equity Incentive Plan. The maximum number of shares of common
stock which can be issued to Stratus' Chief Executive Officer under the Equity
Incentive Plan pursuant to various awards shall not exceed 35% of the total
number of shares of common stock reserved for issuance, and the maximum number
of shares which can be issued to any other employee or participant under the
Equity Incentive Plan shall not exceed 20% of the total number of shares of
common stock reserved for issuance. The Equity Incentive Plan will terminate on
September 1, 2009, unless earlier terminated by the Board of Directors. No
awards have been made under the Equity Incentive Plan.
Stock Options. The Compensation Committee can grant either incentive
stock options or nonqualified stock options. Only employees of Stratus and its
subsidiaries may be granted incentive stock options. The exercise price of an
incentive stock option shall not be less than the fair market value, or, in the
case of an incentive stock option granted to a 10% or greater shareholder of
Stratus, 110% of the fair market value of Stratus' common stock on the date of
grant. For purposes of the exercise price of an option, "fair market value"
shall mean the arithmetic
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<PAGE>
average of the closing bid and asked prices of the common stock reported on the
Nasdaq Smallcap Market on a particular date. The term of an option and the time
or times at which such option is exercisable shall be set by the Compensation
Committee; provided, however, that no option shall be exercisable more than 10
years (5 years for an incentive stock option granted to a 10% or greater
shareholder of Stratus) from the date of grant, and with respect to an incentive
stock option, the fair market value on the date of grant of the shares of common
stock which are exercisable by a participant for the first time during any
calendar year shall not exceed $100,000. Payment of the exercise price shall be
made in any form permitted by the Compensation Committee, including cash and
shares of Stratus' common stock.
Stock Appreciation Rights. The Compensation Committee may grant
stock appreciation rights either alone or in combination with an underlying
stock option. The term of an SAR and the time or times at which an SAR shall be
exercisable shall be set by the Compensation Committee; provided, that an SAR
granted in tandem with an option will be exercisable only at such times and to
the extent that the related option is exercisable. SARs entitle the grantees to
receive an amount in cash or shares of common stock with a value equal to the
excess of the fair market value of a share of common stock on the date of
exercise over the fair market value of a share of common stock on the date the
SAR was granted, which represents the same economic value that would have been
derived from the exercise of an option. Payment may be made in cash, or shares
of common stock or a combination of both at the discretion of the Compensation
Committee. If an SAR granted in combination with an underlying stock option is
exercised, the right under the underlying option to purchase shares of common
stock is terminated.
Restricted Stock Grants. The Compensation Committee may grant shares
of common stock under a restricted stock grant which sets forth the applicable
restrictions, conditions and forfeiture provisions which shall be determined by
the Compensation Committee and which can include restrictions on transfer,
continuous service with Stratus or any of its subsidiaries, achievement of
business objectives, and individual, subsidiary and Company performance. Shares
of common stock may be granted pursuant to a restricted stock grant for no
consideration or for any consideration as determined by the Compensation
Committee. A grantee is entitled to vote the shares of common stock and receive
any dividends thereon prior to the termination of any applicable restrictions,
conditions or forfeiture provisions.
Deferred Stock Awards. The Compensation Committee may grant shares
of common stock under a deferred stock award, with the delivery of such shares
of common stock to take place at such time or times and on such conditions as
the Compensation Committee may specify. Shares of common stock may be granted
pursuant to deferred stock awards for no consideration or for any consideration
as determined by the Compensation Committee.
Other Stock Based Awards. The Compensation Committee may grant
shares of common stock to employees of Stratus or its subsidiaries as bonus
compensation, or if agreed to by an employee, in lieu of such employee's cash
compensation.
Other Information. If there is a stock split, stock dividend or
other relevant change affecting Stratus' common stock, appropriate adjustments
will be made in the number of shares of common stock or in the type of
securities to be issued pursuant to any award granted before such event. In the
event of a merger, consolidation, combination or other similar transaction
involving Stratus in which Stratus is not the surviving entity, either all
outstanding stock options and SARs shall become exercisable immediately and all
restricted stock grants and deferred stock awards shall immediately become free
of all restrictions and conditions, or the Compensation Committee may arrange to
have the surviving entity grant replacement awards for all outstanding awards.
Upon termination of service prior to age 65 for any reason other than death or
disability, or upon involuntary termination after age 65, stock options and SARs
which are exercisable as of the date of such termination may be exercised within
three months of the date of termination, and any restricted stock grants and
deferred stock awards which are still subject to any restriction shall be
forfeited to Stratus. Upon death or disability or voluntary termination of
service after age 65, all stock options and SARs become immediately exercisable
and may be exercised for a period of six months after the date of termination
(three months in the case of voluntary termination after age 65), and all
restricted stock grants and deferred stock awards shall become immediately free
of all restrictions and conditions. The Compensation Committee has the
discretionary authority to alter or establish the terms and conditions of an
award in connection with termination of service. The Board of Directors may
amend, suspend or terminate the Equity Incentive Plan, subject to shareholder
approval if required pursuant to Section 162(m) of the Internal Revenue Code or
Section 16 of the Securities Exchange Act of 1934 or the rules of the Nasdaq
Stock Market.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In August 1997, we purchased certain assets of Royalpar Industries,
Inc. and its subsidiaries, corporations that were the subject of a proceeding
under Chapter 11 of the United States Bankruptcy Code. The assets acquired
included customer lists, furniture, office and computer equipment and workers
compensation insurance agreements. The purchase price of the acquired assets was
$150,000. In addition, we agreed to pay to Royalpar, or its designated
disbursing agent, during each of the five fiscal years commencing in 1997, an
amount equal to 2% of our pre-tax income that exceeds $2 million and 3% of our
pre-tax income that exceeds $5 million; provided, however, that in no event will
we be required to pay more than $250,000 pursuant to this arrangement. We also
assumed certain liabilities, including leases of operating offices, certain
obligations to Royalpar's accounts receivable factor and vacation pay and issued
370,444 shares of common stock to certain creditors of Royalpar.
At the time of the acquisition of the Royalpar assets, Jeffrey J.
Raymond, the son of Joseph J. Raymond, our Chairman and Chief Executive Officer
was the President of Royalpar. Following the acquisition of Royalpar, we engaged
Jeffrey J. Raymond as a consultant to Stratus pursuant to an agreement which had
an initial term of six months, subject to automatic six month extensions unless
terminated by either party under the terms of the agreement. The agreement
originally provided for payments of $9,583 per month to Jeffrey J. Raymond and
required him to supervise the collection of certain accounts receivable, to use
his efforts to maintain relationships with certain clients and to assist in due
diligence investigations of acquisitions of other companies. Beginning in
January 1999, the consulting fee payable to Jeffrey J. Raymond was reduced to
$2,200 per week. As of August 31, 1999, Jeffrey J. Raymond's wife, Joan Raymond,
owned approximately 10% of our common stock.
During fiscal 1998, we paid consulting fees of $17,000 to RVR
Consulting, Inc. a corporation of which Joseph J. Raymond, Jr., the son of
Joseph J. Raymond, our Chairman and Chief Executive Officer, is an officer and
50% shareholder. In addition, as of June 30, 1999, Complete Wellness Centers,
Inc. owed us $780,000 for services rendered in 1998 and 1999, all of which is
past due. Joseph J. Raymond, Jr. became the Chief Executive Officer of Complete
Wellness, Inc. in March 1999. Substantially all of the indebtedness owed to us
by Complete Wellness, Inc. was incurred prior to Joseph J. Raymond Jr. becoming
an officer of Complete Wellness, Inc.
At various times throughout our history we have borrowed funds from
Joseph J. Raymond, our Chairman and CEO. This variable indebtedness bore
interest at the rate of 12% per annum. In June 1999, the $50,000 (plus accrued
interest) owed to Mr. Raymond was converted into 14,870 shares of our common
stock.
In June 1998, we borrowed $400,000 from Joseph J. Raymond, Jr. The
remaining balance of this indebtedness, which bore interest at the rate of 12%
per annum, plus accrued interest was converted into 116,533 shares of our common
stock in June 1999.
In November and December 1998, we borrowed $50,000 from Sanford I.
Feld, a director of Stratus. This loan was represented by a promissory note
which bore interest at the rate of 1.5% per month and was originally due in July
1999. In consideration for making the loan, we issued Mr. Feld warrants to
acquire 6,666 shares of our common stock at an exercise price of $7.50 per
share. The warrants have a five year term.
In addition, in October 1998, we borrowed $250,000 from the estate
of Irene Lynch. J. Todd Raymond, General Counsel and Secretary, is the grandson
of Irene Lynch and the trustee of the Irene Lynch estate. This loan is
represented by a promissory note bearing interest at the rate of 2% per month
and was due on April 14, 1999. The note has been verbally extended until the
completion of this offering. In consideration for making the loan, we issued
26,666 shares of our common stock to the estate.
Payroll services have also been provided to Sarahe, Inc., a
privately held company of which Joseph J. Raymond, our Chairman and Chief
Executive Officer, is an officer and 50% stockholder. Invoices were issued to
Sarahe for $120,000 during the year ended September 30, 1997, $1,277,000 during
the year ended September 30, 1998 and $304,000 during the six months ended March
31, 1999. At June 30, 1999 there remained an outstanding balance of $27,600.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of our common stock, as at August 31, 1999 by:
o persons who are known by us to own beneficially more than 5%
of our shares;
o by each of the persons named in the table under the caption
"Executive Compensation";
o each of our directors; and
o by all of our directors and executive officers as a group.
The calculations in the table are based on an aggregate of 4,102,470 shares
calculated as outstanding as of August 31, 1999 after adjusting for the 2-for-3
reverse stock split. Unless otherwise noted all addresses of the beneficial
owners are 500 Craig Road, Manalapan, New Jersey. The percentage listed under
the "After Offering" column is based on an assumed offering of an aggregate of
1,500,000 shares. The symbol "*" indicates that the amount shown is less than 1%
of the outstanding shares.
<TABLE>
<CAPTION>
Name and Address of Percentage of Class Percentage of Class
Beneficial Owner Number of Shares Before Offering After Offering
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph J. Raymond(b) 977,788 23.83% 17.45%
Joan Raymond(c) 638,665 15.57 11.40
Michael J. Rutkin 334,000 8.14 5.96
Charles A. Sahyoun(d) 270,611 6.60 4.83
Michael A. Maltzman(e) 88,333 2.15 1.58
H. Robert Kingston 33,333 * *
Sanford Feld(f) 21,667 * *
Mark Levine(g) 20,833 * *
A. George Komer(g) 20,833 * *
Donald W. Feidt 20,000 * *
All Directors and
Officers as a Group 1,805,731 44.02 32.23
(b),(d),(e),(f),(g),(h)
</TABLE>
- ----------
(a) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
options or warrants that are currently exercisable or exercisable within
60 days of August
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<PAGE>
31, 1999 are deemed to be outstanding and to be beneficially owned by the
person holding such options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(b) Includes 111,111 shares subject to options to purchase that are currently
exercisable or may become exercisable within 60 days of August 31, 1999.
Excludes 55,555 shares subject to options that are not vested or
exercisable within 60 days of August 31, 1999.
(c) Includes 250,000 shares held by the children of Joan Raymond residing in
her household.
(d) Includes 20,833 shares subject to options that are currently exercisable.
Excludes 62,500 shares subject to options that are not vested or
exercisable within 60 days of August 31, 1999.
(e) Includes 41,666 shares subject to options that are currently exercisable
or may become exercisable within 60 days of August 31, 1999. Excludes
41,666 shares subject to options that are not vested or exercisable within
60 days of August 31, 1999.
(f) Includes 6,667 shares subject to warrants that are currently exercisable.
(g) Includes 20,833 shares subject to options that are currently exercisable.
Excludes 62,500 shares subject to options that are not vested or
exercisable within 60 days of August 31, 1999.
(h) Includes 40,000 shares that are beneficially owned by J. Todd Raymond our
General Counsel and Corporate Secretary, including 13,333 shares subject
to options and 26,666 shares owned by the estate of Irene Lynch, for which
Mr. Raymond serves as trustee.
Potential Change in Control
Joseph J. Raymond and Joan Raymond have pledged 1,055,334 shares of
Stratus common stock that they own to secure obligations under their guarantee
of the agreement pursuant to which we sell accounts receivable to a factor. We
are currently in default of the agreement with the factor; however, the factor
has not at this juncture elected to exercise remedies against us or to pursue
its rights under the guarantee and pledge agreement. The shares subject to the
pledge agreement will represent approximately 17% of our outstanding common
stock after completion of this offering. If the factor were to exercise remedies
and obtain title to the pledged stock, the factor, which currently owns 133,333
shares of our common stock, would have the ability to significantly influence
the outcome of any matter submitted to a vote of our stockholders.
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<PAGE>
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 25,000,000 shares of common
stock, par value $0.01 per share and 5,000,000 shares of preferred stock, par
value $0.01 per share. As of the date of this prospectus, there were 4,102,470
shares of common stock and no shares of preferred stock outstanding. The
following description of the material features of our capital stock is intended
as a summary only and is qualified in its entirety by reference to our
certificate of incorporation and the bylaws, a copy of each of which is filed as
an exhibit to the Registration Statement of which this prospectus is a part.
Common Stock
Each share of common stock entitles the holder thereof to one vote
on all matters submitted to the shareholders. Since the common stock does not
have cumulative voting rights, holders of more than 50% of the outstanding
shares can elect all of the directors and holders of the remaining shares could
not elect any directors. The shares are not subject to redemption and there are
no preemptive rights. All outstanding shares of common stock are fully paid and
non-assessable. Holders of common stock are entitled to receive dividends out of
funds legally available for distribution when, as and if declared by the Board
of Directors. 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.
As of August 31, 1999, there were 185 record holders of the
Company's common stock.
Preferred Stock
Our 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. Shareholder approval is not required to issue preferred stock. To the
extent that we issue any 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 Stratus, even if such
transaction were generally favorable to our stockholders. In the event of a
proposed merger, tender offer or other attempt to gain control of Stratus 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 which could
impede the completion of such a transaction. The Board could authorize holders
of the preferred stock to vote, either separately as a class or with the holders
of common stock, on any merger, sale or exchange of assets or other
extraordinary corporate transaction. preferred stock may be used to discourage
possible acquirors from making a tender offer or other attempt to gain control
of Stratus with a view to imposing a merger or sale of all or any part of
Stratus' assets, even though a majority of shareholders may deem such
acquisition attempts to be desirable.
Preferred stock may also be used as consideration for any
acquisitions that we undertake, either alone or in combination with shares,
notes or other assets including cash or other liquid securities.
Underwriter Warrants
In connection with the completion of this offering, for nominal
consideration, we will grant to the underwriters, underwriters' warrants to
purchase 150,000 shares of common stock at an initial exercise price of 110% of
the initial public offering price of the shares sold in this offering. The
underwriters' warrants are exercisable for a period of four years commencing one
year from the date of this prospectus. The shares of common stock issuable upon
exercise of the underwriters' warrants are identical to the shares being sold in
this offering. The
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<PAGE>
underwriters' warrants also grant the holders thereof certain rights of
registration of the shares of common stock issuable upon exercise of such
warrants. Stratus is registering the underwriters' warrants, as well as the
underlying common stock, pursuant to the registration statement of which this
prospectus forms a part.
Statutory Business Combination Provision
We are subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless:
o the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the
Board of Directors of the corporation before the person
becomes an interested stockholder;
o the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same
transaction that makes such person an interested stockholder
(excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain
employee stock ownership plans); or
o on or after the date the person becomes an interested
stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at
least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the
interested stockholder.
Under Section 203, an "interested stockholder" is defined as any person who is
the owner of 15% or more of the outstanding voting stock of the corporation, or
an affiliate or associate of the corporation and who was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage
of Section 203 by amending its certificate of incorporation or bylaws, through
action of its stockholders, to exempt itself from coverage, provided that such
bylaw or certificate of incorporation amendment shall not become effective until
12 months after the date it is adopted. We have not adopted such an amendment to
our Certificate of Incorporation or Bylaws.
Limitation on Liabilities and Indemnification Matters
Pursuant to our certificate of incorporation and bylaws and as
permitted by Delaware law, directors are not liable to Stratus or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has received an improper personal benefit.
Our certificate of incorporation and bylaws also provide that
directors and officers shall be indemnified to the fullest extent authorized by
Delaware law against all expenses and liabilities actually and reasonably
incurred in undertaking their duties. Nonofficer employees and agents may be
similarly indemnified at the Board of Directors discretion and further permits
the advancing of expenses incurred in defense of claims.
Certain provisions of the Certificate of Incorporation and Bylaws
Our bylaws provide that a special meeting of stockholders can only
be called by the Chief Executive Officer or by a majority of the Board of
Directors. The bylaws provide that only matters set forth in the notice of
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<PAGE>
the special meeting may be considered or acted upon at that special meeting.
Our certificate of incorporation and bylaws also provide that any
action required or permitted to be taken by the stockholders of the company at
an annual or special general meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.
Anti Takeover Effects of the Charter Documents and Delaware Law.
Our certificate and bylaws include certain provisions that may have
anti takeover effects. These provisions may delay, defer or prevent a tender
offer or takeover attempt that shareholders may consider to be in their best
interests including attempts that might result in a premium over the market
price for the shares held by the shareholders. These provisions may also make it
more difficult to remove incumbent management.
These provisions, include:
o authorizing our Board of Directors to issue preferred stock;
o limiting the persons who may call special meetings of stockholders;
o prohibiting stockholder action by written consent;
o establishing advance notice requirements for nominations for
election of our board of directors or for proposing matters that can
be acted on by stockholders at stockholder meetings and
o prohibiting cumulative voting in the election of directors.
Listing
We expect to apply for quotation of the Common Stock on the Nasdaq
Smallcap Market under the trading symbol SMSL.
Transfer Agent and Registrar
The Company's transfer agent is ___________________________________.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the
common stock and there can be no assurance that a significant public market for
the stock will develop or be sustained after this offering. Future sales of
common stock, including shares issued upon exercise of outstanding options and
warrants, in the public market after this offering could adversely affect market
prices prevailing from time to time and could impair our future ability to raise
capital through the sale of equity securities.
Upon closing of the offering, there will be 5,602,470 shares of
common stock outstanding, assuming no exercise of warrants and options
outstanding. Of these shares, the 1,500,000 shares of common stock sold pursuant
to this offering will be freely tradable without restriction under the
Securities Act unless purchased by "affiliates" of Stratus as that term is
defined in Rule 144 under the Securities Act.
Holders of 2,913,270 shares of common stock, including our directors
and officers, have agreed not to sell, offer to sell or otherwise dispose of any
of their shares for a period of 24 months from the date of this prospectus
without the prior written consent of the underwriter. Holders of an additional
1,182,534 shares of common stock have agreed not to sell, offer or to otherwise
dispose of any of their shares for a period of 12 months from the date
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<PAGE>
of this prospectus without the written consent of the underwriter. After the
expiration of these restrictions, the holders of the shares which are the
subject of the restrictions may sell the shares under Rule 144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year (including
the holding period of any prior owner, except an affiliate) is entitled to sell
in "broker's transactions" or to market makers, within any three-month period
commencing 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of:
o One percent of the number of common shares then outstanding
(approximately 55,958 shares immediately after this offering);
or
o The average weekly trading volume of the common shares during
the four calendar weeks preceding the required filing of a
Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to manner of sale
provisions and notice requirements and to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have been
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
No predictions can be made on the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
preceding from time to time. Moreover, we cannot predict the number of shares of
common stock which may be sold in the future pursuant to Rule 144 since such
sales will depend on the market price of the common stock, the individual
circumstances of the holders thereof and other factors. Nevertheless, any sales
of substantial amounts of common stock could have a significant adverse effect
on the market price of our Common Stock.
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<PAGE>
UNDERWRITING
Hornblower & Weeks Inc. has agreed, subject to the terms and
conditions of the Underwriting Agreement between Stratus and Hornblower & Weeks,
Inc., to purchase from Stratus 1,500,000 shares of common stock.
The underwriter is committed to purchase and pay for all of the
shares offered hereby if any are purchased. The common stock is being offered by
the underwriter subject to prior sale, when, as and if delivered to and accepted
by the underwriter and subject to approval of certain legal matters by counsel
and to certain other conditions, such as no adverse changes in Stratus and
market conditions.
The Underwriter has advised Stratus that they propose to offer the
common stock to the public at the initial public offering price set forth on the
cover page of this prospectus. The underwriter may allow to certain dealers who
are members of the NASD concessions, not in excess of $0.__ per share, of which
not in excess of $0.__ per share may be reallowed to other dealers who are
members of the NASD. After the initial public distribution of the shares is
completed, the public offering price, concession and reallowance may be changed
by the underwriter.
We have granted the underwriter an over-allotment option,
exercisable during the 30-day period commencing with the date of the
underwriting agreement, to purchase from Stratus at the initial offering price
less underwriting discounts, up to an aggregate of 225,000 additional shares of
common stock from Stratus for the sole purpose of covering over-allotments, if
any. Stratus will be obligated, pursuant to this over-allotment option, to sell
such additional shares to the underwriter.
We have agreed to pay to the underwriter a non-accountable expense
allowance of 3% of the gross proceeds of the offering, of which $40,000 has been
paid as of the date of this prospectus. Stratus has also agreed to pay all
expenses in connection with qualifying the common stock offered hereby for sale
under the laws of such states as the underwriters may designate, including
expenses of counsel retained for such purpose by the underwriter.
In connection with the offering, we have agreed to sell to the
underwriter, for $100, the underwriter's warrants to acquire 150,000 shares of
our common stock. The underwriter's warrants initially are exercisable at a
price of 110% of the per share initial public offering price of the shares
offered hereby, for a period of four years commencing one year from the date of
this prospectus. The shares of common stock issuable upon exercise of the
underwriter's warrants are identical to the shares being sold in this offering.
The underwriter's warrants also grant the holders thereof certain rights of
registration of the shares of common stock issuable upon exercise of such
warrants. Stratus is registering the underwriter's warrants, as well as the
underlying common stock, pursuant to the Registration Statement of which this
prospectus forms a part. The underwriter's warrants may not be sold,
transferred, assigned, pledged or hypothecated for a period of one year
following the offering, except to NASD members participating in the offering and
the bona fide officers or partners thereof.
The underwriter has the right to designate one member of the Board
of Directors for a period of 5 years commencing with the closing of this
offering.
Stratus has agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act.
The underwriter has informed us that it will not sell any shares of
the common stock to any accounts over which they exercise discretionary
authority.
We have agreed with the underwriter that for a period of 12 months
from the date of this prospectus, we will not issue any securities or grant
options or warrants to purchase any securities of Stratus without the consent of
the underwriter except:
o options to acquire up to 150,000 shares of common stock which
may be issued to officers, directors, employees and
consultants;
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<PAGE>
o as consideration payable in connection with potential mergers
and acquisitions;
o in a public offering at a price less than 90% of the average
closing bid prices of the common stock as reported on the
Nasdaq Stock Market for the 21 consecutive trading day period
immediately preceding the date of sale; and
o in a private sale at not less than 70% of the average closing
bid prices of the common stock as reported on the Nasdaq Stock
Market for the 21 consecutive trading day period immediately
preceding the date of sale.
The underwriter may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934. Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the securities in
the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the underwriter to reclaim a
selling concession from a syndicate member when the securities originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the common stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be affected on Nasdaq or otherwise and, if commenced, may
be discontinued at any time and will, in any event, be discontinued thirty (30)
days after settlement of this offering.
The foregoing does not purport to be a complete statement of the
terms and conditions of the underwriting agreement and related documents, copies
of which are on file at the offices of Stratus and the Securities and Exchange
Commission.
Prior to this offering there has been no public market for the
common stock. The initial public offering price for the shares of common stock
offered will be determined by negotiation between Stratus and the underwriter.
The factors to be considered in determining the initial public offering price
include the history of and the prospects for the industry in which we compete,
our past and present operation, our historical financial results, our prospects
for future earnings, the recent market prices of securities of generally
comparable companies and the general conditions of the securities market at the
time of the offering.
LEGAL MATTERS
The legality of the shares offered by this prospectus will be passed
upon for us by Giordano, Halleran & Ciesla, a Professional Corporation,
Middletown, New Jersey. Certain legal matters will be passed on for the
Underwriters by Lehman & Eilen LLP, Uniondale, New York.
EXPERTS
Certain financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Amper, Politziner &
Mattia, PA independent auditors, as indicated in their reports with respect
thereto, and are included in reliance upon the authority of the firm as experts
in giving such reports. Reference is made to such reports which include
explanatory paragraphs that state substantial doubts about our ability to
continue as a going concern.
39
<PAGE>
ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement on Form SB-2 under the
Securities Act with respect to the offered common stock. We have not included in
this prospectus additional information contained in the Registration Statement
and you should refer to the Registration Statement and its exhibits for further
information. The Registration Statement and exhibits and schedules filed as a
part thereof, which may be inspected, without charge, at the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices at the SEC located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium
Center, 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60611-2511. The
SEC maintains a worldwide web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements regarding registrants that
file electronically with the SEC. Copies of all or any portion of the
Registration Statement may be obtained from the public reference section of the
SEC upon payment of the prescribed fees.
40
<PAGE>
STRATUS SERVICES GROUP, INC.
For the Period August 11, 1997 (Inception) to
September 30, 1997, the Year Ended September 30, 1998
and the nine months ended June 30, 1999 and 1998 (unaudited)
Page
Independent Auditors' Report F-2
Balance Sheets F-3
Statements of Operations F-4
Statement of Stockholders' Deficiency F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7 - 17
ROYALPAR INDUSTRIES, INC. AND SUBSIDIARIES
For the Year Ended March 31, 1997 and
For the Period April 1, 1997 to August 11, 1997
Independent Auditors' Report F-18
Consolidated Statements of Operations F-19
Notes to Consolidated Statements of Operations F-20 - 22
B & R EMPLOYMENT, INC.
For the Years Ended December 31, 1998 and 1997
Independent Auditors' Report F-23
Balance Sheets F-24
Statements of Operations F-25
Statement of Stockholders' Deficiency F-26
Statements of Cash Flows F-27
Notes to Financial Statements F-28 - 30
UNAUDITED PROFORMA FINANCIAL STATEMENTS
Unaudited Proforma Condensed Statements of Operations:
For the Year Ended September 30, 1998 F-31
For the Nine Months Ended June 30, 1999 F-32
Notes to Unaudited Proforma Condensed Statements of Operations F-33
F-1
<PAGE>
Independent Auditors' Report
To the Stockholders of Stratus Services Group, Inc.
We have audited the accompanying balance sheets of Stratus Services Group, Inc.
as of September 30, 1998 and 1997, and the related statements of operations,
stockholders' deficiency, and cash flows for the year ended September 30, 1998
and the period August 11, 1997 (Inception) to September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stratus Services Group, Inc. as
of September 30, 1998 and 1997 and the results of its operations and its cash
flows for the year ended September 30, 1998 and the period August 11, 1997
(Inception) to September 30, 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has an accumulated deficit, which raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
AMPER, POLITZINER & MATTIA P.A.
July 16, 1999 except for Note 18(e) which is dated August 30, 1999.
Edison, New Jersey
F-2
<PAGE>
STRATUS SERVICES GROUP, INC.
Balance Sheets
Assets
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1997 1998 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 92,872 $ 249,987 $ 41,441
Due from factor - less allowance for recourse
obligation of $50,000, $-0-, $-0- 435,061 -- --
Accounts receivable - less allowance for
doubtful accounts of $-0- $37,000 and $696,000 2,052 65,536 247,907
Unbilled receivables 147,320 282,485 452,052
Unbilled receivables - related parties 11,880 22,445 7,600
Prepaid insurance 561,208 222,291 468,634
Prepaid expenses and other current assets 13,592 5,130 26,307
----------- ----------- -----------
1,263,985 847,874 1,243,941
Property and equipment, net of
accumulated depreciation 39,429 95,562 268,830
Goodwill 67,650 -- 2,386,678
Other assets 6,856 151,213 170,914
----------- ----------- -----------
$ 1,377,920 $ 1,094,649 $ 4,070,363
=========== =========== ===========
Liabilities and Stockholders' Deficiency
Current liabilities
Loans payable $ -- $ -- $ 861,931
Loans payable - related parties 158,500 406,350 --
Notes payable - acquisition (current portion) -- -- 1,326,000
Insurance obligation payable 365,175 211,708 450,546
Due to factor including allowance for recourse
obligation of $-0-, $795,000 and $839,000 -- 2,602 495,482
Accounts payable and accrued expenses 228,223 927,743 1,145,782
Accrued payroll and taxes 476,924 869,823 906,562
Payroll taxes payable 238,783 143,312 234,383
Litigation fees payable -- 271,361 148,989
----------- ----------- -----------
1,467,605 2,832,899 5,569,675
Notes payable - acquisition (net of current portion) -- -- 246,444
----------- ----------- -----------
1,467,605 2,832,899 5,816,119
Temporary equity - put options -- -- 520,000
Commitments and contingencies
Stockholders' deficiency
Common stock, $.01 par value, 10,000,000 shares
authorized, 3,371,334, 3,719,734 and 4,080,804
shares issued and outstanding 33,714 37,198 40,809
Additional paid-in capital 285,995 1,275,241 2,387,829
Accumulated other comprehensive loss
Deferred compensation -- (161,500) (126,400)
Accumulated deficit (409,394) (2,889,189) (4,567,994)
----------- ----------- -----------
(89,685) (1,738,250) (2,265,756)
----------- ----------- -----------
$ 1,377,920 $ 1,094,649 $ 4,070,363
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
STRATUS SERVICES GROUP, INC.
Statements of Operations
For the Year Ended September 30, 1998 and the Period August 11, 1997 (Inception)
to September 30, 1997 and for the Nine Months Ended
June 30, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
August 11, 1997
(inception) to For the Year Ended For the Nine Months
September 30, September 30, Ended June 30,
1997 1998 1998 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues (including $120,000
$3,598,000, $2,515,000 and
$1,490,000 from related parties) $ 2,442,191 $ 24,919,639 $ 18,062,534 $ 21,263,817
Cost of revenue (including
$97,000, $3,228,000, $2,218,000
and $1,345,000 from related parties) 2,005,847 20,329,718 14,759,241 16,843,326
------------ ------------ ------------ ------------
Gross profit 436,344 4,589,921 3,303,293 4,420,491
------------ ------------ ------------ ------------
Operating expenses
Selling, general and administrative
expenses 741,416 4,785,887 3,231,677 4,536,145
Provision for recourse obligation 50,000 670,445 29,851 595,000
Impairment of JPI Assets -- 174,688 -- --
------------ ------------ ------------ ------------
791,416 5,631,020 3,261,528 5,131,145
------------ ------------ ------------ ------------
Earnings (Loss) from operations (355,072) (1,041,099) 41,765 (710,654)
------------ ------------ ------------ ------------
Other income (expenses)
Finance charges (39,078) (524,649) (342,614) (539,463)
Interest expense (15,244) (48,170) (32,629) (209,679)
Other income -- 33,729 31,586 18,155
Other (expenses) -- (899,606) (798,000) (237,164)
------------ ------------ ------------ ------------
(54,322) (1,438,696) (1,141,657) (968,151)
------------ ------------ ------------ ------------
Net loss $ (409,394) $ (2,479,795) $ (1,099,892) $ (1,678,805)
============ ============ ============ ============
Net loss per common share -
Basic $ (.20) $ (.69) $ (.31) $ (.44)
Diluted (.20) (.69) (.31) (.44)
Weighted average shares
outstanding per common share -
Basic 2,027,124 3,602,086 3,562,439 3,783,714
Diluted 2,027,124 3,602,086 3,562,439 3,841,181
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
STRATUS SERVICES GROUP, INC.
Statement of Stockholders' Deficiency
For the Year Ended September 30, 1998 and
the Period August 11, 1997 (inception) to September 30, 1997
and For the Nine Months Ended June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Additional
Comprehensive Comprehensive Accumulated Paid-In
Total Loss Loss Deficit Capital
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Original issuance for cash $ 10 $ -- $ -- $ -- $ 3
Issuance of common stock
in connection Royalpar
acquisition - August 11, 1997 20,000 -- -- -- 17,333
Issuance of common stock to
related parties (compensation
expense of $186,450) 186,450 -- -- -- 161,590
Other issuance of common stock
(compensation expense of $21,675) 21,675 -- -- -- 18,785
Proceeds from sale of private
placement of common stock (net of
costs of $43,351) for cash 91,574 -- -- -- 88,284
Net loss (409,394) -- -- (409,394) --
----------- ----------- ----------- -----------
Balance September 30, 1997 (89,685) -- -- (409,394) 285,995
Net loss (2,479,795) (2,479,795) -- (2,479,795) --
Other comprehensive income
Deferred compensation in
connection with stock options
granted (no tax effect) 26,000 (161,500) (161,500) -- 187,500
-----------
Comprehensive loss $(2,641,295)
===========
Issuance of common stock from
proceeds from sale of placement
of common stock (net of cost of $501,370) 773,730 -- -- 770,330
Issuance of common stock to employees
(compensation expense of $31,500) 31,500 -- -- 31,416
----------- ----------- ----------- -----------
Balance September 30, 1998 (1,738,250) (161,500) (2,889,189) 1,275,241
Net loss for the nine months ended
June 30, 1999 (unaudited) (1,678,805) (1,678,805) -- (1,678,805) --
Compensation expense in connection
with stock option granted
(no tax effect) (unaudited) 35,100 35,100 35,100 -- --
-----------
Comprehensive loss (unaudited) -- $(1,643,705) -- -- --
===========
Issuance in connection with
acquisition (unaudited) -- -- -- (347)
Issuance of common stock in exchange for
notes payable (unaudited) 492,762 491,448
Proceeds from the sale of private
placements of common stock (net
of costs of $107,813) for cash
(unaudited) 623,437 621,487
----------- ----------- ----------- -----------
Balance June 30, 1999 (unaudited) $(2,265,756) $ (126,400) $(4,567,994) $ 2,387,829
=========== =========== =========== ===========
</TABLE>
Common Stock
Amount Shares
----------- -----------
Original issuance for cash $ 7 667
Issuance of common stock
in connection Royalpar
acquisition - August 11, 1997 2,667 266,667
Issuance of common stock to
related parties (compensation
expense of $186,450) 24,860 2,486,000
Other issuance of common stock
(compensation expense of $21,675) 2,890 289,000
Proceeds from sale of private
placement of common stock (net of
costs of $43,351) for cash 3,290 329,000
Net loss -- --
----------- -----------
Balance September 30, 1997 33,714 3,371,334
STRATUS SERVICES GROUP, INC.
Statement of Stockholders' Deficiency
For the Year Ended September 30, 1998 and
the Period August 11, 1997 (inception) to September 30, 1997
and For the Nine Months Ended June 30, 1999 (Unaudited)
Net loss -- --
Other comprehensive income
Deferred compensation in
connection with stock options
granted (no tax effect) -- --
Comprehensive loss
Issuance of common stock from
proceeds from sale of placement
of common stock (net of cost of $501,370) 3,400 340,000
Issuance of common stock to employees
(compensation expense of $31,500) 84 8,400
----------- -----------
Balance September 30, 1998 37,198 3,719,734
Net loss for the nine months ended
June 30, 1999 (unaudited) -- --
Compensation expense in connection
with stock option granted
(no tax effect) (unaudited) -- --
Comprehensive loss (unaudited) -- --
Issuance in connection with
acquisition (unaudited) 347 34,667
Issuance of common stock in exchange for
notes payable (unaudited) 1,314 131,403
Proceeds from the sale of private
placements of common stock (net
of costs of $107,813) for cash (unaudited) 1,950 195,000
----------- ---------
Balance June 30, 1999 (unaudited) $ 40,809 4,080,804
=========== =========
See accompanying notes to financial statements.
F-5
<PAGE>
STRATUS SERVICES GROUP, INC.
Statements of Cash Flows
For the Year Ended September 30, 1998 and
the Period August 11, 1997 (inception) to September 30, 1997
and For the Nine Months Ended June 30, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
For the Period Ended For the Nine Months Ended
September 30, June 30, June 30,
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (409,394) $(2,479,795) $(1,099,892) $(1,678,805)
----------- ----------- ----------- -----------
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 1,660 40,656 28,190 50,992
Amortization 325 67,650 1,949 80,725
Loan discounts -- -- -- 13,803
Compensation for issuance of common stock 208,125 31,500 31,500 --
Impairment of JPI assets -- 174,688 -- --
Compensation - stock options -- 26,000 14,300 35,100
Changes in operating assets and liabilities
Due to/from factor (435,061) 437,663 (421,660) 492,880
Accounts receivable (161,252) (209,214) (311,814) (337,093)
Prepaid insurance 51,358 338,917 561,208 (246,343)
Prepaid expenses and other current assets (12,942) 8,462 (263,102) (21,177)
Other assets (2,950) (29,357) (68,394) (11,264)
Insurance financing obligation (118,426) (153,467) (365,175) 238,838
Accrued payroll and taxes 476,924 392,899 300,532 36,739
Payroll taxes payable 238,783 (95,471) (41,987) 91,071
Litigation fees payable -- 271,361 344,143 (122,372)
Accounts payable and accrued expenses 119,477 538,020 339,889 330,801
----------- ----------- ----------- -----------
Total adjustments 366,021 1,840,307 149,579 632,700
----------- ----------- ----------- -----------
(43,373) (639,488) (950,313) (1,046,105)
----------- ----------- ----------- -----------
Cash flows (used in) investing activities
Purchase of property and equipment (1,689) (96,789) (37,722) (217,260)
Payments for business acquisitions (150,000) (89,688) -- (169,931)
----------- ----------- ----------- -----------
(151,689) (186,477) (37,722) (387,191)
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from sale of common stock 129,434 735,230 598,230 708,750
Proceeds from loans payable 166,000 550,000 550,000 800,000
Payments of loans payable (7,500) (302,150) (247,500) (284,000)
----------- ----------- ----------- -----------
287,934 983,080 900,730 1,224,750
----------- ----------- ----------- -----------
Net change in cash and cash equivalents 92,872 157,115 (87,305) (208,546)
Cash and cash equivalents - beginning -- 92,872 92,872 249,987
----------- ----------- ----------- -----------
Cash and cash equivalents - ending $ 92,872 $ 249,987 $ 5,567 $ 41,441
=========== =========== =========== ===========
Supplemental disclosure of cash paid
Interest $ 8,244 $ 37,872 $ 38,946 $ 143,702
=========== =========== =========== ===========
Schedule of Noncash Investing and
Financing Activities
Fair value of assets acquired $ 723,847 $ 289,688 $ -- $ 2,474,403
Less: cash paid (150,000) (89,688) -- (84,930)
Less: common stock and put options issued (20,000) -- -- (520,000)
----------- ----------- ----------- -----------
Liabilities assumed $ 553,847 $ 200,000 $ -- $ 1,869,473
=========== =========== =========== ===========
Issuance of common stock in exchange for debt $ 492,762
===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 1 - Liquidity
Stratus Services Group, Inc. ("Company") has been experiencing
significant losses from operations due to increasing overhead in
anticipation of additional future revenues, litigation fees, and
unusual reserves for estimated recourse obligations. The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern.
Management's plans consist of reducing overhead by eliminating and
consolidating locations and applicable staff, and implementing cost
reduction measures such as decreasing salaries. The Company
completed a private placement of its common stock and notes in June
1999 raising approximately $825,000 for working capital purposes.
Thirdly, the Company anticipates registering with the Securities and
Exchange Commission to raise additional capital in 1999.
Note 2 - Nature of Operations and Summary of Significant Accounting Policies
Operations
The Company was incorporated on March 11, 1997 for the purpose of
providing contract labor and staffing services. The only activity
between March 11, 1997 and August 11, 1997 was the issuance of 667
shares of common stock. The Company commenced operations on August
11, 1997 when it acquired certain assets and assumed certain
liabilities of Royalpar Industries, Inc. ("Royalpar") and its
subsidiaries (an entity in bankruptcy). This acquisition enabled the
Company to immediately commence its temporary staffing business by
providing customers, qualified staff and accounting and payroll
support services from offices in New Jersey, Colorado, Texas,
California and Arizona.
The Company operates as one business segment. The one business
segment consists of its traditional staffing services, engineering
staffing services and SMARTSolutions (TM), a structured program to
monitor and enhance the production of a client's labor resources.
The Company's customers are in various industries and are located
throughout the United States. Credit is granted to substantially all
customers. No collateral is maintained.
Revenue Recognition
The Company recognizes revenue as the services are performed by its
workforce. The Company's customers are billed weekly. At balance
sheet dates, there are accruals for unbilled receivables and related
compensation costs.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Interim Financial Statements
The financial statements as of June 30, 1999 and for the nine months
ended June 30, 1998 and 1999 have been prepared by the Company
without audit. In the opinion of management, all adjustments (which
F-7
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 2 - Nature of Operations and Summary of Significant Accounting Policies -
(continued)
include only normal recurring adjustments) necessary to present
fairly the financial position as of June 30, 1999 and the results of
operations and cash flows for the nine months ended June 30, 1998
and 1999 have been made. The results of operations for the nine
months ended June 30, 1999 are not necessarily indicative of the
results to be expected for the year ending September 30, 1999.
Earnings/Loss Per Share
Effective for the Company's financial statements for the period
ended September 30, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share," (SFAS 128). SFAS
replaces the presentation of primary earnings per share ("EPS") and
fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the
weighted-average number of common shares outstanding during the
period. Diluted EPS assumes conversion of dilutive options and
warrants, and the issuance of common stock for all other potentially
dilutive equivalent shares outstanding.
Property and Equipment
Property and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided over the estimated useful
lives of the assets as follows:
Estimated
Method Useful Life
------ -----------
Computer equipment Straight-line 3 years
Office equipment Declining balance 5 years
Furniture and fixtures Declining balance 5 years
Goodwill
Goodwill was being amortized on a straight-line basis over twenty
years for the Royalpar acquisition. For acquisitions subsequent to
September 30, 1998, goodwill is amortized over fifteen years.
Factoring
The Company's factoring agreement (see Note 4) with a financing
institution ("factor") has been accounted for as a sale of
receivables under Statement of Financial Accounting Standards No.
125 "Accounting for Transfers and Services of Financial Assets and
Extinguishment of Liabilities."
Stock Options
The Company has elected to follow Accounting Principles Board
Opinion No. 25. "Accounting for Stock Issued to Employees" ("APB
25") and related interpretations in accounting for its employee
stock options. Under this method, compensation cost is measured as
the amount by which the market price of the underlying stock exceeds
the exercise price of the stock option at the date at which both the
number of options granted and the exercise price are known.
Start-Up Costs
Start-up costs are expensed. $94,000 was charged to operations
during the period ended September 30, 1997 and is included in
selling, general and administrative expenses.
F-8
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 2 - Nature of Operations and Summary of Significant Accounting Policies -
(continued)
Advertising Costs
Advertising costs are expensed as incurred. The expense for the
periods ended September 30, 1997 and 1998 and June 30, 1998 and 1999
was $6,500, $110,000, $68,000 and $92,000, respectively, and is
included in selling, general and administrative expenses.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets.
Comprehensive Income
Effective October 1, 1997, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." Under SFAS No. 130, changes in net
assets of an entity resulting from transactions and other events and
circumstances from non-owner sources are reported in a financial
statement for the period in which they are recognized.
Segment Reporting
Effective October 1, 1997, the Company adopted SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related
Information." The Company operates as a single segment and will
evaluate additional segment disclosure requirements as it expands
its operations.
New Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Statement No. 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities and
measure them at fair value. Under certain circumstances, the gains
or losses from derivatives may be offset against those from the
items the derivatives hedge against. The Company will adopt SFAS No.
133 in the fiscal year ending September 30, 2001. We do not
anticipate that SFAS No. 133 will have an impact on the financial
statements.
Note 3 - Acquisitions
Royalpar Industries, Inc.
In August 1997, the Company purchased assets including customer
lists, furniture, office and computer equipment, and workers'
compensation insurance agreements, and assumed certain liabilities
including leases of operating offices, and holiday and vacation pay,
in exchange for $150,000 and the issuance of 266,667 shares of the
Company's common stock. The excess of cost paid over net assets
acquired resulted in goodwill of $67,975, computed as follows
Prepaid insurance $ 612,566
Insurance obligation payable (483,601)
Office equipment 39,400
Security deposits 3,906
F-9
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 3 - Acquisitions - (continued)
Accrued holiday and vacation pay (70,246)
--------
Net assets acquired 102,025
Amounts paid
Cash paid 150,000
Issuance of common stock
(266,667 shares @ $.075 per share) 20,000
--------
Net amounts paid 170,000
Excess of amounts paid over
net assets acquired - goodwill $ 67,975
Even though certain stockholders of Royalpar are personally related
to certain stockholders of the Company, there was a change in
control of more than 50%, necessitating the use of fair value
accounting.
Simultaneous with this transaction, the Company entered into a
factoring agreement (Note 4) and a consulting agreement (Note 9).
An amendment to the above purchase was an earn out provision whereby
the Company is obligated to pay to Royalpar creditors or disbursing
agents an amount equal to 2% or 3% of the Company's income before
taxes over a five year period commencing with the short financial
year ending September 30, 1997. No amounts are currently due under
this provision.
JP Industrial, LLC
On August 10, 1998 the Company acquired certain assets of JP
Industrial, LLC, ("JPI") an engineering services company in Oregon
for $289,688 of which $89,688 was paid at closing and the remainder
payable in monthly installments through May 1999. The assets
acquired consisted of equipment, customer and vendor lists and any
open and pending contracts and purchase orders. The Company did not
assume any liabilities or obligations unless expressly agreed to.
Shortly after the acquisition and before assigning values to the
assets, the Company filed a lawsuit alleging breach of contract by
the former owners of JPI. The former owners of JPI have filed a
counter claim. Arbitration is to commence in the summer of 1999.
Management believes that the breach of contract has impaired the
value of assets purchased and has consequently charged operations
for $174,688 during the year ended September 30, 1998.
Note 4 - Factoring Agreement
The Company has a factoring agreement under which it may sell up to
$3,000,000 of qualified trade accounts receivable, with limited
recourse provisions. The agreement expires August 10, 2000 and is
renewed automatically for one year periods unless either party is
notified of termination sixty days prior to renewal. The Company is
required to repurchase or replace any receivable remaining
uncollected for more than 90 days. During the periods ended
September 30, 1997 and 1998 and June 30, 1998 and 1999, gross
proceeds from the sale of receivables were $1,870,459, $23,146,923,
$16,449,765 and $19,460,038, respectively. The provision for
recourse obligation includes the estimated recourse obligations on
the sale of receivables. As of September 30, 1997 and 1998 and June
30, 1999, $1,572,000, $2,943,000 and $4,155,000, respectively, of
the receivables sold to the factor had not been collected.
F-10
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 4 - Factoring Agreement - (continued)
As of September 30, 1997 and 1998, and June 30, 1999, $90,000,
$1,105,000 and $807,000, respectively, of related-party receivables
sold to the factor had not been collected. Reserves for recourse
obligations of $0, $500,000 and $780,000, respectively, have been
provided against these receivables.
The Company is an impaired seller under the terms of the factoring
agreement. Although in technical violation for not repurchasing
outstanding receivables over 90 days, the factor is not exercising
any of the remedies available to them. However, two stockholders of
the Company have pledged 1,055,334 shares of the Company as
collateral.
Note 5 - Property and Equipment
<TABLE>
<CAPTION>
September 30, June 30,
1997 1998 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Furniture and fixtures $ 3,000 $ 10,700 $ 25,764
Office equipment 8,489 26,223 33,223
Computer equipment 25,300 78,362 267,536
Computer software 4,300 22,593 35,616
--------- --------- ---------
41,089 137,878 362,139
Accumulated depreciation (1,660) (42,316) (93,309)
--------- --------- ---------
Net property and equipment $ 39,429 $ 95,562 $ 268,830
========= ========= =========
</TABLE>
Note 6 - Goodwill
<TABLE>
<CAPTION>
September 30, June 30,
1997 1998 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Goodwill (see Notes 3 and 18) $ 67,975 $ 67,975 $ 2,519,378
Less: accumulated amortization (325) (67,975) (132,700)
----------- ----------- -----------
$ 67,650 $ -- $ 2,386,678
=========== =========== ===========
</TABLE>
During the year ended September 30, 1998, the Company reevaluated the
recoverability of the goodwill and recorded an impairment of the remaining
balance of approximately $64,000.
Note 7 - Loans Payable
a. Related Parties
As of September 30, 1997 and 1998 and June 30, 1999 various
stockholders advanced funds to the Company for working capital and
payment of litigation expenses (Note 8). These loans bear interest
at the rate of 12% per annum and are payable upon demand. Interest
expense for the periods ended September 30, 1997 and 1998 and June
30, 1998 and 1999 was $4,000, $40,863, $-0- and $28,000,
respectively.
In August 1999, the Chief Executive Officer of the Company and his
son agreed to exchange, effective June 30, 1999, $440,000 of notes
payable by the Company to them plus accrued interest of $52,763 for
131,403 shares of the Company's common stock. The stock was valued
at $3.75 per share and no gain or loss was recorded on the
transaction.
F-11
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
b. Other
Loans payable consists of loans from various unrelated parties
amounting to $766,000, bearing interest at the rates of 18% to 24%
per annum, payable at the IPO. The remaining amount of $95,931
represents the discounted notes from the private placement in June
1999. These notes bear interest at the rate of 13% and are due upon
IPO (See Note 18(b)).
Note 8 - Litigation Fees Payable
The Company and four individuals were defendants in a legal action
alleging breach of various agreements. The action was settled in
June 1998 as a result of which the Company paid $408,000 (for
plaintiff's attorneys fees) and incurred $390,000 for its own legal
fees (Note 11). The Company owed $271,361 and $148,989 at September
30, 1998 and June 30, 1999 and is making periodic payments.
Note 9 - Related Party Transaction
Consulting Agreement
The Company has a consulting agreement with the former president of
Rolyalpar who is the son of the Chief Executive Officer of the
Company, to provide services, payable in semi monthly installments.
The total payments were $175,000 for the year ended September 30,
1998 which were included in selling, general and administrative
expenses. Beginning in January 1999, the payments were reduced to
$2,200 payable weekly through January 2001. Consulting expense was
$132,000 and $56,427 for the nine months ended June 30, 1998 and
1999 respectively.
The Company has paid consulting fees to an entity whose stockholder
is another son of the Chief Executive Officer of the Company.
Consulting fees amounted to $17,000 for the year ended September 30,
1998.
Revenues
The Company provides payroll services to an entity whose publicly
traded common stock is owned by the son of the Chief Executive
Officer of the Company. Revenues related thereafter for the period
ended September 30, 1998, June 30, 1998 and 1999 were $2,321,000,
$1,572,000 and $1,162,000, respectively.
The Company also provides payroll services to a non public entity
whose common stock is owned 50% by the Chief Executive Officer of
the Company. For the periods ended September 30, 1997, and 1998, and
June 30, 1998 and 1999, revenues were $120,000, $1,277,000, $943,000
and $328,000, respectively.
Note 10 - Accounts Payable and Accrued Expenses
September 30, June 30,
1997 1998 1999
---- ---- ----
(Unaudited)
Accounts payable $ 91,154 $ 220,370 $ 310,869
Accrued compensation 40,522 312,402 315,101
Accrued commissions 38,500 -- --
Accrued legal 29,264 -- 99,646
Accrued other 28,783 107,124 166,409
Accrued interest -- 71,242 65,977
Accrued lease -- 101,605 72,780
Due to JPI (Note 3) -- 115,000 115,000
F-12
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
---------- ---------- ----------
$ 228,223 $ 927,743 $1,145,782
========== ========== ==========
Note 11 - Other Expenses
<TABLE>
<CAPTION>
For the Periods Ended For the nine Months Ended
September 30, June 30,
1997 1998 1998 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Litigation settlement
and related legal costs (Note 8) $ -- $798,000 $798,000 $237,164
Abandonment of equipment
and lease -- 101,606 -- --
-------- -------- -------- --------
$ -- $899,606 $798,000 $237,164
======== ======== ======== ========
</TABLE>
Note 12 - Income Taxes
Deferred tax attributes resulting from differences between financial
accounting amounts and tax bases of assets and liabilities follow:
<TABLE>
<CAPTION>
September 30, June 30,
1997 1998 1999
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets and liabilities
Loss on sale of receivables $ 20,000 $ 330,000 $ 238,000
Valuation allowance (20,000) (330,000) (238,000)
----------- ----------- -----------
Net current deferred tax asset (liability) $ -- $ -- $ --
=========== =========== ===========
Noncurrent assets and liabilities
Net operating loss carryforward $ 87,000 $ 683,000 $ 1,295,000
Stock compensation -- 11,000 30,000
Depreciation -- (9,000) (10,000)
Valuation allowance (87,000) (685,000) (1,315,000)
----------- ----------- -----------
Net noncurrent deferred tax asset (liability) $ -- $ -- $ --
=========== =========== ===========
</TABLE>
There were no provisions for income taxes for the periods ended September 30,
1997 and 1998, and June 30, 1998 and 1999 because the Company has net operating
loss carryforwards with a corresponding valuation allowance against them.
At September 30, 1998, the Company has available the following
federal net operating loss carryforwards for tax purposes:
Expiration Date
Year Ending
September 30,
---------------------
2012 $ 218,000
2018 1,491,000
F-13
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 12 - Income Taxes - (continued)
The effective tax rate on net loss varies from the statutory federal
income tax rate for periods ended September 30, 1997 and 1998.
1997 1998
------ ------
Statutory rate (34.0)% (34.0)%
State taxes, (6.0) (6.0)
Other differences, net 0.6 0.9
Valuation allowance 39.4 39.1
------ ------
0.0% 0.0%
Note 13 - Commitments and Contingencies
Office Leases
The Company leases offices and equipment under various leases
expiring through September 30, 2002. Monthly payments under these
leases are $73,000.
The following is a schedule by years of approximate future minimum
rental payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year, as of
September 30, 1998.
For the Years Ending
September 30,
----------------
1999 $ 270,000
2000 210,000
2001 136,000
2002 81,000
Rent expense was $26,000, $187,000, $129,000 and $263,000 for the
periods ended September 30, 1997, 1998 and June 30, 1998 and 1999,
respectively.
Employment Agreements
The Company has entered into employment agreements with five
executives. The terms of the agreements stipulate annual salaries,
aggregating $916,000 plus additional bonuses with stock options of
500,000 shares granted and vested over three to four years. One
agreement with the Chief Executive Officer is for three years, while
the others continue until terminated by the Company. The agreement
with the Chief Executive Officer entitles him to severance
compensation equal to 2.9 times his base salary.
Other
Certain stockholders of the Company may have a right to pursue
claims against the Company as a result of possible technical
violations of the laws and regulations governing the private
placement and issuance of securities. Management believes that the
ultimate resolution of these matters will not have a material
adverse effect on the Company's financial position.
Note 14 - Stock Options and Warrants
The Company has issued stock options to employees with terms of
three to four years. The options may be granted for 534,000 shares.
Pro forma information regarding net income and earnings per share is
required by the Financial Accounting Standards Board Statement
("FASB No. 123"), and has been determined as if the Company had
accounted for its employee stock options under the fair value
method. The fair value for these options was estimated at the date
of grant using the minimum method option pricing model.
F-14
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 14 - Stock Options and Warrants - (continued)
The minimum method option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
The following weighted-average assumptions were used:
September 30,
1997 1998
---- ----
Risk-free interest rate -- 6%
Dividend yield -- 0%
Expected life -- 4 years
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting
period. The Company's proforma information follows:
For the Periods Ended
September 30,
1997 1998
---- ----
Pro forma net loss $ (409,394) $(2,502,175)
Compensation expense under APB 25 was $26,000 for the year ended
September 30, 1998. Deferred compensation at September 30, 1998 was
$161,500 to be amortized over the remaining vesting period.
A summary of the Company's stock option activity, and related
information for the years ended September 30, follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- ----------------
<S> <C> <C>
Outstanding at September 30, 1997 -- $ --
Granted 534,000 2.55
Canceled -- --
Exercised -- --
------- -------
Outstanding at September 30, 1998 534,000 $ 2.55
======= =======
Exercisable at September 30, 1998 83,055 $ 2.00
======= =======
</TABLE>
The exercise prices range from $1.50 to $4.50 per share.
The Company has also issued 66,667 warrants to purchase shares at
$7.50 per share, expiring in 2003.
Following is a summary of the status of stock options outstanding at
September 30, 1998:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------- -------------------
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Number Contractual Life Exercise Price Number Exercise Price
----- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$ 1.00 166,667 2.0 years $ 1.50 55,555 $ 1.50
2.00 360,000 3.3 years 3.00 27,500 3.00
3.00 7,333 3.8 years 4.50 -- 4.50
</TABLE>
F-15
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 15 - Major Customers
The Company had one customer and two customers who accounted for 21%
and 31% of total revenues for the period ended September 30, 1997
and for the year ended September 30, 1998, respectively. Major
customers are those who account for more than 10% of total revenues.
For the nine months ended June 30, 1998 and 1999, the Company had
two customers who accounted for 30% and 24% of total revenues,
respectively.
Note 16 - Retirement Plans
The Company maintains two 401(k) savings plans for its employees.
The terms of the plan define qualified participants as those with at
least three months of service. Employee contributions are
discretionary up to a maximum of 15% of compensation. The Company
can match up to 20% of the employees' first 5% contributions. The
Company's 401(k) expense for the periods ended September 30, 1998,
June 30, 1998 and 1999 were $16,000, $6,000 and $20,000,
respectively.
The Company has determined that its 401(k) plans may be disqualified
due to operational deficiencies. Management is attempting to remedy
the deficiencies. The effects on the Company's financial position
and results of operations are not determinable at this time.
Note 17 - Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
of the Company's operational equipment or internal computer software
that have time sensitive programs may recognize a date using "00 as
the year 1900 rather that the year 2000. This could result in a
system failure or miscalculations causing disruption of operations,
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business.
The Company has assessed the implications on its operations of the
Year 2000 Issue. At September 30, 1998, the process of evaluating
the Company's internal systems was completed and are presently year
2000 compliant. At this time, the Company is satisfied that all of
its major vendors have or are in the process of verifying to the
Company their Year 2000 compliance. The Company's internal systems
have been updated, where appropriate to accommodate year 2000
compliance and actual impact of year 2000 compliance on the
Company's future results of operations, capital spending, and
business operations is not expected to be material.
Note 18 - Subsequent Events
(a) Acquisition
On January 4, 1999, the Company entered into an asset purchase
agreement with B&R Employment, Inc. ("B&R") The Company purchased
certain assets including office equipment, furniture and fixtures,
sales and operating records, customer contracts and agreements,
vendor lists, and seller's licenses and certificates. The purchase
price was $2,400,000, consisting of two notes aggregating $1,880,000
and the issuance of 34,667 shares of the Company's common stock. B&R
has a put option to sell these shares back to the Company at $15 per
share, provided that the Company does not conduct an initial public
offering within twenty-four months. A payment of $269,000 was made
on the notes and an accounts receivable adjustment of $131,000
resulting in a balance of $1,210,000 to be paid thirty days after
successful completion of initial public offering or March 1, 2000,
whichever is sooner. The remaining note of $270,000 is payable in
eight quarterly principal and interest
F-16
<PAGE>
STRATUS SERVICES GROUP, INC.
Notes to Financial Statements
(Information as of June 30, 1999 and for the nine months ended
June 30, 1999 and 1998 is unaudited)
Note 18 - Subsequent Events - (continued)
installments of $37,656 commencing ninety days after payment of the
first note. In addition, the Company purchased existing accounts
receivable of $600,000 from B&R and sold them to the factor.
In connection with this acquisition, the Company entered into an
employment and a non-compete agreement for a three year period with
the sole stockholder of B&R.
The excess of net assets acquired over the purchase price resulted
in goodwill of approximately $2,400,000.
(b) Private Placement
The Company raised $825,000 through a private placement during the
nine months ended June 30, 1999. Each private placement "unit" was a
combination of debt and equity. For each $50,000 unit, the investor
received a $50,000 promissory note from the Company and 3,333 shares
of the Company's common stock valued at $3.75 per share. The note
bears interest at 13% per annum from the original note date until
the successful completion of the Company's initial public offering
of common stock ("IPO"). Upon the successful completion of the IPO,
accrued interest and principal are due in full.
In August 1999, each private placement participant was offered an
additional 10,000 shares of the Company's common stock in exchange
for the recission of the original debt portion of the unit, thereby
converting each unit acquired by an investor accepting the offer
into 13,333 shares of common stock at $3.75 per share. In connection
with this offer, participants representing $700,000 of the $825,000
of proceeds received agreed to the recission offer.
As each private placement investor representing the remaining
$125,000 received both debt (in the form of a promissory note
payable by the Company) and equity (in the form of the Company's
common stock), a portion of the $125,000 face value of the debt was
allocated to equity based on the value of $3.75 per share of common
stock. As such the company has allocated $83 and $8,250 to common
stock and additional paid-in capital respectively. The remainder was
allocated to short-term debt. The difference between the face value
of $125,000 and the amount recorded in short-term debt will be
accreted to interest expense over the expected life of the debt.
(c) Acquisition
In April 1999, the Company purchased the rights, title and interest
of certain accounts of Adapta Services Group, Inc. for $50,000.
(d) Registration
The Company is in the registration process to register shares of
common stock for public sale.
(e) Reverse Stock Split
On August 30, 1999 the Company's Board of Directors authorized
management to file an amended registration statement with the
Securities and Exchange Commission to permit the Company to sell
shares of its common stock to the public. The Company's Board of
Directors has approved a two for three reverse stock split of common
stock to be effective immediately prior to the effective date of the
Company's IPO. All common stock and per share information has been
adjusted to reflect the reverse stock split as if such split had
taken place at the inception of the Company.
F-17
<PAGE>
Independent Auditors' Report
To the Former President of Royalpar Industries, Inc.
We have audited the accompanying consolidated statements of operations of
Royalpar Industries, Inc. and Subsidiaries for the year ended March 31, 1997 and
for the period April 1, 1997 to August 11, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of Royalpar
Industries, Inc. and Subsidiaries for the year ended March 31, 1997 and for the
period April 1, 1997 to August 11, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note 5, on February 20, 1998, the Company filed a Plan of
Reorganization with the U.S. Bankruptcy Court which detailed an orderly
liquidation of the Company.
AMPER, POLITZINER & MATTIA P.A.
July 16, 1999
Edison, New Jersey
F-18
<PAGE>
ROYALPAR INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Year Ended March 31, 1997 and
the Period April 1, 1997 to August 11, 1997
August 11, March 31,
1997 1997
------------ ------------
Revenues $ 6,241,479 $ 20,794,924
Cost of revenues 5,158,897 16,859,558
------------ ------------
Gross profit 1,082,582 3,935,366
Operating expenses
Selling, general and administrative expenses 1,251,348 5,549,004
Interest expense 327,145 1,471,269
------------ ------------
Total operating expenses 1,578,493 7,020,273
Loss from operations (495,911) (3,084,907)
Other income -- 104,290
------------ ------------
Net loss $ (495,911) $ (2,980,617)
============ ============
See accompanying notes to consolidated statements of operations.
F-19
<PAGE>
ROYALPAR INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Statements of Operations
Note 1 - Going Concern
Royalpar Industries, Inc. and Subsidiaries (the "Company") financial
statements have been prepared assuming that the Company was a going
concern. The Company had been experiencing significant losses from
operations due to increased overhead and additional interest costs
from the factoring of receivables.
Note 2 - Nature of Operations and Summary of Significant Accounting Policies
Operations
The Company was a subsidiary of Raycomm Transworld Industries, Inc.,
a publicly traded company. The consolidated statements of operations
include the accounts of the following companies (with dates of
incorporation) after elimination: Royalpar Industries, Inc.
(September 1990), LPL Technical Service, Inc. (April 1959), Ewing
Technical Design, Inc. (February 1975) and Mainstream Engineering
Co., Inc. (September 1975). The Company provided its customers,
qualified staff and accounting and payroll support from various
offices in New Jersey, Florida, Colorado, Texas, California and
Arizona. All intercompany transactions have been eliminated in
consolidation.
Due to the status of the Company's financial position, management
initiated a reorganization process on January 30, 1997. The Company
filed a Plan of Reorganization with the U.S. Bankruptcy Court in New
Jersey under Chapter 11 of the U.S. Bankruptcy Code. The following
assets and (liabilities) were included in the initial Bankruptcy
filing:
Personal Property $ 1,682,907
Creditors Holding Secured Claims (5,837,597)
Creditors Holding Unsecured Priority Claims (5,712,795)
Creditors Holding Unsecured Non-priority Claims (5,815,099)
------------
Net liabilities included in Bankruptcy filing $(15,682,584)
============
On July 29, 1997, the Company received an Order from the U.S.
Bankruptcy Court, approving a private sale of substantially all of
the Company's assets, ongoing businesses and personal property, free
and clear of all liens, claims and encumbrances, and authorizing the
assumption and assignment of certain unexpired leases and executory
contracts. Pursuant to this Order, the Company sold certain assets
and transferred certain liabilities of the Company to Stratus
Services Group, Inc. ("Stratus") on August 11, 1997 (Note 3).
Revenue Recognition
The Company recognized revenue as the services were performed by its
workforce. The Company's customers were billed weekly.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-20
<PAGE>
ROYALPAR INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Statements of Operations
Note 2 - Nature of Operations and Summary of Significant Accounting Policies
(continued)
Depreciation
Depreciation was provided over the estimated useful lives of the
assets as follows:
Estimated
Method Useful Life
------ -----------
Computer equipment Straight-line 3 years
Machinery and equipment Declining balance 5 years
Furniture and fixtures Declining balance 5-7 years
Depreciation expense for the year ended March 31, 1997 and for the
period April 1, 1997 to August 11, 1997 was $158,000 and $47,000,
respectively.
Amortization
Amortization expense consisted of the amortization of goodwill and
other intangible assets which were amortized over a five year
period. Amortization expense for the year ended March 31, 1997 was
$74,000 and $-0- for the period ended August 11, 1997.
Advertising Costs
Advertising costs were expensed as incurred. Advertising expense for
the year ended March 31, 1997 and for the period April 1, 1997 to
August 11, 1997 was $37,000 and $15,000, respectively.
Income Taxes and Other Filings
The Company had not filed income tax returns for several periods.
The Company had experienced operating losses in these periods, and
had significant net operating losses. Therefore, there was no income
tax due and any deferred tax assets and liabilities have valuation
allowances against them. The Company did not file its 401(k)
retirement plans and has accrued $200,000 of penalties for the year
ended March 31, 1997. In addition, $95,000 and $214,000 was accrued
for interest and penalties on unpaid payroll taxes for the year
ending March 31, 1997 and the period April 1, 1997 to August 11,
1997.
Note 3 - Sale of Assets
As discussed in Note 2, the Company, on August 11, 1997, sold its
assets and was relieved of certain liabilities such as leases of
operating offices, and holiday and vacation pay in exchange for
$150,000 and the acquisition of 400,000 shares of Stratus common
stock. The excess of value received over the net assets sold
resulted in a gain on sale of $67,975.
F-21
<PAGE>
ROYALPAR INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Statements of Operations
Note 3 - Sale of Assets - (continued)
Prepaid insurance $ 612,566
Insurance obligation payable (483,601)
Office equipment 39,400
Security deposits 3,906
Accrued holiday and vacation pay (70,246)
---------
Net assets sold 102,025
Amounts received
Cash received 150,000
Common stock received
(400,000 shares @ $.05 per share) 20,000
---------
170,000
Excess of value received over
net assets sold - gain on sale $ 67,975
=========
Even though certain stockholders of the Company are personally
related to certain stockholders of Stratus, there was a change in
control of more than 50%, necessitating the use of fair value
accounting.
Note 4 - Major Customers
The Company had one major customer that accounted for 24% of total
revenues during the period April 1, 1997 to August 11, 1997, and two
major customers that accounted for 32% of total revenues during the
year ended March 31, 1997.
Note 5 - Subsequent Event
The Company continued in existence, with no activity, until February
20, 1998 (the "Confirmation Date"), when the U.S. Bankruptcy Court
confirmed the Company's second amended Joint Plan of Reorganization
which detailed an orderly liquidation of the Company.
F-22
<PAGE>
Independent Auditors' Report
To the Stockholder of
B&R Employment, Inc.
We have audited the accompanying balance sheets of B&R Employment, Inc. as of
December 31, 1998 and 1997, and the related statements of operations,
stockholder's deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of B&R Employment, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
AMPER, POLITZINER & MATTIA, P.A.
August 20, 1999
Edison, New Jersey
F-23
<PAGE>
B&R EMPLOYMENT, INC.
Balance Sheets
December 31,
Assets
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets
Cash $ 1,173 $ 936
Due from factor 81,548 170,108
Accounts receivable - in house, net of allowance
for doubtful accounts of $42,113 and $-0- -- 4,598
Unbilled receivables -- 25,516
Due from affiliate - net of allowance for doubtful
accounts of $329,724 and $-0- -- 122,411
--------- ---------
82,721 323,569
Property and equipment, net of
accumulated depreciation 8,039 14,039
--------- ---------
$ 90,760 $ 337,608
========= =========
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 79,280 $ 79,230
Accrued payroll and payroll taxes payable 42,467 16,964
Due to insurance company 70,000 115,000
--------- ---------
191,747 211,194
Stockholder's (deficiency) equity
Common stock, no par value, 1,000 shares
authorized, 100 shares issued and outstanding 1,000 1,000
(Accumulated deficit) retained earnings (101,987) 125,414
--------- ---------
Total stockholder's (deficiency) equity (100,987) 126,414
--------- ---------
$ 90,760 $ 337,608
========= =========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
B&R EMPLOYMENT, INC.
Statements of Operations
For the Years Ended December 31,
1998 1997
---- ----
Revenues $ 4,668,089 $ 4,367,050
Cost of revenue 3,246,769 3,002,725
----------- -----------
Gross profit 1,421,320 1,364,325
Selling, general, and administrative
expenses 1,503,645 1,074,168
----------- -----------
Earnings (loss) from operations (82,325) 290,157
----------- -----------
Other income (expense)
Interest expense (5,995) --
Other income 45,541 --
Finance charges (174,800) (164,829)
----------- -----------
(135,254) (164,829)
----------- -----------
Net (loss) income $ (217,579) $ 125,328
=========== ===========
See accompanying notes to financial statements.
F-25
<PAGE>
B&R Employment, Inc.
Statement of Stockholder's Deficiency
For the Years Ended December 31,
<TABLE>
<CAPTION>
Common Retained Earnings
Stock (Accumulated Deficit) Total
----- --------------------- -----
<S> <C> <C> <C>
Balance - December 31, 1996 $ 1,000 $ 86 $ 1,086
Net income -- 125,328 125,328
--------- --------- ---------
Balance - December 31, 1997 1,000 125,414 126,414
Net (loss) -- (217,579) (217,579)
Stockholder's distributions -- (9,822) (9,822)
--------- --------- ---------
Balance - December 31, 1998 $ 1,000 $(101,987) $(100,987)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
B&R EMPLOYMENT, INC.
Statements of Cash Flows
For the Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(217,579) $ 125,328
--------- ---------
Adjustments to reconcile net income (loss) to net
cash from operating activities
Depreciation and amortization 6,300 499
Changes in operating assets and liabilities
Accounts receivable - in house 4,598 357,724
Due from factor 88,560 (170,108)
Unbilled receivables 25,516 (25,516)
Due to/from affiliate 122,411 (134,612)
Accounts payable 50 (102,224)
Accrued payroll and payroll taxes 25,503 (150,671)
Due to insurance company (45,000) 115,000
--------- ---------
Total adjustments 227,938 (109,908)
--------- ---------
10,359 15,420
--------- ---------
Cash flows from investing activities
Purchase of property and equipment (300) (14,484)
--------- ---------
Cash flows from financing activities
Stockholders' distributions (9,822) --
--------- ---------
(9,822) --
--------- ---------
Net change in cash 237 936
Cash - beginning 936 --
--------- ---------
Cash - ending $ 1,173 $ 936
========= =========
Supplemental disclosure of cash paid
Interest $ 5,995 $ --
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
B&R EMPLOYMENT, INC.
Notes to Financial Statements
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Operations
The Company was incorporated in August 16, 1995 for the purpose of
providing temporary staffing services. The Company provides
qualified staff for customers from its three offices in Delaware.
The Company's customers are in various industries and are located in
Delaware, Maryland and Pennsylvania. Credit is granted to
substantially all customers. No collateral is maintained.
Revenue Recognition
The company recognizes revenue as the services are performed by its
workforce. The company's customers are billed weekly. At balance
sheet dates there may be accruals for unbilled receivables and
related compensation costs.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Property and Equipment
Property and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided over the estimated useful
lives of the assets as follows:
Estimated
Method Useful Life
------ -----------
Furniture and fixtures Declining balance 5 - 7 years
Leasehold improvements Straight-line 3 years
Factoring
The Company's factoring agreement (see Note 2) with a financing
institution ("factor") has been accounted for as a sale of
receivables under Statement of Financial Accounting Standards No.
125 "Accounting for Transfers and Services of Financial Assets and
Extinguishment of Liabilities."
Income Taxes
The Company has elected to be taxed as a S-Corporation for federal
and state tax purposes. Under this election, substantially all of
the profits, losses, credits and deductions of the Company are
passed through to the individual stockholder. There is no provision
for corporate income taxes.
Advertising Costs
Advertising costs are expensed as incurred. The expense for the
years ended December 31, 1998 and 1997 were $29,000 and $42,000,
respectively.
F-28
<PAGE>
B&R EMPLOYMENT, INC.
Notes to Financial Statements
Note 2 - Factoring Agreement
The Company has a factoring agreement with a financing institution
("factor") under which it may sell qualified trade accounts
receivable, with limited recourse provisions. The agreement, which
expired December 31, 1998, required the Company to repurchase or
replace any receivables remaining uncollected for more than 90 days.
During the years ended December 31, 1998 and 1997, the gross
proceeds resulting from the sale of receivables were $4,668,000 and
$2,035,000, respectively. As of December 31, 1998 and 1997, $658,000
and $622,000, respectively of the receivables sold to the factor had
not been collected.
Note 3 - Property and Equipment
December 31,
1998 1997
---- ----
Furniture and fixtures $ 7,359 $ 7,059
Leasehold improvements 7,500 7,500
------- -------
14,859 14,559
Accumulated depreciation 6,820 520
------- -------
Net property and equipment $ 8,039 $14,039
======= =======
Note 4 - Related Party Transaction
Rent
The Company rents on a month-to-month basis one of its office
facilities from its sole stockholder at an annual rental of $14,000.
Rent expense was $37,208 and $25,400 for the years ended December
31, 1998 and 1997, respectively.
Expenses
An affiliated company, also owned 100% by the Company's stockholder
paid certain expenses including salaries, payroll taxes, employee
benefits, rent, selling, advertising, utilities, professional and
other administrative expenses on behalf of the Company. For the
years ended December 31, 1998 and 1997 $1,217,000 and $1,600,000 was
advanced to the affiliate. As of December 31,1997 the amount was
expected to be collected in the normal course of business. For the
years ended December 31, 1998 and 1997, $1,009,000 and $1,457,000 of
expenses respectively were allocated to the Company from this
affiliate. At December 31, 1998, the amount due from the affiliate
was fully reserved and $329,724 was charged to operations.
Note 5 - Major Customer
The Company had one customer who accounted for 11% of total revenues
for the year ended December 31, 1998. Major customers are those who
account for more than 10% of total revenues. There were no major
customers for the year ended December 31, 1997.
Note 6 - Commitments and Contingencies
In June 1999, an insurance company filed a lawsuit against the
Company. The suit alleges that the insurance company is owed unpaid
workers' compensation premiums. In July 1999, the Company, through
its attorneys, negotiated a settlement of $70,000, which is
reflected as due to insurance company in current liabilities. The
payment terms of the settlement are currently under negotiations.
Management believes that the ultimate resolution of this matter will
not have a material adverse effect upon the Company's financial
position or results of operations.
F-29
<PAGE>
B&R EMPLOYMENT, INC.
Notes to Financial Statements
Note 7 - Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
of the Company's operational equipment or internal computer software
that have time sensitive programs may recognize a date using "00 as
the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruption of operations
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business.
The Company has assessed the implications on its operations of the
Year 2000 Issue. At December 31, 1998, the process of evaluating the
Company's internal systems was completed. All systems are presently
Year 2000 compliant. At this time the Company is satisfied that all
of its major vendors have or are in the process of verifying to the
Company their Year 2000 compliance. The Company's internal systems
have been updated, where appropriate, to accommodate Year 2000
compliance. The actual impact of Year 2000 compliance on the
Company's future results of operations, capital spending, and
business operations is not expected to be material.
Note 8 - Subsequent Events
On January 4, 1999, the Company entered into an asset purchase
agreement with Stratus Services Group, Inc. ("Stratus"). The Company
sold certain assets including office equipment, furniture and
fixtures, sales and operating records, customer contracts and
agreements, vendor lists, and seller's licenses and certificates.
The sale price was $2,400,000, consisting of two notes aggregating
$1,800,000 and the issuance of 52,000 shares of Stratus' common
stock. The Company has a put option to sell these shares back to
Stratus at $10 per share, provided that Stratus does not conduct an
initial public offering within 24 months. A payment of $269,000 was
made on the notes and an accounts receivable adjustment of $131,000
resulting in a balance of $1,210,000 to be paid 30 days after the
successful completion of the initial public offering or March 1,
2000, whichever is sooner. The remaining note of $270,000 is payable
in eight monthly principal and interest installments of $37,656
commencing 90 days after payment of the first note. In addition,
Stratus purchased outstanding accounts receivable from the Company's
factor of 658,000 (Note 2).
The Company will continue to exist in order to collect the proceeds
of the notes receivable and liquidate its debt.
F-30
<PAGE>
STRATUS SERVICES GROUP, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended September 30, 1998
<TABLE>
<CAPTION>
For the Year Ended Pro Forma
September 30, 1998 December 31, 1998 Adjustments Pro Forma
Stratus B & R
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 24,919,639 $ 4,668,089 $ -- $ 29,587,728
Cost of revenue 20,329,718 3,246,769 -- 23,576,487
------------ ------------ ------------ ------------
Gross Profit 4,589,921 1,421,320 -- 6,011,241
Operating Expenses 5,631,020 1,503,645 (293,731)(a)(b)(c) 6,840,934
------------ ------------ ------------ ------------
(Loss) from operations (1,041,099) (82,325) 293,731 (829,693)
Other income (expenses):
Finance charges (524,649) (174,800) -- (699,449)
Interest expense (48,170) (5,995) (154,788)(d) (208,953)
Other income 33,729 45,541 (45,541)(e) 33,729
Other (expenses) (899,606) -- -- (899,606)
------------ ------------ ------------ ------------
(1,438,696) (135,254) (200,329) (1,774,279)
Net (Loss) ($ 2,479,795) ($ 217,579) $ 93,402 ($ 2,603,972)
============ ============ ============ ============
Pro forma loss per common share -
Basic Diluted $ (.72)
Weighted average shares used in computing
Pro forma loss per common share -
Basic and Diluted 3,602,086
</TABLE>
See accompanying notes to unaudited pro forma condensed
statements of operations
F-31
<PAGE>
STRATUS SERVICES GROUP, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the nine months ended June 30, 1999
<TABLE>
<CAPTION>
For the nine months For the three months Pro Forma
ended June 30, 1999 ended December 31, 1998 Adjustments Pro Forma
Stratus B & R
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 21,263,817 $ 1,333,791 $ -- $ 22,597,608
Cost of revenue 16,843,326 1,007,407 -- 17,850,733
------------ ------------ ------------ ------------
Gross Profit 4,420,491 326,384 -- 4,746,875
Operating Expenses 5,131,145 302,216 40,428(c) 5,473,789
------------ ------------ ------------ ------------
Earnings (loss) from operations (710,654) 24,168 (40,428) (726,914)
Other income (expenses):
Finance charges (539,463) (39,297) -- (578,760)
Interest expense (209,679) (5,748) (39,043)(d) (254,470)
Other income 18,155 -- -- 18,155
Other (expenses) (237,164) -- -- (237,164)
------------ ------------ ------------ ------------
(968,151) (45,045) (39,043) (1,052,239)
Net (Loss) ($ 1,678,805) ($ 20,877) ($ 79,471) ($ 1,779,153)
============ ============ ============ ============
Pro forma loss per common share -
Basic and Diluted $ (.47)
Weighted average shares used in computing
Pro forma loss per common share -
Basic and Diluted 3,783,714
</TABLE>
See accompanying notes to unaudited pro forma condensed
statements of operations
F-32
<PAGE>
STRATUS SERVICES GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
NOTE 1 -- Basis of Presentation
The unaudited pro forma condensed statements of operations present
the accounts of Stratus Services Group, Inc. ("Stratus") and B&R
Employment, Inc. ("B&R") as if the acquisition of B&R by Stratus
occurred on October 1, 1997. The pro forma statements of operations
should be read in conjunction with the historical financial
statements of Stratus and B&R and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. The results of operations of B&R have
been included in the results of operations of Stratus from January
4, 1999, the date of the acquisition.
For the year ended September 30, 1998 the unaudited pro forma
condensed statement of operations includes Stratus with year end of
September 30, 1998 and B&R with a December 31, 1998 year end.
For the nine months ended June 30, 1999 the unaudited pro forma
condensed statement of operations include B & R operations from
January 4, 1999 included in Stratus plus B & R unaudited three
months ended December 31, 1998.
The pro forma condensed statements of operations (unaudited) for the
year ended September 30, 1998 and for the nine month period ended
June 30, 1999 do not purport to be indicative of the results that
actually would have been obtained if operations were combined at the
beginning of the fiscal year ended October 1, 1997, and this
presentation is not intended to be a projection of future results or
trends.
NOTE 2 - Pro Forma Adjustments
The following adjustments would be required if the acquisition
occurred as indicated above:
(a) Reflects the elimination of the write-off of a $329,724
receivable from an affiliated company;
(b) Reflects the elimination of a non-recurring fee of
$125,000 paid to the factor;
(c) Reflects the amortization of goodwill of $160,993 and
$40,428 for the year ended September 30, 1998 and the
nine months ended June 30, 1999, respectively;
(d) Reflects interest expense on the notes payable to B&R in
incurred in connection with the acquisition;
(e) Reflects the elimination of non-recurring income.
F-33
<PAGE>
Until , 1999 (25 days after the date of this Prospectus) all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
STRATUS SERVICES GROUP, INC.
1,500,000 Shares
Common Stock
PROSPECTUS
Hornblower & Weeks, Inc.
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Delaware General Corporation Law, Section 102(b)(7), authorizes a corporation to
eliminate or limit personal liability of members of its board of directors for
violations of a director's fiduciary duty of care. Such elimination or
limitation of personal liability is not permitted, however, where there has been
a breach of the duty of loyalty, failure to act in good faith, intentional
misconduct or knowing violation of law, or payment of a dividend or approval of
a stock repurchase which was deemed illegal or where a director obtains an
improper personal benefit.
The Registrant's Certificate of Incorporation (filed as Exhibit 3.1 to this
Registration Statement) provides that a director of the Company shall, to the
maximum extent permitted by Section 102(b)(7) or any successor provision or
provisions, have no personal liability to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director.
Delaware General Corporation Law, Section 145, permits a corporation organized
under Delaware law to indemnify directors and officers with respect to any
matter in which the director or officer acted in good faith and in a manner he
reasonably believed to be not opposed to the best interests of the corporation
and, with respect to any criminal action, had no reasonable cause to believe his
conduct was unlawful.
The Registrant's Certificate of Incorporation and Bylaws (filed as Exhibit 3.2
to this Registration Statement) provides that any director or officer of the
Company involved in any action, suit or proceeding, the basis of which is
alleged action or inaction by such director or officer while he was acting in an
official capacity as a director or officer of the Registrant or as a director,
trustee, officer, employee or agent of another entity at the request of the
Registrant, shall be indemnified and held harmless by the Registrant to the
fullest extent permitted by Section 145 against all expense, liability and loss
reasonably incurred or suffered by such person in connection therewith. Such
indemnification as to such alleged action or inaction continues as to an
indemnitee who has after such alleged action or inaction ceased to be a director
or officer of the Registrant or a director, officer, trustee, employee or agent
of such other entity and inures to the benefit of the indemnitee's heirs,
executors and administrators. The Certificate of Incorporation also provides
that the right to indemnification shall be a contract right which shall not be
affected adversely as to any indemnitee by any amendment to the Certificate of
Incorporation with respect to any action or inaction occurring prior to such
amendment and shall include, unless otherwise restricted or prohibited by law or
the Registrant's By-laws, the right to be paid by the Registrant for expenses
incurred in defending any such proceeding in advance of its final disposition.
The Registrant's Board of Directors may also grant these indemnification rights
to any employee or agent of the Registrant or to any person who is or was a
director, officer, employee or agent of the Registrant's affiliates,
predecessors or subsidiaries.
Reference is made to the Underwriting Agreement, the proposed form of which is
filed as Exhibit 1 to the Registration Statement, which contains certain
provisions for the indemnification by the Underwriter of the Registrant and the
director and officers of the Registrant who signed the Registration Statement
against certain liabilities, including civil liabilities, under the Securities
Act of 1933. The Underwriting Agreement also contains certain provisions for the
indemnification by the Registrant of, among others, persons who control the
Underwriter against certain liabilities, including civil liabilities under the
Securities Act of 1933.
II-1
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses, all of which are being paid by the
Registrant, in connection with this offering. All the fees are estimates except
the Securities and Exchange Commission Registration fee, the NASD filing fee and
the Nasdaq Smallcap fee.
Registration fee - Securities and Exchange Commission............. $ 3,941
NASD filing fee................................................... 1,918
Nasdaq Smallcap fee............................................... 10,000
Accounting fees and expenses...................................... 150,000
Legal fees and expenses........................................... 100,000
Blue sky fees and expenses, including legal fees.................. 35,000
Printing; stock certificates...................................... 125,000
Transfer agent and registrar fees................................. 5,000
Non-accountable expense allowance................................. 450,000
Miscellaneous..................................................... 10,000
-----------
Total............................................................ $ 890,859
===========
Item 26. Recent Sales of Unregistered Securities.
All shares of Common Stock and the exercise price of warrants and options have
been adjusted to reflect a 2-for-3 reverse split to be effected prior to the
effective date of this Registration Statement.
Between April 4, 1997 and September 1, 1997, Joseph J. Raymond, Michael J.
Rutkin and other investors contributed capital amounting in aggregate to
approximately $125,000 to purchase the assets of Royalpar Industries, Inc. In
exchange for their investment, these initial investors, each of whom was an
executive or management level employee or a relative of an executive or
management employee of the Registrant, were issued 2,486,667 shares of Common
Stock of the Registrant resulting in a price per share of $0.075. Based upon its
familiarity with the investors, the Registrant determined that each investor had
such knowledge and experience in financial and business matters to enable the
investor to evaluate the merits and risks of the investments. The issuance and
sale of these securities was made in reliance on an exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") as a transaction not involving any public offering.
Below is a chart showing these initial investors, the number of shares issued to
them, and the date of issue.
Date Name/Entity Shares
- ---- ----------- ------
4/4/97 Rutkin, Michael J. 667
9/1/97 Raymond, Sr., Joseph J. 1,736,000
9/1/97 Kingston Family Revocable Trust 33,333
9/1/97 Sahyoun, Charles A. 220,000
9/1/97 Foley, Thomas 8,333
9/1/97 Abruzzese, Arthur 8,333
9/1/97 Porzio, Eugene Robert 8,333
9/1/97 Ribaudo, Alfonso 8,333
9/1/97 Rutkin, Michael J. 333,333
9/1/97 Feidt, Don W. 20,000
9/1/97 Schneider, Frank Jr. 16,667
9/1/97 Townsend, Donna A. 667
9/1/97 Zomak, Beth S. 667
9/1/97 Barbara A. Danner Miglio as cutodian of 333
II-2
<PAGE>
Eugene Miglio IV
9/1/97 Barbara A. Danner Miglio as custodian of
Anna Marcella Miglio 333
9/1/97 Sullivan, Rani L. 667
9/1/97 Raymond, J. Todd, trustee for I. Lynch 26,667
9/1/97 Raymond, J. Todd 16,667
9/1/97 Maltzman, Scott A. 667
9/1/97 Maltzman, Michael A. & Valerie M. 46,667
On September 1, 1997, the Registrant issued to 33 purchasers, units ("Phase I
Units"), comprised of 8,667 shares of Common Stock of the Registrant at a price
of $.075 per share for a total price per unit of $650. Thirty-four and one-half
units were sold resulting in the sale of 299,000 shares of Common Stock and
gross proceeds of $22,425. In connection with the offering, (i) based on
financial information provided by the investors, the Registrant determined that
each investor was an "Accredited Investor" (as that term is defined under
Regulation D promulgated under the Securities Act), (ii) each investor signed a
written agreement that the Phase I Units which he purchased would not be sold
without registration under the Securities Act, except in reliance upon an
exemption therefrom, and (iii) the Registrant did not engage in any general
solicitation or general advertisement for the issuance. Based upon
representations made by the investors as to their experience in financial and
business matters, the Registrant determined that each investor had the ability
to evaluate the merits and risks of the investment. The issuance and sale of
these securities was made in reliance on the exemption provided by Section 4(2)
of the Securities Act as a transaction not involving any public offering.
On August 11, 1997, the Registrant issued 133,333 shares of Common Stock to each
of Congress Financial Corporation and AGR Financial, L.L.C. (collectively,
"Congress and AGR") in consideration for Congress' and AGR's consent to the
acquisition of assets from Royalpar Industries, Inc. and its release of liens on
certain of the acquired assets. In connection with the offering, (i) based on
the status of Congress and AGR as large financial institutions and
representations made by Congress and AGR, the Registrant determined that each of
Congress and AGR was an Accredited Investor (as that term is defined under
Regulation D promulgated under the Securities Act) and each had the ability to
evaluate the merits and risks of the investment, (ii) both Congress and AGR
represented that the securities acquired could not be sold without registration
under the Securities Act, except in reliance upon an exemption therefrom, and
(iii) the Registrant did not engage in any general solicitation or advertisement
for the issuance. The issuance and sale of these securities were made in
reliance on the exemption provided by Section 4(2) of the Securities Act, as a
transaction not involving any public offering.
On September 1, 1997, the Registrant issued 291,666 shares of Common Stock to 8
creditors (the "Creditors") in consideration for their consent to the
acquisition of assets by the Registrant from Royalpar Industries, Inc. of the
acquired assets. Based upon the Registrant's familiarity with the Creditors, the
Registrant determined that each Creditor had such knowledge and experience in
financial and business matters as to enable the Creditor to evaluate the merits
and risks of the investment. The issuance and sale of these securities were made
in reliance on the exemption provided by Section 4(2) promulgated under the
Securities Act as a transaction not involving any public offering.
On January 1, 1998, the Registrant issued a cumulative total of 8,400 shares of
Common Stock to 20 employees as bonuses for efforts contributing to the
continuing success and growth of the Registrant in 1997. The issuance of these
securities was made without payment to the Registrant of any consideration and
therefore was not a "sale" within the meaning of, and not subject to, Section 5
of the Securities Act.
Between December 1, 1997 and September 1, 1998, the Registrant issued to 43
purchasers, units ("Phase II Units"), comprised of 13,333 shares of Common Stock
at a price of $3.75 per share for a total price per unit of $50,000. Twenty-two
and one half units were sold resulting in gross proceeds of $1,125,000. In
connection with the offering, (a) based upon information provided by the
investors and its familiarity with certain investors, the Registrant determined
that each investor was an "Accredited Investor" (as that term is defined under
Regulation D promulgated under the Securities Act of 1933, as amended), (b) each
investor signed a written agreement stating that the Phase II Units which he
purchased would not be sold without registration under the Securities Act,
except
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<PAGE>
in reliance upon an exemption therefrom, and (c) the Registrant did not engage
in any general solicitation or general advertisement for the issuance. The
issuance and sale of these securities was made in reliance on the exemption
provided by Rule 506 of Regulation D promulgated under the Securities Act.
In connection with the offering of Phase II Units, the Registrant issued a
cumulative total of 70,000 shares of Common Stock to nineteen individuals who
assisted the Registrant in locating investors for the offering. Based upon its
familiarity with each of the individuals, the Registrant determined that each
such individual had such knowledge and experience in financial and business
matters as to enable such individual to evaluate the merits and risks of the
investment. The issuance of these securities was made in reliance on Section
4(2) of the Securities Act as a transaction not involving any public offering.
On January 1, 1999, the Registrant issued 34,667 shares of Common Stock to B & R
Employment Inc. in partial consideration for substantially all of the assets of
B & R Employment Inc. In addition to these shares, the Registrant also granted
to B & R Employment Inc., in the event the Registrant does not conduct an
initial public offering of Common Stock within 24 months of the closing of the
Asset Purchase Agreement between the Registrant and B & R Employment Inc., an
option to sell its stock to the Registrant at $15 per share. Based upon
representations made by B&R and the Registrant's familiarity with B&R, the
Registrant determined that B&R had such knowledge and experience in financial
and business matters as to enable it to evaluate the merits and risks of the
investment. The issuance and sale of these securities was made in reliance on
the exemption provided by Section 4(2) of the Securities Act as a transaction
not involving any public offering.
During June 1999, the Registrant issued to 11 purchasers, units, each consisting
of a $50,000 Promissory Note and 3,333 shares of Common Stock of the Registrant.
The price per unit was $50,000. Sixteen and one-half (16-1/2) units were sold
resulting in gross proceeds of $825,000. The proceeds were used to meet the
working capital requirements and expenditures of the Registrant in preparing for
its initial public offering of Common Stock. In connection with the offering (a)
based upon financial information provided by the investors, the Registrant
determined that each investor was an "Accredited Investor" (as that term is
defined under Regulation D promulgated under the Securities Act of 1933, as
amended), (b) each investor signed a written agreement stating that the units
which he purchased would not be sold without registration under the Securities
Act and (c) the Registrant did not engage in any general solicitation or general
advertisement in conducting this offering. The issuance and sale of these
securities was made in reliance on the exemption provided by Rule 506 of
Regulation D promulgated under the Securities Act.
Between September 1, 1997 and December 2, 1998, the Registrant issued options to
purchase an aggregate of 534,000 shares of Common Stock to eight of its
employees. Based upon its familiarity with each of the individuals, the
Registrant determined that each such individual had such knowledge and
experience in financial and business matters as to enable such individual to
evaluate the merits and risks of the investment. The issuance of these
securities was made in reliance on the exception provided in Section 4(2) of the
Securities Act as a transaction not involving any public offering.
Between November 23, 1998 and December 2, 1998 the Registrant issued warrants to
acquire 66,666 shares of Common Stock to five individuals in consideration for
their making loans to the Registrant. Based upon its familiarity with each of
the individuals, the Registrant determined that each such individual had such
knowledge and experience in financial and business matters as to enable such
individual to evaluate the merits and risks of the investment. The issuance of
these securities was made in reliance upon Section 4(2) of the Securities Act as
a transaction not involving any public offering.
Between May 1999 and June 1999, the Registrant issued 271,403 shares of common
stock to 10 creditors in connection with the conversions to equity of
indebtedness owed to the creditors. Based upon information provided by the
creditors and the Registrant's familiarity with each of the creditors, the
Registrant determined that each creditor was an "Accredited Investor" (as that
term is defined under Regulation D promulgated under the Securities Act of 1933,
as amended). The issuance and sale of these securities was made in reliance on
the exemption provided by Rule 506 of Regulation D promulgated under the
Securities Act.
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<PAGE>
Item 27. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit Number Exhibit Description
1.1 Underwriting Agreement (filed herewith)
1.2 Form of Underwriter's Warrant Agreement, including form of warrant
certificate.*
2.1 Asset Purchase Agreement, dated July 9, 1997, among Stratus Services
Group, Inc. and Royalpar Industries, Inc., Ewing Technical Design,
Inc., LPL Technical Services, Inc. and Mainstream Engineering
Company, Inc., as amended by Amendment No. 1 to the Asset Purchase
Agreement, dated as of July 29, 1997. (filed herewith)
2.2 Asset Purchase Agreement, effective January 1, 1999, by and between
Stratus Services Group, Inc. and B&R Employment Inc. (filed
herewith)
3.1 Proposed Form of Amended and Restated Certificate of Incorporation
of the Registrant (filed herewith).
3.2 By-Laws of the Registrant to be effective upon completion of
offering (filed herewith).
4.1 Specimen Common Stock Certificate of the Registrant (filed
herewith).
4.2.1 Warrant for the Purchase of 10,000 Shares of Common Stock of Stratus
Services Group, Inc., dated November 30, 1998, between Alan Zelinsky
and Stratus Services Group, Inc., and supplemental letter thereto
dated December 2, 1998 (filed herewith).
4.2.2. Warrant for the Purchase of 40,000 Shares of Common Stock of Stratus
Services Group, Inc., dated November 23, 1998, between David
Spearman and Stratus Services Group, Inc. (filed herewith).
4.2.3 Warrant for the Purchase of 10,000 Shares of Common Stock of Stratus
Services Group, Inc., dated November 30, 1998, between Sanford I.
Feld and Stratus Services Group, Inc., and supplemental letter
thereto dated December 2, 1998 (filed herewith)..
4.2.4 Warrant for the Purchase of 20,000 Shares of Common Stock of Stratus
Services Group, Inc., dated November 30, 1998, between Peter
DiPasqua, Jr. and Stratus Services Group, Inc. (filed herewith).
4.2.5 Warrant for the Purchase of 20,000 Shares of Common Stock of Stratus
Services Group, Inc., dated December 2, 1998, between Shlomo Appel
and Stratus Services Group, Inc. (filed herewith).
5.1 Opinion of Giordano, Halleran & Ciesla, a Professional Corporation,
including consent of such counsel.*
10.1.1 Employment Agreement, dated September 1, 1997, between Stratus
Services Group, Inc. and Joseph J. Raymond (filed herewith).
10.1.2 Executive Employment Agreement, dated September 1, 1997, between
Stratus Services Group, Inc. and J. Todd Raymond, Esq. (filed
herewith).
10.1.3 Executive Employment Agreement, dated December 1, 1997, between
Stratus Services Group, Inc. and Charles A. Sahyoun (filed
herewith).
10.1.4 Executive Employment Agreement, dated April 17, 1998, between
Stratus Services Group, Inc. and Mark S. Levine (filed herewith).
10.1.5 Executive Employment Agreement, dated May 7, 1998, between Stratus
Services Group, Inc. and A.
II-5
<PAGE>
George Komer (filed herewith).
10.1.6 Executive Employment Agreement, dated September 1, 1997 between
Stratus Services Group, Inc. and Michael A. Maltzman (filed
herewith).
10.1.7 Consulting Agreement, dated as of August 11, 1997, between Stratus
Services Group, Inc. and Jeffrey Raymond (filed herewith).
10.2 Lease, effective June 1, 1998, for offices located at 500 Craig
Road, Manalapan, New Jersey 07726. (filed herewith)
10.3 Sale and Purchase Agreement, dated August 11, 1997, between AGR
Financial, LLC and Stratus Services Group, Inc., with supplemental
letter thereto dated January 8, 1999. (filed herewith)
10.4.1 Promissory Note in the amount of $250,000, dated October 14, 1998,
between Stratus Services Group, Inc. and J. Todd Raymond, Esq.,
Trustee with Powers of Attorney (filed herewith).
10.5.1 Registration Rights Agreement, dated August, 1997, by and among
Stratus Services Group, Inc. and AGR Financial, L.L.C. (filed
herewith)
10.5.2 Registration Rights Agreement, dated August, 1997, by and among
Stratus Services Group, Inc. and Congress Financial Corporation
(Western). (filed herewith)
10.6.1 Stock Purchase and Investor Agreement, dated August, 1997, by and
between Stratus Services Group, Inc. and Congress Financial
Corporation (Western). (filed herewith)
10.6.2 Stock Purchase and Investor Agreement, dated August, 1997, by and
among Stratus Services Group, Inc. and AGR Financial, L.L.C. (filed
herewith)
10.7 1999 Equity Incentive Plan (filed herewith).
23.1 Consent of Amper, Politziner & Mattia, LLP. (filed herewith)
23.2 Consent of Giordano, Halleran & Ciesla, P.C. (filed with Exhibit
5.1)
24 Powers of Attorney of officers and directors of the Company
[included in the signature page to the Registration Statement being
amended by this Amendment No. 1].
27.1 Financial Data Schedule for the 9 months ended June 30, 1999 (filed
herewith).
27.2 Financial Data Schedule for 12 months ended September 30, 1998.
(filed herewith)
*To be filed by amendment.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment of the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in
the
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<PAGE>
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by the Registrant is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Manalapan, the State of New
Jersey, on August 31, 1999.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
------------------------------------
Joseph J. Raymond
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Joseph J. Raymond Chairman, Chief Executive Officer September 3, 1999
- -------------------------------- (Principal Executive Officer)
Joseph J. Raymond
/s/ Michael A. Maltzman Vice President and Chief Financial September 3, 1999
- -------------------------------- Officer (Principal Financing and
Michael A. Maltzman Accounting Officer)
* Director September 3, 1999
- --------------------------------
Michael J. Rutkin
* Director September 3, 1999
- --------------------------------
H. Robert Kingston
* Director September 3, 1999
- --------------------------------
Donald W. Feidt
* Director September 3, 1999
- --------------------------------
Sanford I. Feld
</TABLE>
*By: /s/ Joseph J. Raymond
---------------------------
Joseph J. Raymond
As Attorney in Fact
II-8
Exhibit 1.1
UNDERWRITING AGREEMENT
____________, 1999
Hornblower & Weeks, Inc.
110 Wall Street, 21st Floor
New York, NY 10008
Dear Sirs:
Stratus Services Group, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to you, 1,500,000 shares of the common stock, $.01 par value (the "Common
Stock") of the Company (the "Firm Shares"). In addition, solely for the purpose
of covering over-allotments, the Company proposes to grant to you the option to
purchase up to 225,000 additional shares of Common Stock (the "Additional
Shares"). The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "Shares". The Shares are more fully described in the
Registration Statement and Prospectus referred to below.
The Company confirms as follows its agreement with you:
1. Registration Statement and Prospectus: The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission"), in
accordance with the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder (the "Rules and
Regulations", and together with said Act, the "Act"), a registration statement
on Form SB-2 (File No. 333 - ____) and may have filed one or more amendments
thereto, including in such registration statement and in certain amendments
thereto a related preliminary prospectus for the registration under the Act of
the Shares. In addition, subject to the provisions of Section 4(e) hereof, the
Company has filed or will promptly file a further amendment to such registration
statement prior to the effectiveness of such registration statement, unless an
amendment is not required pursuant to Rule 430A of the Rules and Regulations. As
used in this Agreement, the term "Registration Statement" means such
registration statement, including the prospectus, financial statements and
schedules thereto, exhibits and other documents filed as part thereof, as
amended when, and in the form in which, it is declared effective by the
Commission, and, in the event any post-effective amendment thereto is filed
thereafter and on or before the Closing Date (as hereinafter defined), shall
also mean (from and after the date such post-effective amendment is effective
under the Act) such registration statement as so amended, provided that such
Registration Statement, at the time it becomes effective, may omit such
information as is permitted to be omitted from the Registration Statement when
it becomes effective pursuant to Rule 430A of the Rules and Regulations, which
information ("Rule 430 Information") shall be deemed to be included in such
Registration Statement when a final prospectus is filed with the Commission in
accordance with Rules 430A and 424(b)(1) or (4) of the Rules and Regulations;
the term "Preliminary Prospectus" means each prospectus included in the
Registration Statement, or any amend ments thereto, before it becomes effective
under the Act, the form of prospectus omitting Rule 430A Information included in
the Registration Statement when it becomes effective, if applicable (the "Rule
430A Prospectus"), and any prospectus filed by the Company with your consent
pursuant to Rule 424(a) of the Regulations; the term "Prospectus" means the
final prospectus included as part of the Registration Statement, except that (i)
if any prospectus (including any preliminary prospectus) which differs from such
prospectus included in the Registration Statement is provided to you for use in
connection with the offering of the Shares (whether or not such differing
prospectus is required to be filed by the Company pursuant to Rule 424(b)
<PAGE>
under the Act), the term "Prospectus" as used herein shall mean such differing
prospectus from and after the date on which it shall have been first used, and
(ii) in the event any supplement to or amendment of such prospectus is made
after the date on which the Registration Statement is declared effective and on
or prior to the Closing Date, the term "Prospectus" shall also mean (with
respect to any supplement, from and after the date such supplement is first used
or, with respect to any amendment, the date such amendment is effective under
the Act) such prospectus as so supplemented or amended; and the term "Effective
Date" means (i) if the Company and you have determined not to proceed pursuant
to Rule 430A under the Act, the date on which the Registration Statement becomes
effective, or (ii) if the Company and you have determined to proceed pursuant to
Rule 430A under the Act, the date of this Agreement.
2. Agreements to Sell and Purchase: Subject to the terms and conditions
herein set forth, the Company agrees to sell to you and each of you agree,
severally and not jointly, to purchase from the Company, at a purchase price of
$___ per Firm Share, the number of Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Firm Shares to be sold by a fraction, the numerator of which is the aggregate
number of Firm Shares to be purchased by each of you as set forth opposite your
respective names in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased hereunder.
Subject to the terms and conditions herein set forth, the Company agrees
to sell to you, and you shall have the right to purchase from the Company, up to
225,000 Additional Shares at a purchase price of $___ per Additional Share.
Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each of you, severally, agrees to
purchase from the Company that proportion (subject to such adjustments as you
may both determine to avoid fractional Additional Shares) of the number of
Additional Shares to be purchased which the number of Firm Shares set forth
opposite your name in Schedule I bears to the aggregate number of Firm Shares to
be purchased from the Company hereunder. Additional Shares may be purchased at
any time and from time to time on or before the thirtieth business day following
the date of this Agreement upon written notice from you to the Company
specifying the number of Additional Shares to be purchased.
You will offer the Shares for sale at the initial public offering price
set forth on the cover of the Prospectus. After the initial public offering, you
may from time to time increase or decrease the public offering price, in your
sole discretion, by reason of changes in general market conditions or otherwise.
3. Delivery and Payment: Delivery of and payment for the Firm Shares shall
be made at the offices of Hornblower & Weeks ("HBW") at 110 Wall Street, 21st
Floor, New York, New York 10008 (or such other place as shall be mutually agreed
upon) at such time and date, not later than the third full business day
following the Effective Date (unless the time of effectiveness is after 4:00
P.M. New York time, in which case the date of closing shall be no later than
four business days following the Effective Date), as you shall designate by at
least forty-eight hours prior notice to the Company (the "Closing Date").
Delivery of and payment for Additional Shares shall be made at said
offices of HBW, or at such other place, and at such time(s) and date(s) (each an
"Optional Closing Date") as may be agreed upon in writing by you and the
Company; provided, however, that in no event may an Optional Closing Date be (i)
earlier than the Closing Date or (ii) later than three business days after the
date on which the related notice to purchase Additional Shares is given.
2
<PAGE>
The Closing Date and the time and place of delivery of and payment for the
Shares may be varied by agreement between you and the Company. The Optional
Closing Date and the time and place of delivery of and payment for the
Additional Shares may be varied by agreement between you, and the Company.
Delivery of certificates for the Shares (in definitive form, registered in such
names and in such denomina tions as you shall request at least two business days
prior to the Closing Date by written notice to the Company) shall be made to you
against payment of the purchase price therefor by certified or official bank
check or checks payable in New York Clearing House funds to the order of the
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at the offices of HBW at least 24 hours prior to the
Closing Date and each Optional Closing Date, as the case may be.
On the Closing Date, at the time of the delivery and payment for the Firm
Shares, (i) the Company shall pay to you as a non-accountable expense allowance
a sum equal to $___ per Share for each Firm Share purchased by you hereunder (or
an aggregate of $150,000 in respect of the Firm Shares), less the $___
heretofore paid to you in respect thereof, by certified or official bank check
or checks payable in New York Clearing House funds payable to the order of, and
in accordance with instructions from, you and (ii) the Company shall issue, sell
and deliver to you, for an aggregate purchase price of $10, a warrant to
purchase up to an aggregate of 150,000 Shares (the "Underwriters' Warrant") in
substantially in the form filed as an exhibit to the Registration Statement. The
shares of Common Stock issuable upon exercise of the Underwriters' Warrant are
hereinafter referred to collectively as the "Underwriters' Warrant Shares". The
Underwriters' Warrant will be exercisable at an initial exercise price of $___
per Share at any time and from time to time, in whole or in part, during a
four-year period commencing one year following the Effective Date. The Company
has granted you certain registration rights with respect to the Underwriters'
Warrant and the securities issuable upon exercise thereof, as set forth in said
Underwriters' Warrant.
On each Additional Closing Date, at the time of the delivery and payment
for the Additional Shares, the Company shall pay to you as a non-accountable
expense allowance, a sum equal to $___ per Additional Share for each Additional
Share purchased by you on such date by certified or official bank check or
checks payable in New York Clearing House funds payable to the order of, and in
accordance with instructions from, you.
4. Covenants and Agreements of the Company: (A) The Company covenants and
agrees with you as follows:
(a) The Company will notify you promptly by telephone and (if requested by
you) will confirm such advice in writing, (1) when the Registration
Statement has become effective and when any post- effective amendment
thereto becomes effective, (2) if Rule 430A under the Act is used, or the
Prospectus is otherwise required to be filed with the Commission pursuant
to Rule 424(b) under the Act, when the Prospectus is filed with the
Commission pursuant to Rule 424(b) under the Act, (3) of any request by
the Commission for amendments or supplements to the Registration Statement
or the Prospectus or for additional information, (4) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement, preventing or suspending the use of the
Preliminary Prospectus, the Prospectus, the Registration Statement or any
amendment or supplement thereto, or refusing to permit the effectiveness
of the Registration Statement ("Stop Order"), or the initiation of any
proceedings for any of those purposes, (5) of the happening of any event
during the period mentioned in paragraph (f) below which in the reasonable
judgment of the Company makes any statement made in the Registration
Statement or the Prospectus untrue or which requires the making of any
changes in the Registration Statement or the Prospectus in order to make
the
3
<PAGE>
statements therein not misleading, and (6) of the receipt of any comments
from the Commission or the Blue Sky or securities authorities of any
jurisdiction regarding the Registration Statement, any post-effective
amendment thereto, the Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto. The Company will use its best efforts to
prevent the issuance of any Stop Order by the Commission or any
notification from the Blue Sky or securities authorities of any
jurisdiction suspending the qualification or registration of the Shares
for sale in such jurisdictions, and if at any time the Commission shall
issue any Stop Order, or if the Blue Sky or securities authorities of any
jurisdiction shall issue notification suspending the qualification or
registration of the Shares, the Company will make every reasonable effort
to obtain the withdrawal of such Stop Order or notification at the
earliest possible moment. The Company will promptly advise you of its
receipt of any notification with respect to the suspension of the
qualification or registration of the Shares for offer or sale in any
jurisdiction or the initiation or threatening of any action or proceeding
for such purpose.
(b) Prior to any public offering of the Shares by you, the Company will
cooperate with you and your counsel in registering or qualifying the
Shares for offer or sale under the Blue Sky or securities laws, rules or
regulations of such jurisdictions as you may reasonably request; provided
that in no event shall the Company be obligated to register or qualify to
do business as a foreign corporation in any jurisdiction where it is not
now so registered or qualified or to take any action which would subject
it to general service of process, or to taxation as a foreign corporation
doing business, in any jurisdiction where it is not now so subject. The
Company will pay all fees and expenses relating to the registration or
qualification of the Shares under such Blue Sky or securities laws of such
jurisdictions as you may designate (including the legal fees, expenses and
disbursements of counsel to you for the registration or qualification of
the Shares in such jurisdictions as you shall determine). After
registration, qualification or exemption of the Shares for offer and sale
in such jurisdictions, and for as long as any offering pursuant to this
Agreement continues, the Company, at your reasonable request, will file
and make such statements or reports, and pay the fees applicable thereto,
at such times as are or may be required by the laws, rules or regulations
of such jurisdictions in order to maintain and continue in full force and
effect the registration, qualification or exemption for offer or sale of
the Shares in such jurisdictions. After the termination of the offering
contemplated hereby, and as long as any of the Shares are outstanding, the
Company will file and make, and pay all fees applicable thereto, such
statements and reports and renewals of registration as are or may be
required by the laws, rules or regulations of such jurisdictions to
maintain and continue in full force and effect the registration,
qualification or exemption for secondary market transactions in the
Shares, in the various jurisdictions in which the Shares were originally
registered, qualified or exempted for offer or sale. The Company shall
further cause its counsel to provide to HBW at the Effective Date a list
to be updated as of the Closing Date and at least annually thereafter for
a minimum of three years, of those states in which the Company's
securities may be traded in non- issuer transactions under the Blue Sky
laws of the 50 states.
(c) The Company will furnish to you, without charge, four manually-signed
copies of the Registration Statement as originally filed on Form SB-2 and
of any amendments (including post-effective amend ments thereto),
including financial statements and schedules, if any, and all consents,
certificates and exhibits (including those incorporated therein by
reference to the extent not previously furnished to you), heretofore or
hereafter made, signed by or on behalf of its officers whose signatures
are required thereon and a majority of its board of directors.
4
<PAGE>
(d) The Company will use its best efforts to cause the Registration Statement
to become effective under the Act. Upon such effectiveness, if the Company
and you have determined not to proceed pursuant to Rule 430A under the
Act, the Company will timely file a Prospectus pursuant to, and in
conformity with, Rule 424(b), if required, and if the Company and you have
determined to proceed pursuant to Rule 430A under the Act, the Company
will timely file a Prospectus pursuant to, and in conformity with, Rules
424(b) and 430A under the Act.
(e) The Company will give you and your counsel advance notice of its intention
to file any amendment to the Registration Statement or any amendment or
supplement to the Prospectus, whether before or after the effective date
of the Registration Statement, and will not file any such amendment or
supplement unless the Company shall have first delivered copies of such
amendment or supplement to you and your counsel and you and your counsel
shall have given your consent to the filing of such amendment or
supplement. Any such amendment or supplement shall comply with the Act.
(f) From and after the Effective Date, the Company will deliver to you,
without charge, as many copies of the Prospectus or any amendment or
supplement thereto as you may reasonably request. The Company consents to
the use of the Prospectus or any amendment or supplement thereto by you
and by all dealers to whom the Shares may be sold, both in connection with
the offering or sale of the Shares and for such period of time thereafter
as the Prospectus is required by law to be delivered in connection
therewith. If during such period of time any event shall occur which in
the judgment of you or your counsel should be set forth in the Prospectus
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with law, the Company will
forthwith prepare and duly file with the Commission an appropriate
supplement or amendment thereto, and will deliver to each of you, without
charge, such number of copies thereof as you may reasonably request.
(g) The Company will promptly pay all expenses in connection with (1) the
preparation, printing, filing, distribution and mailing (including,
without limitation, express delivery service) of the Registration
Statement, each preliminary prospectus, the Prospectus, and the
preliminary and final forms of Blue Sky memoranda (if any); (2) the
issuance and delivery of the Shares; (3) the fees and expenses of legal
counsel and independent accountants for the Company relating to, among
other things, opinions of counsel, audits, review of unaudited financial
statements and cold comfort review; (4) the fees and expenses of a
registrar or transfer agent for the Common Stock; (5) the printing,
filing, distribution and mailing (including, without limitation, express
delivery service) of this Agreement, the Agreement Among Underwriters, if
any, and the Selected Dealers Agreement; (6) furnishing such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and
all amendments and supplements thereto, as may be requested for use in
connection with the offering and sale of the Shares by you or by dealers
to whom Shares may be sold; (7) any fees and communication expenses with
respect to filings required to be made by you with the National
Association of Securities Dealers Regulatory, Inc. (the "NASDR"); and (8)
the quotation of the Shares on NASDR's Automated Quotation System
("NASDAQ"); (9) tombstone advertisements (not to exceed $10,000) and
lucite cubes for the offering; and (10) costs of "road shows", if any
(with respect to such road shows, each party shall pay its own travel
expenses and the Company will pay all other costs associated with holding
such shows including expenses in connection with any meetings or
presentations).
(h) On the Closing Date, the Company shall sell to you, the Underwriters'
Warrant to purchase 150,000 Shares for an aggregate purchase price of $10.
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(i) If this Agreement shall be terminated pursuant to any of the provisions
hereof (otherwise than by notice given by you pursuant to Section 8
hereof) or if for any reason the Company shall be unable to perform its
obligations hereunder, the Company will reimburse you for all of your
out-of-pocket expenses (including the fees and expenses of your counsel)
reasonably incurred by you in connection herewith.
(j) For a period of one (1) year after the commencement of the public offering
of the Shares by you, without HBW's prior written consent, the Company
will not:
(1) offer, issue, sell, contract to sell, grant any option for the sale
of, or otherwise dispose of, directly or indirectly, any securities
of the Company, except as provided for and as contemplated by this
Agreement, as specifically disclosed in the Registration Statement
respecting certain post-offering issuances to Company employees, or
for stock options granted to employees pursuant to the Company's
Stock Option Plan attached as an exhibit to the Registration
Statement; or
(2) redeem any of its securities outstanding as of the closing date of
the Public Offering, or pay any dividends or make any other cash
distribution in respect of its securities in excess of the amount of
the Company's current or retained earnings after the closing date of
the Public Offering.
HBW shall either approve or disapprove any such contemplated stock
redemption or dividend or distribution within five business days after the
date HBW receives written notice of the proposed action.
(k) On or prior to the Closing Date, the Company shall obtain:
(1) from each of its officers and directors, his or her enforceable
written agreement, in form and substance satisfactory to your
counsel, that for a period of twenty-four (24) months after the
Effective Date (or any longer period required by any jurisdiction in
which the offer and sale of the Shares is to be registered or
qualified);
(3) from each of other shareholders, his or her enforceable written
agreement, in form and substance satisfactory to your counsel, that
for a period of twelve (12) months after the Effective Date (or any
longer period required by any jurisdiction in which the offer and
sale of the Shares is to be registered or qualified)
that he or she will not offer for sale, sell, contract to sell, assign,
pledge, transfer, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company (including without
limitation any shares of Common Stock), owned by him or her as of the Closing
Date, whether upon exercise of warrants, stock options or otherwise, without
HBW's prior written consent (the "Lock-up Letter"). An appropriate legend shall
be marked on the face of stock certificates representing all of such shares of
capital stock prior to the Effective Date, as well as a stop order being issued
to the Company's transfer agent. Notwithstanding the foregoing, the Company's
directors, officers and existing stockholders may make gifts and intrafamily
transfer of the Common Stock provided such transferees agree to be bound by the
terms of this restriction on transfer.
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(l) The Company has reserved and shall continue to reserve and keep available
the maximum number of shares of its authorized but unissued Common Stock
and other securities for issuance upon exercise of the Underwriters'
Warrant.
(m) For a period of five years after the date of this Agreement, the Company
shall:
(1) retain Amper, Politzinert Mattia P.A. or another regionally
recognized firm of independent public accountants, as its auditors,
and at its own expense, shall cause such independent certified
public accountants to review the Company's financial statements for
each of the first three fiscal quarters of each fiscal year prior to
the announcement of quarterly financial information, the filing of
the Company's 10-Q quarterly reports and the mailing of quarterly
financial information to its shareholders;
(2) cause the Company's Board of Directors to meet not less frequently
than quarterly, upon proper notice, and cause an agenda and minutes
of the preceding meeting to be distributed to directors prior to
each such meeting;
(3) distribute to its security holders, within 120 days after the end of
each fiscal year, an annual report (containing certified financial
statements of the Company) prepared in accordance with those
required under Rule 14a-3(b) of Regulation 14A promulgated by the
Commission under the Securities Exchange Act of 1934, as amended;
and
(4) appoint a transfer agent for the Common Stock, in each case
acceptable to you.
(n) For a period of five years after the date of this Agreement, the Company
shall furnish you, free of charge, with the following:
(1) within 90 days after the end of each fiscal year, financial
statements for the Company certified by the independent certified
public accountants referred to in Section 4(m)(1) above, including a
balance sheet, statement of operations, statement of shareholders'
equity and statement of cash flows, for the Company, with supporting
schedules, prepared in accordance with generally accepted accounting
principles, as at the end of such fiscal year and for the twelve
months then ended, accompanied by a copy of the certificate or
report thereon of such independent certified public accountants;
(2) (x) for so long as the Company is a reporting company under any of
Sections 12(b), 12(g) or 15(d) of the Securities Exchange Act, as
amended, and the rules and regulations of the Commission promulgated
thereunder (collectively, the "Exchange Act"), promptly after filing
with the Commission, copies of all reports and proxy soliciting
material which the Company is required to file under the Exchange
Act, or (y) at such times as the Company is not a reporting company
under the aforesaid provisions of the Exchange Act, as soon as
practicable after the end of each of the first three fiscal quarters
of each fiscal year, financial statements of the Company, including
a balance sheet, statement of operations, statement of shareholders'
equity and statement of cash flows as at the end of, or for each
such fiscal quarter and the comparable period of the preceding year,
which statements need not be audited;
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(3) as soon as practicable after they have first been distributed to
shareholders of the Company, copies of each annual and interim
financial or other report or communication sent by the Company to
its shareholders (except to the extent duplicative of information
furnished pursuant to any other clause of this Section 4(n));
(4) as soon as practicable following release or other dissemination,
copies of every press release and every material news item and
article in respect of the Company or its affairs released or
otherwise disseminated by the Company;
(5) promptly following receipt thereof, copies of the Company's daily
transfer sheets prepared by the Company's transfer agent, monthly
DTC Transfer Sheets and a list of shareholders; and
(6) such additional documents and information with respect to the
Company and its affairs, if any, as you may from time to time
reasonably request.
(o) Prior to the Effective Date, the Company shall apply, on expedited basis,
for listing in the Corporation Records Service published by Standard and
Poor's Corporation and/or Moody's Industrial Manual and shall use its good
faith efforts to have the Company listed in one of such reports at or
prior to the Closing Date. Further, the Company shall use its good faith
efforts to remain listed in one of such reports for a period of five years
from the Effective Date.
(p) On or prior to the Effective Date, the Company will have accomplished the
quotation of the Shares on the NASDAQ SmallCap Market, subject only to
notice of issuance and the registration of such securities under the
Exchange Act. For a period of five years from the date of this Agreement,
the Company agrees, at its sole cost and expense, to take all necessary
and appropriate action such that its securities continue to be quoted on
NASDAQ, provided that the Company otherwise complies with the prevailing
requirements of NASDAQ.
(q) For a period of two years after the date of this Agreement, the Company
will not seek to amend its certificate of incorporation to authorize the
issuance of any other class of its capital stock, including, without
limitation, any preferred stock, without your prior written consent.
(r) The Company agrees, at its own cost and expense, to deliver to you and
your counsel, within 180 days after the Optional Closing Date, or the
expiration of the period in which you may exercise the over-allotment
option, five bound volumes containing copies of all documents and
correspondence filed with, or received from, the Commission and the NASD
relating to the offering of the Shares and the closing thereof, including
related matters.
(s) The Company will make generally available to its security holders and
deliver to you as soon as it is practicable to do so (but in no event
later than the 45th day after the end of the twelve-month period beginning
at end of fiscal quarter of the Company during which the Registration
Statement becomes effective, or, if the Registration Statement becomes
effective during the Company's last fiscal quarter, the 90th day after the
end of such twelve-month period), an earnings statement of the Company
(which need not be audited) covering a period of at least twelve
consecutive months commencing after the effective date of the Registration
Statement, which shall satisfy the require ments of Section 11(a) of the
Act.
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(t) The Company will, promptly upon your request, prepare and file with the
Commission any amend ments or supplements to the Registration Statement,
any Preliminary Prospectus or the Prospectus and take any other action,
which in the reasonable opinion of Lehman & Eilen, counsel to you, may be
reasonably necessary or advisable in connection with the distribution of
the Shares, and will cause the same to become effective as promptly as
possible.
(u) The Company will furnish to you as early as practicable prior to the
Closing Date and any Optional Closing Date, as the case may be, but no
less than two full business days prior thereto, a copy of the latest
available unaudited interim financial statements of the Company which have
been reviewed by the Company's independent certified public accountants,
as stated in their letters to be furnished pursuant to Section 7(e)
hereof.
(v) The Company will apply the net proceeds from the issuance and sale of the
Shares for the purposes and in the manner set forth under the caption "Use
of Proceeds" in the Prospectus, and will file on a timely basis such
reports with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required pursuant to Rule
463 under the Act. The Company will operate its business in such a manner
and, pending application of the net proceeds of the offering for the
purposes and in the manner set forth under the caption "Use of Proceeds"
in the Prospectus, will invest such net proceeds in certain types of
securities so as not to become an "investment company" as such term is
defined under the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(w) The Company has filed a registration statement on Form 8-A covering the
Shares pursuant to Section 12(b) of the Exchange Act and will use its best
efforts to cause said registration statement to become effective on the
Effective Date. The Company will comply with all registration, filing and
reporting requirements of the Exchange Act, which may from time to time be
applicable to the Company. The Company shall comply with the provisions of
all undertakings contained in the Reg istration Statement.
(x) Prior to the Closing Date or any Optional Closing Date, as the case may
be, the Company shall neither issue any press release or other
communication, directly or indirectly, nor hold any press conference with
respect to the offering of the Shares, the Company or its business,
results of opera tions, condition (financial or otherwise), property,
assets, liabilities or prospects of the Company, without your prior
written consent.
(y) For a period of ninety (90) days after the date hereof, the Company will
not, directly or indirectly, take any action designed, or which will
constitute or which might reasonably be expected to cause or result in,
stabilization or manipulation of the market price of the Shares, or the
facilitation of the sale or resale of the Shares.
(aa) The Company maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset ac countability; (iii) access to cash and cash
equivalents is permitted only in accordance with manage ment's general or
specific authorization; and (iv) the recorded accountability for cash and
cash equivalents is compared with the existing cash and cash equivalents
at reasonable intervals and appropriate action is taken with respect to
any differences.
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(bb) There are no business relationships or related party transactions of the
nature described in Item 404 of Regulation S-B of the Rules and
Regulations involving the Company and any person referred to in Items 401
or 404, except as required to be described in the Prospectus and as so
described.
(cc) The Company will not grant any person or entity registration rights with
respect to any of its securities, except such rights as are subordinate to
the registration rights contained in the Underwriters' Warrant and are
exercisable no earlier than six months after the securities to be regis
tered upon exercise of such registration rights have been offered for sale
pursuant to an effective registration statement under the Act and
registered or qualified for sale under the Blue Sky or state securities
law, rules or regulations of the jurisdictions in which such securities
are to be offered for sale.
(dd) The Company shall enter into a consulting agreement with HBW on the
Closing Date, pursuant to which HBW will provide financial consulting
services to the Company for a period of twelve (12) months after the
Closing Date. In consideration for performing such services, HBW shall
receive a cash amount equal to 1% of the gross proceeds, which amount is
payable in full on the Closing Date. HBW shall furnish the Company with
the form of such financial consulting agreement.
(ee) It is understood that, except for the issuance of shares of Common Stock
to be issued (a) upon the exercise of any options described herein, (b)
pursuant to and in order to consummate a merger with or acquisition from
an unaffiliated party in a transaction negotiated at arms' length and
approved by a majority of the Company's Board of Directors, (c) in a
public offering, at a price not less than ninety percent (90%) of the
average of the closing bid prices of the Common Stock as reported on the
NASDAQ for the 21 consecutive trading day period immediately preceding the
date of sale (the "Exempt Price"), and (d) in a private sale at a price
not less than seventy percent (70%) of the Exempt Price, during the period
of the Public Offering and for 12 months from the Effective Date, the
Company will not sell or otherwise dispose of any securities without the
prior written consent of HBW.
(ff) The Company shall elect a minimum of two (2) "outside" persons (excluding
affiliates of the Company and family members of the Company's existing
directors, officers and stockholders) to the Company's Board of Directors
within 90 days of the Effective Date. The underwriting agreement shall
provide, unless waived by HBW, that HBW shall have the right to designate
a member to the Company's Board of Directors for a period of 60 months
after the Effective Date, which member shall be responsibly acceptable to
the Company. Management of the Company will obtain, prior to the Effective
Date, agreements from each of the Company's directors, officers and 5%
shareholders to vote all shares of the Company's securities owned by him,
her or it, whether directly or indirectly in favor of such designee. To
the extent permitted by law and on the same basis as all other directors,
the Company will agree to indemnify HBW's designee for the actions of its
designee as a director of the Company. In the event the Company maintains
a liability insurance policy affording coverage for the acts of its
officers and directors, it will agree to include HBWs' designee and HBW as
an insured under such policy. In addition, the Company will obtain
directors and officers insurance and "key man" life insurance in the
amount of $1,500,000 on the life or lives of certain officers, directors
and/or key employees of the Company that the Company and HBW mutually deem
reasonably necessary, with the Company as the beneficiary thereof. The
Company shall pay the annual premiums for a period of not less than five
years.
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(gg) The Company hereby grants HBW a right of first refusal for a period of
three years after the Effective Date of the Registration Statement for the
underwriting of any public or private sale of securities of the Company to
be made by the Company, or for any public or private sale of securities by
the Company to be made by its principal stockholders or subsidiaries.
Notwithstanding the foregoing, should an investment banking firm which is
generally recognized to be of a higher tier than HBW agree to the
underwriting of any public or private sale of securities of the Company
resulting in aggregate gross proceeds of $15,000,000 or more and HBW is
permitted to participate in such offering to the extent of at least ten
percent (10%), then the right of first refusal provided herein shall not
apply with respect to that offering and any related offering. Should the
Company prefer to work with another investment banking firm in connection
with a future underwriting of any public or private sale of securities of
the Company and the investment banking firm is not generally to be of a
higher tier than HBW and/or the underwriting will not result in aggregate
gross proceeds of at least $15,000,000, then upon payment to HBW of a fee
in the amount $200,000, the right of first refusal provided herein shall
not apply with respect to that offering and any related offerings.
(hh) The Company will pay HBW a finder's fee based on the Transaction Value of
any covered transactions, in the event that HBW originates a merger,
acquisition, joint venture or other similar transaction to which the
Company or a subsidiary of the Company is a party, in the amount of five
percent (5%). "Transaction Value" shall mean the aggregate value of all
cash, securities, and other property (a) paid to the Company, it
affiliates, or their stockholders in connection with any transaction
referred to above involving at investment in or acquisition of the Company
or any affiliate (or the assets of either), (b) paid by the Company or any
affiliate in any such transaction involving an investment in or
acquisition of another party or its equity holdings by the Company or any
affiliate, or (c) paid or contributed by the Company or any affiliate and
by the other party or parties in the event of any such transaction
involving a joint venture or similar joint enterprise or undertaking. The
value of any such securities (whether debt or equity) or other property
shall be the fair market value thereof as deter-mined by mutual agreement
of the Company and HBW or by an independent appraiser jointly selected by
the Company and HBW.
5. Representations and Warranties of the Company: (A) The Company
represents and warrants to you that:
(a) When the Registration Statement becomes effective, and at all times
subsequent thereto to and including the Closing Date and each Optional
Closing Date, and during such longer period as the Prospectus may be
required to be delivered in connection with sales by you or any dealer,
and during such longer period until any post-effective amendment thereto
shall become effective, the Registration Statement (and any post-effective
amendment thereto) and the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment or
supplement to the Registration Statement or the Prospectus) will contain
all statements which are required to be stated therein in accordance with
the Act, will comply with the Act, and will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and no event will have occurred which should have been set
forth in an amendment or supplement to the Registration Statement or the
Prospectus which has not then been set forth in such an amendment or
supplement; if a Rule 430A Prospectus is included in the Registration
Statement at the time it becomes effective, the Prospectus filed pursuant
to Rules 430A and 424(b) (1) or (4) will contain all Rule 430A Information
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and all statements which are required to be stated therein in accordance
with the Act, will comply with the Act, and will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading; and each Preliminary Prospectus, as of the date filed with the
Commission, did not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; except that no representation or warranty
is made in this Section 5(A)(a) with respect to statements or omissions
made in reliance upon and in conformity with written information furnished
to the Company as stated in Section 6(b) with respect to you expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or
the Prospectus, or any amendment or supplement thereto.
(b) Neither the Commission nor the Blue Sky or securities authorities of any
jurisdiction has issued an order suspending the effectiveness of the
Registration Statement, preventing or suspending the use of any
Preliminary Prospectus, the Prospectus, the Registration Statement, or any
amendment or supplement thereto, refusing to permit the effectiveness of
the Registration Statement, or suspending the registration or
qualification of the Shares, nor has the Commission or any of such
authorities instituted or threatened to institute any proceedings with
respect to such an order.
(c) The Company is a corporation duly incorporated and validly existing in
good standing under the laws of Delaware, its jurisdiction of
incorporation. The Company has full corporate power and authority and has
obtained all necessary consents, authorizations, approvals, orders,
licenses, certificates, declarations and permits of and from, and have
made all required filings with, all federal, state, local and other
governmental authorities and all courts and other tribunals, to own,
lease, license and use its properties and assets and to carry on its
business in the manner described in the Prospectus. All such consents,
authorizations, approvals, orders, licenses, certificates, declarations,
permits and filings are in full force and effect and the Company is in all
material respects complying therewith. The Company is duly registered or
qualified to do business as a foreign corporation and is in good standing
in each other jurisdiction in which their ownership, leasing, licensing,
or use of property and assets or the conduct of its business requires such
registration or qualification.
(d) The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, of which 5,631,000 shares are outstanding. The Company
does not have any subsidiaries or own any capital stock or equity interest
in any other corporation, partnership, limited liability company or other
entity. Each outstanding share of Common Stock, including the Additional
Shares to be sold by the Company to you hereunder, are validly authorized,
validly issued, fully paid, and nonassess able, without any personal
liability attaching to the ownership thereof, and has not been issued and
is not owned or held in violation of any preemptive rights of
shareholders. There is no commitment, plan or arrangement to issue, and no
outstanding option, warrant or other right calling for the issuance of,
any share of capital stock of the Company or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for capital stock of the Company, except as disclosed in the
Prospectus. There is outstanding no security or other instrument which by
its terms is convertible into or exchangeable for capital stock of the
Company.
(e) The financial statements of the Company included in the Registration
Statement and the Prospectus fairly present the financial position, the
results of operations and the other information purported to be shown
therein at the respective dates and for the respective periods to which
they apply. Such financial statements have been prepared in accordance
with generally accepted accounting principles
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and are prepared in accordance with the books and records of the Company.
The accountants whose reports on the audited financial statements are
filed with the Commission as a part of the Registra tion Statement are,
and during the periods covered by their report(s) included in the
Registration Statement and the Prospectus were, independent certified
public accountants with respect to the Company within the meaning of the
Act. No other financial statements are required by Form SB-2 or otherwise
to be included in the Registration Statement or the Prospectus. Except as
disclosed in the Prospectus, there has at no time been a material adverse
change in the condition (financial or otherwise), results of operations,
business, property, assets, liabilities or prospects of the Company from
the latest information set forth in the Registration Statement or the
Prospectus.
(f) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, threatened, or
in prospect (or any basis therefor known to the Company) with respect to
or affecting the Company, its operation, business, property or assets,
except as disclosed in the Prospectus or such as individually or in the
aggregate do not now have and are not expected to have a material adverse
effect upon the operations, businesses, property, assets, condition
(financial or otherwise) or prospects of the Company. The Company is not
in violation of, or in default with respect to, any law, rule, regulation,
order, judgment, or decree, except as disclosed in the Prospectus or such
as individually or in the aggregate do not now have and are not expected
to have a material adverse effect upon the operations, businesses,
property, assets, condition (financial or otherwise) or prospects of the
Company; nor is the Company required to take any action in order to avoid
any such violation or default.
(g) The Company has good and marketable title in fee simple absolute to all
real properties and good title to all other properties and assets which
the Prospectus indicates are owned by them, free and clear of all liens,
security interests, pledges, charges, mortgages and other encumbrances
(except as may be required to be disclosed in the Prospectus). The
properties held under lease by the Company are held by it under valid and
enforceable leases and the interests of the Company in such leases are
free and clear of all liens, encumbrances and defects, except as disclosed
in the Prospectus, and the Company is in full compliance with all material
terms and conditions thereunder and such leases are in full force and
effect. No real property owned, leased, licensed or used by the Company is
situated in an area which is, or to the knowledge of the Company, will be,
subject to zoning, use, or building code restrictions which would prohibit
(and no state of facts relating to the actions or inaction of another
person or entity or his or its ownership, leasing, licensing, or use of
any real or personal property exists or will exist which would prevent)
the continued effective ownership, leasing, licens ing, or use of such
real property in the business of the Company as presently conducted or as
the Prospectus indicates any of them contemplate conducting, except as
disclosed in the Prospectus).
(h) Neither the Company nor any other party is now or is expected by the
Company to be in violation or breach of, or in default with respect to
complying with, any material provision of any indenture, mortgage, deed of
trust, debenture, note or other evidence of indebtedness, contract,
agreement, instrument, lease or license, or arrangement or understanding
which is material to the Company, and each such indenture, mortgage, deed
of trust, debenture, note or other evidence of indebtedness, contract,
agreement, instrument, lease or license is in full force and is the legal,
valid and binding obligation of the Company, and to the knowledge of the
Company, of the other contracting party and is enforceable as to them in
accordance with its terms. The Company enjoys peaceful and undisturbed
possession under all leases and licenses under which they are operating.
The Company is not a party to or bound by any contract, agreement,
instrument, lease, license, arrangement or understanding, or subject to
any charter or other restriction, which has had or is expected in the
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future to have a material adverse effect on the condition (financial or
otherwise), results of operations, businesses, property, assets or
liabilities of the Company. The Company is not in viola tion or breach of,
or in default with respect to, any term of its Certificate of
Incorporation or By- laws.
(i) The Company does not own or have any licensed rights to, in or under any
patents, patent applica tions, trademarks, servicemarks, trademark or
servicemark applications, trade names, service marks, copyrights,
technology, know-how or other intangible properties or assets (all of the
foregoing being herein called "Intangibles") that are material to the
business of the Company. There is no right under any Intangibles of the
Company necessary to the business of the Company as presently conducted or
as proposed to be conducted as indicated in the Prospectus, except as may
be disclosed in the Prospectus. The Company have not received notice of
infringement with respect to asserted Intangibles of others. To the
knowledge of the Company, there is no infringement by others of
Intangibles of the Company. To the knowledge of the Company, there is no
Intangible of others which has had or may in the future have a materially
adverse effect on the condition (financial or otherwise), results of
operations, businesses, property, assets, liabilities or prospects of the
Company.
(j) Neither the Company, any director or officer of the Company, or to the
best knowledge of the Company, any agent, employee, or other person
authorized to act on behalf of the Company have, directly or indirectly:
used any corporate funds of the Company for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds of the Company; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, as relates to the business of
the Company; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment in connection with the business of the
Company.
(k) Any contract, agreement, instrument, lease or license required to be
described in the Registration Statement or the Prospectus has been
properly described therein. Any contract, agreement, instrument, lease or
license required to be filed as an exhibit to the Registration Statement
has been filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration Statement.
(l) The Company has all requisite corporate power and authority to execute,
deliver and perform under the terms and conditions of this Agreement and
the Underwriters' Warrant. All necessary corporate proceedings of the
Company have been duly taken to authorize the execution, delivery and
perfor mance by the Company of this Agreement and the Underwriters'
Warrant. This Agreement has been duly authorized, executed and delivered
by the Company, is a legal, valid, and binding agreement of the Company,
and is enforceable as to the Company in accordance with its terms. The
Underwriters' Warrant has been duly authorized by the Company and, when
executed and delivered by the Company, assuming the due execution and
delivery thereof by the other parties thereto, will be a legal, valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms. No consent, authorization, approval, order,
license, certificate, declara tion or permit of or from, or filing with,
any governmental or regulatory authority, agent, board or other body is
required for the issue and sale of the Shares by the Company and the
execution, delivery or performance by the Company of this Agreement or the
Underwriters' Warrant (except filings with and orders of the Commission
pursuant to the Act which have been or will be made or obtained prior to
the Closing Date, and such filings, consents or permits as are required
under Blue Sky or securi-
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ties laws in connection with the transactions contemplated by this
Agreement). No consent of any party to any contract, agreement,
instrument, lease, license, arrangement or under standing to which the
Company is a party, or to which any of their properties or assets are
subject, is required for the execution, delivery or performance of this
Agreement or the Underwriters' Warrant; and the execution, delivery and
performance of this Agreement and the Underwriters' Warrant will not
violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract, agreement,
instrument, lease, license, arrangement or understanding, result in the
creation or imposition of, any lien, security interest, pledge, charge, or
other encumbrance upon any of the property or assets of the Company
pursuant to the terms of any indenture, mortgage, deed of trust, loan or
credit agreement, lease or other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of the
property or assets of the Company is sub ject or violate or result in a
breach of any term of the Certificate of Incorporation or By-laws of the
Company, or violate, result in a breach of, or conflict with any law,
rule, regulation, order, judgment or decree binding on the Company or to
which its operations, business, properties or assets are subject.
(m) The Shares are validly authorized, and when issued, paid for and delivered
in accordance with this Agreement, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive rights of
shareholders. You will receive good title to the Shares and the
Underwriters' Warrant purchased by it, upon payment of the purchase price
therefor in accordance with the provisions of this Agreement, free and
clear of all liens, security interests, pledges, charges, encumbrances,
shareholders' agree ments and voting trusts (collectively,
"Encumbrances").
(n) The Underwriters' Warrant Shares are validly authorized and reserved for
issuance and, when issued, paid for and delivered upon exercise of the
Underwriters' Warrant, in accordance with the provisions of the
Underwriters' Warrant will be validly issued, fully paid and
non-assessable and will not be issued in violation of any preemptive
rights of shareholders; and the holders of the Underwriters' Warrant
Shares will receive good title to them, free and clear of all
Encumbrances.
(o) The Shares and the Underwriters' Warrant conform to all statements
relating thereto contained in the Registration Statement and the
Prospectus.
(p) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as otherwise may be
stated therein, (i) the Company has not entered into any transaction or
incurred any liability or obligation, contingent or otherwise, which is
material to the Company, except in the ordinary course of business, (ii)
there has not been any change in the outstanding capital stock of the
Company, or any issuance of options, warrants or rights to purchase the
capital stock of the Company, or any material increase in the long-term
debt of the Company, or any material adverse change in the business,
condition (financial or otherwise) or results of opera tions of the
Company, (iii) no loss or damage (whether or not insured) to the
properties of the Company has been sustained which is material to the
Company, (iv) the Company has not paid or declared any dividend or other
distribution with respect to its stock, and (v) there has not been any
change, contingent or otherwise, in the direct or indirect control of the
Company nor, to the best knowledge of the Company, do there exist any
circumstances which would likely result in such a change.
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(q) Neither the Company nor any officers or directors of the Company or
Affiliates (as defined in Rule 405 of the Rules and Regulations), have
taken or will take, directly or indirectly, prior to the termination of
the offering contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the Company, or which
has caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price
of any security of the Company, to facilitate the sale or resale of any of
the Shares.
(r) The Company has not incurred, directly or indirectly, any liability for a
fee, commission or other compensation on account of the employment of a
broker or finder in connection with the offering of the Shares
contemplated by this Agreement, except as contemplated by this Agreement
or as disclosed in the Registration Statement.
(s) The Company is not, and does not intend to conduct its business in a
manner in which it would become, an "investment company" as defined in
Section 3(a) of the Investment Company Act.
(t) The Company has obtained, or prior to the Closing Date will obtain a
Lock-up Letter, from each of its officers and directors who owns shares of
Common Stock.
(u) No person or entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the filing or
effectiveness of the Registration Statement.
(v) The Company has adequately insured its properties against loss or damage
by fire, maintain adequate insurance against liability for negligence and
maintain such other insurance as is usually maintained by companies
engaged in the same or similar businesses, including product liability
insurance.
(w) The Company has filed all federal, state and local tax returns required to
be filed (or have obtained extensions therefor) and have paid all taxes
shown on such returns and all assessments received by it to the extent
that payment has become due. The Company and its subsidiaries have made
adequate accruals for all taxes which may be owed by it but has not been
paid.
(y) Amper, Politziner & Mattia P.A. who have certified certain financial
statements of the Company are independent public accountants as required
by the Act and the rules and regulations of the Commission thereunder.
6. Indemnification and Contribution:
(a) The Company agrees to indemnify and hold harmless you, your officers,
directors, partners, employees, agents and counsel, and each person, if any, who
controls you within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any and all loss, liability, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 6, but not be
limited to, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in settlement
of any claim or litigation) as and when incurred arising out of, based upon, or
in connection with (i) any untrue statement or alleged untrue statement of a
material fact contained (1) in any Preliminary Prospectus, the Rule 430A
Prospectus, the Registration Statement, or the Prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, or (2) in any
application or other document or communication (in this Section 6 collectively
called an "application") executed by or on behalf of the
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<PAGE>
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Shares under the Blue
Sky or securities laws thereof (or the rules and regulations promulgated
thereunder) or filed with the Commission or any securities exchange or automated
quotation system; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company as stated in
Section 6(b) by you for inclusion in any Preliminary Prospectus, the Rule 430A
Prospectus, the Registration Statement, of the Prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (ii) any
breach of any representation, warranty, covenant or agreement of the Company
contained in this Agreement. The foregoing agreement to indemnify shall be in
addition to any liability the Company may otherwise have, including liabilities
arising under this Agreement.
If any action is brought against you or any of your officers, directors,
partners, employees, agents or counsel, or any of your controlling persons
(each, an "indemnified party") in respect of which indemnity may be sought
against the Company pursuant to the foregoing paragraph, such indemnified party
or parties shall promptly notify the Company in writing of the institution of
such action (but the failure so to notify shall not relieve the Company from any
liability it may have pursuant to this Section 6(a)) and the Company shall
promptly assume the defense of such action, including the employment of counsel
(satisfactory to such indemnified party or parties) and payment of expenses.
Such indemnified party or parties shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such indemnified party or parties, unless the employment of
such counsel shall have been authorized in writing by the Company in connection
with the defense of such action or the Company shall not have promptly employed
counsel satisfactory to such indemnified party or parties to have charge of the
defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from or
additional to those available to the Company, in any of which events such fees
and expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this paragraph to the contrary notwithstanding, the Company
shall not be liable for any settlement of any such claim or action effected
without its written consent. The Company agrees promptly to notify you of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of the Shares, any Preliminary
Prospectus, the Rule 430A Prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or any application.
(b) You agree to indemnify and hold harmless the Company, each director of
the Company, each officer of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and the
Company, to the same extent as the foregoing indemnity from the Company to you
in Section 6(a), but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Rule 430A Prospectus, the Registration
Statement, or the Prospectus (as from time to time amended and supplemented), or
any amendment or supplement thereto, or in any application, in reliance upon and
in conformity with written information furnished to the Company by you expressly
for inclusion in any Preliminary Prospectus, the Rule 430A Prospectus, the
Registration Statement, or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be. For all purposes of this
Agreement, the public offering price, the amounts of the selling concession and
reallowance set forth in the Prospectus and the information in the third
paragraph under "Underwriting" constitute the only information furnished in
writing by or on your behalf expressly for inclusion in any Preliminary
Prospectus, the Rule 430A Prospectus, the Registra tion Statement or the
Prospectus (as from time to time amended or supplemented), or any amendment or
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<PAGE>
supplement thereto, or in any application, as the case may be. If any action
shall be brought against the Company or any other person so indemnified based
upon any Preliminary Prospectus, the Rule 430A Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto, or any
application, and in respect of which indemnity may be sought against you
pursuant to this Section 6(c), you shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
6(a).
(c) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 6(a), 6(b) or 6(c)
(subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company), as one entity, and you,
as a second entity, shall contribute to the losses, liabilities, claims, damages
and expenses whatsoever to which any of them may be subject, so that you are
responsible for the proportion thereof equal to the percentage which the
aggregate underwriting discount set forth on the cover page of the Prospectus
represents of the initial public offering price of the Shares set forth on the
cover page of the Prospectus and the Company are responsible for the remaining
portion, in proportion to the net proceeds from the offering received by them;
provided, however, that if applicable law does not permit such allocation, then
other relevant equitable considerations such as the relative fault of the
Company, and you in the aggregate in connection with the facts which resulted in
such losses, liabilities, claims, damages and expenses shall also be considered.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission, or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission, or alleged omission
relates to information supplied by the Company, or by you, and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company and you agree that it would be unjust and inequitable if the respective
obligations of the Company and you for contribution were determined by pro rata
or per capita allocation of the aggregate losses, liabilities, claims, damages
and expenses or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 6(d). No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 6(d), each person, if
any, who controls you within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company, shall have the same
rights to contribution as the Company, subject in each case to the provisions of
this Section 6(d). Anything in this Section 6(d) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 6(d) is intended to supersede any right to contribution under the Act,
the Exchange Act, or otherwise.
7. Conditions of Your Obligations: Your obligations hereunder are subject
to the continuing accuracy of the representations and warranties of the Company
contained herein and in each certificate and document contemplated under this
Agreement to be delivered to you, as of the date hereof, as of the Closing Date,
and each Optional Closing Date, as the case may be, to the performance by the
Company of their respective obligations hereunder, and to the following
additional conditions:
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(a) Notification that the Registration Statement has become effective shall be
received by you not later than 6:30 p.m., New York City time, on the date
of this Agreement or at such later date and time as shall be consented to
in writing by you. If the Company has elected to rely upon Rule 430A of
the Rules and Regulations, the price of the Shares and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission
for filing pursuant to Rule 424(b) of the Rules and Regulations within the
pre scribed time period, and prior to the Closing Date the Company shall
have provided evidence satis factory to you of such timely filing, or a
post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements
of Rule 430A of the Rules and Regulations.
(b) The Commission shall not have issued a Stop Order and no Blue Sky or
securities authority of any jurisdiction shall have issued an order
suspending the registration or qualification of the Securities, and no
proceedings for such purpose shall have been instituted or shall be
pending, or to the knowledge of the Company, be threatened or contemplated
by the Commission or the Blue Sky or securities authorities of any such
jurisdiction.
(c) You shall have received an opinion, dated the Closing Date and
satisfactory in form and substance to your counsel from Giordano, Halleran
& Cresla, P.C., counsel to the Company, to the effect that:
(1) The Company is a corporation duly incorporated and validly existing
in good standing under the laws of Delaware, its jurisdiction of
incorporation, with full corporate power and authority to own its
property and conduct its business in the manner described in the
Prospectus. To the knowledge of such counsel, the Company has
obtained all necessary consents, authorizations, approvals, orders,
licenses, certificates, declarations and permits of and from, and
has made all required filings with, all federal, state, local and
other governmental authorities and all courts and other tribunals,
to own, lease, license and use its properties and assets and to
carry on its business in the manner described in the Prospec tus.
The Company is duly registered or qualified to do business as a
foreign corporation and is in good standing in each other
jurisdiction in which the ownership, leasing, licensing, or use of
its property and assets or the conduct of its business require such
registration or qualification.
(2) The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, of which 5,631,600 shares are outstanding.
Each outstanding share of Common Stock is validly authorized,
validly issued, fully paid, and nonassessable, with no personal
liability attaching to the ownership thereof, has not been issued
and is not owned or held in violation of any preemptive right of
shareholders. There is no commitment, plan or arrange ment to issue,
and no outstanding option, warrant or other right calling for the
issuance of, any share of capital stock of the Company or any
security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for capital stock of the Company,
except as disclosed in the Prospectus. There is outstanding no
security or other instrument which by its terms is convertible into
or exchangeable for capital stock of the Company.
(3) To the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending or threatened, with respect to
the Company or any of its operations, business, property or assets,
except as disclosed in the Prospectus or such as individually or in
the aggregate do not now have and are not
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expected to have a material adverse effect on the operations,
business, property, assets or condition (financial or otherwise) of
the Company. The Company is not in violation of, or in default with
respect to, any law, rule or regulation, or to the knowledge of such
counsel, after reasonable investigation, any order, judgment or
decree, except as disclosed in the Prospectus or such as
individually or in the aggregate do not now have and are not
expected to have a material adverse effect on the operations,
businesses, property, assets or condition (financial or otherwise)
of the Company; nor is the Company required to take any action in
order to avoid any such violation or default.
(4) Except as disclosed in the Prospectus, the Company is not now in
violation or breach of, or in default with respect to complying
with, any material provision of any indenture, mortgage, deed of
trust, debenture, note or other evidence of indebtedness, contract,
agreement, instrument, lease or license, or arrangement or
understanding which is material to the Company, and each such
indenture, mortgage, deed of trust, debenture, note or other
evidence of indebtedness, contract, agreement, instrument, lease or
license is in full and force and is the legal, valid and binding
obligation of the Company.
(5) The Company is not in violation or breach of, or in default with
respect to, any term of its Certificate of Incorporation or By-laws.
(6) The Company has all requisite corporate power and authority to
execute, deliver and perform this Agreement and the Underwriters'
Warrant. All necessary corporate proceedings of the Company have
been taken to authorize the execution, delivery, and performance by
the Company of this Agreement and the Underwriters' Warrant. This
Agreement and the Underwriters' Warrant have been duly authorized,
executed and delivered by the Company, constitute legal, valid, and
binding agreements of the Company, and (subject to applicable
bankruptcy, insolvency, reorganization and other laws affecting the
enforceability of creditors' rights generally, and the application
of equitable principles affecting the enforceability of remedies in
the nature of specific enforcement, and except as the enforceability
of the indemnification and contribution provisions of this Agreement
and the Underwriters' Warrant may be limited under applicable
securities laws) is enforce able as to the Company in accordance
with its terms. The Underwriters' Warrant has been duly authorized
by the Company and, when executed, issued and delivered by the
Company and paid for by you in accordance with the provisions of
this Agreement, will be a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with their
respective terms, except as may be limited by applicable bankruptcy,
insolvency, registration and other laws affecting the enforceability
of creditors' rights generally and the application of equitable
principles affecting the availability of remedies in the nature of
specific enforcement.
(7) All legally required proceedings in connection with the
authorization, issue and sale of the Shares by the Company in
accordance with the provisions of this Agreement have been taken,
and no consent, authorization, approval, order, license,
certificate, declaration or permit of or from, or filing with, any
governmental or regulatory authority, agency, board, bureau or other
body or is required for the execution, delivery or performance by
the Company of this Agreement and the Underwriters' Warrant (except
filings with and orders of the Commission pursuant to the Act which
have been made or received and matters under
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Blue Sky or state securities laws, rules or regulations, as to which
such counsel need not express an opinion).
(8) No consent of any party to any material contract, agreement,
instrument, lease or license, or arrangement or understanding known
to such counsel, to which the Company is a party, or to which any of
the property or assets of the Company is subject, is required for
the execution, delivery or performance of this Agreement or the
Underwriters' Warrant; and the execution, delivery and performance
of this Agreement and the Underwriters' Warrant will not violate,
result in a breach of, conflict with, or (with or without the giving
of notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract, agreement,
instrument, lease, license, arrangement or understanding, result in
the creation or imposition of any lien, security interest, pledge,
charge or other encumbrance upon any of the property or assets of
the Company pursuant to the terms of any indenture, mortgage, deed
of trust, loan or credit agreement, lease or other agreement or
instrument to which the Company is a party or by which the Company
is bound or to which any of the property or assets of the Company is
subject, known to such counsel, or violate or result in a breach of
any term of the Certificate of Incorporation or By-laws of the
Company, or violate, result in a breach of, or conflict with any
law, rule, regulation, order, judgment or decree binding on the
Company or to which the operations, business, property or assets of
the Company are subject to.
(9) The Shares are validly authorized. Upon payment of the purchase
price thereunder in accordance with the provisions of this
Agreement, the Underwriters' Warrant will be duly delivered. The
Shares, when issued, paid for and delivered in accordance with the
provi sions of this Agreement, will be validly issued, fully paid
and nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any
preemptive rights of shareholders. Upon payment of the purchase
price therefor in accordance with the provisions of this Agreement,
you will receive good title to the Shares and the Underwriters'
Warrant purchased by it from the Company, free and clear of all
Liens.
(10) The Underwriters' Warrant Shares are validly authorized and have
been duly and validly reserved for issuance, and when issued, paid
for and delivered upon exercise of the Underwriters' Warrant in
accordance with the provisions of the Underwriters' Warrant will be
validly authorized, validly issued, fully paid, and nonassessable,
with no personal liability attaching to the ownership thereof, and
will not have been issued in violation of any preemptive rights of
shareholders, and the holders of the Underwriters' Warrant Shares
will receive good title to them, free and clear of all Encumbrances.
(11) The Shares and the Underwriters' Warrant Shares conform to all
statements relating thereto contained in the Registration Statement
and the Prospectus.
(12) To the knowledge of such counsel, any contract, agreement,
instrument, lease or license required to be described in the
Registration Statement or the Prospectus has been properly described
therein. To the knowledge of such counsel, any contract, agreement,
instrument, lease, or license required to be filed as an exhibit to
the Registration Statement has been filed with the Commission as an
exhibit to or has been incorporated as an exhibit by reference into
the Registration Statement.
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(13) The Shares are duly authorized for quotation on the SmallCap
National Market, subject to notice of issuance.
(14) To the knowledge of such counsel, no person or entity has the right
to require registration of shares of Common Stock or other
securities of the Company because of the filing or effectiveness of
the Registration Statement who has not waived such right.
(15) The Company is not an "investment company" by reason of its assets
and operations as defined in Section 3(a) of the Investment Company
Act.
(16) None of the shares of Common Stock issued by the Company prior to
the date hereof have been offered and sold by the Company in
violation of the Act or applicable Blue Sky or state securities laws
or rules or regulations. All shares of Common Stock outstanding as
of the date hereof have been duly authorized and validly issued, and
are fully paid and non-assessable, with no personal liability
attaching to the ownership thereof, and have not been issued in
violation of any preemptive rights of shareholders.
(17) The statements in the Prospectus under captions "Business", "Risk
Factors", "Use of Proceeds", "Management" and "Description of
Capital Stock" have been reviewed by such counsel and insofar as
such statements refer to descriptions of agreements, instruments or
leases, summarize the status of litigation or other proceedings, or
the provisions of orders, judgments or decrees, or constitute
statements of law, descriptions of statutes, rules or regulations,
or conclusions of law, such statements fairly present the
information called for and are accurate and complete in all material
respects.
(18) (except for liabilities and obligations incurred in the ordinary
course of business, to the knowledge of such counsel, after due
inquiry, there are no claims (absolute, accrued, contingent or
otherwise), except as disclosed in the Prospectus or such as
individually or in the aggregate do not have and are not expected to
have a material adverse effect upon the operations, businesses,
property, assets or condition (financial or otherwise) of the
Company; and
(19) The Registration Statement has become effective under the Act, and
to the knowledge of such counsel, no Stop Order has been issued and
no proceedings for that purpose have been instituted or threatened.
(20) The Registration Statement, any Rule 430A Prospectus, and the
Prospectus, and any amendment or supplement thereto (except for the
financial statements and the notes and schedules related thereto,
and other financial information and statistical data contained
therein or omitted therefrom, as to which such counsel need express
no opinion), comply as to form in all material respects with the
applicable requirements of the Act.
(21) Such counsel has participated in the preparation of the Registration
Statement and the Prospectus and any amendments or supplements
thereto, and in the course thereof participated in conferences with
officers and other representatives of the Company, representatives
of the independent certified public accountants for the Company and
your representatives at which the contents of the Registration
Statement and Prospectus and relat ed matters were discussed and,
although such counsel is not passing upon and does not
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assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement and
Prospectus, or any amendment or supplement thereto, on the basis of
the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or
any amendment thereto at the time such Registration Statement or
such amendment became effective or the Prospectus as of its date or
any amendment or supplement thereto as of its date contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading (it being understood that such
counsel need express no comment with respect to the financial
statements, and the notes and schedules related thereto, and other
financial information and statistical data included in the
Registration Statement or Prospectus).
(22) To the knowledge of such counsel, since the effective date of the
Registration Statement, no event has occurred which should have been
set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not been set forth in such an
amendment or supplement.
In rendering such opinion, counsel for the Company may rely (i) as to
matters involving the application of laws other than the laws of the United
States, to the extent counsel for the Company deems proper and to the extent
specified in such opinion, upon an opinion or opinions of local counsel (in form
and substance satisfactory to your counsel) acceptable to your counsel, familiar
with the applicable laws, in which case the opinion of counsel for the Company
shall state that the opinion or opinions of such other counsel are satisfactory
in scope, form and substance to counsel for the Company and that reliance
thereon by counsel for the Company is reasonable; (ii) as to matters of fact, to
the extent they deem proper, on certif icates of responsible officers of the
Company; and (iii) to the extent they deem proper, upon written state ments or
certificates of officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing of the Company,
provided that copies of any such state ments or certificates shall be delivered
to your counsel.
(d) You shall have received letters addressed to you and dated the date hereof
and the Closing Date from Amper, Politzner & Mattia, LLP., independent
certified public accountants for the Company, addressed to you, and in
form and substance satisfactory to you, to the effect that:
(1) Such accountants are independent public accountants as required by
the Act and the rules and regulations of the Commission thereunder
and no information need be supplied with re spect to them in answer
to Item 13 of Form SB-2.
(2) In their opinion, the financial statements and related notes of the
Company examined by them, at all dates and for all periods referred
to in their report therein, and included in the Registration
Statement and the Prospectus on their authority as experts comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations of the
Commission promulgated thereunder.
(3) On the basis of limited procedures not constituting an audit,
including a reading of the latest available unaudited interim
financial statements of the Company and the financial data and
accounting records of the Company, inquiries of officials of the
Company and others re sponsible for financial and accounting
matters, a reading of the minute books of the Compa ny, including
without limitation the minutes (if any) of meetings or consents in
lieu of meetings
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<PAGE>
of the shareholders and of the Board of Directors (and any
committees thereof) of the Company, and other specified procedures
and inquiries requested by you, if any, nothing has come to their
attention which causes them to believe that:
(i) except as disclosed in or contemplated by the Registration
Statement and the Prospectus, during the period from the date
of the last audited balance sheet of the Company included in
the Registration Statement and Prospectus to a specified date
not more than five (5) days prior to the date of such letter,
there were any decreases, as compared with the corresponding
period of the preceding year, in net sales, cost of goods
sold, operating, selling, general and administrative expenses,
earnings from operations, the total or per share amounts of
net earnings, or the weighted average number of shares
outstanding;
(ii) except as disclosed in or contemplated by the Registration
Statement and the Prospectus, during the period from the date
of the last audited balance sheet of the Company included in
the Registration Statement and Prospectus to a specified date
not more than five (5) days prior to the date of such letter,
there has been any change in the capital stock or other
securities of the Company or any payment or declaration of any
dividend or other distribution in respect thereof or in
exchange therefor, or any increase in the long-term debt of
the Company or any decrease in the net current assets or net
assets of the Company as compared with the amounts shown on
the last audited balance sheet of the Company, included in the
Registra tion Statement and the Prospectus (other than in the
ordinary course of business); and
(iii) On the basis of their examinations referred to in their report
and consent included in the Registration Statement and
Prospectus and the indicated procedures and inquiries referred
to above, nothing has come to their attention which, in their
judg ment, would cause them to believe or indicate that the
financial statements and related notes and schedules of the
Company included in the Registration Statement and Prospectus
do not present fairly the financial position and results of
operations of the Company, as at the dates and for the periods
indicated, in conformity with generally accepted accounting
principles applied on a consistent basis, and are not in all
material respects a fair presentation of the information
purported to be shown.
(4) In addition to their examination referred to in their report
included in the Registration Statement and the Prospectus and the
inquiries and limited procedures referred to in clause (ii) of this
Section 7(d), they have performed other procedures, not constituting
an audit, with respect to certain numerical data, percentages,
dollar amounts and other financial information appearing in the
Registration Statement and the Prospectus, which are derived from
the general accounting records of the Company, and have compared
certain of such data and information with the accounting records of
the Company and found them to be in agreement.
(5) Such other matters as you may have reasonably requested.
(e) The representations and warranties of the Company in this Agreement shall
be true and correct with the same effect as if made on and as of the
Closing Date and the Company shall have complied with
24
<PAGE>
all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Date.
(f) The Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations,
and shall in all material respects conform to the requirements thereof,
and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(g) There shall have been, since the respective dates as of which information
is given in the Registration Statement and the Prospectus, no material
adverse change in the business, property, condition (financial or
otherwise), results of operations, capital stock, long-term or short-term
debt or general affairs of the Company, except changes which the
Registration Statement and the Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company shall not
have incurred any material liabilities or entered into any agreements not
in the ordinary course of business, except as disclosed in the
Registration Statement and the Prospectus.
(h) No action, suit or proceeding, at law or in equity, shall be pending or
threatened against the Company which would be required to be set forth in
the Registration Statement, and no proceedings shall be pending or
threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would have a materially adverse
affect on the business, property, condition (financial or otherwise),
results of operations or general affairs of the Company.
(i) The Company shall have furnished to you or caused to be furnished to you
at the Closing Date, certificates of the President and chief financial
officer of the Company, in form and substance satisfactory to you, as to
the accuracy of the representations and warranties of the Company, herein
at and as of the Closing Date and as to the performance by the Company of
all its obligations hereunder to be performed at or prior to the Closing
Date and the Company shall have furnished to you a certificate of the
President and chief financial officer of the Company satisfactory to you
as to the matters set forth in Sections 7(a) and (b) above.
(j) The NASD, upon review of the terms of the public offering of the Shares,
shall have indicated that it has no objections to the underwriting
arrangements pertaining to the sale of the Shares and the participation by
you in the sale of the Shares.
(k) Prior to or on the Closing Date, the Company shall have executed and
delivered the Underwriters' Warrant to you.
(l) Prior to or on the Closing Date, the Company shall have delivered to you
executed copies of the Lock-up Letters.
(m) Subsequent to the date hereof, there shall not have occurred any change,
or any development involving a prospective change, in or affecting
particularly the business or financial affairs of the Company which would
materially and adversely affect the market for the Shares.
25
<PAGE>
(n) Subsequent to the date hereof, no executive officer of the Company listed
as such in the Prospectus shall have died, become physically or mentally
disabled, resigned or have been removed or discharged.
(o) The Company shall furnish you with such further certificates and documents
as you or your counsel shall have reasonably requested.
All opinions, certificates, letters and other documents required by this
Section 7 to be delivered to you by the Company will be in compliance with the
provisions hereof only if they are satisfactory in form and substance to you and
your counsel. The Company will furnish you with such conformed copies of such
opinions, certificates, letters and other documents as you shall reasonably
request.
(p) Upon the exercise, in whole or in part, by you of the option to purchase
the Additional Shares, referred to in Section 2 hereof, your obligations
to purchase and pay for the Additional Shares will be subject to the
continuing accuracy of the representations and warranties of the Company
contained herein and in each certificate and document contemplated under
this Agreement to be delivered to you, as of the date hereof and as of
each Optional Closing Date, to the performance by the Company of its
obligations hereunder, and the following additional conditions:
(1) The Registration Statement shall remain effective at the Optional
Closing Date, and no Stop Order shall have been issued by the
Commission and no proceedings for that purpose shall have been
instituted or shall be pending, or to your knowledge or the
knowledge of the Company, shall be contemplated by the Commission,
and any reasonable request on the part of the Commission for
additional information shall have been complied with to the satis
faction of Lehman & Eilen, your counsel.
(2) You shall have received an opinion, dated the Optional Closing Date
and satisfactory in form and substance to counsel to you, from
Giordano, Halleran Cresla, P.C., counsel to the Company, which
opinion shall be substantially the same in scope and substance as
the opinion furnished to you on the Closing Date pursuant to Section
7(c) hereof, except that such opinion, where appropriate, shall
cover the Additional Shares.
(3) You shall have received a letter in form and substance satisfactory
to you from Deloitte & Touche LLP, independent certified public
accountants for the Company, dated the Optional Closing Date and
addressed to you confirming the information in their letter referred
to in Section 7(d) hereof and stating that nothing has come to their
attention during the period from the ending date of their review
referred to in said letter to a date not more than five (5) days
prior to the Optional Closing Date, which would require any change
in said letter if it were required to be dated the Optional Closing
Date.
(4) You shall have received a certificate of the President and chief
financial officer of the Company, dated the Optional Closing Date,
in form and substance satisfactory to you, substantially the same in
scope and substance as the certificate furnished to you on the
Closing Date pursuant to Section 7(i) hereof.
8. Effective Date of Agreement; Termination.
26
<PAGE>
(a) This Agreement shall become effective at 9:30 A.M., New York City
time, on the first full busi ness day following the day on which the
Registration Statement becomes effective or at the time of the initial public
offering by you of the Shares, whichever is earlier. The time of the initial
public offering shall mean the time, after the Registration Statement becomes
effective, of the release by you for publication of the first newspaper
advertisement which is subsequently published relating to the Shares or the
time, after the Registration Statement becomes effective, when the Shares are
first released by you for offering by you or dealers by letter or telegram,
whichever shall first occur. You, or the Company may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
noted below in this Section 8, by giving the notice indicated in Section 8(c)
before the time this Agreement becomes effective.
(b) In addition to the right to terminate this Agreement pursuant to
Section 7 hereof by reason of the Company's failure, refusal or inability to
perform all obligations and satisfy all conditions on their part to be performed
or satisfied hereunder prior to the Closing Date or Optional Closing Date, as
the case may be, you shall have the right to terminate this Agreement at any
time prior to the Closing Date or any Optional Closing Date, as the case may be,
by giving notice to the Company, if the Company shall have sustained a material
loss or material adverse interference with its business or properties from fire,
flood, accident, hurricane, earthquake, theft, sabotage, or other calamity or
malicious act, including the death or disability of Joseph J. Raymond, whether
or not covered by insurance, or from any labor dispute or any court or
governmental action, order or decree, of such a character as to have a material
adverse effect with the conduct of the business and operations of the Company;
or if there shall have been a general suspension of, or a general limitation on
prices for, trading in securities on the New York Stock Exchange, the American
Stock Exchange or in the over-the-counter market; or if a banking moratorium has
been declared by a state or federal authority; or if there shall have been an
outbreak of major hostilities between the United States and any foreign power,
or any other insurrection, armed conflict or national calamity, which in the
judgment of a majority-in-interest of the underwriters, makes it impracticable
or inadvisable to proceed with the offering, sale or delivery of the Firm Shares
or the Additional Shares, as the case may be.
(c) If you elect to prevent this Agreement from becoming effective as
provided in this Section 8, or to terminate this Agreement pursuant to Section 7
or this Section 8, you shall notify the Company promptly by telephone,
telecopier, telex, or telegram, confirmed by letter. If, as so provided in this
Section 8, the Company elects to prevent this Agreement from becoming effective,
the Company shall notify you promptly by telephone, telecopier, telex, or
telegram, confirmed by letter.
(d) Anything in this Agreement to the contrary notwithstanding other than
Section 8(e), if this Agreement shall not become effective by reason of an
election pursuant to this Section 8 or if this Agreement shall terminate or
shall otherwise not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any covenant or agreement or
satisfy any condition of this Agreement by it to be performed or satisfied, the
sole liability of the Company to you, in addition to the obligations the Company
assumed pursuant to Section 4(g), will be to reimburse you for such
out-of-pocket expenses (including the fees and disbursements of their counsel)
as shall have been incurred by them in connection with this Agreement or the
proposed offer, sale, and delivery of the Shares, and upon demand the Company
agrees to pay promptly the full amount thereof to you. pay promptly the full
amount thereof to you.
(e) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 4(b), 4(g), 6, 10(b) and 10(c) shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof.
27
<PAGE>
9. Substitution of Underwriters.
If any one or more of the Underwriters shall fail or refuse to purchase
any of Shares which it or they have agreed to purchase hereunder, and the number
of Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of
Shares, the other Underwriters shall be obligated, severally, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase, in the proportions which the number of Shares which they
have respectively agreed to purchase pursuant to Section 2 hereof bears to the
aggregate number of Shares which all such non-defaulting Underwriters have so
agreed to purchase or in such other proportions as you may specify, provided
that in no event shall the maximum number of Shares which any Underwriter has
become obligated to purchase pursuant to Section 2 hereof be increased pursuant
to this Section 9 by more than one-ninth of such number of Shares, without the
written consent of such Underwriter. If any Underwriter or Underwriters shall
fail or refuse to purchase any Shares and the aggregate number of Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase exceeds one-tenth of the aggregate number of Shares and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company for the
purchase or sale of any Shares under this Agreement. In any such case either you
or the Company shall have the right to postpone the Closing Date, but in no
event for longer than five business days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. Miscellaneous: (a) Notices required to be in writing shall be mailed
or delivered (i) to the Company at the Company's office at 500 Craig Road,
Manalapan, New Jersey 07726 Attention: Joseph Raymond, with copies to Giordano,
Halleran & Cresla, P.C., 125 Half Mile Road, P.O. Box 190, Middletown, New
Jersey 07748, Attention: John A. Aiello, Esq. or (ii) to you, at the office of
Hornblower & Weeks, 110 Wall Street, 21st Floor, New York, New York 10008,
Attention: Eric Ellenhorn and Lehman & Eilen, 50 Charles Lindbergh Boulevard,
Suite 505, Uniondale, New York 11553, Attention: Hank Gracin, Esq., and shall be
deemed given when received. Any notice not required to be in writing, including
but not limited to notices under Section 7(a) or 8 hereof, may be made by telex,
telecopier or telephone and shall be deemed given at the time the telex, or
telecopied communication is received or the telephone call is made, but if so
made shall be subsequently confirmed in writing.
(b) The representations, warranties, covenants and agreements of the
Company, and the indemnity and contribution agreements, contained in Sections 4,
5 and 6 of this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of you, the Company or any of its
officers or directors or any controlling persons of you, or the Company and will
survive acceptance of and payment for any of the Shares and the termination of
this Agreement.
(c) This Agreement has been and is made solely for the benefit of you and
the Company and the controlling persons, directors and officers referred to in
Section 6 hereof and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" as used in this Agreement shall not include a
purchaser, as such purchaser, of Shares from you.
28
<PAGE>
(d) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, applicable to contracts made and to be
performed entirely with such State, without regard to conflict of laws
provisions thereof.
Please confirm that the foregoing correctly sets forth the agreement among
the Company and you.
Very truly yours,
STRATUS SERVICES GROUP INC.
By:
--------------------------------
Joseph J. Raymond
Confirmed, as of the date first above mentioned.
HORNBLOWER & WEEKS, INC.
By:
------------------------
Eric Ellenhorn, CEO
29
<PAGE>
SCHEDULE I
Underwriting Agreement, dated _____________, 1999
Underwriter Number of Firm Shares
- ----------- ---------------------
Hornblower & Weeks, Inc................................
Total.................................................. 1,500,000 shares
30
Exhibit 2.1
ASSET PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
Among
STRATUS SERVICES GROUP, INC.,
Buyer,
and
ROYALPAR INDUSTRIES, INC.,
EWING TECHNICAL DESIGN, INC.,
LPL TECHNICAL SERVICE, INC.,
and
MAINSTREAM ENGINEERING COMPANY, INC.,
Sellers.
- --------------------------------------------------------------------------------
Dated JULY 9, 1997
<PAGE>
TABLE OF CONTENTS
PAGE(S)
-------
ARTICLE I
SALE AND PURCHASE OF THE ASSETS.............................................1
1.1. Assets.............................................................1
1.2. Excluded Assets....................................................2
1.3. A/R Agreements.....................................................2
ARTICLE II
THE CLOSING.................................................................2
2.1. Place and Date.....................................................2
2.2. Purchase Price.....................................................2
2.3. Allocation of Purchase Price.......................................2
2.4. Assumption of Liabilities..........................................2
2.5. Excise and Property Taxes..........................................3
ARTICLE III
REPRESENTATIONS AND WARRANTIES..............................................3
3.1. Representations and Warranties of the Sellers......................3
3.1.1. Authorization, etc.....................................3
3.1.2. Organization and Good Standing.........................4
3.1.3. No Conflicts, etc......................................4
3.1.4. Financial Statements...................................4
3.1.5. Compliance with Laws: Governmental Approvals and
Consents...............................................5
3.1.6. Assets.................................................5
3.1.7. Accounts Receivable....................................5
<PAGE>
3.1.8. Customers..............................................5
3.1.9. Litigation.............................................6
3.1.10. Confidentiality........................................6
3.1.11. Lease of Real Property.................................6
3.1.12. Brokers, Finders, etc..................................6
3.1.13. Disclosure.............................................7
3.1.14. Operation of the Business..............................7
3.1.15. Intellectual Property..................................7
3.2. Representations and Warranties of the Buyer........................7
3.2.1. Authorization, etc.....................................7
3.2.2. Organization and Good Standing.........................8
3.2.3. No Conflicts, etc......................................8
3.2.4. Compliance with Laws; Governmental Approvals and
Consents...............................................8
3.2.5. Litigation.............................................8
3.2.6. Disclosure.............................................8
ARTICLE IV
COVENANTS...................................................................9
4.1. Covenants of the Sellers...........................................9
4.1.1. Access and Information.................................9
4.1.2. Further Assurances.....................................9
4.1.3. Conduct of Business Pending Closing....................9
4.1.4. Consents..............................................10
4.1.5. Bankruptcy Court Order................................10
4.1.6. Schedules.............................................10
-ii-
<PAGE>
4.1.7. Access to Records.....................................10
4.2. Covenants of the Buyer............................................11
4.2.1. Further Assurances....................................11
ARTICLE V
CONDITIONS PRECEDENT.......................................................11
5.1. Conditions to Obligations of Each Party...........................11
5.1.1. No Injunction, etc....................................11
5.2. Conditions to Obligations of the Buyer............................11
5.2.1. AGR Assumption Agreement..............................11
5.2.2. Consents..............................................11
5.2.3. Proceedings...........................................11
5.2.4. Collateral Agreements.................................12
5.2.5. AGR Loan Agreement....................................12
5.2.6. Consulting Agreement..................................12
5.3. Conditions to Obligations of the Sellers..........................12
5.3.1. Proceedings...........................................12
5.3.2. Consents and Approvals................................12
5.3.3. Competing Bids........................................12
ARTICLE VI
TERMINATION................................................................13
6.1. Termination.......................................................13
6.2. Effect of Termination.............................................13
ARTICLE VII
DEFINITIONS................................................................13
7.1. Definition of Certain Terms.......................................13
-iii-
<PAGE>
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................................16
8.1. Survival of Representations and Warranties, etc...................16
ARTICLE IX
MISCELLANEOUS..............................................................17
9.1. Expenses..........................................................17
9.2. Severability......................................................17
9.3. Notices...........................................................17
9.4. Headings..........................................................18
9.5. Entire Agreement..................................................18
9.6. Counterparts......................................................18
9.7. Governing Law, etc................................................18
9.8. Binding Effect....................................................18
9.9. Assignment........................................................18
9.10. No Third Party Beneficiaries......................................18
9.11. Amendment; Waivers, etc...........................................19
-iv-
<PAGE>
EXHIBITS
Exhibit A - Accounts Receivable Sale and Purchase Agreements between Sellers and
AGR
Exhibit B - Allocation of Purchase Price among Assets
-v-
<PAGE>
SCHEDULES
Schedule 1.1 - Assets
Schedule 1.2 - Excluded Assets
Schedule 2.4(a) - Unexpired Leases and Executory Contracts to be Assumed by
Buyer
Schedule 3.1.2(b) - Sellers' Authorization to do business
Schedule 3.1.3 - Violation of Agreements by Sellers
Schedule 3.1.5(b) - Governmental Approvals obtained by Sellers
Schedule 3.1.6 - Liens on Sellers' Assets
Schedule 3.1.9 - Sellers' Litigation
Schedule 3.2.3 - Governmental Approvals obtained by Buyer
Schedule 3.2.4 - Buyer's Violation of Applicable Laws
Schedule 3.2.5 - Buyer's Litigation
-vi-
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of July 9, 1997,
among Stratus Services Group, Inc., a Delaware corporation (the "Buyer"),
Royalpar Industries, Inc., a Delaware corporation, Ewing Technical Design, Inc.,
a Delaware corporation, LPL Technical Service, Inc., a California corporation,
and Mainstream Engineering Co., Inc., a Delaware corporation (collectively, the
"Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers are in the business of providing temporary staffing
services (the "Business"); and
WHEREAS, the Sellers and AGR Financial, LLC ("AGR") have heretofore
entered into accounts receivable sale and purchase agreements listed on Exhibit
A hereto (the "A/R Agreements"); and
WHEREAS, the Sellers have guaranteed the amounts due to AGR pursuant to
the A/R Agreements; and
WHEREAS, the Buyer wishes to purchase or acquire from the Sellers and the
Sellers wish to sell, assign and transfer to the Buyer, certain of the assets
held in connection with, necessary for, or material to the Business, for the
purchase price and upon the terms and subject to the conditions hereinafter set
forth; and
WHEREAS, the Buyer wishes to assume certain liabilities of the Sellers,
including but not limited to, the Sellers' liability as guarantor of all amounts
due to AGR pursuant to the A/R Agreements.
NOW, THEREFORE, in consideration of the mutual covenants, representations
and warranties made herein, and of the mutual benefits to be derived hereby, the
parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE ASSETS
1.1. Assets. Subject to and upon the terms and conditions set forth in
this Agreement, on the Closing Date, the Sellers will sell, transfer, convey,
assign and deliver to the Buyer, and the Buyer will purchase or acquire from the
Sellers, all right, title and interest of the Sellers in and to the assets,
properties, business and goodwill of the Sellers of every kind and description,
real, personal and mixed, tangible and intangible, and all rights associated
therewith, whether accrued, contingent or otherwise and whether now existing or
hereinafter acquired relating to or used or held for use in connection with the
Business as the same may exist on the Closing Date, including but not limited to
those assets listed in Schedule 1.1 (collectively, the "Assets"). Except for the
Assumed Liabilities and subject to the terms and conditions hereof, on the
Closing Date, the Assets shall be transferred or otherwise conveyed to the Buyer
free and clear of all
<PAGE>
liabilities, claims, obligations, liens, encumbrances and interests; provided,
however, that any and all such liabilities, claims, obligations, liens,
encumbrances and interests shall attach to the proceeds of the sale of the
Assets (the "Sale").
1.2. Excluded Assets. The Sellers will retain and not transfer, and the
Buyer will not purchase or acquire, the assets listed on Schedule 1.2 (the
"Excluded Assets").
1.3. A/R Agreements. As between the Sellers and the Buyer, the Buyer shall
have the exclusive right to deal with AGR for purposes of collecting or settling
all amounts due to AGR pursuant to the A/R Agreements. The Buyer shall have
control of all accounts subject to the guaranty of the Sellers; provided,
however, that nothing contained herein shall be deemed to affect the Sellers'
right to and interest in Sellers' interest due from AGR under the A/R Agreements
as and when such accounts are collected thereunder.
ARTICLE II
THE CLOSING
2.1. Place and Date. The closing of the sale and purchase of the Assets
shall take place at two o'clock p.m. local time on the 21st day of July, 1997 at
the offices of Crummy, Del Deo, Dolan, Griffinger & Vecchione, One Riverfront
Plaza, Newark, New Jersey 07102, or such other time and place upon which the
parties may agree (the "Closing Date").
2.2. Purchase Price. On the terms and subject to the conditions set forth
in the Agreement, the Buyer agrees to pay or cause to be paid to the Sellers an
aggregate of $75,000 in cash and the Buyer will also assume the liabilities and
obligations of the Sellers described in Section 2.4 as of the Closing Date which
are estimated on the date hereof to be approximately $1,600,000 (the "Purchase
Price").
2.3. Allocation of Purchase Price. (a) The Purchase Price shall be
allocated among the Assets in accordance with an allocation schedule to be
prepared by the Buyer and the Sellers and attached hereto as Exhibit B. Such
allocation schedule shall be prepared in accordance with section 1060 of the
Internal Revenue Code.
(b) The parties will each report the federal, state and local and
other Tax consequences of the purchase and sale contemplated hereby (including
the filing of Internal Revenue Service Form 8594) in a manner consistent with
such allocation schedules.
2.4. Assumption of Liabilities. (a) Subject to the terms and conditions
set forth herein, on the Closing Date, as further consideration for the sale and
transfer of the Assets, the Buyer shall assume and agree to pay, honor and
discharge the following specified liabilities and obligations of the Sellers in
connection with the Business and no others:
(i) the Sellers' liability as guarantor of all amounts due to AGR
pursuant to the A/R Agreements in accordance with the terms of
the AGR Assumption Agreement among the Buyer, AGR and the
Sellers (the "AGR Assumption Agreement");
-2-
<PAGE>
(ii) the responsibility for employment of all of the Sellers'
permanent employees and Field Employees as of the Closing
Date, on terms consistent with such employees' current salary
and benefit arrangements;
(iii) the responsibility for maintaining the Sellers' employment
records and files for all permanent employees and Field
Employees employed by the Sellers within the five (5) years
prior to the Closing Date;
(iv) the unexpired Leases with respect to occupancy obligations and
lease payments for periods on and after the Closing Date and
executory contracts, each of which is listed on Schedule
2.4(a) hereto;
(v) the payment of all accrued vacation and holiday time and pay
of the Sellers' permanent employees and Field Employees; and
(vi) the responsibility for payment of all sales, use and transfer
taxes, if any, arising as a result of the transfer of the
Assets ("Transfer Taxes") (all of the foregoing being herein
called the "Assumed Liabilities").
(b) On the Closing Date, the Buyer shall assume the Assumed
Liabilities by executing and delivering to the Sellers an assumption agreement
in form and substance satisfactory to Sellers (the "Assumption Agreement").
(c) It is expressly agreed and understood that, except as provided
in Section 2.4(a) above, the Buyer shall not assume any liability or obligation
of the Sellers and/or the Business of any kind or nature, whether known or
unknown as of the Closing Date, whether fixed or contingent, and however arising
("Excluded Liabilities").
2.5. Excise and Property Taxes. The Sellers shall be responsible for any
and all sales, use and transfer taxes, and any and all state, local or federal
income taxes related to any period before the Closing Date. The Buyer shall not
be responsible for any business, occupation, withholding or similar tax, or for
any taxes of any kind related to the Assets for any period before the Closing
Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Sellers. The Sellers represent
and warrant to the Buyer as follows:
3.1.1. Authorization, etc. Each of the Sellers has the power and
authority to execute and deliver the Agreement and each of the Collateral
Agreements to which it is a party, to perform fully its obligations thereunder,
and to consummate the transactions contemplated
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thereby. The execution and delivery by each of the Sellers of the Agreement and
the Collateral Agreements to which it is a party, and the consummation of the
transactions contemplated thereby, has been duly authorized by all requisite
action of each of the Sellers. Each of the Sellers has duly executed and
delivered the Agreement and each of the Collateral Agreements to which it is a
party. The Agreement is, and on the Closing Date each of the Collateral
Agreements to which any of the Sellers are a party will be, legal, valid and
binding obligations of the Sellers, enforceable against them in accordance with
their respective terms.
3.1.2. Organization. (a) Each of the Sellers is a corporation duly
organized and validly existing under the laws of the jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted and to own or lease and to operate its properties
as and in the places where such business is conducted and such properties are
owned, leased or operated.
(b) Each of the Sellers is duly qualified or licensed to do
business as a foreign corporation in each of the jurisdictions specified in
Schedule 3.1.2(b), which are the only jurisdictions in which the operation of
the Business or the character of the properties owned, leased or operated by it
in connection with the Business makes such qualification or licensing necessary.
(c) Each of the Sellers has delivered to the Buyer complete
and correct copies of its articles or certificate of incorporation and by-laws,
as amended and in effect on the date hereof. The Sellers are not in violation of
any of the provisions of their respective articles or certificate of
incorporation or by-laws.
3.1.3. No Conflicts, etc. The execution, delivery and performance by
the Sellers of the Agreement and each of the Collateral Agreements to which it
is a party, and the consummation of the transactions contemplated thereby, do
not and will not contravene, conflict with or result in a violation of or a
default under (with or without the giving of notice or the lapse of time or
both) (i) any Applicable Law applicable to any of the Sellers, the Business or
the Assets, (ii) the certificate of incorporation or the by-laws of any of the
Sellers, or (iii) except as set forth in Schedule 3.1.3, any Contract or other
contract, agreement or other instrument to which any of the Sellers or any
Affiliates thereof is a party or by which any of the Sellers or any of their
properties or assets, including, but not limited to the Assets, may be bound or
affected. Except as specified in Schedule 3.1.5(b), no Governmental Approval or
other Consent is required to be obtained or made by any of the Sellers in
connection with the execution and delivery of the Agreement and the Collateral
Agreements or the consummation of the transactions contemplated thereby.
3.1.4. Financial Statements.
(a) Financial Statements. The consolidated and consolidating
balance sheets of the Sellers as at and for the periods ended March 31, 1997
("1997 Balance Sheets") and March 31, 1996, and the related consolidated and
consolidating statements of income (the "Financial Statements") have been
delivered to the Buyer. The 1997 Balance Sheets do not include any assets or
liabilities which do not constitute a part of the Assets, the Excluded Assets,
the Assumed Liabilities, or the Excluded Liabilities and present fairly the
financial condition of the Sellers as at the date thereof. The statements of
income for March 31, 1997 included in the
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Financial Statements do not reflect the operations of any entity or business
other than the Business, reflect all costs that historically have been incurred
by the Business and present fairly the results of operations and cash flow of
the Business for the periods indicated and subject as aforesaid. As of March 31,
1997, there existed no liability of any nature or in any amount that should
properly be reflected or reserved against in a balance sheet prepared in
accordance with GAAP, consistently applied, which is not fully reflected or
reserved against in the 1997 Balance Sheets, except as described in the notes to
the 1997 Balance Sheets.
(b) Except as fully reflected or reserved against in the 1997
Balance Sheets, there are no liabilities or obligations of any kind or nature,
whether absolute or contingent, and whether or not of a nature required to be
reflected on a balance sheet in accordance with GAAP, against, relating to or
affecting the Business or any of the Assets or Assumed Liabilities, other than
liabilities or obligations (i) incurred in the ordinary course of business
consistent with past practice and the provisions of this Agreement, (ii) which
are expressly assumed by the Buyer or (iii) which are specifically disclosed
herein or in a Schedule hereto.
3.1.5. Compliance with Laws: Governmental Approvals and Consents.
(a) The Sellers have complied in all material respects with all Applicable Laws
applicable to the Business or the Assets, and the Sellers have not received any
notice alleging any such conflict, violation, breach or default.
(b) Schedule 3.1.5(b) sets forth all Governmental Approvals
and other Consents necessary for, or otherwise material to, the conduct of the
Business. All such Governmental Approvals and Consents have been duly obtained
and are in full force and effect, and the Sellers are in compliance with each of
such Governmental Approvals and Consents held by it with respect to the Assets
and the Business.
3.1.6. Assets. Except as set forth in Schedule 3.1.6, the Sellers
have good title to all the Assets free and clear of any and all Liens. The
Assets are in all material respects adequate for the purposes for which such
assets are currently used or are held for use, and are in good repair and
operating condition (subject to normal wear and tear) and, to the knowledge of
the Sellers, there are no facts or conditions affecting the Assets which could
interfere in any material respect with the use, occupancy or operation thereof
as currently used, occupied or operated, or their adequacy for such use.
3.1.7. Accounts Receivable. All accounts receivable of the Sellers
arising to the Closing have been or will be sold to AGR pursuant to the A/R
Agreements, for which the Buyer is executing the AGR Assumption Agreement. The
amounts due to the Sellers from AGR under the A/R Agreements, which constitute
Excluded Assets, are reflected on the 1997 Balance Sheets as Sellers' interest.
3.1.8. Customers. On the Closing Date, the Sellers shall deliver to
the Buyer all files containing the names and addresses of all customers for
which the Sellers have provided goods or services.
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3.1.9. Litigation. Except as set forth on Schedule 3.1.9, (i) there
is no action, claim, suit, or proceeding pending, or to the Sellers' knowledge,
after due inquiry, threatened, against or relating to the Assets, the Assumed
Liabilities, the Sellers or the Business or against or relating to the
transactions contemplated by this Agreement or any of the Collateral Agreements,
(ii) there is no decision, injunction, judgment, order, or ruling by any Court,
administrative agency or other Governmental Authority or by any arbitrator
(each, an "Order") to which any of the Assets, the Assumed Liabilities, the
Sellers or the Business, is subject. Except as set forth on Schedule 3.1.9, (i)
each of the Sellers is, and at all times since December 31, 1996 has been, in
full compliance with all of the terms and requirements of each Order to which
it, or any of the Assets, the Assumed Liabilities or the Business, has been
subject, (ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a violation of or failure
to comply with any term or requirement of any Order to which any of the Sellers,
the Assets, the Assumed Liabilities or the Business, is subject, and (iii) none
of the Sellers has received, at any time since December 31, 1996, any notice or
other communication (whether oral or written) from any Governmental Authority or
any other Person regarding any actual, alleged, possible or potential violation
of, or failure to comply with, any term or requirement of any Order to which any
of the Sellers, the Assets, the Assumed Liabilities or the Business, is or has
been subject.
3.1.10. Confidentiality. The Sellers have taken all commercially
reasonable steps necessary to preserve the confidential nature of all material
confidential information (including, without limitation, any proprietary
information) with respect to the Business and the Assets.
3.1.11. Lease of Real Property. (a) The Sellers own no real
property. The Sellers have delivered to the Buyer correct and complete copies of
each of the real property leases listed on Schedule 2.4(a) (collectively, the
"Leases"). Each Lease is a legal, valid and binding obligation of the parties
thereto, enforceable against such parties in accordance with its terms, subject
as to enforcement, to applicable bankruptcy, insolvency, reorganization and
similar laws affecting creditors' rights generally and to general equity
principles. Other than the bankruptcy of the Sellers, no event has occurred and
is continuing that constitutes or, with notice or the passage of time or both,
would constitute a default, violation or breach on the part of the Sellers under
any Lease, or, to the knowledge of the Sellers, on the part of any other party
to any Lease. The Sellers do not owe any brokerage commissions with respect to
any Leases. No tenant or other party in possession of any of the properties
subject to the Leases has any right to purchase, or holds any right of first
refusal to purchase, such properties on less than 120 days' notice.
(b) Current Use. To the Sellers' best knowledge, the use and
operation of the properties subject to Leases in the conduct of the Business do
not violate in any material respect any instrument of record or agreement
affecting the properties subject to Leases or Other Leases. There is no
violation of any covenant, condition, restriction, easement or order of any
Governmental Authority having jurisdiction over such property or of any other
Person entitled to enforce the same affecting the Leases, or the use or
occupancy thereof.
3.1.12. Brokers, Finders, etc. All negotiations relating to the
Agreement, the Collateral Agreements, and the transactions contemplated thereby,
have been carried on without the participation of any Person acting on behalf of
the Sellers or their Affiliates in such manner
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as to give rise to any valid claim against the Buyer for any brokerage or
finder's commission, fee or similar compensation, or for any bonus payable to
any officer, director, employee, agent or sales representative of or consultant
to the Sellers or their Affiliates upon consummation of the transactions
contemplated hereby or thereby.
3.1.13. Disclosure. No representation or warranty of the Sellers
made in this Agreement or in any letter, certificate or memorandum furnished or
to be furnished by the Sellers or on their behalf, and no statement in the
Schedules, contains or will contain any untrue statement of material fact or
omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
There is no fact (other than matters of a general economic or political nature
which do not affect the Business uniquely) known to the Sellers that has not
been disclosed by the Sellers to the Buyer that might reasonably be expected to
have or result in a material adverse effect on the Assets or Assumed
Liabilities.
3.1.14. Operation of the Business. The Sellers have not (i)
conducted the Business through, or (ii) transferred any Assets to, any divisions
or any other direct or indirect subsidiary or affiliate of the Sellers.
3.1.15. Intellectual Property. (a) Title. The Sellers own or have
the exclusive right to use pursuant to license, sublicense, agreement or
permission all of the Assets that constitute Intellectual Property to which the
Sellers have rights ("Intellectual Property Assets"), free from any Liens and
free from any requirement of any past, present or future royalty payments,
license fees, charges or other payments, or conditions or restrictions
whatsoever.
(b) No Infringement. To the knowledge of the Sellers, the
conduct of the Business does not infringe or otherwise conflict with any rights
of any Person in respect of any Intellectual Property and none of the
Intellectual Property Assets is being infringed or otherwise used or available
for use, by any other Person.
3.2. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Sellers as follows:
3.2.1. Authorization, etc. The Buyer has the power and authority to
execute and deliver the Agreement and each of the Collateral Agreements to which
it is a party, to perform fully its obligations thereunder, and to consummate
the transactions contemplated thereby. The execution and delivery by the Buyer
of the Agreement and the Collateral Agreements to which it is a party, and the
consummation of the transactions contemplated thereby, have been duly authorized
by all requisite action of the Buyer. The Buyer has duly executed and delivered
the Agreement and each of the Collateral Agreements to which it is a party. The
Agreement is, and
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on the Closing Date each of the Collateral Agreements to which the Buyer is a
party will be, legal, valid and binding obligations of the Buyer, enforceable
against it in accordance with their respective terms.
3.2.2. Organization and Good Standing. (a) The Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, with full corporate power and
authority to carry on its business and to own or lease and to operate its
properties as and in the places where such business is conducted and such
properties are owned, leased or operated.
(b) The Buyer has delivered to the Sellers complete and
correct copies of its certificate of incorporation and by-laws as amended and in
effect on the date hereof. The Buyer is not in violation of any of the
provisions of its certificate of incorporation or by-laws.
3.2.3. No Conflicts, etc. The execution, delivery and performance by
the Buyer of the Agreement and each of the Collateral Agreements to which it is
a party, and the consummation of the transactions contemplated thereby, do not
and will not conflict with or result in a violation of or a default under (with
or without the giving of notice or the lapse of time or both) (i) any Applicable
Law applicable to the Buyer, or (ii) the certificate of incorporation or by-laws
of the Buyer. Except as specified in Schedule 3.2.3, no Governmental Approval or
other Consent is required to be obtained or made by the Buyer in connection with
the execution and delivery of the Agreement and the Collateral Agreements or the
consummation of the transactions contemplated thereby.
3.2.4. Compliance with Laws; Governmental Approvals and Consents.
Except as disclosed in Schedule 3.2.4, the Buyer has complied in all material
respects with all Applicable Laws applicable to its business, and the Buyer has
not received any notice alleging any such conflict, violation, breach or
default.
3.2.5. Litigation. Except as set forth on Schedule 3.2.5, there is
no action, claim, suit, or proceeding pending, or to the Buyer's knowledge,
after due inquiry, threatened, against or relating to the Buyer or its business
or against or relating to the transactions contemplated by this Agreement or any
of the Collateral Agreements.
3.2.6. Disclosure. There is no fact (other than matters of a general
economic or political nature which do not affect the Business uniquely) known to
the Buyer that has not been disclosed by the Buyer to the Sellers that might
reasonably be expected to have or result in a material adverse effect on the
Assets or Assumed Liabilities.
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ARTICLE IV
COVENANTS
4.1. Covenants of the Sellers. The Sellers covenant and agree to comply
with the following:
4.1.1. Access and Information. So long as the Agreement remains in
effect, the Sellers will give the Buyer, its counsel, accountants and other
authorized representatives full access during normal business hours to, and
furnish the Buyer and its representatives with, all properties, documents,
books, records, contracts, work papers and information with respect to the
Assets and the Business.
4.1.2. Further Assurances. Following the Closing Date, the Sellers
shall, and shall cause each of its Affiliates to, from time to time, execute and
deliver such additional instruments, documents, conveyances or assurances and
take such other actions as shall be necessary, or otherwise reasonably requested
by the Buyer, to confirm and assure the rights and obligations provided for in
the Agreement and in the Collateral Agreements and render effective the
consummation of the transactions contemplated thereby.
4.1.3. Conduct of Business Pending Closing. The Sellers agree that
from the date hereof until the Closing Date, except as otherwise approved in
writing to the Buyer:
(a) Maintain Business and Organization. The Sellers will carry
on the Business in the ordinary course consistent with past practice and, to the
extent consistent therewith, will use their reasonable best efforts to maintain
and preserve their respective business organizations intact and to maintain
their current relationships with customers, suppliers, employees and others
having business relationships with the Sellers.
(b) Compensation. The Sellers will not (i) enter into any
employment or severance agreement with any director, officer or other employee
of the Sellers; (ii) establish, adopt, enter into or make any new grants or
awards under, or amend, any collective bargaining, bonus, profit sharing,
thrift, compensation or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees, except to
comply with ERISA and the Code; or (iii) give any increases in the rates of
salary or other compensation payable to employees.
(c) No Material Contracts. No contract or commitment will be
entered into, and no purchase of supplies and no sale of assets (real, personal,
or mixed, tangible or intangible) will be made, by or on behalf of the Sellers
in connection with the Business, except (i) contracts or commitments for the
purchase of Inventories made in the ordinary course of business consistent with
past practice, (ii) contracts or commitments for the sale of Inventories in the
ordinary course of business consistent with past practice, and (iii) other
contracts, commitments, purchases or sales in the ordinary course of business
consistent with past practice which are not material to the Sellers or the
Business.
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(d) Capital Expenditures. The Sellers will not make any
capital expenditures or commitments therefor, for additions to property, plant
or equipment in connection with or for use in the Business, or agree to make any
such expenditures or commitments, except pursuant to existing expenditure or
commitment programs in a manner consistent with the performance of such programs
to date.
(e) Issuance of Stock. The Sellers will not grant any stock
options or other rights to acquire the Sellers' stock and will not issue or in
any way dispose of any shares of the Sellers' stock.
(f) No Corporate Changes. The Sellers will not amend their
certificates of incorporation or by-laws or make any changes to their authorized
or issued capital stock.
(g) Indebtedness. The Sellers will not create any
indebtedness, other than short-term indebtedness incurred in the ordinary course
of business consistent with past practices pursuant to existing contracts.
(h) Maintenance of Insurance. The Sellers will use their best
efforts, consistent with past practice and prudent business judgment, to
maintain all of the insurance held by the Sellers in effect as of the date
hereof.
(i) Maintenance of Property. The Sellers will use, operate,
maintain and repair all property of the Business in a normal business manner
consistent with past practice.
(j) Loans and Advances. The Sellers will not make any loan or
advance to any Person, including, without limitation, any officer, director or
employee of the Sellers.
4.1.4. Consents. The Sellers will use their reasonable best efforts
prior to the Closing Date to obtain all Governmental Approvals and Consents,
including but not limited to those identified on Schedule 3.1.5(b), necessary
for the consummation of the transactions contemplated hereby.
4.1.5. Bankruptcy Court Order. The Sellers shall obtain a Final
Order from the Bankruptcy Court approving the Bidding Procedures.
4.1.6. Schedules. The Sellers shall have a continuing obligation to
promptly notify the Buyer in writing with respect to any matter arising or
discovered after the date of execution of the Agreement, which matter, if
existing and known at the date hereof, would have been required to be set forth
or described in any Schedule to the Agreement.
4.1.7. Access to Records. From and after the Closing Date, the
Sellers shall allow the Buyer and it counsel, accountants and other
representatives, such access to records which after the Closing Date are in the
custody or control of the Sellers as the Buyer reasonably
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requires in order to comply with its obligations under the law or under
contracts assumed by the Buyer pursuant to the Agreement.
4.2. Covenants of the Buyer. The Buyer covenants and agrees to comply with
the following:
4.2.1. Further Assurances. Following the Closing, the Buyer shall,
from time to time, execute and deliver such additional instruments, documents,
conveyances or assurances and take such other actions as shall be necessary, or
otherwise reasonably requested by the Sellers, to confirm and assure the rights
and obligations provided for in the Agreement, and in the Collateral Agreements
and render effective the consummation of the transactions contemplated thereby.
ARTICLE V
CONDITIONS PRECEDENT
5.1. Conditions to Obligations of Each Party. The obligations of the
parties to consummate the transactions contemplated hereby shall be subject to
the fulfillment on or prior to the Closing Date of the following conditions:
5.1.1. No Injunction, etc. Consummation of the transactions
contemplated hereby shall not have been restrained, enjoined or otherwise
prohibited by any Applicable Law, including any order, injunction, decree or
judgment of any court or other Governmental Authority. No court or other
Governmental Authority shall have determined that any Applicable Law makes
illegal the consummation of the transactions contemplated hereby or by the
Collateral Agreements, and no proceeding with respect to the application of any
such Applicable Law to such effect shall be pending.
5.2. Conditions to Obligations of the Buyer. The obligations of the Buyer
to consummate the transactions contemplated hereby shall be subject to the
fulfillment (or waiver by the Buyer) on or prior to the Closing Date of the
following additional conditions, which the Sellers agree to use reasonable good
faith efforts to cause to be fulfilled:
5.2.1. AGR Assumption Agreement. The AGR Assumption Agreement shall
have been signed and executed by duly authorized individuals of each of the
respective parties to the AGR Assumption Agreement.
5.2.2. Consents. The Sellers shall have obtained and shall have
delivered to the Buyer copies of (i) all Governmental Approvals required to be
obtained by the Sellers in connection with the execution and delivery of the
Agreement and the Collateral Agreements and the consummation of the transactions
contemplated thereby, and (ii) all Consents necessary to be obtained in order to
consummate the sale and transfer of the Assets pursuant to the Agreement and the
consummation of the other transactions contemplated thereby and by the
Collateral Agreements.
5.2.3. Proceedings. All proceedings of the Sellers in connection
with the Agreement and the Collateral Agreements and the transactions
contemplated thereby, and all
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documents and instruments incident thereto, shall be reasonably satisfactory in
substance and form to the Buyer and its counsel, and the Buyer and its counsel
shall have received all such documents and instruments, or copies thereof,
certified if requested, as may be reasonably requested.
5.2.4. Collateral Agreements. The Sellers shall have delivered to
the Buyer at the Closing Date all documents, certificates and agreements
necessary to transfer to the Buyer good and marketable title to the Assets, free
and clear of any and all Liens thereon, including without limitation:
(a) a bill of sale, assignment and general conveyance, in form
and substance reasonably satisfactory to the Buyer, dated the Closing Date, with
respect to the Assets; and
(b) assignments of certain Contracts as the Buyer shall
request, Intellectual Property Assets and any other agreements and instruments
constituting Assets, dated the Closing Date, assigning to the Buyer all of the
Sellers' right, title and interest therein and thereto, with any required
Consent endorsed thereon (collectively, the "Collateral Agreements").
5.2.5. AGR Loan Agreement. The Buyer shall have entered into a loan
agreement with AGR (the "AGR Loan Agreement") providing for, among other things,
the sale of accounts receivable by the Buyer to AGR.
5.2.6. Consulting Agreement. The Buyer shall have entered into a
Consulting Agreement with Jeffrey Raymond whereby Jeffrey Raymond will provide
consulting services to the Buyer for a minimum term of 6 months following the
Closing Date.
5.3. Conditions to Obligations of the Sellers. The obligation of the
Sellers to consummate the transactions contemplated hereby shall be subject to
the fulfillment by the Sellers (or, with respect to Section 5.3.1 only, waiver
by the Sellers) on or prior to the Closing Date, of the following additional
conditions, which the Buyer agrees to use reasonable good faith efforts to cause
to be fulfilled:
5.3.1. Proceedings. All proceedings of the Buyer in connection with
the Agreement and the Collateral Agreements and the transactions contemplated
thereby, and all documents and instruments incident thereto, shall be reasonably
satisfactory in substance and form to the Sellers, and their counsel, and the
Sellers and their counsel shall have received all such documents and
instruments, or copies thereof, certified if requested, as may be reasonably
requested.
5.3.2. Consents and Approvals. The Sellers shall have obtained all
Governmental Approvals necessary to consummate the transactions contemplated
hereby.
5.3.3. Competing Bids. The Sellers shall not have received any
higher or better offers at the Bankruptcy Court hearing (the "Hearing") on the
approval of the Sale; provided,
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however, that any bids submitted at the Hearing must be made subject to bidding
procedures approved by Order of the Bankruptcy Court (the "Bidding Procedures").
ARTICLE VI
TERMINATION
6.1. Termination. The Agreement may be terminated at any time prior to the
Closing Date by the written agreement of the Buyer and the Sellers.
6.2. Effect of Termination. In the event of the termination of the
Agreement pursuant to the provisions of Section 6.1, the Agreement shall become
void and have no effect, without any liability to any Person in respect hereof
or of the transactions contemplated hereby on the part of any party hereto, or
any of its directors, officers, employees, agents, consultants, representatives,
advisers or stockholders, except as specified in Section 9.1.
ARTICLE VII
DEFINITIONS
7.1. Definition of Certain Terms. The terms defined in this Section 7.1,
whenever used in the Agreement (including the Schedules), shall have the
respective meanings indicated below for all purposes of the Agreement. All
references herein to a Section, Article or Schedule are to a Section, Article or
Schedule of or to the Agreement, unless otherwise indicated.
Affiliate: of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is
under common control with, the first Person. "Control" (including the
terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract or credit arrangement, as
trustee or executor, or otherwise.
AGR: as defined in the second WHEREAS clause of the Agreement.
AGR Assumption Agreement: as defined in Section 2.4(a)(i).
Agreement: this Asset Purchase Agreement, including the Exhibits and
Schedules hereto.
AGR Loan Agreement: as defined in Section 5.2.5.
Applicable Law: all applicable provisions of all (i) constitutions,
treaties, statutes, laws (including the common law), rules, regulations,
ordinances, codes or orders of any Governmental Authority, (ii)
Governmental Approvals and (iii) orders, decisions, injunctions,
judgments, awards and decrees of or agreements with any Governmental
Authority.
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A/R Agreements: as defined in the second WHEREAS clause of the
Agreement.
Assets: as defined in Section 1.1.
Assignment of Lease: as defined in Section 5.2.4(b).
Assumed Liabilities: as defined in Section 2.4(a).
Assumption Agreement: as defined in Section 2.4(b).
Bankruptcy Court: United States Bankruptcy Court for the District of
New Jersey.
Bidding Procedures: as defined in Section 5.3.3.
Business: as defined in the first WHEREAS clause of the Agreement.
Buyer: as defined in the first paragraph of the Agreement.
Closing Date: as defined in Section 2.1.
Collateral Agreements: the agreements and other documents and
instruments described in Section 5.2.4.
Consent: any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order of
registration, certificate, declaration or filing with, or report or notice
to, any Person, including but not limited any Governmental Authority.
Contract: all agreements and contracts related to the Business,
whether oral or written.
Excluded Assets: as defined in Section 1.2.
Excluded Liabilities: as defined in Section 2.4(c).
Field Employees: employees of the Sellers who work for clients of
the Sellers and who have accrued vacation or holiday time or pay based
upon the number of hours worked for such clients.
Financial Statements: as defined in Section 3.1.4.
GAAP: generally accepted accounting principles as in effect in the
United States.
Governmental Approval: any Consent of, with or to any Governmental
Authority, necessary for, or otherwise material to, the conduct of the
Business or necessary for the consummation of the transactions
contemplated hereby, including, but not limited to,
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approval (i) of the Sale by Final Order of the Bankruptcy Court in the
Sellers' pending Chapter 11 cases, case numbers 97-30912 (KCF), 97-30907
(KCF), 97-30910 (KCF), pursuant to 11 U.S.C. ss. 363(b)(1) and (f), as
applicable; (ii) by Final Order of the Bankruptcy Court of the assumption
and assignment by the Sellers to the Buyer of the Sellers' interests in
any and all executory contracts and unexpired leases subject to the Sale,
pursuant to 11 U.S.C. ss. 365, both of which Orders shall be in form and
substance satisfactory to the Buyer; and (iii) of the Bidding Procedures
by Final Order of the Bankruptcy Court.
Governmental Authority: any nation of government, any state or other
political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any government
authority, agency, department, board, commission or instrumentality of the
United States, any State of the United States or any political
subdivision, thereof, and any tribunal or arbitrator(s) of competent
jurisdiction, and any self-regulatory organization.
Hearing: as defined in Section 5.3.3.
Intellectual Property: any and all United States and foreign: (a)
patents (including design patents, industrial designs and utility models)
and patent applications (including docketed patent disclosures awaiting
filing, reissues, divisions, continuations-in-part and extensions), patent
disclosures awaiting filing determination, inventions and improvements
thereto; (b) trademarks, service marks, trade names, trade dress, logos,
business and product names, slogans, whether under common law or
registered in the United States Patent and Trademark Office, and
registrations and applications for registration thereof; (c) copyrights
(including software) and registrations thereof; (d) inventions, processes,
designs, formulae, trade secrets, know-how, industrial models,
confidential and technical information, manufacturing, engineering and
technical drawings, product specifications and confidential business
information; (e) intellectual property rights similar to any of the
foregoing; and (f) copies and tangible embodiments thereof (in whatever
form or medium, including electronic media).
Intellectual Property Assets: all of the Assets that constitute
Intellectual Property to which the Sellers have rights.
Internal Revenue Code: the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder.
Lease: as defined in Section 3.1.11.
Lien: any mortgage, pledge, hypothecation, right of others, claim,
security interest, encumbrance, lease, sublease, license, occupancy
agreement, adverse claim or interest, easement, covenant, encroachment,
burden, title defect, title retention agreement, voting, trust agreement,
interest, equity, option, lien, right of first refusal, charge or other
-15-
<PAGE>
restrictions or limitations of any nature whatsoever, including but not
limited to such as may arise under any Contracts.
1997 Balance Sheets: as defined in Section 3.1.4.
Order: as defined in Section 3.1.9.
Person: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Authority or
other entity.
Purchase Price: as defined in Section 2.2.
Sale: as defined in Section 1.1.
Sellers: as defined in the first paragraph of the Agreement.
Subsidiaries: each corporation or other Person in which a Person
owns or controls, directly or indirectly, capital stock or other equity
interests representing at least 50% of the outstanding voting stock or
other equity interests.
Tax: any federal, state, provincial, local, foreign or other income,
alternative minimum, accumulated earnings, personal holding company,
franchise, capital stock, net worth, capital, profits, windfall profits,
gross receipts, value added, sales, use, goods and services, excise,
customs duties, transfer, conveyance, mortgage registration, stamp,
documentary, recording, premium, severance, environmental (including taxes
under Section 59A of the Code), real property, personal property, ad
valorem, intangibles, rent, occupancy, license, occupational, employment,
unemployment insurance, social security, disability, workers'
compensation, payroll, health care, withholding, estimated or other
similar tax, duty or other governmental charge or assessment or
deficiencies thereof (including all interest and penalties thereon and
additions thereto whether disputed or not).
Transfer Taxes: as defined in Section 2.4(a)(vi).
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1. Survival of Representations and Warranties, etc. The representations
and warranties contained in the Agreement shall survive the execution and
delivery of the Agreement, any examination by or on behalf of the parties hereto
and the completion of the transactions contemplated herein, for a period of
three years following the Closing Date.
-16-
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1. Expenses. The Sellers, on the one hand, and the Buyer, on the other
hand, shall bear their respective expenses, costs and fees (including
attorneys', auditors' and financing commitment fees) in connection with the
transaction contemplated hereby, including the preparation, execution and
delivery of the Agreement and compliance herewith, whether or not the
transactions contemplated hereby shall be consummated.
9.2. Severability. If any provision of the Agreement, including any
phrase, sentence, clause, Section or subsection is inoperative or unenforceable
for any reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
9.3. Notices. All notices, requests, demands, waivers and other
communication required or permitted to be given under the Agreement shall be in
writing and shall be deemed to have been duly given if (a) delivered personally,
(b) mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
(i) if to the Buyer to,
Stratus Services Group, Inc.
200 Schulz Drive, Third Floor
Red Bank, New Jersey 07701
Attn: Michael J. Rutkin, President
with a copy to:
Crummy, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102-5497
Attn: Frank E. Lawatsch, Jr., Esq.
(ii) if to the Sellers,
Royalpar Industries, Inc.
500 Craig Road
Manalapan, New Jersey 07726
Attn: Jeffrey Raymond, President
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the date
after such delivery, (x) if by certified or registered mail, on the seventh day
after the mailing thereof, (y) if by next-day or overnight mail or delivery, on
the day delivered, (z) if by telecopy or telegram, on the next day
-17-
<PAGE>
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
9.4. Headings. The headings contained in the Agreement are for purposes of
convenience only and shall not affect the meaning or interpretation of the
Agreement.
9.5. Entire Agreement. The Agreement (including all Exhibits and the
Schedules hereto and all agreements or covenants therein) and the Collateral
Agreements (when executed and delivered) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
9.6. Counterparts. The Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
9.7. Governing Law, etc. The Agreement shall be governed in all respects,
including as to validity, under the laws of the State of New Jersey, without
giving effect to the conflict of laws rules thereof. The Buyer and the Sellers
hereby irrevocably submit to the jurisdiction of the courts of the State of New
Jersey and the Federal courts of the United States of America located in the
State of New Jersey, solely in respect of the interpretation and enforcement of
the provisions of the Agreement and of the documents referred to in the
Agreement, and hereby waive, and agree not to assert, as a defense in any
action, suit or proceeding for the interpretation or enforcement hereof or of
any such document, that is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that the
venue thereof may not be appropriate or that the Agreement or any of such
document may not be enforced in or by said courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a New Jersey State or Federal court. The
Buyer and the Sellers hereby consent to and grant any such court jurisdiction
over the person of such parties and over the subject matter of any such dispute
and agree that mailing of process or other papers in connection with any such
action or proceeding in the manner provided in Section 9.3, or in such other
manner as may be permitted by law, shall be valid and sufficient service
thereof.
9.8. Binding Effect. The Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
9.9. Assignment. The Agreement shall be freely assignable or transferable
by the Buyer to, and shall inure to the benefit of, and be binding upon any
other corporate entity that shall succeed to the business presently being
operated by the Buyer. This Agreement shall not be assignable by the Sellers
without the prior written consent of the Buyer.
9.10. No Third Party Beneficiaries. Nothing in the Agreement shall confer
any rights upon any person or entity other than the parties hereto and their
respective heirs, successors and permitted assigns.
-18-
<PAGE>
9.11. Amendment; Waivers, etc. No amendment, modification or discharge of
the Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of the
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of the Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies that any party may otherwise have at
law or in equity. The representations and warranties of the Sellers shall not be
affected or deemed waived by reason of any investigation made by or on behalf of
the Buyer (including but not limited to by any of its advisors, consultants or
representatives) or by reason of the fact that the Buyer or any of such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
IN WITNESS WHEREOF, the parties have duly executed the Agreement as of the
date first above written.
STRATUS SERVICES GROUP, INC.
By: /s/ Michael J. Rutkin
-----------------------------------
Name:
Title: President
ROYALPAR INDUSTRIES, INC.
By: /s/ Jeffrey Raymond
-----------------------------------
Name:
Title: President & CEO
-19-
<PAGE>
EWING TECHNICAL DESIGN, INC.
By: /s/ Jeffrey Raymond
-----------------------------------
Name:
Title: President & CEO
LPL TECHNICAL SERVICE, INC.
By: /s/ Jeffrey Raymond
-----------------------------------
Name:
Title: President
MAINSTREAM ENGINEERING COMPANY, INC.
By: /s/ Jeffrey Raymond
-----------------------------------
Name:
Title: President
-20-
<PAGE>
Schedule 1.1
Assets
Royalpar Industries, Inc.
Furniture & Equipment at Manalapan,
NJ Office
Office Furniture
Telephone System
Personal Computers, Printers, Etc.
Ewing Technical Design, Inc.
Canon Copier at Manalapan, NJ Office
Personal Computer at Colorado
Springs, CO Office
LPL Technical Service, Inc.
Security Deposits:
Glen Tolar-Deer Park, TX Office
McDowell Equities- Phoenix, AZ Office
Telephone System at Deer Park, TX Office
Personal Computers, Printers, Etc.:
Phoenix, AZ Office
Deer Park, TX Office
Richardson, TX Office
Mainstream Engineering Co., Inc.
Security Deposit with California Sunbelt
Developers, Inc. for Costa Mesa, CA Office
Personal Computers, Printers, Etc. at
Costa Mesa, CA Office
<PAGE>
Schedule 1.1 (cont'd)
Assets
As to each Seller:
List of clients of each Seller
Information on clients under the control of each Seller
Information on each employee of each Seller
Books and records of each Seller
Relationship with clients of each Seller, including related contracts,
agreements or understandings
<PAGE>
Schedule 1.2
Excluded Assets
As to each Seller:
All accounts receivable, insurance refunds, cash on hand or in Seller's
bank accounts, Seller's interest in amounts due to the Sellers under any
accounts receivable financing or purchase agreements; and any interests of the
Seller in the real or personal property leaseholds or under the executory
contracts not listed on Schedule 2.4(a).
<PAGE>
Schedule 2.4(a)
Executory Contracts and Unexpired Leases of Royalpar Industries, Inc.
Sanwa Leasing Corp. Lease agreement #179586 for 2 Fujitsu
PO Box 7023 notebook computers. Lease has a $1.00
Troy, MI 48007-7023 buyout option and is for 36 months
beginning January 1997 at $249.68 per
month.
Royal Insurance Group Commercial package insurance policy
PO Box 1000 for a one-year term commencing June
Charlotte, NC 28201-1000 23, 1997.*
Royal Insurance Group Electronic data processing insurance
policy for a one-year term commencing
June 23, 1997.*
Royal Insurance Group Commercial automobile insurance policy
for a one-year term commencing June
23, 1997.*
Royal Insurance Group Workers' compensation insurance policy
for a one-year term commencing June
23, 1997.*
Royal Insurance Group Commercial umbrella insurance policy
for a one-year term commencing June
23, 1997.*
The Chubb Group Excess umbrella insurance policy for a
15 Mountain View Road one-year term commencing June 23,
Warren, NJ 07059 1997.*
* Each of these insurance contracts, which are not executory because they were
entered into post-petition, but are part of the Acquired Assets, also names
Ewing Technical Design, Inc., LPL Technical Service, Inc., and Mainstream
Engineering Company, Inc. as an insured.
<PAGE>
Schedule 2.4(a) (cont)
Executory Contracts and Unexpired Leases of Ewing Technical Design, Inc.
Cactus Iron Works Ongoing contract for staffing and
PO Box 477 payroll services provided by Ewing
Edinburg, TX 78530 Technical Design, Inc.
El Paso County Ongoing Contract for staffing and
Purchasing Department payroll services provided by Ewing
27 East Vermijo Technical Design, Inc.
Colorado Springs, CO 80903
Landhuis Co. Lease for office space at 212 Wahsa,
820 Western Drive Colorado Springs, CO. lease due to
Colorado Springs, CO 80915 expire on July 31, 1999.
Loral Aerospace Corp. Ongoing Contract for staffing and
9970 Federal Drive payroll services provided by Ewing
Colorado Springs, CO 80921 Technical Design, Inc.
Mastercraft Millsworks and Cabinet Ongoing Contracts for staffing and
Co., Inc. payroll services provided by Ewing
1406 Three Points Technical Design, Inc.
Pfugerville, TX 78660
<PAGE>
Schedule 2.4(a) (cont)
Executory Contracts and Unexpired Leases of LPL Technical Service, Inc.
AT&T Credit Corporation Lease for telephone system at Phoenix,
PO Box 85340 AZ office, which was moved from old
Louisville, KY 40285 Austin, TX, office. Lease is for 36
months at $107.29 per month beginning
February 1995.
Advanced Copy Systems Inc. Lease of copier at Phoenix, AZ office
PO Box 105819 for 48 months at $126.16 per month
Atlanta, GA 3348-5818 beginning August 1996.
Glenn Tolar Co. Lease for office space in Richardson,
214 E. X Street TX.
Deer Park, TX 77536
<PAGE>
Schedule 3.2.3
Order(s) of the United States Bankruptcy Court for the District of New
Jersey in the Sellers' pending chapter 11 cases, case numbers 97-30912 (KCF),
97-30907 (KCF), 97-30910 (KCF), in form and substance satisfactory to the Buyer,
authorizing and approving (i) the Sale of the Assets to Buyer pursuant to 11
U.S.C. ss. 363(b)(1) and (f), as applicable; (ii) the assumption and assignment
by the Sellers to the Buyer of the Sellers' interests in any and all executory
contracts and unexpired leases subject to the Sale, pursuant to 11 U.S.C. ss.
365; and (iii) the Bidding Procedures.
<PAGE>
Schedule 3.2.4
None
<PAGE>
Schedule 3.2.5
None
Exhibit 2.2
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 4th day of January, 1999, by
and between STRATUS SERVICES GROUP, INC., a Delaware corporation, whose address
is 500 Craig Road, Suite 201, Manalapan, New Jersey 07726 ("Purchaser") and B &
R EMPLOYMENT INC., a Delaware corporation, whose address is 118 South Maryland
Avenue, Wilmington, Delaware 19804 ("Seller") and shall be considered effective
as of the 1st day of January, 1999.
W I T N E S S E T H:
WHEREAS, Seller is the owner of an ongoing temporary personnel services
business known as B & R Employment Inc., located in Wilmington, Delaware with
additional locations in Newark, Delaware and Dover, Delaware (the "Business");
and
WHEREAS, Purchaser desires to purchase and Seller desires to sell,
substantially al of the assets of the business of Seller in two stages, upon the
terms and conditions contained herein. The first stage shall be the Physical
Closing, at which time, the Seller shall transfer to the Purchaser, title to and
control over all of the business assets of Seller to be sold by Seller to
Purchaser pursuant to the terms of this Agreement. The second stage, the
Financial Closing, will occur at a later date, as provided herein, at which time
certain amounts will be paid to Seller by Purchaser, as set out herein.
NOW, THEREFORE, intending to be legally bound, and in consideration of the
mutual promises, covenants, and agreements hereinafter set forth, Purchaser and
Seller hereby agree as follows:
TERMS AND CONDITIONS
1. Purchase and Sale of Assets. On the Physical Closing Date, as hereinafter
defined, on the terms, subject to the conditions and for the consideration
hereinafter set forth, Seller shall sell, assign, transfer, convey, and deliver
to Purchaser, and Purchaser agrees to purchase from Seller the following assets
and properties of Seller (collectively hereinafter called the "Sale Assets"):
(a) Fixed Assets. All of the Seller's fixed assets, including, without
limitation, equipment, furniture, office equipment, supplies,
leasehold improvements, fixtures, and inventory located at the
addresses of the Business. Seller acknowledges that a complete list
of Seller's fixed assets is set forth on Exhibit "A" attached
hereto.
(b) Other Assets. The following other assets owned by Seller and used in
the Business:
1) Copies of Seller's sales and operating records;
2) All of Seller's general intangible assets, including trade names
and service marks; Seller makes no warranty that it has good and
marketable title to its trade names and service marks. Seller agrees
to transfer to Purchaser at Closing whatever right, title, and
interest it has in its trade names and service marks.
<PAGE>
3) All of Seller's customer contracts and agreements, if any, and
client lists inclusive of names, contact names, comments and status;
4) Seller's goodwill and business relating to its operations; and to
the extent they are assignable, all business and charter licenses,
sales tax certificates and numbers, occupancy permits, and similar
types of operating permits;
5) All of Seller's customer and vendor lists and records relating to
Seller's business; and
6) All of Seller's prospect lists.
Such assets shall not include the excluded assets in subparagraph (c)
below.
(c) Excluded Assets: Notwithstanding the above or anything in this
Agreement to the contrary, the following assets owned by Seller are
specifically excluded from this Agreement and will be retained by
Seller:
1) Seller's corporate books and records and original sales and
operating records;
2) Seller's lines of credit or loans; and
Title to the Sale Assets and risk of loss and damage to the Sale Assets on
hand on the Physical Closing Date, by casualty (whether or not covered by
insurance) or by condemnation, will pass to the Purchaser upon the Physical
Closing, as hereinafter defined, but will remain with Seller until the Physical
Closing has occurred. Risk of loss with respect to liability (of all types) for
temporary staffers shall not pass until 11:59 p.m., December 31, 1998.
2. Assumption of Liabilities. Purchaser hereby agrees to assume the specific
liabilities, duties, and obligations of Seller described below in paragraphs (a)
and (b), that are due and payable or required to be performed on or after the
Closing Date, as hereinafter defined, but not for or with respect to the period
prior to the Closing Date (the "Assumed Liabilities).
(a) Leases. At the Closing, Seller shall deliver to Purchaser, executed
lease agreements memorializing the month-to-month oral leases currently in
effect, in the form attached hereto as Exhibit "B", duly consented to by
the respective landlord(s) of the Leased Property(s). Prior to the Closing
Date, Seller and Purchaser shall cooperate in obtaining all requisite
consents to such agreements. In the event such consent is not obtained
prior to the Physical Closing, Seller and Purchaser agree to cooperate to
obtain said consent as soon as practicable after the Physical Closing
Date.
(a) Contracts. At the Closing, Purchaser shall deliver an assignment and
assumption in form of Exhibit "C" acceptable to the parties of such
other contracts of Seller as Purchaser may elect to assume.
(b) Other Liabilities Excluded. Except as expressly provided in this
Agreement or any other document signed by Purchaser, Purchaser is
not assuming any obligation to pay for
2
<PAGE>
any of the debts, liabilities, or obligations of Seller, whether now
or hereafter existing, accrued or contingent, or arising out of or
related to consummation of the transactions herein contemplated
(including, without limitation, all taxes of any kind or description
and any employee claims). Seller covenants and agrees that Seller
shall pay promptly, when due or within the ordinary course of
business, all of Seller's debts, liabilities, and obligations to all
creditors, specifically including, but not limited to, those listed
in Exhibit "D", as of the Closing Date, and to all employees for
services performed through 11:59 p.m. on December 31, 1998.
3. Purchase Price. Subject to adjustment as provided in Paragraph 9, the
aggregate purchase price ("Purchase Price") to be paid by Purchaser to Seller
for the Sale Assets shall be four (4) times the trailing twelve (12) month's
Earnings Before Interest and Taxes (EBIT) to be determined as of the most recent
month end thirty days (30) prior to the Financial Closing. In no event shall the
EBIT be below that calculated for the twelve (12) months ended December 31,
1998. Said Purchase Price shall be payable as:
(a) One Million, Five Hundred Thousand Dollars ($1,500,000) evidenced by
Seller Note #1 transferred on the Physical Closing and payable at
the Financial Closing by cashier's check, certified check or via
wire transfer.
1) Seller has requested that a portion of the purchase price
enumerated in (a) be delivered on his behalf to the following
parties and in amounts to be provided by said parties at the
Financial Closing:
(i) Internal Revenue Service
(ii) Wilmington Trust Company
(b) Two Hundred Fifty Thousand Dollars ($250,000) evidenced by Seller
Note #2 to be paid in eight (8) equal quarterly installments of
Thirty-Four Thousand, Eight Hundred Sixty-Six Dollars and
Eighty-Four Cents ($34,866.84) beginning ninety (90) days after the
Financial Closing Date.
(c) Forty-Eight Thousand, Four Hundred (48,400) shares of the
Purchaser's Common Stock. The Purchaser hereby grants the Seller, in
the event the Purchaser does not conduct an Initial Public Offering
of Common Stock within twenty-four (24) months of the closing of
this Asset Purchase Agreement, an option to sell its stock back to
the Purchaser at Ten Dollars ($10) per share. In the event Seller
plans to exercise this option, he must give Purchaser ninety (90)
days written notice of its intention.
(d) The amounts due hereunder shall be evidenced by a promissory notes
in form attached hereto as Exhibit "E" (the "Seller Notes"). The
Seller Notes shall be secured by a Security Agreement and UCC-1 in
form attached hereto as Exhibit "F" providing Seller with a security
interest in the following:
1) Seller's fixed assets as set forth on Exhibit "A";
2) Seller's trade name and service marks "B & R Employment Inc.";
and
3
<PAGE>
3) Customer lists and database and applicant database.
The Security Agreement shall include such terms as may be customary and
standard; provided, however, that the Security Agreement shall contain a
provision for a cure period of thirty (30) days for a default by Purchaser.
4. Allocations of Consideration. The consideration furnished by Purchaser for
the Sale Assets will be allocated among the components of the Sale Assets in
accordance with the Allocation of Consideration Schedule (IRS Form 8594)
attached hereto as Exhibit "G". The allocated consideration may be adjusted at
the Closing Date to reflect any adjustments made pursuant to paragraph 9. Each
party to this Agreement accepts and shall abide by the foregoing allocation of
the consideration for the Sale Assets and shall not include in any tax return
filed by it an item of gain, income, or deduction that reflects a different
allocation of any portion of the Purchase Price for the Sale Assets.
5. Warranties, Representations, and Covenants of Seller. Seller represents and
warrants to and covenant with Purchaser that as of the date hereof and as of the
Closing Date:
(a) Clear Title.
1) Seller will at Closing transfer to Purchaser all of the Sale
Assets free and clear of all security interests, liens, mortgages,
conditional sales contracts, lessors' interests, attachments,
judgments, and encumbrances of every kind and nature;
2) Seller agrees that, at Closing Seller will execute and deliver to
Purchaser such instruments of sale, assignment, transfer, and
conveyance as Purchaser shall deem reasonably necessary or
appropriate to effect such transfer and conveyance;
3) Exhibit "H" attached hereto contains a complete listing of any
existing security interests, liens, mortgages, or other encumbrances
on the Sale Assets and Seller agrees to deliver at the Closing such
instruments to effect a release of such encumbrances as Purchaser
shall deem reasonably necessary or appropriate.
(b) Contractual Commitments. Except for this Agreement and those
obligations specified in paragraph 2(b) hereof, the Seller Notes and
Employment Agreement, Seller is not a party to any written or oral
contractual commitment, contract, or agreement which shall be
binding upon Purchaser on or after the Closing Date.
(c) Litigation. There is no action, suit, litigation, proceeding or
controversy in any court, nor any legal proceeding before any public
or governmental commission, bureau, board or agency, pending or, to
the best knowledge of Seller, threatened by or against Seller in
respect of Seller's Business or Sale Assets. Seller is not subject
to any judgment, order, writ, or injunction enjoining it in respect
of any business practice in the conduct of its business.
(d) Material Defaults. Seller is not in default under, or in violation
of any
4
<PAGE>
applicable statute, law, decree, order, rule or regulation, or in
default under or in violation of any provision of any contractual
agreement in a manner that would materially or adversely affect the
Sale Assets.
(e) Tax Matters. Seller has filed with the proper governmental agencies
all tax returns and reports required by law, except for those
subject to valid extensions; and (i) all income, ad valorem,
franchise, sales, use, occupation, withholding (including income,
social security, and unemployment compensation taxes), excise, and
other taxes have been fully paid, (ii) no agreement for the
extension of time or waiver of any statute of limitation has been
given or is in effect with respect to the assessment or payment of
any tax against or by the Seller, (iii) there is no unpaid tax
deficiency that has been assessed or that is proposed, threatened,
or in process against the Seller by any taxing authority, and (iv)
no audit of any tax return of the Seller by any taxing authority is
pending, in progress, threatened, or in process.
Seller shall deliver to Purchaser on or before the Closing Date (i)
copies of all state and federal tax returns filed by the Seller
since January 1, 1995, for federal income taxes, all state taxes,
employee federal income tax withholding, social security taxes,
excise taxes, and federal and state unemployment compensation taxes,
and (ii) reasonably satisfactory proof of the payment of all tax
liabilities shown on the foregoing returns. Seller shall be
responsible for the preparation and filing of all applicable tax
returns for the fiscal year ended 1998 and shall be responsible for
any taxes due therefrom. Seller shall copy Purchaser on all filings
and correspondence with any and all taxing authorities regarding the
filing of said returns.
(f) Examination and Access. Seller agrees to permit Purchaser and its
employees, representatives, agents, and accountants to conduct site
visitations to Seller's Business during the period immediately
following execution of this Agreement by the last signatory through
and including the Closing Date (the "Examination Period"), and to
furnish to Purchaser, its employees, representatives, agents, and
accountants access at any reasonable time to Seller's books,
records, tax returns, and other information related to the Business.
The parties hereto expressly acknowledge and agree that either party
may terminate this Agreement at any time and for any reason
whatsoever upon failure of a condition precedent prior to Closing.
(g) Seller's Employees. Seller has no agreement, written or oral, with
any employee of Seller regarding employment which will not be
terminated on or before the Physical Closing Date, and Seller is not
a party to any labor union contract or collective bargaining
agreement with respect to any of its employees. Seller maintains no
pension, profit sharing, deferred compensation, life or disability
insurance plan for its employees, except for life insurance provided
pursuant to Seller's health plan. It is understood that Purchaser is
agreeing to employ all full time non-staffer employees of Seller.
Purchaser shall not be obligated to provide any term of employment
to such persons, it being understood that all such employees shall
be terminable at will by Purchaser after the Financial Closing.
Further, effective on the Physical Closing Date, Purchaser or its
assigns shall cover all of Seller's eligible non-staffer employees
who actually are employed by Purchaser under a continuation of
Seller's group health insurance plan for a period of thirty (30)
days from the Closing Date or the period of their employment with
Purchaser, whichever is less or through transfer to Purchaser's
similar plan.
5
<PAGE>
(h) Leases. Seller will furnish to Purchaser executed copies of all
leases, executed by the Lessor, for the Purchaser to execute at
closing.
(i) Legal Capacity and Authority. Seller has full right, power, and
authority to engage in the business now conducted free of
interference from or claims of any person, firm, corporation, or
public authority, and to own and operate its assets, properties and
business.
(j) Authorization. The transaction provided for hereunder will have been
duly authorized by the Board of Directors on or before Closing, and
does not require the consent or approval of any other entity or
person to be binding or enforceable upon Seller according to its
terms.
(k) Disclosure. No representation or warranty of Seller contained in
this Agreement, and no statement contained in any Exhibit hereto or
in any Schedule or document furnished to Purchaser by or on behalf
of Seller pursuant to this Agreement contains any untrue statement
or omission of material fact.
(l) Preservation of Business. Seller has done, and prior to Closing will
do or will cause to be done, all things reasonably appropriate to
preserve the possession and control of all Sale Assets, and so far
as within its power, to preserve the goodwill of its customers and
all others having business relations with it.
(m) Ordinary Operation of Business. During the period beginning on the
Physical Closing Date and ending on the Financial Closing Date and
(as may be extended pursuant to the terms of this Agreement and Note
#1) Seller warrants, covenants and represents to the Purchaser the
following:
Seller agrees that it will operate the business and the assets
purchased by Purchaser in the ordinary course of business as
conducted by Seller prior to the Physical Closing Date. Seller
covenants and warrants that it will not make any full time personnel
changes, acquire any new assets, incur any new debt or make any
other significant changes in the operation of the business formerly
conducted by Purchaser without the written approval of Purchaser's
authorized representative. The parties will cooperate to prepare an
operating budget for the operations of the business formerly
conducted by Seller which shall be based on projected sales.
(n) Brokerage. Seller and Purchaser hereby agree to divide evenly any
brokerage fees due as a result of this transaction
6. Purchaser's Warranties, Representations, and Covenants. Purchaser represents
and warrants to and covenants with the Seller that as of the date hereof and as
of the Closing Date:
(a) Organization and Standing. Purchaser is a corporation, duly
organized, validly existing and in good standing under the laws of
the State of Delaware. No provision of this Agreement, or the
transactions contemplated herein will violate any provision of the
Certificate of Incorporation or By-Laws of Purchaser. This Agreement
has been duly
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authorized and validly executed by Purchaser and is valid, binding
and enforceable according to its terms.
(b) Authorization. The transactions provided for hereunder will have
been duly authorized by the Board of Directors of Purchaser, and
will not require the consent or approval of any other entity or
person to be binding upon Purchaser.
(c) Cooperation. Purchaser covenants with Seller to reasonably cooperate
in Seller's efforts to obtain necessary approvals of all assignments
of contracts to Purchaser.
(d) Restrictions upon Purchaser. During the period beginning on the
Physical Closing Date and ending on the Financial Closing Date and
(as may be extended pursuant to the terms of this Agreement and Note
#1) Purchaser warrants, covenants and represents to the Seller the
following:
1) Purchaser agrees that until the Financial Closing Date it will
operate the business and the assets purchased from Seller in the
ordinary course of business as conducted by Seller prior to the
Physical Closing Date. Purchaser covenants and warrants that it will
not make any full time personnel changes, acquire any new assets,
incur any new debt or make any other significant changes in the
operation of the business formerly conducted by Seller without the
written approval of Seller's President, John W. Boyd, Jr. The
parties will cooperate to prepare an operating budget for the
operations of the business formerly conducted by Seller which shall
be based on projected Sales.
2) Purchaser will not sell, convey, assign or otherwise transfer in
any manner any portion of Purchaser's business as defined in this
Agreement unless (a) such sale, conveyance, assignment or other
transfer is approved in writing by the holder of the Seller Notes;
(b) the person or entity to whom such sale, conveyance, assignment
or other transfer is made assumes all of Purchaser's obligations and
liabilities under this Agreement, the Employment Agreement and the
Seller Notes in written documentation reasonably acceptable to legal
counsel for the holder of the Seller Notes; and (c) Purchaser, its
assigns and all guarantors of the Seller Notes remain fully and
completely liable and obligated under this Agreement, the Employment
Agreement and the Seller Notes as if the sale, conveyance,
assignment or transfer had never occurred.
3) Except for those business operations upon which the Seller will
receive payments on the Seller Notes, Purchaser shall not, directly
or indirectly (including through any related or affiliated
partnership, corporation, limited liability company, sole
proprietorship, trust or other entity), within twenty-five (25)
miles of any Seller location (the "Territory"), engage in the
temporary personnel service business or solicit customers located in
the Territory. This Section 6(d)(2) does not apply to existing
customers of Purchaser as of the Physical Closing Date and
specifically shall exclude Chep Americas, USA Today and any and all
Engineering Services' business.
4) Breach of (1) or (2) above shall constitute a default under this
Agreement.
The parties hereto intend that this paragraph 6(d) provide Seller
and its assigns assurance that Purchaser will not take any actions
after the Closing which would have the effect of
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reducing or jeopardizing amounts payable to Seller under the Seller
Notes through the transfer of the assets or operation of the
Business.
(a) Disclosure. No representation or warranty of Purchaser contained in
this Agreement, and no statement contained in any Exhibit hereto or
in any Schedule or document furnished to Seller by or on behalf of
Purchaser pursuant to this Agreement contains any untrue statement
or omission of material fact.
(b) Security Interest. The UCC-1 will upon filing vest a first priority
lien in the collateral as defined therein.
7. Conditions Precedent.
(a) Conditions Precedent to Purchaser's Obligation to Perform. The
obligations of Purchaser to purchase the Sale Assets are subject to
the satisfaction at or before the Closing of all of the conditions
set out below in this paragraph 7. Purchaser may waive any or all of
these conditions in whole or in part without prior notice.
1) All representations and warranties of Seller in this Agreement or
in any written statement that shall be delivered to Purchaser by
Seller under this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at
that time.
2) Seller shall have performed, satisfied, and complied in all
material respects with all covenants, agreements, and conditions
required by this Agreement to be performed or complied with Seller
on or before the Closing Date.
3) During the period from the date hereof to the Closing Date,
Seller shall not have sustained any material loss or damage to the
Sale Assets, whether or not insured.
4) Purchaser shall have completed its due diligence review of
Seller's business organization.
5) Purchaser shall have received a certificate dated the Closing
Date signed and verified by the President of Seller certifying, in
such detail as Purchaser and its counsel may reasonably request,
that the conditions specified in paragraphs 7(a)(1), (2), and (3)
have been fulfilled.
6) No action, suit, or proceeding before any court of any
governmental body or authority, pertaining to the transactions
contemplated by this Agreement or to its consummation, the result of
which would affect the Seller's business to a materially adverse
degree, shall have been instituted or threatened on or before the
Closing Date.
7) The execution and delivery of this Agreement by Seller and the
performance of its covenants and obligations under it shall have
been duly authorized by all necessary corporate action, and
Purchaser shall have received copies of all resolutions pertaining
to such authorization, certified by the Secretary of such Seller.
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8) Seller shall have obtained each respective Lessor's signature on
a lease that memorializes the month-to-month oral leases currently
in effect. Such signatures must not be conditioned on or result in
any increase in the rental rates currently in effect and no changes
in the terms and conditions of the Lease(s) are to be made as a
result of the assignment to Purchaser.
(b) Conditions Precedent to Seller's Obligations to Perform.
1) All representations and warranties of Purchaser in this Agreement
or in any written statement that shall be delivered to Seller by
purchaser under this Agreement shall be in all material respects
true and correct on and as of the Closing Date as though made at
that time.
2) Purchaser shall have performed, satisfied, and complied in all
material respects with all covenants, agreements, and conditions
required by this Agreement to be conformed or complied with by
Purchaser on or before the Closing Date.
3) Seller shall have received a certificate dated the Closing Date
and signed and verified by the chief Executive Officer of Purchaser
certifying, in such detail as Seller and its counsel may reasonably
request, that the conditions specified in paragraphs 7(b)(1) and (2)
have been fulfilled.
4) The execution and delivery of this Agreement by Purchaser and the
performance of its covenants and obligations under it shall have
been duly authorized by all necessary corporate actions, and Seller
shall have received copies of all resolutions pertaining to such
authorization, certified by the Corporate Secretary of Purchaser.
(c) Waiver of Conditions Precedent. Either party may waive any or all
conditions precedent to its obligations in whole or in part without
prior notice, and any condition precedent to either party's
obligations hereunder not satisfied as of closing shall be deemed
waived. The foregoing waiver shall not affect the right of any party
hereto to obtain indemnification to which it would be entitled under
Section 11 of this Agreement on account of any "Indemnified Loss"
(as defined in Section 11) which that party incurs following Closing
as a direct result of any fact or circumstance which it has not
discovered, or which was not disclosed to such party.
8. The Closing.
(a) Closing Date and Place of Closing. The Closing shall take place in
two parts. The Physical Closing shall occur on January 4, 1999 and
shall be evidenced by the signing of this Asset Purchase Agreement
and the exchange of the items contemplated herein. The Financial
Closing shall occur on or before June 1, 1999 and shall be evidenced
by the exchange of the Seller Note #1 for its face value and accrued
interest. Either or both of these Closing Dates may be extended by
the mutual agreement of the parties.
(b) Disengagement. In the event that Seller does not make payment on
Note #1 on or before August 1, 1999, this Agreement shall be
rescinded as between the parties by Purchaser reconveying to Seller
all of the assets purchased by Purchaser from Seller; reassigning
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any and all leases which were assumed by Purchaser pursuant to this
agreement; relinquishing any and all rights Purchaser might have to
any of the clients which were transferred to Purchaser by Seller; by
relieving Seller and its employees of their obligations under any
covenant(s) not to compete, and, any and all other actions necessary
to rescind this agreement. Seller shall be entitled to retain any
and all amounts paid to it by Purchaser, except amounts paid
pursuant to Section3(a)(1) of this Agreement, as liquidated damages
and all employment agreements shall be rendered null and void. The
parties agree to work together in good faith in order to accomplish
a recision, if necessary. If this Agreement should be rescinded, the
parties agree to keep confidential any and all information that they
have learned with regard to the others business and shall not
disclose such information to any individuals nor shall they use it
themselves in connection with their own business.
(c) Documents to be Delivered by Seller. At the Closing, in addition to
any other documents specifically required to be delivered pursuant
to this Agreement, Seller shall execute and deliver to Purchaser, in
form and substance reasonably satisfactory to Purchaser and
Purchaser's counsel:
1) Certified copies of the resolutions of the directors and
shareholders of Seller, authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions
provided for herein;
2) Certificate or other evidence of Seller's due formation and good
standing under the laws of the State of Delaware.
3) A duly executed Bill of Sale, in the form attached hereto as
Exhibit "I" transferring to Purchaser all Sale Assets that consist
of tangible personal property described on Exhibit "A" attached
hereto, free and clear of any lien or encumbrance.
4) An executed Assignment Agreement in the form attached hereto as
Exhibit "C", assigning all of Seller's right, title, and interest in
and to the contracts, to Purchaser;
5) Lease(s), executed by the respective Landlord(s) thereto, in the
form attached hereto as Exhibit "B".
6) An Affidavit from Seller certified to Purchaser, certifying the
following:
A. The Seller owns the Sale Assets, and has the right to
convey the same to Purchaser.
B. That the Sale Assets are free and clear from any liens
or encumbrances;
C. That there are no matters pending or to the best
knowledge of Seller, threatened against Seller that
could give rise to a lien or other claim that would
affect Seller's title to the Sale Assets.
7) Such other documents (including corporate resolutions,
certificates of incumbency, and other similar documents, if
applicable), duly executed in recordable
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form, as are contemplated herein or reasonably required by
Purchaser, Purchaser's counsel, or Purchaser's lender to consummate
the sale and purchase transaction contemplated herein; and
8) Duly executed Closing Statement in the form attached hereto as
Exhibit "J".
(d) Documents to be Delivered by Purchaser. At the Closing, in addition
to any other documents specifically required to be delivered
pursuant to this Agreement, Purchaser shall execute and deliver to
Seller, in form and substance satisfactory to Seller and Seller's
counsel:
1) Certified copies of the resolution of the Board of Directors of
Purchaser authorizing and approving the execution and delivery of
this Agreement and the consummation of the transactions provided for
herein;
2) Duly executed Closing Statement in the form attached hereto as
Exhibit "J";
3) Duly executed Assignments of Lease(s) with the respective
Landlords relating to the Lease(s) assumed hereunder;
4) Certificates or other evidence of Purchaser's due formation and
good standing under the laws of the State of Delaware;
5) Duly executed Employment Agreements and Non-Compete Agreements
with John W. Boyd, Jr. in substantially the forms attached hereto as
Exhibits "K" and "L".
6) Duly executed Seller Notes in the form attached hereto as Exhibit
"E";
7) Duly executed Security Agreement and UCC-1 in the form attached
hereto as Exhibit "F"; and
8) Such other documents, including affidavits, and other similar
documents (if applicable), duly executed in recordable form, as are
contemplated herein, or reasonably required by Seller or Seller's
counsel to consummate the sale and purchase transaction contemplated
herein.
(e) Purchase Price. At the Physical Closing, Purchaser shall deliver to
Seller the cash portion of the Purchase Price set forth in paragraph
3 hereof.
9. Adjustments and Prorations at Closing. The following adjustments and
prorations will be computed through the Closing Date:
(a) EBIT Calculation. For purposes of determining the purchase price at
the Financial Closing, EBIT will be calculated using Schedule #1
attached hereto and updated monthly.
(b) Accounts Payable. Any and all amounts paid by Purchaser on behalf of
Seller for any payables existing prior to Physical Closing shall be
credited against Note #1 at the Financial Closing.
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(c) Utility Bills. The amount of all unpaid utility bills with respect
to the Sale Assets allocable in whole or in part to the period prior
to the Closing Date will be prorated through the Closing Date. The
parties agree to attempt to cause such billings to be separated as
of the Closing Date, if at all possible.
(d) Lease Obligations. The amount of any lease obligation, including any
rent, security deposits, maintenance charges, etc., with respect to
the Lease(s), will, to the extent possible, be prorated as of the
Closing Date as further provided in the Assignment and Assumption of
Lease(s). To the extent that such amounts cannot be prorated as of
the Closing Date, the parties agree to make subsequent adjustments
between each other as the obligations become fixed and known.
(e) Property Taxes. The amount of any property taxes, if any, on the
Sale Assets will be prorated.
10. Post Closing Covenants. The parties agree as follows with respect to the
period following the Closing.
(a) Post-Closing Covenants of the Seller.
1) General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this
Agreement, Seller will take such further action (including the
execution and delivery of such further instruments and documents) as
any other Party may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to
indemnification therefor).
2) Transition. Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of Seller from
maintaining the same business relationships with Purchaser after the
Closing as it maintained with Seller prior to the Closing. Seller
will refer all customer inquiries relating to the Business to the
Purchaser from and after the Closing
3) Tax Returns. Seller shall cause to be prepared and filed, at its
sole expense all of its required tax returns for all tax periods
ending on or prior to the Closing Date. Seller shall be responsible
for the payment of, all taxes due or assessed which relate to the
operations of the Business for all periods up to and including the
Closing Date.
4) Dissolution. Subsequent to the Closing, Seller will not dissolve
or otherwise terminate their existence for at least twelve (12)
months following the Closing.
5) Nondisclosure of Confidential Information. Seller recognizes and
acknowledges that it has and will have access to certain
confidential information of the Purchaser (including, but not
limited to, list of customers, and costs and financial information)
that Purchaser considers to be valuable, special and unique property
of Purchaser. Following the Closing, Seller agrees that it will not
disclose, and that it will use reasonable efforts to prevent
disclosure by any other Person of, any such confidential information
to any Person, except to authorized representatives of Purchaser.
Seller recognizes and agrees
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that violation of any of the agreements contained in this Section
10(a)(5) will cause irreparable damage or injury to Purchaser, the
exact amount of which may be impossible to ascertain, and that, for
such reason, among others, Purchaser shall be entitled to seek an
injunction, restraining any further violation of such agreements.
Such rights to any injunction shall be in addition to, and not in
limitation of, any other rights and remedies Purchaser may have
against Seller or its stockholders or members, as applicable.
6) Insurance. Following the Physical Closing Date, Seller shall, if
requested by the Purchaser, assign to the Purchaser or its
designated affiliates Seller's unemployment insurance and workers'
compensation experience ratings and take such steps as the Purchaser
shall reasonably request to effect such assignment, if such
assignment is permitted and does not result in any cost, expense or
penalty to Seller and is otherwise not prejudicial to Seller.
7) Employee Records. Following the Physical Closing Date, unless
prohibited by law, Seller shall make available to the Purchaser all
personnel records. Seller and the Purchaser shall also cooperate,
both before and after the Physical Closing Date, in exchanging
information, including pertinent employment records, benefit
information, salary and compensation records, financial statements
and other data, and in taking other action respecting the interests
of Seller's employees who become employees of the Purchaser at or
shortly following the Closing Date, and their respective
beneficiaries and dependents, in each of the employee benefit plans
of Seller and any plans established by the Purchaser, so as to
secure an orderly and effective transition of the benefit
arrangements for such employees of Seller and their respective
beneficiaries and dependents.
8) Corporate Name. From and after the Physical Closing, Seller shall
not use the words making up its existing name (or any existing trade
names) or similar names in connection with any business.
9) Consents. Following the Physical Closing, Seller shall use all
reasonable best efforts to obtain any consents not previously
obtained as soon as possible after the Physical Closing Date.
10) Employee Claims. On or after the Physical Closing Date, Seller
hereby agrees and covenants that in the event the Purchaser receive
employee claims attributable in all or in part to the employment of
such employee or former employee of Seller prior to the Physical
Closing Date, Seller agrees to undertake the defense of such claims
and to hold the Purchaser harmless from any adverse consequences.
Such claims could include, without limitation, claims asserted by
any union representing Seller's employees, claims before an
administrative agency such as the EEOC, NLRB, or state human rights
department or commission, or any other claims asserted against the
Purchaser, or its officers, agents, attorneys, employees, parent or
assigns in any way arising out of or relating to the employment of
such employees or their termination by Seller.
11) Employee Bonuses. Following the Closing Date, Seller agrees to
pay any and all amounts owed by Seller to the key employees with
respect to incentive and/or bonus
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plans, agreements or arrangements that existed with such persons on
or before the Closing Date.
(b) Post-Closing Covenants of the Purchaser.
1) Employees and Consultants. Following the Closing Date, the
employees of Seller shall cease to be employees of Seller and,
except as otherwise determined by Purchaser, each in its sole
discretion, shall become employees of Purchaser or an affiliate of
the Purchaser on an employment at will basis. Notwithstanding the
foregoing, the Purchaser will have no liability to Seller if for any
reason: (i) the Purchaser decide not to offer employment to any of
Seller's employees (other than employees subject to employment
agreements as required by this Agreement); (ii) any of the employees
do not accept Purchaser's offer of employment; or (iii) any of the
employees (other than employees subject to the employment
agreements) accept employment with Purchaser, but such employment is
terminated for any reason after the Closing Date.
11. Competition and Trade Secrets. Seller shall enter into a Non-Compete
Agreement with Purchaser in the form attached hereto as Exhibit "L".
12. Indemnification.
(a) Indemnity by Purchaser.
1) Purchaser agrees to indemnify, defend and hold Seller, its
successors and assigns, harmless from, against and with respect to
every loss, damage, liability, cost, penalty, and expense including
reasonable attorney's fees which includes paralegal or other support
staff, charges, bankruptcy and appellate fees and court costs that
are incurred by Seller and are directly attributable to (i) the
operation of the Business and/or the Sale Assets by Purchaser on or
after the Closing Date; or (ii) any breach of any representation,
warranty or covenant of Purchaser in this Agreement or any document
executed pursuant hereto; or (iii) any failure of Purchaser to
satisfy any liability assumed by Purchaser in or pursuant to this
Agreement or any document executed pursuant hereto; or (iv) any
action, suit, proceeding, demand or other incident to enforcing this
indemnity provision (a "Purchaser's Indemnified Loss").
2) All rights and remedies granted to Purchaser in this Agreement
are cumulative and not exclusive of all other rights and remedies
which Purchase may have at law or in equity, and Purchaser may
exercise all or any of such rights at any one or more times without
being deemed to have waived any or all other rights and remedies
which Purchaser may have in the matter.
(b) Indemnity by Seller.
1) Seller agrees to indemnify, defend and hold Purchaser, its
successors and assigns, harmless from, against and with respect to
every loss, damage, liability, cost, penalty, and expense including
reasonable attorney's fees which includes paralegal or other support
staff, charges, bankruptcy and appellate fees and court costs that
are incurred by Purchaser and are directly attributable to (i) the
operation of the Business and/or the Sale
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Assets by Seller prior to the Closing Date; or (ii) any breach of
any representation, warranty or covenant of Seller in this Agreement
or any document executed pursuant hereto; or (iii) any failure of
Seller to satisfy any liability assumed by Seller in or pursuant to
this Agreement or any document executed pursuant hereto; or (iv) any
action, suit, proceeding, demand or other act incident to enforcing
this indemnity provision (a "Seller's Indemnified Loss").
2) All rights and remedies granted to Seller in this Agreement are
cumulative and not exclusive of all other rights and remedies which
Seller may have at law or in equity, and Seller may exercise all or
any of such rights at any one or more times without being deemed to
have waived any or all other rights and remedies which Seller may
have in the matter.
(c) Claims Procedure. A party claiming indemnity (the "Indemnitee")
shall notify the other (the "Indemnitor") of either the incurrence
of an Indemnified Loss or the existence of any known facts that, if
not corrected, could constitute an Indemnified Loss within the time
limits allowed herein. The Indemnitor shall have thirty (30) days
following the date of receipt of such notice to notify the
Indemnitee of any objection it has to the validity or amount of the
Indemnitee's claim. If the parties have not resolved such claim
within such time, either party may commence legal action to
determine the claim. The Indemnitor shall have the right at its sole
option to undertake the defense or settlement of any claim that
might lead to an Indemnified Loss, provided that the Indemnitor
shall expressly agree to satisfy any Indemnified Loss that may
result from such claim. The notice shall describe the Indemnified
Loss in reasonable detail, and shall indicate the amount (estimated
if necessary) of the Indemnified Loss that has been or may be
suffered by the Indemnitee. The notice shall describe the
Indemnified Loss in reasonable detail, and shall indicate the amount
(estimated if necessary) of the Indemnified Loss that has been or
may be suffered by the Indemnitee.
(d) Set-Off. If Seller elects to dispute, rather than settle or pay, all
or any portion of Purchaser's claim for indemnity, Purchaser shall
have the further right to withhold payment of amounts then or
thereafter due or to become due to Seller under the Seller Notes,
but only to the extent of the amount of the Indemnified Loss, until
such time as a final judgment is rendered in the matter. Purchaser
shall thereon immediately pay Seller the amount (if any) by which
the amounts withheld or offset under the Seller Notes exceed
Seller's aggregate liability to Purchaser on account of an
Indemnified Loss (together with interest on such excess amount from
the date of set-off at the Wall Street Journal Prime Rate as is
reported from time to time plus 2%), as determined pursuant to such
final judgment or settlement entered into in connection with such
Indemnified Loss if Indemnitor does not elect to defend this matter.
(e) Survival of Representations, etc. The respective representations,
warranties, agreements and covenants of Seller and Purchaser herein
contained shall survive the Closing for a period of four (4) years
from the Closing Date.
13. Expenses. Seller and Purchaser shall each pay their respective costs and
expenses incurred or to be incurred by each of them in negotiating and preparing
this Agreement and in closing and carrying out the transactions contemplated by
this Agreement.
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14. Taxes. Seller shall pay all personal property taxes and sales or transfer
taxes, if any, payable in connection with the sale, transfer, delivery, and
assignment to be made to the Purchaser hereunder.
15. Termination. Notwithstanding anything contained in this Agreement to the
contrary, this Agreement can be terminated, and the transactions contemplated by
it abandoned by mutual agreement of all the parties in writing.
16. Default.
(a) Default by Seller. In the event that prior to the Financial Closing
Seller breaches any of the provisions of this Agreement or fails to
perform any covenants hereunder, Purchaser may elect to either
terminate this Agreement, in which event Purchaser and Seller will
be relieved of all further obligations hereunder, or to specifically
enforce the performance of this Agreement by Seller.
(b) Default by Purchaser. In the event that prior to the Financial
Closing Purchaser breaches any of the provisions of this Agreement
or fails to perform any covenants hereunder, resulting in the
failure to close this transaction, Seller shall elect to either
terminate this Agreement, in which event Purchaser and Seller may be
relieved of all further obligations hereunder, or to specifically
enforce the performance of this Agreement by Purchaser.
17. Assignment. Purchaser may assign this Agreement and the rights and interests
of Purchaser thereunder without the written consent of Seller so long as such
assignment is to an affiliated entity under common ownership and control. Any
permitted assignment hereunder shall not serve to release Purchaser or any
guarantor from any of its obligations or duties pursuant to this Agreement.
18. Press Release. No press release is to be made concerning the negotiation of
this Agreement nor the sale of the Business prior to Closing without the prior
consent of both parties to this Agreement.
19. Return of Documents. In the event that a Closing does not occur, any
documents or copies of same exchanged between the parties are to be returned to
the party providing such documents and Confidentiality Agreements executed by
the parties shall continue in accordance with their terms.
20. Miscellaneous.
(a) Entire Agreement. This Agreement, together with the Exhibits hereto
and the documents to be delivered pursuant hereto, supersedes all
other agreements, understandings, representations and warranties
between the parties, either oral or written, constitutes the entire
agreement of the parties with respect to the subject matter hereof,
and may be amended only by an instrument in writing executed by all
parties hereto.
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(b) Binding Effect. This Agreement, and the covenants herein contained,
will be binding upon, and inure to the benefit of, the parties
hereto and their respective successors, assigns, and legal
representatives.
(c) Notices. Whenever any party shall be required to give notice or
demand to another party according to the provisions of this
Agreement, such notice or demand shall be deemed sufficient and
effective on deposit in the United States mails, postage prepaid,
certified, return receipt requested, and addressed:
In the case of Purchaser to:
Stratus Services Group, Inc.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
Attn: J. Todd Raymond, Esq., General Counsel
In the case of Seller to:
John W. Boyd, Jr.
207 Louis Lane
Hockessin, Delaware 19707
With a copy to:
James W. Owen, Esq.
103 Weldin Building
3411 Silverside Road
Wilmington, Delaware 19810
Any party may change the address to which such notices are to be
addressed by giving the other party notice in the manner herein set
forth.
(d) Paragraph Headings. Paragraph headings throughout this Agreement are
for the convenience of the parties and do not constitute a part
hereof.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of
which will constitute one instrument.
(f) Construction. Unless the context clearly otherwise requires: the use
of the singular will include the plural and the use of the plural
will include the singular, and the use of any gender will include
the other two genders.
(g) No Waiver. The failure of any party to insist upon strict
performance of a covenant or of any obligation hereunder will not be
a waiver of that party's right to demand strict compliance therewith
in the future, nor will the same be construed as a novation of this
Agreement.
(h) Severability. If a covenant or provision provided in this Agreement
is deemed to be contrary to law, that covenant or provision will be
deemed separable from the remaining covenants and provisions of this
Agreement, and will not affect the validity, interpretation, or
effect of the other provisions of either this Agreement or any
agreement
17
<PAGE>
executed pursuant to it or the application of that covenant or
provision to their circumstances not contrary to law.
(i) Computation of Time. Whenever the last day for the exercise of any
privilege or the discharge of any duty hereunder falls upon
Saturday, Sunday, or any public or legal holiday, whether state or
federal, the party having the privilege or duty will have until 5:00
p.m. Eastern Standard Time on the next succeeding regular business
day to exercise the privilege or discharge the duty.
(j) Interpretation. No provision of this Agreement will be construed
against or interpreted to the disadvantage of any party by any court
or other governmental or judicial authority by reason of such party
having or being deemed to have structured or dictated such
provision.
(k) Governing Law. This Agreement and the obligations of the parties
hereunder will be interpreted, construed, and enforced in accordance
with the Laws of the State of Delaware, and the parties hereto
specifically consent to the jurisdiction and venue of the
appropriate state or federal courts located in New Castle County,
Delaware.
(l) Attorneys' Fees. In the event a lawsuit is brought by either party
to enforce the terms hereof, or for any dispute arising out of this
transaction, the party prevailing in any such lawsuit shall be
entitled to recover from the losing party its costs and expenses
thereof, including its legal fees in a reasonable amount.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the date set forth above.
PURCHASER: SELLER:
STRATUS SERVICES GROUP, INC. B & R EMPLOYMENT Inc.
By: /s/ Joseph J. Raymond By: /s/ John W. Boyd, Jr.
------------------------- -------------------------
Name: Joseph J. Raymond Name: John W. Boyd, Jr.
Title: CEO Title: President
18
<PAGE>
Exhibit 2.2
LIST OF ASSETS
1. ACER Pentium 133 mg with 32 RAM
2. ACER Pentium 133mg with 32 RAM
3. ACER Pentium 50mg with 32 RAM
4. Epson Stylus 600 color printer
5. Epson Stylus 600 color printer
6. The name B & R Employment Inc.
7. The customer lists and data base of B & R Employment Inc.
8. The applicant data base of B & R Employment Inc.
<PAGE>
Exhibit 2.2
MONTHLY RENTAL AGREEMENT
THIS AGREEMENT, entered into this 1st day of January, 1999, by and between
ROBERT GILDEA, 2100 Willow Way, Wilmington, Delaware 19810 hereinafter Lessor,
and STRATUS SERVICES GROUP, INC., 500 Craig Road, Suite 201, Manalapan, New
Jersey 07726 hereinafter Lessee.
WITNESSETH: That for an in consideration of the payment of the rents and
the performance of the covenants contained on the part of Lessee, said Lessor
does hereby demise and let unto Lessee, and Lessee hires from Lessor those
premises located at: 2825 Ogletown Road., Newark, Delaware 19713 for a tenancy
from month-to-month commencing on the 1st day of January, 1999, and at a monthly
rental of One Thousand, Five Hundred Seventy-Five Dollars ($1,575) per month,
payable monthly in advance on the 1st day of each and every month, on the
following TERMS AND CONDITIONS:
1. Purpose. The said premises shall be used for lawful business purposes
only.
2. Ordinances and Statutes. Lessee shall comply with all statutes,
ordinances and requirements of all municipal, state and federal authorities now
in force, or which may hereafter be in force, pertaining to the use of the
premises.
3. Repairs or Alterations. Lessee shall be responsible for damages caused
by his negligence and that of employees or invitees. Lessee shall not paint,
paper or otherwise redecorate or make alterations to the premises without the
prior written consent of Lessor. All alterations, additions, or improvements
made to the premises with the consent of Lessor shall become the property of
Lessor and shall remain upon and be surrendered with the premises.
4. Upkeep of Premises. Lessee shall keep and maintain the premises in a
clean and sanitary condition at all times, and upon the termination of the
tenancy shall surrender the premises to Lessor in as good condition as when
received, ordinary wear and damage by the elements excepted.
5. Assignment and Subletting. Lessee shall not assign this Agreement or
sublet any portion of the premises without prior written consent of Lessor.
6. Utilities. No obligations.
7. Default. If Lessee shall fail to pay rent when due, or perform any term
hereof, after not less than three (3) days written notice of such default given
in the manner required by law, Lessor, at his option, may terminate all rights
of Lessee hereunder, unless Lessee, within said time, shall cure such default.
If Lessee abandons or vacates the property, while in default of the payment of
rent, Lessor may consider any property left on the premises to be abandoned and
may dispose of the same in any manner allowed by law.
8. Security. No security deposit required.
9. Right of Entry. Lessor reserves the right to enter the demised premises
at all reasonable hours for the purpose of inspection, and whenever necessary to
make repairs and alterations to the demised premises. Lessee hereby grants
permission to Lessor to show the demised premises to prospective purchasers,
mortgagees, tenants, workmen, or contractors at the reasonable hours of the day.
<PAGE>
Exhibit 2.2
10. Deposit Refunds. The balance of all deposits shall be refunded within
two (2) weeks from date possession is delivered to Lessor, together with a
statement showing any charges made against such deposits by Lessor.
11. Termination. This Agreement and the tenancy hereby granted may be
terminated at any time by either party hereto by giving to the other party not
less than one full month's prior notice in writing.
12. Attorney's Fees. The prevailing party in an action brought for the
recovery of rent or other moneys due or to become due under this lease or by
reason of a breach of any covenant herein contained or for the recovery of the
possession of said premises, or to compel the performance of anything agreed to
be done herein, or to recover for damages to said property, or to enjoin any act
contrary to the provision hereof, shall be awarded all of the costs in
connection therewith, including, but not by way of limitation, reasonable
attorney's fees.
13. Additional Terms and Conditions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate the day and year first above written.
Signed in the presence of:
/s/ J. Todd Raymond /s/ Michael A. Maltzman
-------------------------- --------------------------
Witness Lessee
-------------------------- --------------------------
Witness Lessor
<PAGE>
MONTHLY RENTAL AGREEMENT
THIS AGREEMENT, entered into this 1st day of January, 1999, by and between
GREG GROVER, 1826 Grempler Way, Edgewood, Maryland 21040 hereinafter Lessor, and
STRATUS SERVICES GROUP, INC., 500 Craig Road, Suite 201, Manalapan, New Jersey
07726 hereinafter Lessee.
WITNESSETH: That for an in consideration of the payment of the rents and
the performance of the covenants contained on the part of Lessee, said Lessor
does hereby demise and let unto Lessee, and Lessee hires from Lessor those
premises located at: 202 W. Loockerman St., Dover, Delaware 19901 for a tenancy
from month-to-month commencing on the 1st day of January, 1999, and at a monthly
rental of Three Hundred Fifty Dollars ($350) per month, payable monthly in
advance on the 1st day of each and every month, on the following TERMS AND
CONDITIONS:
1. Purpose. The said premises shall be used for lawful business purposes
only.
2. Ordinances and Statutes. Lessee shall comply with all statutes,
ordinances and requirements of all municipal, state and federal authorities now
in force, or which may hereafter be in force, pertaining to the use of the
premises.
3. Repairs or Alterations. Lessee shall be responsible for damages caused
by his negligence and that of employees or invitees. Lessee shall not paint,
paper or otherwise redecorate or make alterations to the premises without the
prior written consent of Lessor. All alterations, additions, or improvements
made to the premises with the consent of Lessor shall become the property of
Lessor and shall remain upon and be surrendered with the premises.
4. Upkeep of Premises. Lessee shall keep and maintain the premises in a
clean and sanitary condition at all times, and upon the termination of the
tenancy shall surrender the premises to Lessor in as good condition as when
received, ordinary wear and damage by the elements excepted.
5. Assignment and Subletting. Lessee shall not assign this Agreement or
sublet any portion of the premises without prior written consent of Lessor.
6. Utilities. No obligations.
7. Default. If Lessee shall fail to pay rent when due, or perform any term
hereof, after not less than three (3) days written notice of such default given
in the manner required by law, Lessor, at his option, may terminate all rights
of Lessee hereunder, unless Lessee, within said time, shall cure such default.
If Lessee abandons or vacates the property, while in default of the payment of
rent, Lessor may consider any property left on the premises to be abandoned and
may dispose of the same in any manner allowed by law.
8. Security. The security deposit in the amount of Three Hundred Dollars
($300) shall secure the performance of Lessee's obligations hereunder. Lessor
may, but shall not be obligated to, apply all or portions of said deposit on
account of Lessee's obligations hereunder. Any balance remaining upon
termination shall be returned to Lessee. Lessee shall not have the right to
apply the security deposit in payment of the last month's rent.
9. Right of Entry. Lessor reserves the right to enter the demised premises
at all reasonable hours for the purpose of inspection, and whenever necessary to
make repairs and alterations to the demised
<PAGE>
premises. Lessee hereby grants permission to Lessor to show the demised premises
to prospective purchasers, mortgagees, tenants, workmen, or contractors at the
reasonable hours of the day.
10. Deposit Refunds. The balance of all deposits shall be refunded within
two (2) weeks from date possession is delivered to Lessor, together with a
statement showing any charges made against such deposits by Lessor.
11. Termination. This Agreement and the tenancy hereby granted may be
terminated at any time by either party hereto by giving to the other party not
less than one full month's prior notice in writing.
12. Attorney's Fees. The prevailing party in an action brought for the
recovery of rent or other moneys due or to become due under this lease or by
reason of a breach of any covenant herein contained or for the recovery of the
possession of said premises, or to compel the performance of anything agreed to
be done herein, or to recover for damages to said property, or to enjoin any act
contrary to the provision hereof, shall be awarded all of the costs in
connection therewith, including, but not by way of limitation, reasonable
attorney's fees.
13. Additional Terms and Conditions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate the day and year first above written.
Signed in the presence of:
/s/ J. Todd Raymond /s/ Michael A. Maltzman
-------------------------- --------------------------
Witness Lessee
-------------------------- --------------------------
Witness Lessor
<PAGE>
Exhibit 2.2
MONTHLY RENTAL AGREEMENT
THIS AGREEMENT, entered into this 1st day of January, 1999, by and between
JOHN W. BOYD, JR., Post Office Box 3471, Wilmington, Delaware 19804 hereinafter
Lessor, and STRATUS SERVICES GROUP, INC., 500 Craig Road, Suite 201, Manalapan,
New Jersey 07726 hereinafter Lessee.
WITNESSETH: That for an in consideration of the payment of the rents and
the performance of the covenants contained on the part of Lessee, said Lessor
does hereby demise and let unto Lessee, and Lessee hires from Lessor those
premises located at: 118 South Maryland Ave., Wilmington, Delaware 19804 for a
tenancy from month-to-month commencing on the 1st day of January, 1999, and at a
monthly rental of One Thousand, Two Hundred Dollars ($1,200) per month, payable
monthly in advance on the 1st day of each and every month, on the following
TERMS AND CONDITIONS:
1. Purpose. The said premises shall be used for lawful business purposes
only.
2. Ordinances and Statutes. Lessee shall comply with all statutes,
ordinances and requirements of all municipal, state and federal authorities now
in force, or which may hereafter be in force, pertaining to the use of the
premises.
3. Repairs or Alterations. Lessee shall be responsible for damages caused
by his negligence and that of employees or invitees. Lessee shall not paint,
paper or otherwise redecorate or make alterations to the premises without the
prior written consent of Lessor. All alterations, additions, or improvements
made to the premises with the consent of Lessor shall become the property of
Lessor and shall remain upon and be surrendered with the premises.
4. Upkeep of Premises. Lessee shall keep and maintain the premises in a
clean and sanitary condition at all times, and upon the termination of the
tenancy shall surrender the premises to Lessor in as good condition as when
received, ordinary wear and damage by the elements excepted.
5. Assignment and Subletting. Lessee shall not assign this Agreement or
sublet any portion of the premises without prior written consent of Lessor.
6. Utilities. Lessee shall be responsible for the payment of all utilities
and property taxes
7. Default. If Lessee shall fail to pay rent when due, or perform any term
hereof, after not less than three (3) days written notice of such default given
in the manner required by law, Lessor, at his option, may terminate all rights
of Lessee hereunder, unless Lessee, within said time, shall cure such default.
If Lessee abandons or vacates the property, while in default of the payment of
rent, Lessor may consider any property left on the premises to be abandoned and
may dispose of the same in any manner allowed by law.
8. Security. No security deposit required.
9. Right of Entry. Lessor reserves the right to enter the demised premises
at all reasonable hours for the purpose of inspection, and whenever necessary to
make repairs and alterations to the demised premises. Lessee hereby grants
permission to Lessor to show the demised premises to prospective purchasers,
mortgagees, tenants, workmen, or contractors at the reasonable hours of the day.
<PAGE>
Exhibit 2.2
10. Deposit Refunds. The balance of all deposits shall be refunded within
two (2) weeks from date possession is delivered to Lessor, together with a
statement showing any charges made against such deposits by Lessor.
11. Termination. This Agreement and the tenancy hereby granted may be
terminated at any time by either party hereto by giving to the other party not
less than one full month's prior notice in writing.
12. Attorney's Fees. The prevailing party in an action brought for the
recovery of rent or other moneys due or to become due under this lease or by
reason of a breach of any covenant herein contained or for the recovery of the
possession of said premises, or to compel the performance of anything agreed to
be done herein, or to recover for damages to said property, or to enjoin any act
contrary to the provision hereof, shall be awarded all of the costs in
connection therewith, including, but not by way of limitation, reasonable
attorney's fees.
13. Additional Terms and Conditions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate the day and year first above written.
Signed in the presence of:
/s/ J. Todd Raymond /s/ Michael A. Maltzman
-------------------------- --------------------------
Witness Lessee
/s/ John W. Boyd, Jr.
-------------------------- --------------------------
Witness Lessor
<PAGE>
Exhibit 2.2
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment made as of the 1st day of January, 1999, by and between B
& R EMPLOYMENT INC. ("Assignor") and STRATUS SERVICES GROUP, INC. ("Assignee").
WITNESSETH:
WHEREAS, this Assignment is being delivered pursuant to the terms of the
Asset Purchase Agreement dated as of January 4, 1999, (the "Asset Purchase
Agreement"), by and among Assignor, Assignee, Company, Individual(s) or any
other parties to the Contracts, by which Assignor is selling all or
substantially all of its operating assets to Assignee; and
WHEREAS, in connection with the sale of such assets and pursuant to the
terms of the ASSET PURCHASE AGREEMENT, Assignor has agreed to assign to
Assignee, for good and valuable consideration, all of the interests, rights and
property of Assignor described below;
NOW, THEREFORE, Assignor, in consideration of the mutual representation,
warranties, covenants and agreements contained herein and in the ASSET PURCHASE
AGREEMENT and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged and accepted, does hereby grant, bargain, sell,
assign, convey, transfer, set over and confirm unto Assignee, its successors and
assigns forever, the agreements, employment agreements, non-competition
agreements, and all other agreements, oral or written, listed on Schedule "a"
hereto (the "Contracts").
TO HAVE AND TO HOLD, all of the Contracts hereby conveyed, transferred and
assigned unto Assignee, its successors and assigns, forever.
A. Covenants, Representations and Warranties of Assignor. Assignor hereby
covenants and warrants as of the date hereof the following:
1. Assignor is the sole and absolute owner of the Contracts and
has full legal right to transfer such Contracts. All of the
Contracts are free of any security interest, lien or other
encumbrance.
2. All of the Contracts and relationships described above and
transferred hereunder are valid and in good standing and,
except for the performance obligations thereunder, there are
no outstanding duties or obligations with respect thereto,
except that Assignor has no knowledge that any such Contracts
are valid, binding and enforceable agreements of other parties
to such Contracts.
3. As between Assignor and Assignee, pursuant to the execution of
this Assignment, Assignor hereby releases all of its employees
who are parties to the Contracts (the "Employees") from all
covenants and agreements against solicitation of customers,
competition and disclosure of information made by the
Employees in favor of Assignor, whether pursuant to the terms
of the Contracts or otherwise, and Assignor agrees to waive
any and all rights to which it would otherwise be entitled,
whether by contract, statutory or common law or otherwise, to
prevent or in any way restrict the Employees from being
employed by and carrying out duties on behalf of Assignee,
whether such duties are similar to the duties carried out by
the Employees on behalf of Assignor prior to the execution of
this Assignment or otherwise.
B. Covenants of Assignee. Assignee hereby covenants and agrees to assume,
observe and discharge the performance obligations, duties and liabilities of
Assignor associated with the Contracts
<PAGE>
Exhibit 2.2
from and after the date hereof, subject to any limitations contained in the
Contracts or in the ASSET PURCHASE AGREEMENT. Except as specifically described
herein or in the ASSET PURCHASE AGREEMENT, Assignee in no way whatsoever assumes
any obligation, duty or other liability of Assignor, whether under the Contracts
or otherwise. Notwithstanding anything above to the contrary, Assignee in no way
whatsoever assumes any obligation, duty or other liability of Assignor or any
other party arising under or pursuant to the Contracts from events occurring
prior to the date hereof.
This Assignment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
CONFLICT-OF-LAWS RULES AS APPLIED IN DELAWARE.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to
be executed and delivered by its respective officers thereunto duly authorized,
as of the day and year first written above.
ASSIGNOR:
B & R EMPLOYMENT INC.
ATTEST: By: /s/ Jack Boyd, Jr.
--------------------------------
/s/ Jack Boyd, Jr. Name: Jack Boyd, Jr.
- ---------------------- Title: Chairman and Chief Executive
Secretary
ASSIGNEE:
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
--------------------------------
Name: Joseph J. Raymond
Title: CEO
<PAGE>
Exhibit 2.2
Schedule "a"
Contract/Customer Listing
<TABLE>
<S> <C> <C>
A&H Metals Inc. A&R Fence Accurate Builders
Adkins Transfer Inc. Advance Construction Ajmal Jourdan
Alfred Dreen All-Clean American Minerals Inc.
American Roof Tops AMS Contracting Anchor Construction
Anderson & Touchet Apex Piping Systems, Inc. Aqua Terra
Aramark Approved Equipment Co. Art Floor
Atlantic Aviation Atlas Welding Auto Net
Automations B&K Rentals BF Goodrich
B&R Services Barksdale Paving & Contract Bath Kitchen & Tile
Bllenheim Homes LP Bradley Tile Brand Scaffolding
Breslin Contractors Brian's Commercial Moving, Inc. Brick Doctor
Brooks Armored Car Service Broweski Bruce Industrial
C&D Contractors C&R Antonnini Inc. Camdel Liquors
Camdel Metals Inc. Cancer Center of Bayhealth Can-Do Construction
Capital Health Care Capital Office Products Capitol Cleaners & Laundry
Carpet Connection
Capano Homes Car Wash of Prices Corner Castle Construction of DE, Inc.
Carriage House Builders Casey Electric
Catholic Charities Chamber Masonry
Charles R. Taylor Davan Construction Chimes of DE
China Box Chartwell Homes Inc. Circuit City
Clean Air Technology Chrisitana Burton Construction Coastal Funding
Colonial Construction Coakley Williams Construction Composites
Concrete Technology Commonwealth Management Connectiv Services Inc.
Construction Alliance Group Confi-Shred Cordell Hom Works
Corgan Construction Co., Inc. Construction Concepts Corps Construction
Corrision Control Corp. Corporate Express Cover Deck
Crist Contracting County Enterprises Custom Iron Shop
D&K Construction Curbs Etc., Inc. Daisy Construction
Daniel D Rappa Inc. DA Conoman Co., Inc. Dave Waters & Sons, Inc.
Data Place Inc. DC Chambers
David Cass Del Homes
DDP Contracting Co., Inc. David R Parag Heating Delaware Brick
Del-Mar Concrete Delcollo Electric Delaware Site Excavating
Delaware Elwyn Delaware Boiler Delcollo Electric
Delaware Park Denisio General Construction
Delaware Tree Co.
Delmarva Roofing & Coating Delaware Valley Builders Diamond Spring Water
Devcon Services Deltronics Dimension Interior
Dietz Construction Division of Visually Impaired
Dimo Corporation Diamond Materials Dover Downs
Disabitano Construction Drywall Contractors
Doherty Construction Diversfield Educational System Eagle Limousine Inc.
Dover Furniture East Coast Stainless
E&E Industrial Service Dougherty Electric Co.
Eastern Insulation Dr. Ross Ufberg
Eastern State Const. Eagle Electric
Elite Cleaning East Coast Plumbing
</TABLE>
<PAGE>
Exhibit 2.2
Schedule "a" (Con't)
Contract/Customer Listing
<TABLE>
<S> <C> <C>
Enterprise Flasher Eisco Electricia General Corp.
Evco Plumbing Elliot & Sons Co., Inc. EMR Services Inc.
Fiducks Ind. Services Erectix Erco
Floor Buffs Exce Installation Ltd. FH Richards
Fran's Builders First State Construction Flo Pak
Furniture Barn Frank Devonshire Frank Robino
Glidden Paint Frame Masters Free Flow Packing
Greely Construction Genesis Eldercare Gilman Development
Hance Custom Carpentry Global Construction GP Industries
Happy Harrys Greggo & Ferraro Halco Fence
Harvey & Harvey Hands On Health Hanover Foods
Heritage Electric Harmony Construction Hart Construction
Hoboken Floor Haven's Steel Havern Construction
Home Waste Herman & Stewart Construction HHK Inc.
IPI Inc. Home Care Medical Home Detailing
International petroleum Corp. Hopkins Const. Hunter Construction
JL Williams Company, Inc. Ingelside Homes, Inc. Insite Inc.
JDL Concrete J&H Manufacturing JH Poteet Inc.
James A. Peel & Sons JT Construction JC Penney
James Thompson JA Moore & Sons, Inc. Jacobs & Son
JDH Construction James Holton, Inc. James Julian
Kaneka Janco Movers Jason Taylor Associate
Krapt Can Do It John D. Ringer Carpentry John Gabrielli
Larlhan Contracting, Inc. Kellog & Kimsey Inc. Knights Carpet
Life Tek L&W Insurance Lanes Moving
Layaou Landscaping Lehigh Valley Safety
MJH Construction Lowes Home Centers, Inc. Lums Pond Animal Hospital
Manor Care Health Services
Marsh Painting Magnees Co. Martruder Construction
McDaniels Plumbing Medical Management
Mendenhall Inn Marta Corporation Merry Maids
Metal Masters McFarland Painting Midway
Midway Mechanical Merit Mechanical Company, LLC Mike Rash
Miken Builders Metro Form Electric Co., Inc. Minker Construction
Mobile Dredging & Plumbing Mike Blume Electrician Inc. Mortgage Reduction Services
Miller's Flooring MSA Promotion Group
MPI Construction Modern Equipment Rental N. Barton & Associates
Mullan Construction NC Builders
Nanticoke Homes Mr. Sign Newark Day Nursery
New Castle Development Multi-Technologies Nurses & Kids
Noradex Nassau Trailer O'Rourke & Sons
NVR Day Nursery New Castle Hot Mix Orzada Landscaping
Oak Construction Nowland Associates, Inc. Paul A. Nickle
Pace Electric OA Newton & Sons
Office Movers
Palmer Construction
</TABLE>
<PAGE>
Exhibit 2.2
Schedule "a" (Con't)
Contract/Customer Listing
<TABLE>
<S> <C> <C>
Pawnee Penn Fiber Perdue
Pettinaro Pettitt Construction Pulte Homes Master Builder
Quality Heating & Air Quality Kitchen Corp. Quarker City Motor Part
</TABLE>
<PAGE>
Exhibit 2.2
Schedule "a" (Con't)
Contract/Customer Listing
<TABLE>
<S> <C> <C>
R&R Trucking R Julian Enterprises RE Pierson
RIMSI Corp. Ralph Degliobizzi RC Fabricators
Rehoboth Outlets Reliable Mechanical Rescar
Robert J. Smith Rons Home Improvement Rossetti Contracting
Rusty Rudders SG Williams Saddletree Landscaping
Sawyer Pool & Spa Services Saxton Quality Roofing Schalbach-Lubeca
Schumann's Roofing Scott Harding Contractor LLC Sears Outlet Store
Service Master of Newark Service Unlimited Shamrock Tree
Shureline Construction Snyder Crompton Sobieski
Spacecon Spevco, Inc. Square One Electric
Stacey Expo Services Staff Management Steel Works
Storhouse Furniture, Inc. Strate Shows Sweeten Contracting
SW Day Construction Swydells Egg Farm T-Netx
Tatnall School Taylor Builders Taylor's of Delaware
Thompson Corp of Delaware Tighe Cottrell & Logan Tober & Agnew
Toll Bros./Willowdale Crs. Toll Bros, Cobblestone Tony Asburn
Townsend Inc. Tri State Delivery Triangle Fasteners
Triad Construction U of D Maintenance US Filter/Davis
Ultra Clean Technology United Way of Delaware Unity Construction
Vasallo Electric Venture Care LLC VFL Technology Corp.
Victor Colbert Construction Village at Fox Point Wagman
Warner Landscaping Warren Truss Waste Management
Water Edge Omni Way Wendel Construction Wesco Construction
Westminster Village White Oak Builders Whiting Turner
Wilkinson Roofing William B. Meyers Willington Construction
Wilm Movers & Storage Wilmington Glass Wohlsen Construction
World Wide Express WRDX Wyman Electric
Wyoming Concrete Zack Excavating Zeccola Builders
</TABLE>
<PAGE>
Exhibit 2.2
LIST OF PAYABLES
None.
<PAGE>
Exhibit 2.2
SELLER NOTE #1
PROMISORY NOTE
$1,610,000
January 4, 1999
FOR VALUE RECEIVED, and without defalcation, STRATUS SERVICES GROUP, INC.,
a Delaware corporation with its principal offices at 500 Craig Road, Suite 201,
Manalapan, New Jersey 07726 (the "Maker") promises to pay to B & R EMPLOYMENT
INC., a Delaware corporation with its principal offices at 118 South Maryland
Avenue, Wilmington, Delaware 19804 (the "Payee"), the principal amount of One
Million, Six Hundred Ten Thousand Dollars ($1,610,000) with nine percent (9%)
interest, as further provided in this Note.
1. Seller Note: This Note is the Seller Note #1 as defined in the Asset
Purchase Agreement dated January 4, 1999 (the "Asset Purchase Agreement") by and
among Maker and Payee. Any adjustment shall be evidenced by an amendment
executed by the Maker and the Payee which shall be attached hereto and form a
part hereof, but the failure to execute and attach such amendment shall not
affect the validity or enforceability of such adjustment.
2. Payments. This Note is due and payable in full on June 1, 1999. An
initial payment of Four Hundred Thousand Dollars ($400,000) shall be paid
according to the provisions of Section 3(a)(1) of the Asset Purchase Agreement
and credited against the outstanding balance on March 31, 1999.
3. Defaults. Each of the following events shall be a Default hereunder:
(a) Any petition or other proceeding is filed by or against the
Maker under any provision of the Unite States Bankruptcy Code or under any
similar insolvency law, which, if filed against any such entity, is not
dismissed within ninety (90) days following written notice from Payee.
(b) The maker or any guarantor or surety for the obligations of the
Maker breaches any of its obligations under the Asset Purchase Agreement
or any document executed pursuant thereto, and such breach remains uncured
for fifteen (15) days following written notice from Payee.
Upon Default, the entire unpaid principal balance of this Note shall become
immediately due and payable. Thereupon, the Payee may pursue any and all
remedies legally available to it to collect such unpaid balance, and the Maker
shall pay all reasonable costs and expenses of such collection, including the
reasonable fees for attorneys and their disbursements.
4. Setoff. The amounts payable under this Note are subject to setoff in
accordance with the provisions of Sections 9(b) and 12(d) of the Asset Purchase
Agreement.
5. Successors. This Note shall be binding upon and inure to the benefit of
the Maker, the Payee, and their respective successors and assigns.
6. Waivers. The Maker and all guarantors and sureties waive presentment,
demand, protest, stay of execution, and the benefit of all exemption laws now or
hereafter in effect.
<PAGE>
Exhibit 2.2
7. Severability. The invalidity or unenforceability of any provision of
this Note shall in no event affect the enforceability or validity of any other
provision.
8. Governing Law; Jurisdiction. This Note is intended to be performed in
the State of Delaware and shall be construed and enforced in accordance with the
laws of the State of Delaware, not including the law of conflict of laws. The
parties irrevocably (a) agree that any suit, action or proceeding for the
enforcement of this Agreement shall be brought only in the courts of original
jurisdiction of New Castle County, Delaware or in the United States District
Court for the Third Circuit, (b) consent to the jurisdiction of each such court,
and to service of process on them by mail, at their addresses shown above, and
(c) irrevocably waive any objection to the laying of the venue of any such suit,
action or legal proceeding in any such court.
IN WITNESS WHEREOF and intending to be legally bound, the Maker has
executed this Note the day and year first above written by its duly authorized
officer.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
---------------------------------
Name:
Title: CEO
Attest:
By: /s/ J. Todd Raymond, Esq.
---------------------------------
Name:
Title: Secretary & General Counsel
<PAGE>
Exhibit 2.2
SELLER NOTE #2
PROMISORY NOTE
$270,000
January 4, 1999
FOR VALUE RECEIVED, and without defalcation, STRATUS SERVICES GROUP, INC.,
a Delaware corporation with its principal offices at 500 Craig Road, Suite 201,
Manalapan, New Jersey 07726 (the "Maker") promises to pay to B & R EMPLOYMENT
INC., a Delaware corporation with its principal offices at 118 South Maryland
Avenue, Wilmington, Delaware 19804 (the "Payee"), the principal amount of Two
Hundred Seventy Thousand Dollars ($270,000) with ten percent (10%) interest, as
further provided in this Note.
1. Seller Note: This Note is the Seller Note as defined in the Asset
Purchase Agreement dated January 4, 1999 (the "Asset Purchase Agreement") by and
among Maker and Payee. Any adjustment shall be evidenced by an amendment
executed by the Maker and the Payee which shall be attached hereto and form a
part hereof, but the failure to execute and attach such amendment shall not
affect the validity or enforceability of such adjustment.
2. Payments. This Note is due and payable in installments as follows.
(a) Maker shall pay Payee Two Hundred Seventy Thousand Dollars
($270,000) in eight (8) equal installments of Thirty-Seven Thousand, Six
Hundred Fifty-Six Dollars and Eighteen Cents ($37,656.18) beginning ninety
(90) days after the Financial Closing (as defined in the Asset Purchase
Agreement).
3. Defaults. Each of the following events shall be a Default hereunder:
(a) The Maker fails to make a payment, when due, of any installment
under this Note and such failure remains uncured for fifteen (15) days
following written notice from Payee.
(b) Any petition or other proceeding is filed by or against the
Maker under any provision of the Unite States Bankruptcy Code or under any
similar insolvency law, which, if filed against any such entity, is not
dismissed within ninety (90) days following written notice from Payee.
(c) The maker or any guarantor or surety for the obligations of the
Maker breaches any of its obligations under the Asset Purchase Agreement
or any document executed pursuant thereto, and such breach remains uncured
for fifteen (15) days following written notice from Payee.
On any Default, the entire unpaid principal balance of this Note shall become
immediately due and payable. Thereupon, the Payee may pursue any and all
remedies legally available to it to collect such unpaid balance, and the Maker
shall pay all reasonable costs and expenses of such collection, including the
reasonable fees for attorneys and their disbursements.
4. Setoff. The amounts payable under this Note are subject to setoff in
accordance with the provisions of Sections 9(b) and 12(d) of the Asset Purchase
Agreement. In the event Purchaser makes
<PAGE>
Exhibit 2.2
payments contemplated in Section 9(b) of the Asset Purchase Agreement, said
payment amounts shall be credited against the next payment due.
5. Successors. This Note shall be binding upon and inure to the benefit of
the Maker, the Payee, and their respective successors and assigns.
6. Waivers. The Maker and all guarantors and sureties waive presentment,
demand, protest, stay of execution, and the benefit of all exemption laws now or
hereafter in effect.
7. Severability. The invalidity or unenforceability of any provision of
this Note shall in no event affect the enforceability or validity of any other
provision.
8. Governing Law; Jurisdiction. This Note is intended to be performed in
the State of Delaware and shall be construed and enforced in accordance with the
laws of the State of Delaware, not including the law of conflict of laws. The
parties irrevocably (a) agree that any suit, action or proceeding for the
enforcement of this Agreement shall be brought only in the courts of original
jurisdiction of New Castle County, Delaware or in the United States District
Court for the Third Circuit, (b) consent to the jurisdiction of each such court,
and to service of process on them by mail, at their addresses shown above, and
(c) irrevocably waive any objection to the laying of the venue of any such suit,
action or legal proceeding in any such court.
IN WITNESS WHEREOF and intending to be legally bound, the Maker has
executed this Note the day and year first above written by its duly authorized
officer.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
---------------------------------
Name:
Title: CEO
Attest:
By: /s/ J. Todd Raymond, Esq.
---------------------------------
Name:
Title: Secretary & General Counsel
<PAGE>
Exhibit 2.2
SECURITY INTEREST, ETC. LISTING
None Existing.
<PAGE>
Exhibit 2.2
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that B & R EMPLOYMENT INC. a Delaware
corporation (hereinafter referred to as the "Seller"), for and in consideration
of the sum of Ten Dollars ($10.00) and other good and valuable consideration,
receipt of which is hereby acknowledged, does hereby and by these presents
grants, bargains, sells, transfers, assigns, and delivers to STRATUS SERVICES
GROUP, INC., a Delaware company (hereinafter referred to as "Buyer"), its
successors and assigns, the assets, properties, business rights of every kind
and description, real, personal or mixed, tangible or intangible, wherever
located as the same shall exist on this date, which are described in Exhibit "A"
attached hereto and made a part hereof.
TO HAVE AND TO HOLD UNTO Buyer, its successors and assigns forever, and
Seller does hereby covenant to and with Buyer, its successors and assigns that
Seller is the lawful owner of all right, title and interest in all of the
assets, properties and rights, tangible and intangible, granted, bargained,
sold, transferred, assigned and delivered to Buyer hereunder; that such assets,
properties and rights are free from all encumbrances; that Seller has the right
to sell and transfer the same as aforesaid; that Seller warrants and covenants
to defend this sale and transfer against the claims and demands of all persons
or entities whomsoever; and that Seller will execute and deliver to Buyer such
further documents and instruments as may be required for the further assurance
to Buyer of the benefits contemplated hereby.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale on this 31st day
of December, 1998.
WITNESSES:
B & R EMPLOYMENT INC.
By: /s/ John W. Boyd, Jr.
------------------------
Its: President
STRATUS SERVICES GROUP, INC.
By: /s/ John W. Boyd, Jr.
------------------------
Its: Secretary & General Counsel
<PAGE>
CLOSING STATEMENT
Seller: B & R Employment Inc.
Buyer: Stratus Services Group, Inc.
Date: ____________________________
Purchase Price: $_________________
Plus Additional Amounts Due
From Buyer (See attached listing) $_________________
TOTAL DUE SELLER FROM BUYER $_________________
Less Amounts paid by or on behalf
Of Buyer (See attached listing $_________________
TOTAL AMOUNT DUE SELLER FROM BUYER $_________________
The undersigned have read, agree to and authorize the disbursement of funds in
accordance with this Closing Statement.
B & R EMPLOYMENT INC. STRATUS SERVICES GROUP, INC.
By: _________________________ By: _________________________
Name: _______________________ Name: _______________________
Title: ______________________ Title: ______________________
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into by
and between JOHN W. BOYD, JR. ("Employee") and STRATUS SERVICES GROUP, INC., a
Delaware company ("Company"), to be effective upon the occurrence of the events
described in Paragraph 21 below.
Recitals:
A. Employee and the Company desire to enter into an agreement to set forth
the terms and conditions of Employee's employment with the Company.
B. Employee and the Company acknowledge the receipt and adequacy of the
consideration for this Agreement, including the premises and covenants in this
Agreement, the employment of Employee by the Company, and other good and
valuable considerations.
Agreements:
1. Definitions. For purposes of this Agreement, the following terms,
including both the singular and the plural, shall have the meanings assigned to
them below, as follows:
(a) "Affiliate" means any corporation or business entity that either
controls or is controlled by the Company or is controlled by the shareholders
that control the Company. For the purpose of this definition, "control" means
the ownership, either directly or through an unbroken chain of control, of more
than sixty percent (60%) of the equity interest or combined voting or management
rights of an entity.
(b) "Confidential Information" means all confidential information
and trade secrets of the Company, including, without limitation, the following:
the identity, written lists, or descriptions of any customers, referral sources
or Organizations; financial statements, cost reports, or other financial
information; contract proposals or bidding information; business plans; training
and operations methods and manuals; personnel records; fee structures; and
management systems, policies or procedures, including related forms and manuals.
"Confidential Information" shall not include any information or knowledge which:
(a) is now available or hereafter becomes available to the public without breach
by Employee of the terms stated in this Agreement; (b) is disclosed to Employee
by a third party who is not under any obligation of secrecy or confidentiality;
(c) a party is compelled to disclose; or (d) is now or hereafter becomes
generally known in the industry of the Company.
(c) "Employment Period" means the period during which Employee is
employed pursuant to this Agreement.
(d) "Initial Term" means three (3) years from the effective date of
this Agreement, unless sooner terminated as provided by the terms of this
Agreement.
<PAGE>
(e) "Organization" means any organization that has contracted with
the Company for the performance of Services.
(f) "Practice of Services" means the practice, or administration of
the practice, of Services.
(g) "Purchaser" means any individual or entity that purchases all or
substantially all the capital stock of the Company or its successor or assign.
(h) "Renewal Term" means each period for which this Agreement is
renewed pursuant to the provisions in Paragraph 7.
(i) "Services" means the temporary placement of general support
staff and related personnel services.
(j) "Trade Area" means a seventy-five (75) mile radius from any
office of the Company and any other Affiliate of the Company engaged in
providing Services.
2. Employment. The Company hereby employs Employee and Employee hereby
accepts such employment by the Company for the Initial Term on the terms and
conditions set forth in this Agreement. After the expiration of the Initial
Term, either the Company or Employee may terminate this Agreement with or
without cause (as hereinafter defined) on at least thirty (30) days advance
written notice to the other party. Upon termination of Employee's employment
with the Company pursuant to the terms contained in this Agreement, the Company
shall have no further liability to Employee with respect to this Agreement
except for compensation, fringe benefits and perquisites accrued and unpaid on
the date of such termination and except as otherwise specifically set forth
herein. Upon termination of this Agreement by Employee pursuant to the terms in
this Agreement, Employee shall have no further liability to the Company with
respect to this Agreement except for the covenants of the Employee which survive
the term of this Agreement and except as specifically set forth herein.
3. Duties and Place of Employment. Employee agrees to serve as Regional
Director of the Company, shall perform the duties, if so requested, which are
consistent therewith and shall undertake and perform such additional or other
duties which are commensurate with such position. Such services are to be
performed at the locations in Wilmington, Newark and Dover, Delaware.
4. Time and Efforts Devoted. Employee shall, during the period of his
employment by the Company, devote substantially all of his business time, energy
and best efforts to the business and affairs of the Company, and not engage,
directly or indirectly, in any other business or businesses without the consent
of the Company. Nothing contained herein shall preclude Employee from managing
his personal finances.
2
<PAGE>
5. Compensation.
(a) During the Initial Term, Employee's base compensation shall be
One Hundred Twenty Thousand ($120,000) per year, payable in regular bi-weekly
intervals.
(b) During any Renewal Term, Employee shall receive compensation
adjustments as mutually determined by the Company and Employee from time to
time.
(c) During the Initial Term and any Renewal Term, Employee shall
receive the fringe benefits and perquisites set forth in Paragraph 6 below and
such other perquisites as the management of the Company may determine from time
to time.
6. Benefits and Perquisites. During the Initial Term, Employee shall be
entitled to the following benefits and perquisites:
(a) Payment of reasonable travel and other business expenses in
accordance with the Company's applicable policies, provided Employee properly
accounts therefor in accordance with such policies.
(b) Vacations (minimum of four (4) weeks per calendar year),
holidays and sick leave in accordance with the Company's current policies.
(c) All other specific and applicable employee benefits such as,
without limitation, group family medical and dental and participation in pension
and/or profit sharing plans all as granted in accordance with the Company's
policies.
7. Term. After expiration of the Initial Term, the Company and Employee
mutually agree to extend the term of this Agreement on terms and conditions
mutually acceptable to Employee and the Company.
8. Termination.
(a) By Employee. After the expiration of the Initial Term, Employee
may terminate his employment at any time during the Employment Period by giving
thirty (30) days prior notice of termination to the Company, with our without
cause.
(b) By the Company. Notwithstanding anything to the contrary
otherwise contained in this Agreement, the Company may terminate Employee's
employment with cause (as defined below) during the Initial Term by giving
thirty (30) days prior notice of termination to Employee. After the expiration
of the Initial Term, the Company may terminate Employee's employment at any time
during the Employment Period by giving thirty (30) days prior notice of
termination to the Employee, with our without cause. For purposes of termination
by the Company with cause, the term "cause" shall mean the occurrence of any of
the following events:
(i) Employee shall be determined by the CEO of Company to have
refused to diligently perform the material duties assigned to Employee
under this
3
<PAGE>
Agreement or otherwise to have breached any term or provision contained
herein and not to have remedied the situation within fifteen (15) days
following receipt of written notice from the Company;
(ii) Employee shall be determined by the CEO of Company to
have refused to abide by the Company's written policies, rules, procedures
or directives and not to have remedied the situation within fifteen (15)
days following receipt of written notice for the Company;
(iii) Employee shall be determined by the CEO of Company to
have become "permanently disabled." For purposes hereof, the term
"permanently disabled" shall mean a condition (certified by two licensed
physicians, one selected by the Company and one by Employee) rendering
Employee unable to perform his responsibilities under this Agreement for a
period of at least six (6) months; or
(iv) Employee shall have been convicted of a felony or
Employee shall be determined by the CEO of Company to be guilty of fraud
or dishonesty in connection with the performance of his duties hereunder.
In making the determinations described above, the CEO of Company shall act
in good faith.
(c) Termination without cause by Employee. At Employee's election,
the Company shall be deemed to have terminated Employee's employment without
cause at anytime during the Initial Term if:
(i) failure by the Company to obtain the assumption and
agreement to perform this Agreement by any successor; or
(ii) repudiation by the Company of any material obligation of
the Company under Paragraph 5 and 6 hereof and the failure by the Company
to cure the same within thirty (30) days after receipt of written notice.
In the event that the Company terminates Employee's employment during the
Initial Term without cause, Employee shall continue to be entitled to receive
the base compensation under Paragraph 5(a) above for a period of three (3)
months.
(d) Automatic Termination. Employee's employment shall automatically
terminate on the death of the Employee.
9. Confidential Information and Goodwill. Employee acknowledges and agrees
as follows:
(a) As a necessary function of Employee's employment, Employee will
have access to and utilize Confidential Information which is unique, has been
acquired, developed and
4
<PAGE>
effectively applied by the Company, and constitutes a valuable and essential
asset of the Company's business.
(b) The Company's relationship with its employees and the
recognition of the Company in the temporary personnel field as a provider of
efficient and effective Services are valuable and essential elements of the
goodwill of the Company, a portion of which goodwill is allocable to each
business location.
(c) The restrictive covenants and agreements contained in Paragraph
10 are reasonable for the protection of the legitimate business interests of the
Company, including, without limitation, its Confidential Information and
goodwill; and constitute a material inducement to the Company to enter into this
Agreement.
10. Protection of Confidential Information and Goodwill. Employee
covenants and agrees, except in Employee's capacity as an employee of the
Company, as follows:
(a) At all times following execution of this Agreement, Employee
shall not use or disclose any Confidential Information for any reason
whatsoever, other than at the direction of the Company.
(b) During the Employment Period and for a period of two (2) years
thereafter, Employee shall not (i) directly or indirectly induce any customer of
the Company or any Affiliate to patronize any business which provides services
in the Trade Area in competition with the Company or any Affiliate; (ii)
canvass, solicit or accept any business of the type conducted by the Company or
any Affiliate in the Trade Area from any customer of the Company or any
Affiliate; (iii) directly or indirectly request or advise any customer of the
Company or any Affiliate to withdraw, curtail or cancel such customer's business
with the Company or any Affiliate; or (iv) directly or indirectly disclose to
any other person, firm or corporation the names or addresses of the customers of
the Company or any Affiliate.
(c) During the Employment Period for a period of one (1) year
thereafter, Employee shall not solicit, recruit, or employ, directly or
indirectly, any person employed by the Company at any time within one (1) year
period immediately preceding such solicitation, recruitment, or employment.
11. Property of the Company. Employee agrees that, upon the termination of
this Agreement, Employee will immediately surrender to the Company all of the
Company's property, including, without limitation, equipment, funds, lists,
manuals, books, or records (including all copies of the foregoing) in the
possession of, or provided to, Employee.
12. Arbitration With Respect To Certain Matters. Except with respect to
paragraph 10 above, which is expressly excluded herefrom, the parties agree to
submit to arbitration, in accordance with these provisions, any claim or
controversy arising from or related to the alleged breach of this agreement. The
parties further agree that the arbitration process agreed upon herein shall be
the exclusive means for resolving all disputes made subject to arbitration
herein, but that no arbitrator shall have authority to expand the scope of these
5
<PAGE>
arbitration provisions. Any arbitration hereunder shall be conducted under the
model employment procedures of the American Arbitration Association (AAA).
Either party may invoke arbitration procedures herein by written notice for
arbitration containing a statement of the matter to be arbitrated. The parties
shall then have fourteen (14) days in which they may identify a mutually
agreeable, neutral arbitrator. After the fourteen (14) day period has expired,
the parties shall prepare and submit to the AAA a joint submission, with each
party to contribute half of the appropriate administrative fee. In the event the
parties cannot agree upon a neutral arbitrator within fourteen (14) days after
written notice for arbitration is received, their joint submission to the AAA
shall request a panel of nine arbitrators who are practicing attorneys with a
professional experience in the field of labor and/or employment law, and the
parties shall attempt to select an arbitrator from the panel according to AAA
procedures. Unless otherwise agreed by the parties, the arbitration hearing
shall take place in _________, at a place designated by the AAA. All arbitration
procedures hereunder shall be confidential. Each party shall be responsible for
its costs incurred in any arbitration, and the arbitrator shall not have
authority to include all or any portion of said costs in an award, regardless of
which party prevails. The arbitrator may include equitable relief. Any
arbitration awarded shall be accompanied by a written statement containing a
summary of the issues in controversy, a description of the award, and an
explanation of the reasons for the award. It is understood and agreed by the
parties that their agreements herein concerning arbitration do not otherwise
alter the terms and conditions of employee's employment as provided by this
agreement.
13. Remedies-Court Action. With respect to each breach or threatened
breach of Paragraph 10 of this Agreement and without waiver of any right or
remedy which the Company may elect to pursue with respect thereto, all remedies
available at law or in equity, including specific performance and injunctive
relief, may be pursued by the Company at any time. The agreements and covenants
contained in Paragraph 10 shall not be held invalid or unenforceable because of
the scope of the geographic area or actions subject thereto or restrictions
imposed thereby, or the period of time within which such agreement or covenant
is operative, but any judgement of a court of competent jurisdiction may reform
or define the maximum geographic area and actions subject to and restricted by
Paragraph 10 and the period of time during which such agreement or covenant is
enforceable.
14. Captions and Number. The captions of the paragraphs of this Agreement
have been inserted for convenience of reference only and shall not affect the
interpretation of this Agreement. Whenever it appears appropriate from the
context, each term stated in either the singular or plural shall include both
the singular and the plural.
15. Severability. If any provision of this Agreement is held to be
unenforceable, such provision shall be fully severable and the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the severance of such provision from this Agreement. In addition,
in lieu of such severed provision, a provision shall be added automatically
which is as similar in terms to the severed provision as possible and
enforceable, if such reformation is allowable under applicable law.
6
<PAGE>
16. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party except for an assignment by the
Company to any Affiliate or Purchaser, but no such assignment shall relieve the
Company from its obligations hereunder.
17. Separate Agreements. This Agreement shall be deemed to consist of a
series of separate covenants. Should a determination be made by a court of
competent jurisdiction that the character, duration, or geographical scope of
any provision of this Agreement is unreasonable in light of the circumstances as
they then exist, then it is the intention and the agreement of the Company and
Employee that this Agreement shall be construed by the court in such a manner as
to impose only those restrictions on the conduct of Employee which are
reasonable in light of the circumstances as they then exist and as are necessary
to assure the Company of the intended benefit of this Agreement. If, in any
judicial proceeding, a court shall refuse to enforce all of the separate
covenants deemed included herein because, taken together, they are more
extensive than necessary to assure the Company of the intended benefit of this
Agreement, then it is expressly understood and agreed by the Company and
Employee that those covenants which, if eliminated, would permit the remaining
separate covenants to be enforced in such proceeding, shall, for the purpose of
such proceeding, be deemed eliminated from the provisions hereof.
18. Policies, Regulations and Guidelines for Employees. The Company my
issue policies, rules, regulations, guidelines, procedures, or other
informational material, whether in the form of handbooks, memoranda, or
otherwise, relating to the Company's employees. These materials are general
guidelines for Employee's information and shall not be construed to alter,
modify or amend this Agreement for any purpose whatsoever.
19. Amendment. No amendment of this Agreement shall be valid unless made
in writing and signed by the Company and the Employee.
20. Entire Agreement. Except for that certain Non-Competition and
Confidentiality Agreement of even date herewith by and between the Company and
Employee, this Agreement contains the entire agreement and understanding between
the Company and Employee with respect to Employee's employment with the Company,
including, without limitation, all existing employment agreements, bonus
programs, severance arrangements or other employee arrangements between Company
and Employee. No representations, inducements, or agreements have been made to
induce either Employee or the Company to enter into this Agreement which are not
expressly set forth herein. This Agreement is the sole source of rights and
duties as between the Company and Employee relating to Employee's employment.
21. Conditional Agreement. This Agreement and all of the rights, duties
and obligations of the Company and Employee contained herein are expressly
conditioned upon the closing of that certain Asset Purchase Agreement dated as
of January 1, 1999, among the Company and the shareholders of B & R, Inc.
becoming effective (the "Closing"). In the event of Closing, the date thereof
shall be the effective date of this Agreement.
22. Law Governing. This agreement and all issues relating to its validity,
interpretation, and performance shall be governed by and interpreted under the
laws of the state of Delaware.
7
<PAGE>
23. Indemnification. The Employee shall be indemnified by the Company to
the maximum extent permitted by the law of Delaware, the state of the Company's
incorporation, and the law of the state of incorporation of any subsidiary of
the Company of which the Employee is a director or an officer or employee, as
the same may be in effect from time to time.
EXECUTED on the 31st day of December, 1998, but effective for all purposes
as of the effective date referred to in Section 21 hereof.
WITNESS EMPLOYEE
/s/ John W. Boyd, Jr.
- -------------------------------- --------------------------------
Name: JOHN W. BOYD, JR.
Address:
207 Louis Lane
Hockessin, DE 19707
WITNESS STRATUS SERVICES GROUP, INC.
/s/ J. Todd Raymond By: /s/ Joseph J. Raymond
- -------------------------------- --------------------------------
Name: Name:
Title: CEO
Address:
8
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STRATUS SERVICES GROUP, INC.
UNDER SECTIONS 245 AND 242 OF THE
DELAWARE GENERAL CORPORATION LAW
THE UNDERSIGNED, JOSEPH J. RAYMOND AND J. TODD RAYMOND, HEREBY CERTIFY
THAT:
1. They are the duly elected and acting President and Secretary,
respectively, of Stratus Services Group, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on March 11, 1997.
3. At a Special Meeting of the Board of Directors held on September ___,
1999, resolutions approving and adopting this Amended and Restated Certificate
of Incorporation (the "Certificate") and approving a two for three reverse stock
split of the Corporation's Common Stock (the "Reverse Stock Split"), were duly
adopted and declared to be effective.
4. The holders of a majority of the issued and outstanding shares of
capital stock of the Corporation required to approve and adopt this Certificate
and to approve the Reverse Stock Split approved this Certificate and the Reverse
Stock Split by written consent in accordance with Section 228 of the Delaware
General Corporation Law and written notice of the approval and adoption of this
Certificate and the Reverse Split has been given pursuant thereto. The
resolution approving the Reverse Stock Split is as follows:
RESOLVED that, upon the filing of an Amended and Restated
Certificate of Incorporation with the Office of the Secretary of State,
State of Delaware (a) each three (3) shares of the Corporation's
outstanding Common Stock shall be combined into two (2) shares of Common
Stock, (b) cash shall be paid in lieu of fractional shares to holders of
Common Stock who would otherwise be entitled to receive fractional shares,
and (c) the par value per share shall remain at $.01.
5. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
<PAGE>
ARTICLE I
CORPORATION NAME
The name of the corporation is Stratus Services Group, Inc. (the
"Corporation").
ARTICLE II
ADDRESS OF REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road Wilmington, New Castle County. The name of its
registered agent at such address is Corporation Service Company.
ARTICLE III
PURPOSE OF THE CORPORATION
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
CAPITAL STOCK
Section 4.1 otal Number of Shares of Stock. The total number of shares of
all classes of stock which the Corporation has authority to issue is thirty
million (30,000,000) consisting of twenty-five million (25,000,000) 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 (the "Preferred
Stock").
Section 4.2 Common Stock.
(a) The holders of shares of Common Stock shall be entitled to one vote
for each share so held with respect to all matters voted on by the stockholders
of the Corporation. The shares of Common Stock do not have cumulative voting
rights.
(b) Subject to any prior or superior right of the Preferred Stock, upon
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, after payment shall have been made to the holders of
the Preferred Stock of the full amount to which they are entitled, the holders
of Common Stock shall be entitled to receive that portion of the remaining funds
to be distributed. Such funds shall be paid to the holders of Common Stock on
the basis of the number of shares of Common Stock held by each of them.
(c) Dividends may be paid on the Common Stock as and when declared by the
Board of Directors.
-2-
<PAGE>
Section 4.3 Preferred Stock.
(a) The Preferred Stock may from time to time be divided into and issued
in series. The different series of Preferred Stock shall be established and
designated, and the variations in the relative rights and preferences as between
the different series shall be fixed and determined, by the Board of Directors as
hereinafter provided. In all other respects all shares of Preferred Stock shall
be identical.
(b) The Board of Directors is hereby expressly authorized, subject to the
provisions hereof, to establish series of Preferred Stock and to fix and
determine by vote providing for the issuance of such series, which shall have
the rights and preferences designated by the Board of Directors, including, but
no limited to, any of the following:
(i) the distinctive designation of such series and the number of
shares which shall constitute such series, which number may be increased (except
where otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares then outstanding) from time to
time by the Board of Directors;
(ii) the dividend rate or rates and preferences, if any, to which
the shares of such series shall be entitled, the times at and conditions upon
which dividends shall be paid, any limitations, restrictions or conditions on
the payment of dividends, and whether dividends shall be cumulative and, if
cumulative, the terms upon and dates from which such dividends shall be
cumulative, which dates may differ for shares of any one series issued at
different times;
(iii) whether or not the shares of such series shall be redeemable,
and, if redeemable, the redemption prices which the shares of such series shall
be entitled to receive and the terms and manner of redemption;
(iv) the preferences, if any, and the amounts which the shares of
such series shall be entitled to receive and all other special or relative
rights of the shares of such series, upon any voluntary or involuntary
liquidation, dissolution or winding up of, or upon any distribution of the
assets of, the Corporation;
(v) the obligation, if any, of the Corporation to maintain a
purchase, retirement or sinking fund for shares of such series and the
provisions with respect thereto; (vi) the term, if any, upon which the shares of
such series shall be convertible into, or exchangeable for, shares of any other
class or classes or of any other series of the same or any other class or
classes of stock of the Corporation, including the price or prices or the rate
of conversion or exchange and the terms of adjustments, if any;
(vii) the terms and conditions of the voting rights, if any, of the
holders of the shares of such series, including the conditions under which the
shares of such series shall vote as a separate class; and
(viii) such other designating preferences, powers, qualifications
and special or relative rights or privileges of such series to the full extent
now or hereafter permitted by the laws of the State of Delaware.
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ARTICLE V
STOCKHOLDER ACTIONS AND MEETINGS OF STOCKHOLDERS
Except as may be provided in a resolution or resolutions providing for any
class or series of Preferred Stock pursuant to Article IV hereof, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of such holders and may not
be effected by any consent in writing by such holders. Special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution adopted by a majority of the members of the Board of
Directors then in office or by the Chief Executive Officer of the Corporation.
Elections of directors need not be by written ballot, unless otherwise provided
in the Bylaws.
ARTICLE VI
AMENDMENTS TO BY-LAWS
The Board of Directors shall have the power to adopt, amend or repeal the
By-laws.
ARTICLE VII
COMPROMISE
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application of any receiver or receivers
appointed for this Corporation under the provisions of section 291 of Title 8 of
the Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE VIII
LIMITATION ON LIABILITY OF DIRECTORS
No director of this Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of a
fiduciary duty as a director, except for liability (i) for any breach of a
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law as the same
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exists or hereafter may be amended, or (iv) for any transaction from which the
director derived an improper benefit. If the Delaware General Corporation Law
hereafter is amended to authorize the further elimination or limitation of the
liability of directors, then liability of a director of the Corporation, in
addition to limitation on personal liability provided herein, shall be limited
to the fullest extent permitted by the amended Delaware General Corporation Law.
Any repeal or modification of this paragraph by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of directors of the Corporation existing at
the time of such repeal or modification.
ARTICLE IX
INDEMNIFICATION
The Corporation shall to the fullest extent permitted by section 145 of
the Delaware General Corporation Law, as the same may be amended or
supplemented, or by any successor thereto, indemnify and reimburse any and all
persons whom it shall have the power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to
in, or covered by said section. Notwithstanding the foregoing, the
indemnification provided for in this Article IX shall not be deemed exclusive of
any other rights to which those entitled to receive indemnification or
reimbursement hereunder may be entitled under any By-law of the Corporation,
agreement, vote of stockholders or disinterested directors or otherwise.
ARTICLE X
RESERVATION OF RIGHTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now
other hereafter provided by statute, and all rights conferred upon stockholders
herein or granted subject to this reservation.
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of sections 242 and 245 of the General
Corporation Law of the State of Delaware.
____________________________
Joseph J. Raymond, President
____________________________
J. Todd Raymond, Secretary
Executed at Manalapan, New Jersey
on ___________, 1999
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Exhibit 3.2
BY-LAWS
OF
STRATUS SERVICES GROUP, INC.
ARTICLE I.
CORPORATE OFFICES
1.1 Registered Office. The address of the Corporation's registered office
in the State of Delaware is 1013 Centre Road, Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
1.2 Other Offices. The Board of Directors may at any time establish other
offices at any place or places where the Corporation is qualified to do
business.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. Meetings of stockholders shall be held at any
place, within or outside the State of Delaware, designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the registered office of the Corporation.
2.2 Annual Meeting.
(a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by the Board of Directors. At the meeting,
directors shall be elected and any other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be transacted by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice with respect to such meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the notice
provided for in this Section 2.2, who is entitled to vote at the meeting and who
has complied with the notice procedures set forth in this Section 2.2.
(c) In addition to the requirements of Section 2.5, for nominations
or other business to be properly brought before an annual meeting by a
stockholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, the
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation and such business must be a proper matter for stockholder action
under the General Corporation Law of Delaware. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the
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Corporation not less than 20 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than 30
days prior to or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 20th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of such business, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (A) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (B) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.2. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.3 Special Meeting.
(a) A special meeting of the stockholders may be called at any time
by the Board of Directors, or by the chairman of the board, or by the president.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
(b) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to such notice of meeting (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in
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Section 2.5, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in Section 2.5.
2.4 Notice of Stockholder's Meetings; Affidavit of Notice. All notices of
meetings of stockholders shall be in writing and shall be sent or otherwise
given in accordance with this Section 2.4 of these Bylaws not less than 10 nor
more than 60 days before the date of the meeting to each stockholder entitled to
vote at such meeting (or such longer or shorter time as is required by Section
2.5 of these Bylaws, if applicable). The notice shall specify the place, date,
and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.5 Advance Notice of Stockholder Nominees. Only persons who are nominated
in accordance with the procedures set forth in this Section 2.5 shall be
eligible for election as directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of stockholders
by or at the direction of the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 2.5. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 60 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a director shall furnish to the secretary of the Corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
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not made in accordance with the procedures prescribed by the Bylaws, and if he
or she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
2.6 Quorum. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 Adjourned Meeting; Notice. When a meeting is adjourned to another time
or place, unless these Bylaws otherwise require, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting the Corporation may
transact any business that might have been transacted at the original meeting.
If the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.8 Conduct of Business. The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including the
manner of voting and the conduct of business.
2.9 Voting.
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 Waiver of Notice. Whenever notice is required to be given under any
provision of the General Corporation Law of Delaware or of the Certificate of
Incorporation of Incorporation or these Bylaws, a written waiver thereof, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the
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stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.11 Record Date for Stockholder Notice; Voting. In order that the
Corporation may determine the stockholders entitled to notice of or to vote any
meeting of stockholders or any adjournment thereof or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to any
other action. If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.12 Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for such stockholder
by a written proxy, signed by the stockholder and filed with the secretary of
the Corporation, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III.
DIRECTORS
3.1 Powers. Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the Certificate of Incorporation or these Bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
3.2 Number of Directors. The number of directors of the Corporation shall
be not less than three (3) nor more than seven (7). The exact number of
directors shall be fixed by resolution of the Board of Directors.
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3.3 Election, Qualification and Term of Office of Directors. Except as
provided in Section 3.4 of these Bylaws, directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
Directors need not be stockholders unless so required by the Certificate of
Incorporation or these Bylaws, wherein other qualifications for directors may be
prescribed. Each director, including a director elected to fill a vacancy, shall
hold office until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
Election of directors need not be by written ballot.
3.4 Resignation and Vacancies. Any director may resign at any time upon
written notice to the attention of the secretary of the Corporation. When one or
more directors so resigns and the resignation is effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as provided in this section in the filling
of other vacancies. A vacancy created by the removal of a director by the vote
of the stockholders or by court order may be filled only by the affirmative vote
of a majority of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmative also constitute a
majority of the quorum). Each director so elected shall hold office until the
next annual meeting of the stockholders and until a successor has been elected
and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole Board
of Directors (as constituted immediately prior to any such increase), then the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
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held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone. The Board of Directors of
the Corporation may hold meetings, both regular and special, either within or
outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the Board of Directors.
3.7 Special Meetings; Notice. Special meetings of the Board of Directors
for any purpose or purposes may be called at any time by the chairman of the
board, the president, any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 Quorum. At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
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3.9 Waiver of Notice. Whenever notice is required to be given under any
provision of the General Corporation Law of Delaware or of the Certificate of
Incorporation or these Bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the Certificate of Incorporation or these Bylaws.
3.10 Board Action by Written Consent without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or committee, as the case may be, consent thereto in writing
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee. Written consents representing actions taken by
the board or committee may be executed by telex, telecopy or other facsimile
transmission, and such facsimile shall be valid and binding to the same extent
as if it were an original.
3.11 Fees and Compensation of Directors. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, the Board of Directors shall
have the authority to fix the compensation of directors. No such compensation
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor.
3.12 Approval of Loans to Officers. The Corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the Corporation or of its subsidiary, including any officer or employee who
is a director of the Corporation or its subsidiary, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.12 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 Removal of Directors. Unless otherwise restricted by statute, by the
Certificate of Incorporation or by these Bylaws, any director or the entire
Board of Directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors;
provided, however, that if the stockholders of the Corporation are entitled to
cumulative voting, if less than the entire Board of Directors is to be removed,
no director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire Board of Directors.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
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3.14 Chairman of the Board of Directors. The Corporation may also have, at
the direction of the Board of Directors, a chairman of the Board of Directors
who shall not be considered an officer of the Corporation.
ARTICLE IV.
COMMITTEES
4.1 Committees of Directors. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, with each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any classes of stock of the Corporation or fix the number of shares of any
series of stock or authorize the increase or decrease of the shares of any
series), (b) adopt an agreement of merger or consolidation under Sections 251 or
252 of the General Corporation Law of Delaware, (c) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (d) recommend to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or (e) amend
the Bylaws of the Corporation; and, unless the board resolution establishing the
committee, the Bylaws or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 Committee Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
4.3 Meetings and Action of Committees. Meetings and actions of committees
shall be governed by, and held and taken in accordance with, the provisions of
Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of
these Bylaws, with such changes in the context of such provisions as are
necessary to substitute the committee and its members for the Board of Directors
and its
9
<PAGE>
members; provided, however, that the time of regular meetings of committees may
be determined either by resolution of the Board of Directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the Board of Directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The Board of Directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these Bylaws.
ARTICLE V.
OFFICERS
5.1 Officers. The officers of the Corporation shall be a chief executive
officer, a president, a secretary, and a chief financial officer. The
Corporation may also have, at the discretion of the Board of Directors, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and any such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be held
by the same person.
5.2 Appointment of Officers. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Sections 5.3
or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to
the rights, if any, of an officer under any contract of employment.
5.3 Subordinate Officers. The Board of Directors may appoint, or empower
the chief execute officer or the president to appoint, such other officers and
agents as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority, and perform such duties as are
provided in these Bylaws or as the Board of Directors may from time to time
determine.
5.4 Removal and Resignation of Officers. Subject to the rights, if any, of
an officer under any contract of employment, any officer may be removed, either
with or without cause, by an affirmative vote of the majority of the Board of
Directors at any regular or special meeting of the Board of Directors or, except
in the case of an officer chosen by the Board of Directors, by any officer upon
whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the secretary of the Corporation. Any resignation shall take effect
at the date of the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the Corporation under any contract
to which the officer is a party.
5.5 Vacancies in Offices. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
5.6 Chief Executive Officer. Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the chairman of the board, if any,
the chief executive officer of the Corporation shall, subject to the control of
the Board of Directors, have general
10
<PAGE>
supervision, direction, and control of the business and the officers of the
Corporation. He or she shall preside at all meetings of the stockholders and, in
the absence or nonexistence of a chairman of the board, at all meetings of the
Board of Directors and shall have the general powers and duties of management
usually vested in the office of chief executive officer of a corporation and
shall have such other powers and duties as may be prescribed by the Board of
Directors or these Bylaws.
5.7 President. Subject to such supervisory powers, if any, as may be given
by the Board of Directors to the chairman of the board (if any) or the chief
executive officer, the president shall have general supervision, direction, and
control of the business and other officers of the Corporation. He or she shall
have the general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 Vice President. In the absence or disability of the chief executive
officer and president, the vice presidents, if any, in order of their rank as
fixed by the Board of Directors or, if not ranked, a vice president designated
by the Board of Directors, shall perform all the duties of the president and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board of Directors, these Bylaws, the president or the
chairman of the board.
5.9 Secretary. The secretary shall keep or cause to be kept, at the
principal executive office of the Corporation or such other place as the Board
of Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the Corporation or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required to be given by law or by
these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 Chief Financial Officer. The chief financial officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
11
<PAGE>
The chief financial officer shall deposit all moneys and other valuables
in the name and to the credit of the Corporation with such depositories as may
be designated by the Board of Directors. He or she shall disburse the funds of
the Corporation as may be ordered by the Board of Directors, shall render to the
president, the chief executive officer, or the directors, upon request, an
account of all his or her transactions as chief financial officer and of the
financial condition of the Corporation, and shall have other powers and perform
such other duties as may be prescribed by the Board of Directors or the Bylaws.
5.11 Representation of Shares of Other Corporations. The chairman of the
board, the chief executive officer, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this Corporation, or
any other person authorized by the Board of Directors or the chief executive
officer or the president or a vice president, is authorized to vote, represent,
and exercise on behalf of this Corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of this
Corporation. The authority granted herein may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by the person having such authority.
5.12 Authority and Duties of Officers. In addition to the foregoing
authority and duties, all officers of the Corporation shall respectively have
such authority and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the Board of Directors or
the stockholders.
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1 Indemnification of Directors and Officers. The Corporation shall, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware, indemnify each of its directors and officers against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Corporation. For
purposes of this Section 6.1, a "director" or "officer" of the Corporation
includes any person (a) who is or was a director or officer of the Corporation,
(b) who is or was serving at the request of the Corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (c) who was a director or officer of a Corporation which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
6.2 Indemnification of Others. The Corporation shall have the power, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware, to indemnify each of its employees and agents (other than directors
and officers) against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the Corporation. For purposes of this Section 6.2, an "employee" or
"agent" of the Corporation (other than a director or officer) includes any
person (a) who is or was an employee or agent of the Corporation, (b) who is or
was serving at the request of the
12
<PAGE>
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (c) who was an employee or agent of a
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation.
6.3 Payment of Expenses in Advance. Expenses incurred in defending any
action or proceeding for which indemnification is required pursuant to Section
6.1 or for which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the Corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 Indemnity Not Exclusive. The indemnification provided by this Article
VI shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any Bylaw, agreement, vote of shareholders
or disinterested directors or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such office, to the
extent that such additional rights to indemnification are authorized in the
Certificate of Incorporation.
6.5 Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
6.6 Conflicts. No indemnification or advance shall be made under this
Article VI, except where such indemnification or advance is mandated by law or
the order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Certificate of Incorporation, these Bylaws, a resolution of the stockholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII.
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Records. The Corporation shall, either
at its principal executive offices or at such place or places as designated by
the Board of Directors, keep a record of its stockholders listing their names
and addresses and the number and class of
13
<PAGE>
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection by Directors. Any director shall have the right to examine
the Corporation's stock ledger, a list of stockholders, and its other books and
records for a purpose reasonably related to his or her position as a director.
The Court of Chancery is hereby vested with the exclusive jurisdiction to
determine whether a director is entitled to the inspection sought. The Court may
summarily order the Corporation to permit the director to inspect any and all
books and records, the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court may, in its discretion, prescribe any limitations
or conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
ARTICLE VIII.
GENERAL MATTERS
8.1 Checks. From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the Corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the Board of Directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon
14
<PAGE>
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation by the chairman or
vice-chairman of the Board of Directors, or the chief executive officer or the
president or vice-president, and by the chief financial officer or an assistant
treasurer, or the secretary or an assistant secretary of the Corporation
representing the number of shares registered in certificate form. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 Special Designation on Certificates. If the Corporation is authorized
to issue more than one class of stock or more than one series of any class, then
the powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the fact or back of the
certificate that the Corporation shall issue to represent such class or series
of stock; provided, however, that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the Corporation shall issue to represent such class or series of stock a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.5 Lost Certificates. Except as provided in this Section 8.5, no new
certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the Corporation and canceled at
the same time. The Corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate previously issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or the owner's legal
representative, to give the Corporation a bond sufficient to indemnity it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
8.6 Construction; Definitions. Unless the context requires otherwise, the
general provisions, rules of construction, and definitions in the Delaware
General Corporation Law shall govern the construction of these Bylaws. Without
limiting the generality of this provision, the
15
<PAGE>
singular number includes the plural, the plural number includes the singular,
and the term "person" includes both a corporation and a natural person.
8.7 Dividends. The directors of the Corporation, subject to any
restrictions contained in (a) the General Corporation Law of Delaware or (b) the
Certificate of Incorporation, may declare and pay dividends upon the shares of
its capital stock. Dividends may be paid in cash, in property, or in shares of
the Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds of
the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors and may be changed by the Board of
Directors.
8.9 Seal. The Corporation may adopt a corporate seal, which may be altered
at pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 Transfer of Stock. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
8.11 Stock Transfer Agreements. The Corporation shall have power to enter
into and perform any agreement with any number of stockholders of any one or
more classes of stock of the Corporation to restrict the transfer of shares of
stock of the Corporation of any one or more classes owned by such stockholders
in any manner not prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, shall be entitled to
hold liable for calls and assessments the person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of another person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE IX.
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the Corporation may, in
its Certificate of Incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power
16
<PAGE>
has been so conferred upon the directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal Bylaws.
17
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
[STRATUS SERVICES GROUP, INC. LOGO]
CUSIP 863170 10 6
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN RESTRICTIONS
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$0.01 PAR VALUE, OF
STRATUS SERVICES GROUP, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
<PAGE>
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated _________________________
[STRATUS SERVICES GROUP, INC. Corporate Seal]
/s/ J. TODD RAYMOND, ESQ. /s/ JOSEPH J.RAYMOND
SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
TRANSFER AGENT AND REGISTRAR
BY_______________________________________
AUTHORIZED SIGNATURE
<PAGE>
STRATUS SERVICES GROUP, INC.
The Corporation will furnish without charge to each stockholder who so
requests a copy of the powers, designations, preferences and relative,
participating, optional or other special rights to each class of stock or series
thereof, and the qualifications, limitations, or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in
common Custodian UNIF GIFT MIN ACT -- CUSTODIAN
_____________ ______________
(CUST) (MINOR)
Under Uniform Trans to Minors
(State)
TEN ENT - as tenants by the
entireties
JT TEN - as joint tenants with
right of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
<PAGE>
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
_______________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
________________________________________________________________________________
Attorney
to transfer the said shares on the books to the within named Corporation with
full power of substitution in the premises.
Dated:__________________________
X ______________________________________
X ______________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
SIGNATURE(S) GUARANTEED BY:
_________________________________________
PROMISSORY NOTE
This Note made on the 30th day of November, 1998 between Stratus Services Group,
Inc. ("Borrower"), a Delaware corporation whose principal place of business is
500 Craig Road, Suite 201, Manalapan, New Jersey 07726 and Alan Zelinsky
("Lender") residing at 256 Lagoon Drive, Northfield, Illinois 60093, represents
a promise by the borrower for the repayment of principal and interest on the
following Loan.
Terms and Conditions:
1. Amount of loan: $50,000 US
2. Term: Seven (7) months from the date of signing, thereafter,
converted to an "Upon Demand" note requiring thirty (30) day notice
for repayment.
3. Interest Rate: 1.5% per month, payable monthly in arrears.
4. Additional Consideration: See separate Warrant Agreement (attached
hereto).
5. Prepayment: Borrower can elect, at any time during the life of the
Note, to pre-pay the entire amount owed (plus accrued interest to
date of prepayment) without penalty.
6. Default: The Borrower shall be in default if any of the following
occur: (a) application for, or the appointment of, a receiver in
bankruptcy; (b) filing of any petition, or the commencement of any
action or any proceeding against borrower for relief under any
bankruptcy or insolvency laws or any laws relating to the relief of
debtors, readjustment of indebtedness or reorganizations; or (c)
violation of any of the foregoing provisions regarding repayment or
the payment of interest, the waiver of which does not constitute a
waiver of which does not constitute a waiver of default.
BORROWER: LENDER:
STRATUS SERVICES GROUP, INC.
/s/ Joseph J. Raymond /s/ Alan Zelinsky
- -------------------------------- --------------------------------------
Joseph J. Raymond, Chairman
and CEO
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF. HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
"BLUE SKY" OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OF PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE UNIFORM
COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO REGISTER A TRANSFER OF
THESE SECURITIES EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, AND
IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR (ii) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW. THE RESTRICTIONS CONTAINED HEREIN ARE BINDING ON THE HOLDER
HEREOF AND HIS SUCESSORS AND ASSIGNS.
For the Purchase of 10,000
Shares of Common Stock
WARRANT FOR THE PURCHASE OF 10,000
SHARES OF COMMON STOCK
OF
STRATUS SERVICES GROUP, INC.
(A Delaware corporation)
Stratus Services Group, Inc., a Delaware corporation (the "Company),
hereby certifies that for the value received, Alan Zelinsky ("Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time during the period commencing on
November 30, 1998 ("Commencement Date") and ending five years from the
Commencement date, 10,000 shares of Common Stock, $.01 par value, of the Company
("Common Stock"), at a purchase price equal to $5.00 per share. [See attached
supplemental letter.] The number of shares of Common Stock purchasable upon
exercise of this Warrant, and
<PAGE>
the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant are hereinafter referred to as the "Warrant Shares"
and the "Purchase Price", respectively.
1. Exercise.
(a) This Warrant may be exercised by Registered Holder, in whole or in
part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
1(c) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase right
represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of, and delivered to, Registered
Holder, or, subject to the terms and conditions hereof, to such other individual
or entity as Registered Holder (upon payment by Registered Holder of any
applicable transfer taxes) may direct;
(i) a certificate or certificates for the number of full shares of
Warrant Shares to which Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or
faces thereof the number of shares currently stated on the face of this
Warrant minus the number of such shares purchased by Registered Holder
upon such exercise as provided in subsection 1(a) above.
2. Adjustments
(a) Split Subdivision or Combination of Shares. If the outstanding shares
of the Company's Common Stock at any time while this Warrant remains outstanding
and unexpired shall be subdivided or split into a greater number of shares, or a
dividend in Common Stock shall be paid in respect of Common Stock, the Purchase
Price in effect immediately prior to such subdivision or at the record date of
such dividend, simultaneously with the effectiveness of such
<PAGE>
subdivision or split or immediately after the record date of such dividend (as
the case may be), shall be proportionately decreased. If the outstanding shares
of Common Stock shall be combined or reverse-P split into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination or
reverse split, simultaneously with the effectiveness of such combination or
reverse split, shall be proportionately increased. When any adjustment is
required to be made in the Purchase Price, the number of shares of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) Reclassification Reorganization Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or combination as provided for in subsection 2(a) above), or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such reorganization, reclassification, consolidation, merger,
sale or liquidating distribution, lawful provision shall be made so that
Registered Holder shall have the right thereafter to receive upon the exercise
- -hereof, the kind and amount of shares of stock or other securities or property
which Registered Holder would have been entitled to receive if, immediately
prior to any such reorganization, reclassification, consolidation, merger, sale
or liquidating distribution, as the case may be, Registered Holder had held the
number of shares of Common Stock which were then purchasable upon the exercise
of this Warrant. In any such case, appropriate adjustment (as reasonably
determined by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of Registered Holder such that the provisions set forth in
this Section 2 (including provisions with respect to the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
(c) Price Adjustment. No adjustment in the per share exercise price shall
be required unless such adjustment would require an increase or decrease in the
Purchase Price of at least $001, provided, however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 2 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(d) Price Reduction. Notwithstanding any other provision set forth in this
Warrant, at any time and from time to time during the period that this Warrant
is exercisable, the Company in it sole discretion may reduce the Purchase Price
or extend the period during which this Warrant is exercisable
<PAGE>
(e) No Impairment The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such actions as may be necessary or appropriate in order to
protect against impairment of the rights of Registered Holder to adjustments in
the Purchase Price
(f) Notice of Adjustment Upon any adjustment of the Purchase Price or
extension of the Warrant exercise period, the Company shall forthwith give
written notice thereto to Registered Holder describing the event requiring the
adjustment, stating the adjusted Purchase Price and the adjusted number of
shares purchasable upon the exercise hereof resulting from such event, and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based
3. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
thereof in cash on the basis of the last sale price of the Warrant Shares on the
over-the-counter market as reported by Nasdaq or on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if neither is applicable, then on the basis of the then fair
market value of the Warrant Shares as shall be reasonably determined by the
Board of Directors of the Company.
4. Limitation on Sales. Each holder of this Warrant acknowledges that this
Warrant and the warrant Shares, as of the date of original issuance of this
Warrant, have not been registered under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory
to the Company, that such registration and qualification are not required. The
Warrant Shares issued upon exercise thereof shall be imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933; AS AMENDED (THE
"SECURITIES ACT"), OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY
STATE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OR PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE
UNIFORM COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO
REGISTER A TRANSFER OF THESE SECURITIES EXCEPT (i) PURSUANT TO
A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS
BECOME EFFECTIVE AND IS
<PAGE>
CURRENT WITH RESPECT TO THESE SECURITIES. OR (ii) PURSUANT TO
A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW. THE RESTRICTIONS
CONTAINED HEREIN ARE BINDING ON THE HOLDER HEREOF AND HIS
SUCCESSORS AND ASSIGNS."
5. Certain Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock ("Dividend"), other than a cash dividend or a
stock dividend payable in shares of Common Stock, then the Company will pay or
distribute to Registered Holder, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Dividend which would have been
paid to such Registered Holder if it had been the owner of record of such
warrant Shares immediately prior to the date on which a. record is taken for
such Dividend or, if no record is taken, the date as of which the record holders
of Common Stock entitled to such Dividend are determined
6. Registration Rights. The Company has no obligation to file a
registration statement under the Act with the Securities and Exchange Commission
or any state agency registering for reoffer and resale the Warrant Shares.
7. Notices of Record Date- In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
Registered Holder a notice specifying, as the case [nay be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the effective date on which such reorganization,
reclassification,
<PAGE>
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization' reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least ten (10) days prior to the record date or
effective date for the event specified in such notice, provided that the failure
to mail such notice shall not affect the legality or validity of any such
action.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this warrant,
such shares of Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
shall apply for listing, and obtain such listing, for the Warrant Shares on The
Nasdaq Stock Market and each exchange on which the Common Stock is listed, at
the earliest time that such listing may be obtained in accordance with the rules
and regulations of The Nasdaq Stock Market and the exchange and maintain such
listing until the seventh anniversary of the date of original issuance of this
Warrant.
9. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. Transfers.
(a) The Company will maintain a register containing the names and address
of Registered Holder. Registered Holder may change its address as shown on the
warrant register by written notice to the Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant register,
the Company may treat Registered Holder as the absolute owner hereof for all
purposes, provided, however, that if and when this Warrant is properly assigned
in blank, the Company may (but shall not be obligated to) treat the bearer
hereof as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary
11. No Rights as Stockholder. Until the exercise of this Warrant,
Registered Holder shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.
12. Successors. The rights and obligations of the parties to this Warrant
will inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors,, assigns, pledgees, transferees and purchasers-
Without limiting the foregoing, the registration rights set forth in this
Warrant shall inure to the benefit of Registered Holder and Registered Holder's
<PAGE>
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13. Change or Waiver. Any term, of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
14. Headings, The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
15. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Florida as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
16. Jurisdiction and Venue. The Company and Registered Holder (1) agree
that any legal suit, action or proceeding arising out of or relating to this
Warrant shall be instituted exclusively in New York State Supreme Court, County
of New York or in the United States District Court for the Southern District of
New York, (ii) waives any objection to the venue of any such suit, action or
proceeding and the right to assert that such forum is not a convenient forum for
such suit, action or proceeding, and (iii) irrevocably consent tot he
jurisdiction of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceedings, and the Company and Registered Holder further agree
to accept and acknowledge service or any and all process which may be served in
any such suit, action or proceeding in New York State Supreme Court, County of
New York or in the United states District Court for the Southern District of New
York and agrees that serviced of process upon it mailed by certified mail to its
address shall be deemed in every respect effective service of process upon it in
any suit, action or proceeding
17. Mailing of Notices Etc. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if delivered to the addresses in person. by Federal Express or similar
receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by
certified mail, return receipt requested, as follows:
To Registered Holder: Alan Zelinsky
PO Box 8482
Northfield, IL 60093
To the Company: Stratus Services Group, Inc.
Attn: J. Todd Raymond, Esq.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
Or to such other address as any of them, by notice to the other may designate
from time to time.
<PAGE>
Time shall be counted to or from, as the case may be, the delivery in person or
by mailing.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
-----------------------
<PAGE>
December 2, 1998
Al Zelinsky
256 Lagoon Drive
Northfield, Illinois 60093
Dear Mr. Zelinsky:
As an amendment to the Warrant Agreement and Promissory Note, Stratus hereby
agrees to guarantee the price of the warrants to be $5 or 50% of the Initial
Public Offering price, whichever is less. Stratus will register the warrant
stock within six to twelve months of the IPO.
As further security for your investment, Stratus hereby agrees that in the event
repayment is delayed beyond the payment date and requisite cure period, Stratus
Services Group will grant you 3,000 additional warrants (per $100,000 invested)
for each month that the loan is outstanding beyond the payment date.
Should these changes meet with your approval, please sign this letter where
indicated and return to me along with the Warrant Agreement and Promissory Note
to my attention. We will forward a fully executed set of documents to you as
soon as signatures are secured on same. In the event any litigation relating to
this document ensues, all litigation cost will be borne by Stratus Services
Group, Inc., unless such litigation is determined by the court to be without
merit.
Thank you for your continued support.
Sincerely,
/s/ Joseph J. Raymond
Joseph J. Raymond
ACCEPTED AND AGREED TO:
By: /s/ Al Zelinsky
------------------
Al Zelinsky
PROMISSORY NOTE
This Note made on the 23rd day of November, 1998 between Stratus Services Group,
Inc. ("Borrower"), a Delaware corporation whose principal place of business is
500 Craig Road, Suite 201, Manalapan, New Jersey 07726 and David Spearman
("Lender") residing at 120 Sunny Meadow Lane, Reisterstown, Maryland 21136,
represents a promise by the borrower for the repayment of principal and interest
on the following Loan.
Terms and Conditions:
1. Amount of loan: $200,000 US
2. Term: Seven (7) months from the date of signing, thereafter,
converted to an "Upon Demand" note requiring thirty (30) day notice
for repayment.
3. Interest Rate: 1.5% per month, payable monthly in arrears.
4. Additional Consideration: See separate Warrant Agreement (attached
hereto).
5. Prepayment: Borrower can elect, at any time during the life of the
Note, to pre-pay the entire amount owed (plus accrued interest to
date of prepayment) without penalty.
6. Default: The Borrower shall be in default if any of the following
occur: (a) application for, or the appointment of, a receiver in
bankruptcy; (b) filing of any petition, or the commencement of any
action or any proceeding against borrower for relief under any
bankruptcy or insolvency laws or any laws relating to the relief of
debtors, readjustment of indebtedness or reorganizations; or (c)
violation of any of the foregoing provisions regarding repayment or
the payment of interest, the waiver of which does not constitute a
waiver of which does not constitute a waiver of default.
BORROWER: LENDER:
STRATUS SERVICES GROUP, INC.
/s/ Joseph J. Raymond /s/ David Spearman
- --------------------------- --------------------------------------
Joseph J. Raymond, Chairman
and CEO
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF. HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
"BLUE SKY" OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OF PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE UNIFORM
COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO REGISTER A TRANSFER OF
THESE SECURITIES EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, AND
IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR (ii) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW. THE RESTRICTIONS CONTAINED HEREIN ARE BINDING ON THE HOLDER
HEREOF AND HIS SUCESSORS AND ASSIGNS.
For the Purchase of 40,000
Shares of Common Stock
WARRANT FOR THE PURCHASE OF 10,000
SHARES OF COMMON STOCK
OF
STRATUS SERVICES GROUP, INC.
(A Delaware corporation)
Stratus Services Group, Inc., a Delaware corporation (the "Company),
hereby certifies that for the value received, David Spearman ("Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time during the period commencing on
November 23, 1998 ("Commencement Date") and ending five years from the
Commencement date, 40,000 shares of Common Stock, $.01 par value, of the Company
("Common Stock"), at a purchase price equal to $5.00 per share. [See attached
supplemental letter.] The number of shares of Common Stock purchasable upon
exercise of this Warrant, and
<PAGE>
the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant are hereinafter referred to as the "Warrant Shares"
and the "Purchase Price", respectively.
1. Exercise.
(a) This Warrant may be exercised by Registered Holder, in whole or in
part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
1(c) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase right
represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of, and delivered to, Registered
Holder, or, subject to the terms and conditions hereof, to such other individual
or entity as Registered Holder (upon payment by Registered Holder of any
applicable transfer taxes) may direct;
(i) a certificate or certificates for the number of full shares of
Warrant Shares to which Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or
faces thereof the number of shares currently stated on the face of this
Warrant minus the number of such shares purchased by Registered Holder
upon such exercise as provided in subsection 1(a) above.
2. Adjustments
(a) Split Subdivision or Combination of Shares. If the outstanding shares
of the Company's Common Stock at any time while this Warrant remains outstanding
and unexpired shall be subdivided or split into a greater number of shares, or a
dividend in Common Stock shall be paid in respect of Common Stock, the Purchase
Price in effect immediately prior to such subdivision or at the record date of
such dividend, simultaneously with the effectiveness of such
<PAGE>
subdivision or split or immediately after the record date of such dividend (as
the case may be), shall be proportionately decreased. If the outstanding shares
of Common Stock shall be combined or reverse-P split into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination or
reverse split, simultaneously with the effectiveness of such combination or
reverse split, shall be proportionately increased. When any adjustment is
required to be made in the Purchase Price, the number of shares of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) Reclassification Reorganization Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or combination as provided for in subsection 2(a) above), or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such reorganization, reclassification, consolidation, merger,
sale or liquidating distribution, lawful provision shall be made so that
Registered Holder shall have the right thereafter to receive upon the exercise
- -hereof, the kind and amount of shares of stock or other securities or property
which Registered Holder would have been entitled to receive if, immediately
prior to any such reorganization, reclassification, consolidation, merger, sale
or liquidating distribution, as the case may be, Registered Holder had held the
number of shares of Common Stock which were then purchasable upon the exercise
of this Warrant. In any such case, appropriate adjustment (as reasonably
determined by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of Registered Holder such that the provisions set forth in
this Section 2 (including provisions with respect to the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
(c) Price Adjustment. No adjustment in the per share exercise price shall
be required unless such adjustment would require an increase or decrease in the
Purchase Price of at least $001, provided, however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 2 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(d) Price Reduction. Notwithstanding any other provision set forth in this
Warrant, at any time and from time to time during the period that this Warrant
is exercisable, the Company in it sole discretion may reduce the Purchase Price
or extend the period during which this Warrant is exercisable
<PAGE>
(e) No Impairment The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such actions as may be necessary or appropriate in order to
protect against impairment of the rights of Registered Holder to adjustments in
the Purchase Price
(f) Notice of Adjustment Upon any adjustment of the Purchase Price or
extension of the Warrant exercise period, the Company shall forthwith give
written notice thereto to Registered Holder describing the event requiring the
adjustment, stating the adjusted Purchase Price and the adjusted number of
shares purchasable upon the exercise hereof resulting from such event, and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based
3. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
thereof in cash on the basis of the last sale price of the Warrant Shares on the
over-the-counter market as reported by Nasdaq or on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if neither is applicable, then on the basis of the then fair
market value of the Warrant Shares as shall be reasonably determined by the
Board of Directors of the Company.
4. Limitation on Sales. Each holder of this Warrant acknowledges that this
Warrant and the warrant Shares, as of the date of original issuance of this
Warrant, have not been registered under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory
to the Company, that such registration and qualification are not required. The
Warrant Shares issued upon exercise thereof shall be imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933; AS AMENDED (THE
"SECURITIES ACT"), OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY STATE
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED,
ASSIGNED OR OTHERWISE DISPOSED OF AND ANY TRANSFER OR PURPORTED
TRANSFER SHALL NOT BE RIGHTFUL UNDER THE UNIFORM COMMERCIAL CODE AND
THE COMPANY SHALL HAVE NO DUTY TO REGISTER A TRANSFER OF THESE
SECURITIES EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS
<PAGE>
CURRENT WITH RESPECT TO THESE SECURITIES. OR (ii) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A
HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED DISPOSITION
IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT
AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW. THE
RESTRICTIONS CONTAINED HEREIN ARE BINDING ON THE HOLDER HEREOF AND
HIS SUCCESSORS AND ASSIGNS."
5. Certain Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock ("Dividend"), other than a cash dividend or a
stock dividend payable in shares of Common Stock, then the Company will pay or
distribute to Registered Holder, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Dividend which would have been
paid to such Registered Holder if it had been the owner of record of such
warrant Shares immediately prior to the date on which a. record is taken for
such Dividend or, if no record is taken, the date as of which the record holders
of Common Stock entitled to such Dividend are determined
6. Registration Rights. The Company has no obligation to file a
registration statement under the Act with the Securities and Exchange Commission
or any state agency registering for reoffer and resale the Warrant Shares.
7. Notices of Record Date- In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
Registered Holder a notice specifying, as the case [nay be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the effective date on which such reorganization,
reclassification,
<PAGE>
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization' reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least ten (10) days prior to the record date or
effective date for the event specified in such notice, provided that the failure
to mail such notice shall not affect the legality or validity of any such
action.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this warrant,
such shares of Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
shall apply for listing, and obtain such listing, for the Warrant Shares on The
Nasdaq Stock Market and each exchange on which the Common Stock is listed, at
the earliest time that such listing may be obtained in accordance with the rules
and regulations of The Nasdaq Stock Market and the exchange and maintain such
listing until the seventh anniversary of the date of original issuance of this
Warrant.
9. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. Transfers.
(a) The Company will maintain a register containing the names and address
of Registered Holder. Registered Holder may change its address as shown on the
warrant register by written notice to the Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant register,
the Company may treat Registered Holder as the absolute owner hereof for all
purposes, provided, however, that if and when this Warrant is properly assigned
in blank, the Company may (but shall not be obligated to) treat the bearer
hereof as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary
11. No Rights as Stockholder. Until the exercise of this Warrant,
Registered Holder shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.
12. Successors. The rights and obligations of the parties to this Warrant
will inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors,, assigns, pledgees, transferees and purchasers-
Without limiting the foregoing, the registration rights set forth in this
Warrant shall inure to the benefit of Registered Holder and Registered Holder's
<PAGE>
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13. Change or Waiver. Any term, of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
14. Headings, The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
15. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Florida as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
16. Jurisdiction and Venue. The Company and Registered Holder (1) agree
that any legal suit, action or proceeding arising out of or relating to this
Warrant shall be instituted exclusively in New York State Supreme Court, County
of New York or in the United States District Court for the Southern District of
New York, (ii) waives any objection to the venue of any such suit, action or
proceeding and the right to assert that such forum is not a convenient forum for
such suit, action or proceeding, and (iii) irrevocably consent tot he
jurisdiction of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceedings, and the Company and Registered Holder further agree
to accept and acknowledge service or any and all process which may be served in
any such suit, action or proceeding in New York State Supreme Court, County of
New York or in the United states District Court for the Southern District of New
York and agrees that serviced of process upon it mailed by certified mail to its
address shall be deemed in every respect effective service of process upon it in
any suit, action or proceeding
17. Mailing of Notices Etc. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if delivered to the addresses in person. by Federal Express or similar
receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by
certified mail, return receipt requested, as follows:
To Registered Holder: David Spearman
120 Sunnymeadow Lane
Reisterstown, Maryland 21136
To the Company: Stratus Services Group, Inc.
Attn: J. Todd Raymond, Esq.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
Or to such other address as any of them, by notice to the other may designate
from time to time.
<PAGE>
Time shall be counted to or from, as the case may be, the delivery in person or
by mailing.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
---------------------
PROMISSORY NOTE
This Note made on the 30th day of November, 1998 between Stratus Services Group,
Inc. ("Borrower"), a Delaware corporation whose principal place of business is
500 Craig Road, Suite 201, Manalapan, New Jersey 07726 and Sanford I. Feld
("Lender") residing at 66 Lake Road, Far Hills, New Jersey 07924, represents a
promise by the borrower for the repayment of principal and interest on the
following Loan.
Terms and Conditions:
1. Amount of loan: $50,000 US
2. Term: Seven (7) months from the date of signing, thereafter,
converted to an "Upon Demand" note requiring thirty (30) day notice
for repayment.
3. Interest Rate: 1.5% per month, payable monthly in arrears.
4. Additional Consideration: See separate Warrant Agreement (attached
hereto).
5. Prepayment: Borrower can elect, at any time during the life of the
Note, to pre-pay the entire amount owed (plus accrued interest to
date of prepayment) without penalty.
6. Default: The Borrower shall be in default if any of the following
occur: (a) application for, or the appointment of, a receiver in
bankruptcy; (b) filing of any petition, or the commencement of any
action or any proceeding against borrower for relief under any
bankruptcy or insolvency laws or any laws relating to the relief of
debtors, readjustment of indebtedness or reorganizations; or (c)
violation of any of the foregoing provisions regarding repayment or
the payment of interest, the waiver of which does not constitute a
waiver of which does not constitute a waiver of default.
BORROWER: LENDER:
STRATUS SERVICES GROUP, INC.
/s/ Joseph J. Raymond /s/ Sanford I. Feld
- --------------------------- ----------------------------------------
Joseph J. Raymond, Chairman
and CEO
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF. HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
"BLUE SKY" OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OF PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE UNIFORM
COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO REGISTER A TRANSFER OF
THESE SECURITIES EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, AND
IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR (ii) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW. THE RESTRICTIONS CONTAINED HEREIN ARE BINDING ON THE HOLDER
HEREOF AND HIS SUCESSORS AND ASSIGNS.
For the Purchase of 10,000
Shares of Common Stock
WARRANT FOR THE PURCHASE OF 10,000
SHARES OF COMMON STOCK
OF
STRATUS SERVICES GROUP, INC.
(A Delaware corporation)
Stratus Services Group, Inc., a Delaware corporation (the "Company),
hereby certifies that for the value received, Sanford I. Feld ("Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time during the period commencing on
November 30, 1998 ("Commencement Date") and ending five years from the
Commencement date, 10,000 shares of Common Stock, $.01 par value, of the Company
("Common Stock"), at a purchase price equal to $5.00 per share. [See attached
supplemental letter.] The number of shares of Common Stock purchasable upon
exercise of this Warrant, and
<PAGE>
the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant are hereinafter referred to as the "Warrant Shares"
and the "Purchase Price", respectively.
1. Exercise.
(a) This Warrant may be exercised by Registered Holder, in whole or in
part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
1(c) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase right
represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of, and delivered to, Registered
Holder, or, subject to the terms and conditions hereof, to such other individual
or entity as Registered Holder (upon payment by Registered Holder of any
applicable transfer taxes) may direct;
(i) a certificate or certificates for the number of full shares of
Warrant Shares to which Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or
faces thereof the number of shares currently stated on the face of this
Warrant minus the number of such shares purchased by Registered Holder
upon such exercise as provided in subsection 1(a) above.
2. Adjustments
(a) Split Subdivision or Combination of Shares. If the outstanding shares
of the Company's Common Stock at any time while this Warrant remains outstanding
and unexpired shall be subdivided or split into a greater number of shares, or a
dividend in Common Stock shall be paid in respect of Common Stock, the Purchase
Price in effect immediately prior to such subdivision or at the record date of
such dividend, simultaneously with the effectiveness of such
<PAGE>
subdivision or split or immediately after the record date of such dividend (as
the case may be), shall be proportionately decreased. If the outstanding shares
of Common Stock shall be combined or reverse-P split into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination or
reverse split, simultaneously with the effectiveness of such combination or
reverse split, shall be proportionately increased. When any adjustment is
required to be made in the Purchase Price, the number of shares of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) Reclassification Reorganization Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or combination as provided for in subsection 2(a) above), or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such reorganization, reclassification, consolidation, merger,
sale or liquidating distribution, lawful provision shall be made so that
Registered Holder shall have the right thereafter to receive upon the exercise
- -hereof, the kind and amount of shares of stock or other securities or property
which Registered Holder would have been entitled to receive if, immediately
prior to any such reorganization, reclassification, consolidation, merger, sale
or liquidating distribution, as the case may be, Registered Holder had held the
number of shares of Common Stock which were then purchasable upon the exercise
of this Warrant. In any such case, appropriate adjustment (as reasonably
determined by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of Registered Holder such that the provisions set forth in
this Section 2 (including provisions with respect to the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
(c) Price Adjustment. No adjustment in the per share exercise price shall
be required unless such adjustment would require an increase or decrease in the
Purchase Price of at least $001, provided, however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 2 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(d) Price Reduction. Notwithstanding any other provision set forth in this
Warrant, at any time and from time to time during the period that this Warrant
is exercisable, the Company in it sole discretion may reduce the Purchase Price
or extend the period during which this Warrant is exercisable
<PAGE>
(e) No Impairment The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such actions as may be necessary or appropriate in order to
protect against impairment of the rights of Registered Holder to adjustments in
the Purchase Price
(f) Notice of Adjustment Upon any adjustment of the Purchase Price or
extension of the Warrant exercise period, the Company shall forthwith give
written notice thereto to Registered Holder describing the event requiring the
adjustment, stating the adjusted Purchase Price and the adjusted number of
shares purchasable upon the exercise hereof resulting from such event, and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based
3. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
thereof in cash on the basis of the last sale price of the Warrant Shares on the
over-the-counter market as reported by Nasdaq or on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if neither is applicable, then on the basis of the then fair
market value of the Warrant Shares as shall be reasonably determined by the
Board of Directors of the Company.
4. Limitation on Sales. Each holder of this Warrant acknowledges that this
Warrant and the warrant Shares, as of the date of original issuance of this
Warrant, have not been registered under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory
to the Company, that such registration and qualification are not required. The
Warrant Shares issued upon exercise thereof shall be imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933; AS AMENDED (THE
"SECURITIES ACT"), OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY
STATE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OR PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE
UNIFORM COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO
REGISTER A TRANSFER OF THESE SECURITIES EXCEPT (i) PURSUANT TO
A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS
BECOME EFFECTIVE AND IS
<PAGE>
CURRENT WITH RESPECT TO THESE SECURITIES. OR (ii) PURSUANT TO
A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW. THE RESTRICTIONS
CONTAINED HEREIN ARE BINDING ON THE HOLDER HEREOF AND HIS
SUCCESSORS AND ASSIGNS."
5. Certain Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock ("Dividend"), other than a cash dividend or a
stock dividend payable in shares of Common Stock, then the Company will pay or
distribute to Registered Holder, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Dividend which would have been
paid to such Registered Holder if it had been the owner of record of such
warrant Shares immediately prior to the date on which a. record is taken for
such Dividend or, if no record is taken, the date as of which the record holders
of Common Stock entitled to such Dividend are determined
6. Registration Rights. The Company has no obligation to file a
registration statement under the Act with the Securities and Exchange Commission
or any state agency registering for reoffer and resale the Warrant Shares.
7. Notices of Record Date- In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
Registered Holder a notice specifying, as the case [nay be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the effective date on which such reorganization,
reclassification,
<PAGE>
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization' reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least ten (10) days prior to the record date or
effective date for the event specified in such notice, provided that the failure
to mail such notice shall not affect the legality or validity of any such
action.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this warrant,
such shares of Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
shall apply for listing, and obtain such listing, for the Warrant Shares on The
Nasdaq Stock Market and each exchange on which the Common Stock is listed, at
the earliest time that such listing may be obtained in accordance with the rules
and regulations of The Nasdaq Stock Market and the exchange and maintain such
listing until the seventh anniversary of the date of original issuance of this
Warrant.
9. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. Transfers.
(a) The Company will maintain a register containing the names and address
of Registered Holder. Registered Holder may change its address as shown on the
warrant register by written notice to the Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant register,
the Company may treat Registered Holder as the absolute owner hereof for all
purposes, provided, however, that if and when this Warrant is properly assigned
in blank, the Company may (but shall not be obligated to) treat the bearer
hereof as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary
11. No Rights as Stockholder. Until the exercise of this Warrant,
Registered Holder shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.
12. Successors. The rights and obligations of the parties to this Warrant
will inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors,, assigns, pledgees, transferees and purchasers-
Without limiting the foregoing, the registration rights set forth in this
Warrant shall inure to the benefit of Registered Holder and Registered Holder's
<PAGE>
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13. Change or Waiver. Any term, of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
14. Headings, The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
15. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Florida as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
16. Jurisdiction and Venue. The Company and Registered Holder (1) agree
that any legal suit, action or proceeding arising out of or relating to this
Warrant shall be instituted exclusively in New York State Supreme Court, County
of New York or in the United States District Court for the Southern District of
New York, (ii) waives any objection to the venue of any such suit, action or
proceeding and the right to assert that such forum is not a convenient forum for
such suit, action or proceeding, and (iii) irrevocably consent tot he
jurisdiction of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceedings, and the Company and Registered Holder further agree
to accept and acknowledge service or any and all process which may be served in
any such suit, action or proceeding in New York State Supreme Court, County of
New York or in the United states District Court for the Southern District of New
York and agrees that serviced of process upon it mailed by certified mail to its
address shall be deemed in every respect effective service of process upon it in
any suit, action or proceeding
17. Mailing of Notices Etc. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if delivered to the addresses in person. by Federal Express or similar
receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by
certified mail, return receipt requested, as follows:
To Registered Holder: Sanford I. Feld
66 Lake Road
Fair Hills, NJ 07931
To the Company: Stratus Services Group, Inc.
Attn: J. Todd Raymond, Esq.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
Or to such other address as any of them, by notice to the other may designate
from time to time.
<PAGE>
Time shall be counted to or from, as the case may be, the delivery in person or
by mailing.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
-----------------------------
PROMISSORY NOTE
This Note made on the 30th day of November, 1998 between Stratus Services Group,
Inc. ("Borrower"), a Delaware corporation whose principal place of business is
500 Craig Road, Suite 201, Manalapan, New Jersey 07726 and Peter M. DiPasqua,
Jr. ("Lender") residing at 2138 Lake Drive, Winter Park, Florida 32789,
represents a promise by the borrower for the repayment of principal and interest
on the following Loan.
Terms and Conditions:
1. Amount of loan: $100,000 US
2. Term: Seven (7) months from the date of signing, thereafter,
converted to an "Upon Demand" note requiring thirty (30) day notice
for repayment.
3. Interest Rate: 1.5% per month, payable monthly in arrears.
4. Additional Consideration: See separate Warrant Agreement (attached
hereto).
5. Prepayment: Borrower can elect, at any time during the life of the
Note, to pre-pay the entire amount owed (plus accrued interest to
date of prepayment) without penalty.
6. Default: The Borrower shall be in default if any of the following
occur: (a) application for, or the appointment of, a receiver in
bankruptcy; (b) filing of any petition, or the commencement of any
action or any proceeding against borrower for relief under any
bankruptcy or insolvency laws or any laws relating to the relief of
debtors, readjustment of indebtedness or reorganizations; or (c)
violation of any of the foregoing provisions regarding repayment or
the payment of interest, the waiver of which does not constitute a
waiver of which does not constitute a waiver of default.
BORROWER: LENDER:
STRATUS SERVICES GROUP, INC.
/s/ Joseph J. Raymond /s/ Peter M. DiPasqua, Jr.
- --------------------------- ---------------------------------------
Joseph J. Raymond, Chairman
and CEO
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF. HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
"BLUE SKY" OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OF PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE UNIFORM
COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO REGISTER A TRANSFER OF
THESE SECURITIES EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, AND
IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR (ii) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW. THE RESTRICTIONS CONTAINED HEREIN ARE BINDING ON THE HOLDER
HEREOF AND HIS SUCESSORS AND ASSIGNS.
For the Purchase of 20,000
Shares of Common Stock
WARRANT FOR THE PURCHASE OF 10,000
SHARES OF COMMON STOCK
OF
STRATUS SERVICES GROUP, INC.
(A Delaware corporation)
Stratus Services Group, Inc., a Delaware corporation (the "Company),
hereby certifies that for the value received, Peter DiPasqua, Jr. ("Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time during the period commencing on
November 30, 1998 ("Commencement Date") and ending five years from the
Commencement date, 20,000 shares of Common Stock, $.01 par value, of the Company
("Common Stock"), at a purchase price equal to $5.00 per share. [See attached
supplemental letter.] The number of shares of Common Stock purchasable upon
exercise of this Warrant, and
<PAGE>
the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant are hereinafter referred to as the "Warrant Shares"
and the "Purchase Price", respectively.
1. Exercise.
(a) This Warrant may be exercised by Registered Holder, in whole or in
part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
1(c) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase right
represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of, and delivered to, Registered
Holder, or, subject to the terms and conditions hereof, to such other individual
or entity as Registered Holder (upon payment by Registered Holder of any
applicable transfer taxes) may direct;
(i) a certificate or certificates for the number of full shares of
Warrant Shares to which Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof; and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, stating on the face or faces thereof the
number of shares currently stated on the face of this Warrant minus the number
of such shares purchased by Registered Holder upon such exercise as provided in
subsection 1(a) above.
2. Adjustments
(a) Split Subdivision or Combination of Shares. If the outstanding shares
of the Company's Common Stock at any time while this Warrant remains outstanding
and unexpired shall be subdivided or split into a greater number of shares, or a
dividend in Common Stock shall be paid in respect of Common Stock, the Purchase
Price in effect immediately prior to such subdivision or at the record date of
such dividend, simultaneously with the effectiveness of such
<PAGE>
subdivision or split or immediately after the record date of such dividend (as
the case may be), shall be proportionately decreased. If the outstanding shares
of Common Stock shall be combined or reverse-P split into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination or
reverse split, simultaneously with the effectiveness of such combination or
reverse split, shall be proportionately increased. When any adjustment is
required to be made in the Purchase Price, the number of shares of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) Reclassification Reorganization Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or combination as provided for in subsection 2(a) above), or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such reorganization, reclassification, consolidation, merger,
sale or liquidating distribution, lawful provision shall be made so that
Registered Holder shall have the right thereafter to receive upon the exercise
- -hereof, the kind and amount of shares of stock or other securities or property
which Registered Holder would have been entitled to receive if, immediately
prior to any such reorganization, reclassification, consolidation, merger, sale
or liquidating distribution, as the case may be, Registered Holder had held the
number of shares of Common Stock which were then purchasable upon the exercise
of this Warrant. In any such case, appropriate adjustment (as reasonably
determined by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of Registered Holder such that the provisions set forth in
this Section 2 (including provisions with respect to the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
(c) Price Adjustment. No adjustment in the per share exercise price shall
be required unless such adjustment would require an increase or decrease in the
Purchase Price of at least $001, provided, however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 2 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(d) Price Reduction. Notwithstanding any other provision set forth in this
Warrant, at any time and from time to time during the period that this Warrant
is exercisable, the Company in it sole discretion may reduce the Purchase Price
or extend the period during which this Warrant is exercisable
<PAGE>
(e) No Impairment The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such actions as may be necessary or appropriate in order to
protect against impairment of the rights of Registered Holder to adjustments in
the Purchase Price
(f) Notice of Adjustment Upon any adjustment of the Purchase Price or
extension of the Warrant exercise period, the Company shall forthwith give
written notice thereto to Registered Holder describing the event requiring the
adjustment, stating the adjusted Purchase Price and the adjusted number of
shares purchasable upon the exercise hereof resulting from such event, and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based
3. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
thereof in cash on the basis of the last sale price of the Warrant Shares on the
over-the-counter market as reported by Nasdaq or on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if neither is applicable, then on the basis of the then fair
market value of the Warrant Shares as shall be reasonably determined by the
Board of Directors of the Company.
4. Limitation on Sales. Each holder of this Warrant acknowledges that this
Warrant and the warrant Shares, as of the date of original issuance of this
Warrant, have not been registered under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory
to the Company, that such registration and qualification are not required. The
Warrant Shares issued upon exercise thereof shall be imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933; AS AMENDED (THE
"SECURITIES ACT"), OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY
STATE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OR PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE
UNIFORM COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO
REGISTER A TRANSFER OF THESE SECURITIES EXCEPT (i) PURSUANT TO
A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS
BECOME EFFECTIVE AND IS
<PAGE>
CURRENT WITH RESPECT TO THESE SECURITIES. OR (ii) PURSUANT TO
A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW. THE RESTRICTIONS
CONTAINED HEREIN ARE BINDING ON THE HOLDER HEREOF AND HIS
SUCCESSORS AND ASSIGNS."
5. Certain Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock ("Dividend"), other than a cash dividend or a
stock dividend payable in shares of Common Stock, then the Company will pay or
distribute to Registered Holder, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Dividend which would have been
paid to such Registered Holder if it had been the owner of record of such
warrant Shares immediately prior to the date on which a. record is taken for
such Dividend or, if no record is taken, the date as of which the record holders
of Common Stock entitled to such Dividend are determined
6. Registration Rights. The Company has no obligation to file a
registration statement under the Act with the Securities and Exchange Commission
or any state agency registering for reoffer and resale the Warrant Shares.
7. Notices of Record Date- In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
Registered Holder a notice specifying, as the case [nay be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the effective date on which such reorganization,
reclassification,
<PAGE>
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization' reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least ten (10) days prior to the record date or
effective date for the event specified in such notice, provided that the failure
to mail such notice shall not affect the legality or validity of any such
action.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this warrant,
such shares of Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
shall apply for listing, and obtain such listing, for the Warrant Shares on The
Nasdaq Stock Market and each exchange on which the Common Stock is listed, at
the earliest time that such listing may be obtained in accordance with the rules
and regulations of The Nasdaq Stock Market and the exchange and maintain such
listing until the seventh anniversary of the date of original issuance of this
Warrant.
9. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. Transfers.
(a) The Company will maintain a register containing the names and address
of Registered Holder. Registered Holder may change its address as shown on the
warrant register by written notice to the Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant register,
the Company may treat Registered Holder as the absolute owner hereof for all
purposes, provided, however, that if and when this Warrant is properly assigned
in blank, the Company may (but shall not be obligated to) treat the bearer
hereof as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary
11. No Rights as Stockholder. Until the exercise of this Warrant,
Registered Holder shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.
12. Successors. The rights and obligations of the parties to this Warrant
will inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors,, assigns, pledgees, transferees and purchasers-
Without limiting the foregoing, the registration rights set forth in this
Warrant shall inure to the benefit of Registered Holder and Registered Holder's
<PAGE>
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13. Change or Waiver. Any term, of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
14. Headings, The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
15. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Florida as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
16. Jurisdiction and Venue. The Company and Registered Holder (1) agree
that any legal suit, action or proceeding arising out of or relating to this
Warrant shall be instituted exclusively in New York State Supreme Court, County
of New York or in the United States District Court for the Southern District of
New York, (ii) waives any objection to the venue of any such suit, action or
proceeding and the right to assert that such forum is not a convenient forum for
such suit, action or proceeding, and (iii) irrevocably consent tot he
jurisdiction of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceedings, and the Company and Registered Holder further agree
to accept and acknowledge service or any and all process which may be served in
any such suit, action or proceeding in New York State Supreme Court, County of
New York or in the United states District Court for the Southern District of New
York and agrees that serviced of process upon it mailed by certified mail to its
address shall be deemed in every respect effective service of process upon it in
any suit, action or proceeding
17. Mailing of Notices Etc. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if delivered to the addresses in person. by Federal Express or similar
receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by
certified mail, return receipt requested, as follows:
To Registered Holder: PETER DiPASQUA, JR.
2138 Lake Drive
Winter Park, FL 32789
To the Company: Stratus Services Group, Inc.
Attn: J. Todd Raymond, Esq.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
Or to such other address as any of them, by notice to the other may designate
from time to time.
<PAGE>
Time shall be counted to or from, as the case may be, the delivery in person or
by mailing.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
-----------------------------
PROMISSORY NOTE
This Note made on the 30th day of November, 1998 between Stratus Services Group,
Inc. ("Borrower"), a Delaware corporation whose principal place of business is
500 Craig Road, Suite 201, Manalapan, New Jersey 07726 and Shlomo Appel
("Lender") residing at 179-28 Tudor Road, Jamaica, New York 11432, represents a
promise by the borrower for the repayment of principal and interest on the
following Loan.
Terms and Conditions:
1. Amount of loan: $100,000 US
2. Term: Seven (7) months from the date of signing, thereafter,
converted to an "Upon Demand" note requiring thirty (30) day notice
for repayment.
3. Interest Rate: 1.5% per month, payable monthly in arrears.
4. Additional Consideration: See separate Warrant Agreement (attached
hereto).
5. Prepayment: Borrower can elect, at any time during the life of the
Note, to pre-pay the entire amount owed (plus accrued interest to
date of prepayment) without penalty.
6. Default: The Borrower shall be in default if any of the following
occur: (a) application for, or the appointment of, a receiver in
bankruptcy; (b) filing of any petition, or the commencement of any
action or any proceeding against borrower for relief under any
bankruptcy or insolvency laws or any laws relating to the relief of
debtors, readjustment of indebtedness or reorganizations; or (c)
violation of any of the foregoing provisions regarding repayment or
the payment of interest, the waiver of which does not constitute a
waiver of which does not constitute a waiver of default.
BORROWER: LENDER:
STRATUS SERVICES GROUP, INC.
/s/ Joseph J. Raymond /s/ Shlomo Appel
- --------------------------- -----------------------------------------
Joseph J. Raymond, Chairman
and CEO
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF. HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
"BLUE SKY" OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OF PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE UNIFORM
COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO REGISTER A TRANSFER OF
THESE SECURITIES EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, AND
IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW, OR (ii) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW. THE RESTRICTIONS CONTAINED HEREIN ARE BINDING ON THE HOLDER
HEREOF AND HIS SUCESSORS AND ASSIGNS.
For the Purchase of 20,000
Shares of Common Stock
WARRANT FOR THE PURCHASE OF 10,000
SHARES OF COMMON STOCK
OF
STRATUS SERVICES GROUP, INC.
(A Delaware corporation)
Stratus Services Group, Inc., a Delaware corporation (the "Company),
hereby certifies that for the value received, Shlomo Appel ("Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time during the period commencing on
December 2, 1998 ("Commencement Date") and ending five years from the
Commencement date, 20,000 shares of Common Stock, $.01 par value, of the Company
("Common Stock"), at a purchase price equal to $5.00 per share. [See attached
supplemental letter.] The number of shares of Common Stock purchasable upon
exercise of this Warrant, and
<PAGE>
the purchase price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant are hereinafter referred to as the "Warrant Shares"
and the "Purchase Price", respectively.
1. Exercise.
(a) This Warrant may be exercised by Registered Holder, in whole or in
part, by the surrender of this Warrant (with the Notice of Exercise Form
attached hereto as Exhibit I duly executed by Registered Holder) at the
principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full, in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
1(c) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase right
represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of, and delivered to, Registered
Holder, or, subject to the terms and conditions hereof, to such other individual
or entity as Registered Holder (upon payment by Registered Holder of any
applicable transfer taxes) may direct;
(i) a certificate or certificates for the number of full shares of
Warrant Shares to which Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, stating on the face or
faces thereof the number of shares currently stated on the face of this
Warrant minus the number of such shares purchased by Registered Holder
upon such exercise as provided in subsection 1(a) above.
2. Adjustments
(a) Split Subdivision or Combination of Shares. If the outstanding shares
of the Company's Common Stock at any time while this Warrant remains outstanding
and unexpired shall be subdivided or split into a greater number of shares, or a
dividend in Common Stock shall be paid in respect of Common Stock, the Purchase
Price in effect immediately prior to such subdivision or at the record date of
such dividend, simultaneously with the effectiveness of such
<PAGE>
subdivision or split or immediately after the record date of such dividend (as
the case may be), shall be proportionately decreased. If the outstanding shares
of Common Stock shall be combined or reverse-P split into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination or
reverse split, simultaneously with the effectiveness of such combination or
reverse split, shall be proportionately increased. When any adjustment is
required to be made in the Purchase Price, the number of shares of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) Reclassification Reorganization Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or combination as provided for in subsection 2(a) above), or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such reorganization, reclassification, consolidation, merger,
sale or liquidating distribution, lawful provision shall be made so that
Registered Holder shall have the right thereafter to receive upon the exercise
- -hereof, the kind and amount of shares of stock or other securities or property
which Registered Holder would have been entitled to receive if, immediately
prior to any such reorganization, reclassification, consolidation, merger, sale
or liquidating distribution, as the case may be, Registered Holder had held the
number of shares of Common Stock which were then purchasable upon the exercise
of this Warrant. In any such case, appropriate adjustment (as reasonably
determined by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of Registered Holder such that the provisions set forth in
this Section 2 (including provisions with respect to the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
(c) Price Adjustment. No adjustment in the per share exercise price shall
be required unless such adjustment would require an increase or decrease in the
Purchase Price of at least $001, provided, however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 2 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(d) Price Reduction. Notwithstanding any other provision set forth in this
Warrant, at any time and from time to time during the period that this Warrant
is exercisable, the Company in it sole discretion may reduce the Purchase Price
or extend the period during which this Warrant is exercisable
<PAGE>
(e) No Impairment The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2 and in
the taking of all such actions as may be necessary or appropriate in order to
protect against impairment of the rights of Registered Holder to adjustments in
the Purchase Price
(f) Notice of Adjustment Upon any adjustment of the Purchase Price or
extension of the Warrant exercise period, the Company shall forthwith give
written notice thereto to Registered Holder describing the event requiring the
adjustment, stating the adjusted Purchase Price and the adjusted number of
shares purchasable upon the exercise hereof resulting from such event, and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based
3. Fractional Shares. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
thereof in cash on the basis of the last sale price of the Warrant Shares on the
over-the-counter market as reported by Nasdaq or on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if neither is applicable, then on the basis of the then fair
market value of the Warrant Shares as shall be reasonably determined by the
Board of Directors of the Company.
4. Limitation on Sales. Each holder of this Warrant acknowledges that this
Warrant and the warrant Shares, as of the date of original issuance of this
Warrant, have not been registered under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (a) an effective registration statement under the Act as to
this Warrant or such Warrant Shares or (b) an opinion of counsel, satisfactory
to the Company, that such registration and qualification are not required. The
Warrant Shares issued upon exercise thereof shall be imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933; AS AMENDED (THE
"SECURITIES ACT"), OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY
STATE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF AND ANY
TRANSFER OR PURPORTED TRANSFER SHALL NOT BE RIGHTFUL UNDER THE
UNIFORM COMMERCIAL CODE AND THE COMPANY SHALL HAVE NO DUTY TO
REGISTER A TRANSFER OF THESE SECURITIES EXCEPT (i) PURSUANT TO
A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS
BECOME EFFECTIVE AND IS
<PAGE>
CURRENT WITH RESPECT TO THESE SECURITIES. OR (ii) PURSUANT TO
A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW. THE RESTRICTIONS
CONTAINED HEREIN ARE BINDING ON THE HOLDER HEREOF AND HIS
SUCCESSORS AND ASSIGNS."
5. Certain Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock ("Dividend"), other than a cash dividend or a
stock dividend payable in shares of Common Stock, then the Company will pay or
distribute to Registered Holder, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Dividend which would have been
paid to such Registered Holder if it had been the owner of record of such
warrant Shares immediately prior to the date on which a. record is taken for
such Dividend or, if no record is taken, the date as of which the record holders
of Common Stock entitled to such Dividend are determined
6. Registration Rights. The Company has no obligation to file a
registration statement under the Act with the Securities and Exchange Commission
or any state agency registering for reoffer and resale the Warrant Shares.
7. Notices of Record Date- In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed
to Registered Holder a notice specifying, as the case [nay be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the effective date on which such reorganization,
reclassification,
<PAGE>
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization' reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least ten (10) days prior to the record date or
effective date for the event specified in such notice, provided that the failure
to mail such notice shall not affect the legality or validity of any such
action.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this warrant,
such shares of Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. The Company
shall apply for listing, and obtain such listing, for the Warrant Shares on The
Nasdaq Stock Market and each exchange on which the Common Stock is listed, at
the earliest time that such listing may be obtained in accordance with the rules
and regulations of The Nasdaq Stock Market and the exchange and maintain such
listing until the seventh anniversary of the date of original issuance of this
Warrant.
9. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. Transfers.
(a) The Company will maintain a register containing the names and address
of Registered Holder. Registered Holder may change its address as shown on the
warrant register by written notice to the Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant register,
the Company may treat Registered Holder as the absolute owner hereof for all
purposes, provided, however, that if and when this Warrant is properly assigned
in blank, the Company may (but shall not be obligated to) treat the bearer
hereof as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary
11. No Rights as Stockholder. Until the exercise of this Warrant,
Registered Holder shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.
12. Successors. The rights and obligations of the parties to this Warrant
will inure to the benefit of and be binding upon the parties hereto and their
respective heirs, successors,, assigns, pledgees, transferees and purchasers-
Without limiting the foregoing, the registration rights set forth in this
Warrant shall inure to the benefit of Registered Holder and Registered Holder's
<PAGE>
successors, heirs, pledgees, assignees, transferees and purchasers of this
Warrant and the Warrant Shares.
13. Change or Waiver. Any term, of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
14. Headings, The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
15. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Florida as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
16. Jurisdiction and Venue. The Company and Registered Holder (1) agree
that any legal suit, action or proceeding arising out of or relating to this
Warrant shall be instituted exclusively in New York State Supreme Court, County
of New York or in the United States District Court for the Southern District of
New York, (ii) waives any objection to the venue of any such suit, action or
proceeding and the right to assert that such forum is not a convenient forum for
such suit, action or proceeding, and (iii) irrevocably consent tot he
jurisdiction of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceedings, and the Company and Registered Holder further agree
to accept and acknowledge service or any and all process which may be served in
any such suit, action or proceeding in New York State Supreme Court, County of
New York or in the United states District Court for the Southern District of New
York and agrees that serviced of process upon it mailed by certified mail to its
address shall be deemed in every respect effective service of process upon it in
any suit, action or proceeding
17. Mailing of Notices Etc. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if delivered to the addresses in person. by Federal Express or similar
receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by
certified mail, return receipt requested, as follows:
To Registered Holder: Shlomo Appel
179-28 Tudor Rd.
Jamaica, NY 11432
To the Company: Stratus Services Group, Inc.
Attn: J. Todd Raymond, Esq.
500 Craig Road, Suite 201
Manalapan, New Jersey 07726
Or to such other address as any of them, by notice to the other may designate
from time to time.
<PAGE>
Time shall be counted to or from, as the case may be, the delivery in person or
by mailing.
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
---------------------
<PAGE>
December 2, 1998
Sanford I. Feld
66 Lake Road
Far Hills, New Jersey 07924
Dear Mr. Feld:
As an amendment to the Warrant Agreement and Promissory Note, Stratus hereby
agrees to guarantee the price of the warrants to be $5 or 50% of the Initial
Public Offering price, whichever is less. Stratus will register the warrant
stock within six to twelve months of the IPO.
As further security for your investment, Stratus hereby agrees that in the event
repayment is delayed beyond the payment date and requisite cure period, Stratus
Services Group will grant you 3,000 additional warrants (per $100,000 invested)
for each month that the loan is outstanding beyond the payment date.
Should these changes meet with your approval, please sign this letter where
indicated and return to me along with the Warrant Agreement and Promissory Note
to my attention. We will forward a fully executed set of documents to you as
soon as signatures are secured on same. In the event any litigation relating to
this document ensues, all litigation cost will be borne by Stratus Services
Group, Inc., unless such litigation is determined by the court to be without
merit.
Thank you for your continued support.
Sincerely,
/s/ Joseph J. Raymond
Joseph J. Raymond
ACCEPTED AND AGREED TO:
By: /s/ Sanford Feld
-----------------
Sanford Feld
Exhibit 10.1.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (Agreement), dated as of September 1, 1997, between STRATUS
SERVICES GROUP, INC., a Delaware corporation (the Company), and JOSEPH J.
RAYMOND (the Executive).
W I T N E S S E T H
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:
1. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, upon the terms and conditions
set forth herein.
2. Term. Subject to the provisions of Section 9 hereof, the initial term of
the Executive's employment under this Agreement shall commence on the date
hereof and shall end on the third anniversary hereof (herein, the "Term").
3. Position and Duties.
a. The Executive shall serve as the Chairman of the Board and Chief
Executive Officer of the Company and shall have such other duties
consistent with such office, as from time to time may be prescribed
by the Board of Directors of the Company (the "Board").
b. During the Term, the Executive shall perform and discharge the
duties that may be assigned to him by the Company from time to time
in accordance with this Agreement, and the Executive shall devote
his best talents, efforts and abilities to the performance of his
duties.
c. During the Term and any extension thereof, the Executive shall
perform such duties on a substantially full-time basis and the
Executive shall have no other employment and no other outside
business activities whatsoever; provided, however, that the
Executive shall not be precluded from devoting such time to such
other business and personal affairs as shall not materially
interfere with the performance of his duties hereunder.
<PAGE>
4. Compensation.
a. For the Executive's services hereunder, the Company shall pay the
Executive an annual salary (as the same may be increased from time
to time, the Base Salary of $275,000, payable in accordance with the
customary payroll practices of the Company.
b. The Base Salary shall be reviewed periodically by the Board and
shall be subject to such increases as the Board, in its sole
discretion, from time to time may determine.
c. In addition to the Base Salary, the Executive shall be entitles to
such bonus or bonuses as the board in its discretion may determine
to award to him from time to time.
d. Concurrently with the commencement date, the Company and Executive
enter into a Stock Option Agreement providing for the grant to the
Executive to purchase an aggregate of two hundred fifty thousand
(250,000) shares of common stock, par value $.01 per share, of the
Company at an exercise price equal to $1.00 per share vested equally
over the term of the contract and granted for a five year period.
5. Benefit Plans. During the Term, the Company shall provide to the Executive
all fringe benefits currently provided, as well as those which the Company
may generally make available to its senior executive employees, including
without limitation, benefits provided under the Company's pension and
profit-sharing plans (if any), health benefit plans (such as medical and
hospitalization coverage), and insurance plans (such as like, supplemental
life, disability, business travel, accident and accidental death and
dismemberment) (collectively, the "Benefit Plans").
6. Automobiles. During the Term, the Company shall provide the Executive with
a Company-owned or leased automobile of a type to be agreed upon by the
Executive and the Company. The Company will bear all insurance, gasoline,
registration, maintenance and repair costs incident to the Executive's use
of such automobile and the performance of his duties hereunder.
7. Reimbursement of Expenses. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel, entertainment and other
business expenses actually incurred or paid by the executive in the
performance of his duties hereunder upon presentation of expense
statements or vouchers or such other supporting information as the Company
may reasonable require of the Executive.
8. Vacations. The Executive shall be entitled to no less than four (4) weeks
of paid
<PAGE>
vacation during each year of the Term (and a pro rata portion thereof for
any portion of the Term and any extension thereof that is less than a full
year).
9. Termination. The employment of the Elective may be terminated prior to the
expiration of the Term in the manner described in this Section 9.
a. Termination by the Company for Good Cause. The Company shall have
the right to terminate the employment of the Elective for Good Cause
(as such term is defined herein) by written notice to the Elective
defined herein) by written notice to the Executive specifying the
particulars for the conduct of the Executive forming the basis for
such termination.
b. Termination by the Executive for Good Reason. The Executive shall
have the right to terminate his employing hereunder for Good Reason
(as such term is defined herein) by written notice to the Company
specifying the ground constituting such Good Reason.
c. Termination upon Death. The employment of the Executive hereunder
shall terminate immediately upon his death.
d. The Company's Options upon Disability. If the executive becomes
physically or mentally disabled during the Term and any extension
thereof so that he is unable to perform the services required of him
pursuant to this agreement for a period of six successive months, or
an aggregate of six months in any twelve-month period (the
"Disability Period"), the Company shall have the option, in its
discretion, by giving written notices thereof, wither to (A)
terminate the Executive's employment hereunder; or (B) continue the
employment of the Executive hereunder upon all the terms and
conditions set forth herein expect that for the balance of the Term
and any extension thereof, the Executive shall receive a Base Salary
equal to 50% of the Base Salary then in effect. Regardless of which
option the Company exercises or shall be deemed to have exercised,
during the disability Period, the Executive shall continue to
receive his full compensation and other benefits provided herein net
of any payment received under the disability policy or program of
which the Executive is a beneficiary or recipient.
e. Termination for any other Reason. Any party purporting to terminate
the employment of the Executive hereunder for any reason not
specified in the foregoing provisions of this Section 9 shall give
the other party notice of such termination in writing and shall
specify in such notice the reasons for such termination.
<PAGE>
f. Termination Date. Any notice of termination given pursuant to the
provisions of this Agreement shall specify therein the effective
date of such termination (the "Termination Date").
g. Certain Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
(i) The "affiliate" of any Person means any other Person directly
or indirectly through one or more intermediary Persons,
controlling , controlled by or under common control with such
Person. For purposes of this definition, "control" shall mean
the power to direct the management and policies of such
Person, directly or indirectly, by through stock ownership,
agency or otherwise, or pursuant to or in connection with an
agreement, arrangement or understanding (written or oral) with
one or more other Persons by or through stock ownership,
agency or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
"Change of Control" with respect to the Company, means
the occurrence of any of the following (A) the acquisition
directly or indirectly (in on or more related transactions) by
any Person (other than Executive), or two or more Persons
acting as a group, of beneficial ownership (as that term is
defined in Rule 13d-3 under the Securities Exchange Act of
1934) of more than 20% of the outstanding capital stock of the
Company entitled to vote for the election of directs ("Voting
Shares"); (B) the merger or consolidation of the Company with
one or more other corporations as a result of which the
holders of the outstanding Voting Shares of the Company
immediately before the merger hold less than 80% of the Voting
Share of the surviving or resulting corporation; (C) the sale
of all or substantially all of the assets of the Company or
its subsidiaries taken as a whole, and this Agreement is not
assumed by the acquiring Person in connection therewith; (D)
the Company or any of its shareholders enters into any
agreement providing for any of the foregoing and the
transaction contemplated thereby is ultimately consummated; or
(E) individuals who at the date hereof constitute the Board of
Directors or the Company cease for any reason to or the
nomination for election by the Company's stockholders, of each
new director as approved by a vote of a majority of the
directors then still in office who
<PAGE>
were directory at the date hereof.
(ii) "Good Cause" shall exist if, an only if, the Executive (A)
wilfully or repeatedly fails in any material respect to
perform his obligations hereunder as provided herein, provided
that such Good Cause shall not exist unless the Company shall
first have provided the Executive with written notice
specifying in reasonable detail the factors constituting such
material failure and such material failure shall not have been
cured by the Executive within 30 days after such notice or
such longer period as may reasonably necessary to accomplish
the cure; (B) has been convicted of a crime which constitutes
a felony or misdemeanor under applicable law or has entered a
plea of guilty or nolo contendere with respect thereto; (C)
has committed any such act which constitutes fraud or gross
negligence under applicable law; (D) is determined by the
Board to dependent upon alcohol or drugs; or (E) or during the
Term, the Executive is determined by the board to be in
violation for the provisions of Section 11 or 12 hereof.
(iii) "Good Reason" means the occurrence of any of the following
events:
(A) The assignment to the Executive of any duties
inconsistent in any material respect with the
Executive's then position (including status, offices,
titles and reporting relationships), authority, duties
or responsibilities, or (ii) any other action by the
Company which when taken as a whole results in a
significant diminution in the Executive's position,
authority, duties or responsibilities, excluding for
this purpose any isolated, immaterial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof
given by the Executive;
(B) A reduction by the Company in the Executive's Base
Salary unless, at the time of the reduction: (1) the
Base Salary is in excess of $200,000 and (2) the
percentage reduction is such Base Salary does not exceed
the percentage reduction in the Company's gross sales
over the prior twelve-month period;
(C) A Change of Control of the Company;
(D) The Company requiring the Executive to be based at any
location other than within 50 miles of the Company's
current executive office location, except
<PAGE>
for requirements of temporary travel on the Company's
business to an extent substantially consistent with the
Executive's business travel obligations existing
immediately prior to the date hereof;
(E) Any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Agreement.
(iv) "Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated
organization, joint venture, court or government (or political
subdivision or agency thereof).
10. Obligations of Company on Termination. The Company's obligations on
termination of the Executive's employment shall be as described in this
Section 10.
(a) Amount of Severance Payment in Certain Events. Upon termination of
the Executive's employment: pursuant to Sections 9(b) or 9(e), the
Company shall pay the Executive a lump sum cash payment equal to 2.9
times the Base Salary then in effect, plus any accrued and unpaid
bonuses and unreimbursed expenses, provided, however, that in the
event the aggregate amount of the salary, stock options or other
compensation would constitute an "express parachute payment" under
the Internal Revenue Code and applicable regulation as then in
effect, then such amounts shall be regulations as then in effect,
then such amounts shall be reduced accordingly so as to not
constitute an "excess parachute payment" (collectively, the
"Severance Payment")/
(b) Manner in which Severance Payment is to be Made. The Severance
Payment shall be payable within 60 days after the Termination Date.
(c) Payment Obligations of the Company in case of Termination for death,
Voluntary Resignation or Good Cause. Upon termination of the
Executive's employment upon death, disability, as a result of the
voluntary resignation of the Executive or for Good Cause, the
Company shall have not payment obligations to the Executive, except
for the payment of any accrued and unpaid compensation (including
unpaid bonuses and other unpaid benefits) and reimbursement of any
unreimbursed expenses
(d) The Executive's Right to Acquire Automobiles. Upon termination of
the Executive's employment with the Company for whatever reason, at
his option to be exercised by the executive giving written notice
thereof within 30 days of the Termination Date, the Executive may
assume all obligations of the Company under the applicable sale or
lease agreements relating to the automobile then being provided by
the Company to the Executive pursuant to Section 6 hereof. If such
automobile has been fully-paid for by the Company, the Executive
shall have the right to purchase it from the Company at it's then
book value.
(e) Continued Medical Coverage. Upon the termination of the Executive's
<PAGE>
employment with the Company for whatever reason, to the extent
permitted by applicable law, the Company shall continue to provide
the Executive, at his cost (or at the Company's cost, as the case
may be, in the case of a termination pursuant to Section 9(b) or (e)
, with medical and hospitalization insurance coverage for a period
of the longer of: (I) 18 months from the Termination Date; (ii) the
period prescribed by applicable law or (iii) the period set forth in
the applicable Benefit Plans.
11. Trade Secrets; Confidentiality. The Executive recognizes and acknowledges
that, in connection with his employment with the Company, he has had and
will continue to have access to valuable trade secrets and confidential
information of the Company and its affiliates including, but not limited
to, customer lists, business methods and processes, marketing,
promotional, pricing, financial information and data relating to
empl0oyuees and consultants (collectively, "Confidential Information") and
that such confi9dential Information is being made available to the
Executive only in connection with the furtherance of his employment with
the Company. He Executive agrees that during the Term and thereafter, the
Executive shall not disclose any of such Confidential Information to any
Person, except that disclosure of Confidential Information will be
permitted: (i) to the Company, its affiliates and their respective
advisors; (ii) if such Confidential Information has previously become
available to the public through no fault of the Executive; (iii) if
required by any court or governmental agency or body or is otherwise
required by law; (iv) if necessary to establish or assert the rights of
the Executive hereunder; or (v) if expressly consented to by the Company.
12. Restrictive Covenants. (a) during the Term, any extension thereof, and for
a period of one year immediately following the termination of the
Executive's employment the Executive agrees that he will not engage in or
have any financial interest in any business enterprise in competition with
the Company. For the purposes of this Section 12(a):
(i) A business enterprise in competition with the Company shall mean
enterprise which engages in any business as that conducted by
Company or any subsidiary or affiliate during the twelve months
preceding the date of Executive's termination of employment which
operates anywhere within a radius of 25 miles of any office
maintained by the Company as of the date of termination of
employment; and
(ii) The Executive shall be deemed to be engaged in or to have a
financial interest in such business enterprise if he is an employee,
officer, director, trustee, agent, consultant or partner of any
Person which is engaged in such business or if he owns, directly or
indirectly, stock or securities convertible into or exchangeable for
stock or otherwise has any equity or beneficial interest in such
Person; provided, however, that the ownership of 5% or less of the
outstanding shares of a class of security, which is regularly traded
on a national securities exchange or quoted in an automated
inter-dealer quotation
<PAGE>
system, shall not be deemed to be engaging or having a financial
interest in the business of such person.
(b) During the Term any extension thereof and for a period of one year
immediately following the termination of the Executive's employment,
the Executive agrees that he will not directly or indirectly hire or
solicit any employee of the Company or who was an employee of the
Company at any time within the three-month period immediately prior
thereto or encourage an employee or agent of the Company to
terminate such employment or agency relationship.
(c) The Executive acknowledges and agrees that the restrictive covenants
set forth in this Section 12 (the "Restrictive Covenants") are
reasonable and valid in geographical and temporal scope and in all
other respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected
and shall be given full force and effect, without regard to the
invalid or unenforceable parts.
(d) If any court determines that any of the Restrictive Covenants, or
any part thereof, is invalid or unenforceable for any reason, such
court shall have the Power to modify such Restrictive Covenant, or
any part thereof, and, in its modified form, such Restrictive
Covenant shall then be valid and enforceable.
(e) Notwithstanding anything to the contrary contained in this Section
12, the foregoing provisions of the Section 12 shall not apply in
the event that the employment of the Executive is terminated by the
Company without good Cause or by the Executive for Good Reason.
13. Equitable Relief. In the event of a breach or threatened breach by the
Executive of any of the covenants contained in Sections 11 and 12 hereof,
the Company shall be entitled to a temporary restraining order, a
preliminary injunction and/or a permanent injunction restraining the
Executive from breaching or continuing to breach any of said covenants.
Nothing herein contained shall be construed as prohibiting the Company
from pursuing any other remedies that may be available to it for such
breach or threatened breach, including the recovering of damages.
14. Severability. Should any provision of this Agreement be held, by a court
of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each individual provision hereof
shall be enforceable and valid to the fullest extent permitted by law.
15. Successors and Assigns.
(a) This Agreement and all rights under this Agreement are personal to
the Executive and shall not be assignable other than by will or the
laws of descent. All of the
<PAGE>
executive's rights under the agreement shall inure to the benefit of
his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns. Any person succeeding to the
business of the Company by merger, purchase, consolidation or
otherwise shall assume by contract or operation of law the
obligations of the Company under this Agreement.
16. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without regard to the
conflicts of rules thereof.
17. Notices. All notices, requests and demands given to or made upon the
respective parties hereto shall be deemed to have been given or made three
(3) business days after the date of mailing when mailed by registered or
certified mail, postage prepaid, or on the date of delivery if delivered
by hand, or one business day after the date of delivery by Federal Express
or similar overnight delivery service, addressed to the parties at their
addresses set forth below or to such other addresses furnished by notice
given in accordance with this Section 17:
(a) If to the Company, to 500 Craig Road, Suite 201, Manalapan, New
Jersey 07726, and
(b) If to the Executive, to 17140 Coral Cove Way, Boca Raton, Florida
33496.
18. Withholding. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes,
social security and other payroll deductions in accordance with the
Company's policies applicable to employees of the Company at the
Executive's level and the provisions of the Benefit Plans.
19. Complete Understanding. This Agreement supersedes any prior contracts,
understandings, discussions and agreements relating to employment between
the parties with respect to the subject matter hereof except as expressly
set forth herein or therein.
20. Modification:Waiver.
(a) This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an
amendment, by the Company and the Executive or in the case of a
waiver, by the party against whom the waiver is to be effective. Any
such waiver shall be effective only to the extent specifically set
forth in such writing.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege.
21. Mutual Representations.
<PAGE>
(a) The Executive represents and warrants to the Company that the
execution and delivery of this Agreement and the fulfillment of the
terms hereof
(i) will not constitute a default under or conflict with any
agreement or other instrument to which he is a party or by
which he is bound and
(ii) do not require the consent of any person.
(b) The Company represents and warrants to the Executive that this
Agreement has been duly authorized, executed and delivered by the
Company and that the fulfillment of the terms hereof
(i) will not constitute a default under or conflict with any
agreement or other instrument to which it is a party or by
which it is bound and
(ii) do not require the consent of any Person.
22. Headings. The headings in this agreement are for convenience of reference
only and shall not control or affect the meaning or construction of this
Agreement.
23. Counterparts. This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by the other party hereto.
24. Options. Notwithstanding anything to the contrary contained herein or in
any other agreement between the Company and the Executive, in the event
that Executive's employment is terminated pursuant to Section 9(b) or 9(e)
hereof, then any stock options heretofore or hereafter granted to
Executive may be exercised in full (to the extent not previously exercised
and provided that the term of the applicable option has not otherwise
expired) at any time within three months after such cessation of
employment.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed in
its corporate name by one of its officers duly authorized to enter into and
execute this Agreement, and the Executive has manually signed his name hereto,
all as of the date any year first above written.
STRATUS SERVICES GROUP, INC.
/s/ Johnna E. Osborn By: /s/Michael J. Rutkin
- ------------------------------- ------------------------------
Witness
/s/ Johnna E. Osborn /s/ Joseph J. Raymond
- ------------------------------- ----------------------------------
Witness
Exhibit 10.1.2
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made as of this 1st
day of September, 1997, between STRATUS SERVICES GROUP, INC., a Delaware
Corporation (the "Company"), and J. TODD RAYMOND (the "Executive").
RECITALS
It is the desire of the Company to retain the services of the
Executive and to recognize the Executive's contribution to the
Company.
The Company and the Executive wish to set forth certain terms and
conditions of Executive's employment.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below, the parties
here to agree as follows:
1. Positions and Duties.
The Executive shall serve as the General Counsel and Corporate Secretary.
The Executive agrees to devote substantially all of his working time and
efforts to the business and affairs of the Company. The Executive further
agrees that he shall not undertake any outside activities which create a
conflict of interest with his duties to the Company, or which, in the
judgment of the Board of Directors of the Company, interfere with the
performance of the Executive's duties to the Company.
2. Term.
This agreement shall commence as of the date stated above and shall
continue until terminated according to the provisions of this agreement.
3. Compensation and Benefits.
(a) Salary and Bonuses. The Executive's base salary shall be
$40,000 or other such amount that may be adjusted from
time-to-time.
(b) Stock Compensation. The Executive shall be granted 40,000
options to purchase common stock of the Company at $2.00 per
share. Said options shall vest at the rate of 10,000 per year
for four years and shall be payable on the anniversary date of
this Agreement. The Executive must be employed by the Company
to receive the options.
(c) Profit Sharing. The Executive shall be entitled to the same
profit sharing program as may be in effect from time to time
for the other executives.
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(d) Expenses. During the term of the Executive's employment, the
Executive shall be entitled to receive reimbursement for all
reasonable and customary expenses incurred by the Executive in
performing services for the Company in accordance with the
Company's reimbursement policies as they may be in effect from
time to time. The parties to this Agreement recognize that
such policies may be amended and/or terminated by the Company
at any time.
(e) Health Benefits. The Company shall pay the full premium amount
for the Executive and his family for medical and dental
coverage.
(f) 401K. The Executive shall be entitled to the same 401K program
as may be in effect from time to time for the other
executives.
(g) Life Insurance. The Executive shall be entitled to the same
Life Insurance program as may be in effect from time to time
for the other executives.
(h) Vacation. The Executive shall be entitled to four (4) weeks of
paid vacation annually. However, all vacation must be used in
the present year and cannot be carried over into the following
year.
(i) Other Benefits. The Executive shall be entitled to participate
in all employee benefit plans, programs and arrangements of
the Company (including, without limitation, stock option plans
or agreements and insurance, retirement and vacation plans,
programs and arrangements), in accordance with the terms of
such plans, programs or arrangements in effect during the
period of the Executive's employment. The parties to this
Agreement recognize that the Company may terminate or modify
such plans, programs or arrangements at any time. In addition,
the Executive shall abide by and be entitled to the same
holiday and sick pay policy as is in effect for the general
staff of the Company.
4. Grounds for Termination.
The Executive's employment may be terminated on any of the following
grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving
the other party to this Agreement at least 30 days advance
written notice of such termination.
(b) Death. The Executive's employment hereunder shall terminate
upon his death.
(c) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been
unable to perform the essential functions of his position,
even with reasonable accommodation that does not impose an
undue hardship on the Company, on a full-time basis for the
entire period of six (6)
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<PAGE>
consecutive months, and within thirty (30) days after written
notice of termination is given (which may occur before or
after the end of such six month period), shall not have
returned to the performance of his duties hereunder on a
full-time basis (a "disability"), the Company may terminate
the Executive's employment hereunder.
(d) Cause. The Company or the Executive may terminate the
Executive's employment hereunder for cause. For purposes of
this Agreement, "cause" shall mean that the Company, acting in
good faith based upon the information then known to the
Company, determines that the Executive has engaged in or
committed: willful misconduct; theft, fraud or other illegal
conduct; refusal or unwillingness to substantially perform his
duties (other than such failure resulting from the Executive's
disability) after written demand for substantial performance
is delivered by the Company that specifically identifies that
manner in which the Company believes the Executive has not
substantially performed his duties; insubordination; any
willful act that is likely to have the effect of injuring the
reputation or business of the Company; violation of any
fiduciary duty; violation of the Executive's duty of loyalty
to the Company; or a breach of any term of this Agreement. For
purposes of this Section 4(d), no act, or failure to act, on
the Executive's part shall be considered willful unless done
or omitted to be done, by his not in good faith and without
reasonable belief that his action or omission was in the best
interest of the Company.
5. Payments upon Termination.
(a) Without Cause or With Good Reason. In the event that the
Executive's employment is terminated by the Company for any
reason other than death, disability or cause as defined in
Section 3(b), (c) and (d) of this Agreement, or in the event
that the Executive terminates his employment hereunder with
Good Reason, the Executive shall be entitled to receive
severance pay. Such severance shall be the greater of: (a) one
month's salary for each year worked or (b) three months
salary, less any amounts required to be withheld by applicable
law. The Company will also pay to the Executive any earned but
unused vacation time and any accrued but unpaid profit sharing
at the rate of pay in effect on the date of the notice of
termination. In addition, the Company will maintain insurance
and benefits for the Executive during the Severance Period
(b) Release of all Claims. The Executive understands and agrees
that the Company's obligation to pay the Executive severance
pay under this Agreement is subject to the Executive's
execution of a valid written waiver and release of all claims
which the Executive may have against the Company and/or its
successors in a form acceptable to the Company in its sole and
absolute discretion.
(c) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause,
the Company shall not be obligated to
3
<PAGE>
pay the Executive any amount other than earned unused
vacation, reimbursement for business expenses incurred prior
to his termination in compliance with the Company's
reimbursement policies, and any unpaid salary for days worked
prior to the termination and accrued but unpaid profit sharing
amounts.
6. Successors/Material Change in Ownership; Binding Agreement.
(a) In the event that there is a material change in ownership of
the Company, whether direct or indirect, by purchase, merger,
consolidation or otherwise, the Company will use it's best
efforts to secure the assumption of this Agreement by the
successor ownership in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such assumption and agreement prior to the effectiveness of
any such succession shall entitle the Executive to
compensation from the Company in the same amount and on the
same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any successor to its
business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 6 or which
otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrator,
successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts would still be payable
to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
7. Notices.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
4
<PAGE>
Mr. J. Todd Raymond
29 Coronet Avenue
Lincroft, New Jersey 07738
If to the Company:
Stratus Services Group, Inc.
500 Craig Road, 2nd Floor
Manalapan, NJ 07726
Attn: J. Todd Raymond, Esq., General Counsel
With a copy to the attention of: Chief Executive Officer
or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
8. Antisolicitation.
The Executive promises and agrees that, during the period of his
employment by the Company and for a period of two (2) years thereafter,
regardless of reason for termination, he will not influence or attempt to
influence customers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any subsidiary or
affiliate of the Company within a 75 mile radius of any existing Stratus
office or those of it's subsidiaries or affiliates..
9. Soliciting Employees.
The Executive promises and agrees that during the term of his employment
and for a period of one (1) year thereafter, regardless of reason for
termination, he will not, directly or indirectly solicit any Company
employees to work for any other business, individual, partnership, firm,
corporation, or entity.
10. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of
the Company, shall have access to, receive and be entrusted
with confidential information, including but not limited to
systems technology, field operations, reimbursement,
development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales
information, data, specifications and processes presently
owned or at any time in the future developed, by the Company
or its agents or consultants, or used presently or at any time
in the future in the course of its business that is not
otherwise part of the public domain (collectively,
5
<PAGE>
the "Confidential Material"). All such Confidential Material
is considered secret and will be available to the Executive in
confidence. Except in the performance of duties on behalf of
the Company, the Executive shall not, directly or indirectly
for any reason whatsoever, disclose or use any such
Confidential Material, unless such Confidential Material
ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain.
All records (including customer, client and employee records
and lists), files, drawings, documents, notes, disks,
diskettes, tapes, magnetic media, photographs, equipment and
other tangible items, wherever located, relating in any way to
the Confidential Material or otherwise to the Company's
business, which the Executive prepares, uses or encounters
during the course of his employment, shall be and remain the
Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement
by any means, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of
the Confidential Material, not previously delivered to the
Company, that may be or at any previous time has been in the
Executive's possession or under the Executive's Control.
(b) The Executive hereby acknowledges that the sale or
unauthorized use or disclosure of any of the Company's
Confidential Material by any means whatsoever and at any time
before, during or after the Executive's employment with the
Company shall constitute unfair competition. The Executive
agrees he shall not engage in unfair competition either during
the time employed by the Company or any time thereafter.
11. Modification and Waiver.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and the Chief Executive Officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect not the subject matter hereof have been
made by ether party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New Jersey without
regard to its conflicts of law principles.
12. Validity.
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<PAGE>
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Indemnification.
The Company hereby agrees to indemnify and hold harmless the Executive for
any and all disputes that may arise as a result of the lawful exercise of
the Executive's duties. This clause shall not apply to disputes between
the Company and the Executive.
15. Entire Agreement.
This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement of
the parties hereto in respect of the subject matter contained herein is
hereby terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
EXECUTIVE STRATUS SERVICES GROUP, INC.
/s/J. Todd Raymond By: /s/Joseph J. Raymond
- ------------------------- ------------------------------
J. Todd Raymond Joseph J. Raymond, Chairman &
Chief Executive Officer
7
Exhibit 10.1.3
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made as of this 1st
day of September, 1997, between STRATUS SERVICES GROUP, INC., a Delaware
Corporation (the "Company"), and CHARLES A. SAHYOUN (the "Executive").
RECITALS
It is the desire of the Company to retain the services of the
Executive and to recognize the Executive's contribution to the
Company.
The Company and the Executive wish to set forth certain terms and
conditions of Executive's employment.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below, the parties
here to agree as follows:
1. Positions and Duties.
The Executive shall serve as the President - Engineering Division.. The
Executive agrees to devote substantially all of his working time and
efforts to the business and affairs of the Company. The Executive further
agrees that he shall not undertake any outside activities which create a
conflict of interest with his duties to the Company, or which, in the
judgment of the Board of Directors of the Company, interfere with the
performance of the Executive's duties to the Company.
2. Term.
This agreement shall commence as of the date stated above and shall
continue until terminated according to the provisions of this agreement.
3. Compensation and Benefits.
(a) Salary and Bonuses. The Executive's base salary shall be
$150,000 or other such amount that may be adjusted from
time-to-time.
(b) Stock Compensation. The Executive shall be granted 125,000
options to purchase common stock of the Company at $2.00 per
share. Said options shall vest at the rate of 31,250 per year
for four years and shall be payable on the anniversary date of
this Agreement. The Executive must be employed by the Company
to receive the options.
(c) Profit Sharing. The Executive shall be entitled to 10 % of the
Engineering Division's pre-tax income, limited to 100% of base
salary.
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<PAGE>
(d) Expenses. During the term of the Executive's employment, the
Executive shall be entitled to receive reimbursement for all
reasonable and customary expenses incurred by the Executive in
performing services for the Company in accordance with the
Company's reimbursement policies as they may be in effect from
time to time. In addition to the above, the Executive shall
specifically be entitled to the following: a car allowance of
$1,300.00 per month. The parties to this Agreement recognize
that such policies may be amended and/or terminated by the
Company at any time.
(e) Health Benefits. The Company shall pay the full premium amount
for the Executive and his family for medical and dental
coverage.
(f) 401K. The Executive shall be entitled to the same 401K program
as may be in effect from time to time for the other
executives.
(g) Life Insurance. The Executive shall be entitled to the same
Life Insurance program as may be in effect from time to time
for the other executives.
(h) Vacation. The Executive shall be entitled to four (4) weeks of
paid vacation annually. However, all vacation must be used in
the present year and cannot be carried over into the following
year.
(i) Other Benefits. The Executive shall be entitled to participate
in all employee benefit plans, programs and arrangements of
the Company (including, without limitation, stock option plans
or agreements and insurance, retirement and vacation plans,
programs and arrangements), in accordance with the terms of
such plans, programs or arrangements in effect during the
period of the Executive's employment. The parties to this
Agreement recognize that the Company may terminate or modify
such plans, programs or arrangements at any time. In addition,
the Executive shall abide by and be entitled to the same
holiday and sick pay policy as is in effect for the general
staff of the Company.
4. Grounds for Termination.
The Executive's employment may be terminated on any of the following
grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving
the other party to this Agreement at least 30 days advance
written notice of such termination.
(b) Death. The Executive's employment hereunder shall terminate
upon his death.
(c) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been
unable to perform the essential functions of
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<PAGE>
his position, even with reasonable accommodation that does not
impose an undue hardship on the Company, on a full-time basis
for the entire period of six (6) consecutive months, and
within thirty (30) days after written notice of termination is
given (which may occur before or after the end of such six
month period), shall not have returned to the performance of
his duties hereunder on a full-time basis (a "disability"),
the Company may terminate the Executive's employment
hereunder.
(d) Cause. The Company or the Executive may terminate the
Executive's employment hereunder for cause. For purposes of
this Agreement, "cause" shall mean that the Company, acting in
good faith based upon the information then known to the
Company, determines that the Executive has engaged in or
committed: willful misconduct; theft, fraud or other illegal
conduct; refusal or unwillingness to substantially perform his
duties (other than such failure resulting from the Executive's
disability) after written demand for substantial performance
is delivered by the Company that specifically identifies that
manner in which the Company believes the Executive has not
substantially performed his duties; insubordination; any
willful act that is likely to have the effect of injuring the
reputation or business of the Company; violation of any
fiduciary duty; violation of the Executive's duty of loyalty
to the Company; or a breach of any term of this Agreement. For
purposes of this Section 4(d), no act, or failure to act, on
the Executive's part shall be considered willful unless done
or omitted to be done, by his not in good faith and without
reasonable belief that his action or omission was in the best
interest of the Company.
5. Payments upon Termination.
(a) Without Cause or With Good Reason. In the event that the
Executive's employment is terminated by the Company for any
reason other than death, disability or cause as defined in
Section 3(b), (c) and (d) of this Agreement, or in the event
that the Executive terminates his employment hereunder with
Good Reason, the Executive shall be entitled to receive
severance pay. Such severance shall be the greater of: (a) one
month's salary for each year worked or (b) three months
salary, less any amounts required to be withheld by applicable
law. The Company will also pay to the Executive any earned but
unused vacation time and any accrued but unpaid profit sharing
at the rate of pay in effect on the date of the notice of
termination. In addition, the Company will maintain insurance
and benefits for the Executive during the Severance Period
(b) Release of all Claims. The Executive understands and agrees
that the Company's obligation to pay the Executive severance
pay under this Agreement is subject to the Executive's
execution of a valid written waiver and release of all claims
which the Executive may have against the Company and/or its
successors in a form acceptable to the Company in its sole and
absolute discretion.
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<PAGE>
(c) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause,
the Company shall not be obligated to pay the Executive any
amount other than earned unused vacation, reimbursement for
business expenses incurred prior to his termination in
compliance with the Company's reimbursement policies, and any
unpaid salary for days worked prior to the termination and
accrued but unpaid profit sharing amounts.
6. Successors/Material Change in Ownership; Binding Agreement.
(a) In the event that there is a material change in ownership of
the Company, whether direct or indirect, by purchase, merger,
consolidation or otherwise, the Company will use it's best
efforts to secure the assumption of this Agreement by the
successor ownership in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such assumption and agreement prior to the effectiveness of
any such succession shall entitle the Executive to
compensation from the Company in the same amount and on the
same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any successor to its
business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 6 or which
otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrator,
successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts would still be payable
to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
7. Notices.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
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If to the Executive:
Mr. Charles A. Sahyoun
4 White House Way
Englishtown, New Jersey 07726
If to the Company:
Stratus Services Group, Inc.
500 Craig Road, 2nd Floor
Manalapan, NJ 07726
Attn: J. Todd Raymond, Esq., General Counsel
With a copy to the attention of: Chief Executive Officer
or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
8. Antisolicitation.
The Executive promises and agrees that, during the period of his
employment by the Company and for a period of two (2) years thereafter,
regardless of reason for termination, he will not influence or attempt to
influence customers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any subsidiary or
affiliate of the Company within a 75 mile radius of any existing Stratus
office or those of it's subsidiaries or affiliates..
9. Soliciting Employees.
The Executive promises and agrees that during the term of his employment
and for a period of one (1) year thereafter, regardless of reason for
termination, he will not, directly or indirectly solicit any Company
employees to work for any other business, individual, partnership, firm,
corporation, or entity.
10. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of
the Company, shall have access to, receive and be entrusted
with confidential information, including but not limited to
systems technology, field operations, reimbursement,
development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales
information, data, specifications and processes presently
owned or at any time in the future developed, by the Company
5
<PAGE>
or its agents or consultants, or used presently or at any time
in the future in the course of its business that is not
otherwise part of the public domain (collectively, the
"Confidential Material"). All such Confidential Material is
considered secret and will be available to the Executive in
confidence. Except in the performance of duties on behalf of
the Company, the Executive shall not, directly or indirectly
for any reason whatsoever, disclose or use any such
Confidential Material, unless such Confidential Material
ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain.
All records (including customer, client and employee records
and lists), files, drawings, documents, notes, disks,
diskettes, tapes, magnetic media, photographs, equipment and
other tangible items, wherever located, relating in any way to
the Confidential Material or otherwise to the Company's
business, which the Executive prepares, uses or encounters
during the course of his employment, shall be and remain the
Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement
by any means, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of
the Confidential Material, not previously delivered to the
Company, that may be or at any previous time has been in the
Executive's possession or under the Executive's Control.
(b) The Executive hereby acknowledges that the sale or
unauthorized use or disclosure of any of the Company's
Confidential Material by any means whatsoever and at any time
before, during or after the Executive's employment with the
Company shall constitute unfair competition. The Executive
agrees he shall not engage in unfair competition either during
the time employed by the Company or any time thereafter.
11. Modification and Waiver.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and the Chief Executive Officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect not the subject matter hereof have been
made by ether party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New Jersey without
regard to its conflicts of law principles.
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<PAGE>
12. Validity.
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Indemnification.
The Company hereby agrees to indemnify and hold harmless the Executive for
any and all disputes that may arise as a result of the lawful exercise of
the Executive's duties. This clause shall not apply to disputes between
the Company and the Executive.
15. Entire Agreement.
This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement of
the parties hereto in respect of the subject matter contained herein is
hereby terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
EXECUTIVE STRATUS SERVICES GROUP, INC.
/s/Charles A. Sahyoun By: /s/Joseph J. Raymond
- ------------------------ -------------------------------
Charles A. Sahyoun Joseph J. Raymond, Chairman &
Chief Executive Officer
7
Exhibit 10.1.4
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made as of this 17th
day of April, 1998, between STRATUS SERVICES GROUP, INC., a Delaware Corporation
(the "Company"), and MARK S. LEVINE (the "Executive").
RECITALS
It is the desire of the Company to retain the services of the
Executive and to recognize the Executive's contribution to the
Company.
The Company and the Executive wish to set forth certain terms and
conditions of Executive's employment.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below, the parties
here to agree as follows:
1. Positions and Duties.
The Executive shall serve as the President & Chief Marketing Officer.
However, the Executive may serve in such positions, undertake such duties
and have such authority as the Company, shall assign to the Executive in
it's sole and absolute discretion. The Company has the right to change the
nature, amount or level of authority and responsibility assigned to the
Executive at any time, with or without cause. The Company may also change
the title or titles assigned to the Executive at any time, with or without
cause. The Executive agrees to devote substantially all of his working
time and efforts to the business and affairs of the Company. The Executive
further agrees that he shall not undertake any outside activities which
create a conflict of interest with his duties to the Company, or which, in
the judgment of the Board of Directors of the Company, interfere with the
performance of the Executive's duties to the Company.
2. Term.
This agreement shall commence as of the date stated above and shall
continue until terminated according to the provisions of this agreement.
3. Compensation and Benefits.
(a) Salary and Bonuses. The Executive's base salary shall be
$165,000.00 per annum. His signing bonus shall be $50,000.00,
payable $25,000.00 six months after signing this agreement and
$25,000 on the anniversary date.
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(b) Stock Compensation. The Executive shall be granted 125,000
options to purchase common stock of the Company at $2.00 per
share. Said options shall vest at the rate of 31,250 per year
for four years and shall be payable on the anniversary date of
this Agreement. The Executive must be employed by the Company
to receive the options.
(c) Profit Sharing. The Executive shall be entitled to a
percentage of Gross Margin of the accounts under his
responsibility. Such percentage shall be determined by the
parties after the first year of operations under this contract
but in no event shall it be less than the bonus amount stated
above. The Profit Sharing plan will commence with the
beginning of the second year of this Agreement.
(d) Expenses. During the term of the Executive's employment, the
Executive shall be entitled to receive reimbursement for all
reasonable and customary expenses incurred by the Executive in
performing services for the Company in accordance with the
Company's reimbursement policies as they may be in effect from
time to time. The parties to this Agreement recognize that
such policies may be amended and/or terminated by the Company
at any time.
(e) Health Benefits. The Company shall pay the full premium amount
for the Executive and his family for medical and dental
coverage.
(f) 401K. The Executive shall be entitled to the same 401K program
as may be in effect from time to time for the other
executives.
(g) Life Insurance. he Executive shall be entitled to the same
Life Insurance program as may be in effect from time to time
for the other executives.
(h) Vacation. The Executive shall be entitled to four (4) weeks of
paid vacation annually. However, all vacation must be used in
the present year and cannot be carried over into the following
year.
(i) Other Benefits. The Executive shall be entitled to participate
in all employee benefit plans, programs and arrangements of
the Company (including, without limitation, stock option plans
or agreements and insurance, retirement and vacation plans,
programs and arrangements), in accordance with the terms of
such plans, programs or arrangements in effect during the
period of the Executive's employment. The parties to this
Agreement recognize that the Company may terminate or modify
such plans, programs or arrangements at any time. In addition,
the Executive shall abide by and be entitled to the same
holiday and sick pay policy as is in effect for the general
staff of the Company.
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<PAGE>
4. Grounds for Termination.
The Executive's employment may be terminated on any of the following
grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving
the other party to this Agreement at least 30 days advance
written notice of such termination.
(b) Death. The Executive's employment hereunder shall terminate
upon his death.
(c) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been
unable to perform the essential functions of his position,
even with reasonable accommodation that does not impose an
undue hardship on the Company, on a full-time basis for the
entire period of six (6) consecutive months, and within thirty
(30) days after written notice of termination is given (which
may occur before or after the end of such six month period),
shall not have returned to the performance of his duties
hereunder on a full-time basis (a "disability"), the Company
may terminate the Executive's employment hereunder.
(d) Cause. The Company or the Executive may terminate the
Executive's employment hereunder for cause. For purposes of
this Agreement, "cause" shall mean that the Company, acting in
good faith based upon the information then known to the
Company, determines that the Executive has engaged in or
committed: willful misconduct; theft, fraud or other illegal
conduct; refusal or unwillingness to substantially perform his
duties (other than such failure resulting from the Executive's
disability) after written demand for substantial performance
is delivered by the Company that specifically identifies that
manner in which the Company believes the Executive has not
substantially performed his duties; insubordination; any
willful act that is likely to have the effect of injuring the
reputation or business of the Company; violation of any
fiduciary duty; violation of the Executive's duty of loyalty
to the Company; or a breach of any term of this Agreement. For
purposes of this Section 4(d), no act, or failure to act, on
the Executive's part shall be considered willful unless done
or omitted to be done, by his not in good faith and without
reasonable belief that his action or omission was in the best
interest of the Company.
5. Payments upon Termination.
(a) Without Cause or With Good Reason. In the event that the
Executive's employment is terminated by the Company for any
reason other than death, disability or cause as defined in
Section 3(b), (c) and (d) of this Agreement, or in the event
that the Executive terminates his employment hereunder with
Good Reason, the Executive shall be entitled to receive
severance pay. Such severance
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shall be the greater of: (a) one month's salary for each year
worked or (b) three months salary, less any amounts required
to be withheld by applicable law. The Company will also pay to
the Executive any earned but unused vacation time and any
accrued but unpaid profit sharing at the rate of pay in effect
on the date of the notice of termination. In addition, the
Company will maintain insurance and benefits for the Executive
during the Severance Period
(b) Release of all Claims. The Executive understands and agrees
that the Company's obligation to pay the Executive severance
pay under this Agreement is subject to the Executive's
execution of a valid written waiver and release of all claims
which the Executive may have against the Company and/or its
successors in a form acceptable to the Company in its sole and
absolute discretion.
(c) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause,
the Company shall not be obligated to pay the Executive any
amount other than earned unused vacation, reimbursement for
business expenses incurred prior to his termination in
compliance with the Company's reimbursement policies, and any
unpaid salary for days worked prior to the termination and
accrued but unpaid profit sharing amounts. .
6. Successors/Material Change in Ownership; Binding Agreement.
(a) In the event that there is a material change in ownership of
the Company, whether direct or indirect, by purchase, merger,
consolidation or otherwise, the Company will use it's best
efforts to secure the assumption of this Agreement by the
successor ownership in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such assumption and agreement prior to the effectiveness of
any such succession shall entitle the Executive to
compensation from the Company in the same amount and on the
same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any successor to its
business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 6 or which
otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrator,
successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts would still be payable
to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the
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Executive's devisee, legatee, or other designee or, if there
be no such designee, to the Executive's estate.
7. Notices.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. Mark S. Levine
2559 Eagle Run Lane
Weston, FL 33327
If to the Company:
Stratus Services Group, Inc.
500 Craig Road, 2nd Floor
Manalapan, NJ 07726
Attn: Chief Executive Officer
With a copy to the attention of: President
or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
8. Antisolicitation.
The Executive promises and agrees that, during the period of his
employment by the Company and for a period of two (2) years thereafter,
regardless of reason for termination, he will not influence or attempt to
influence customers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any subsidiary or
affiliate of the Company within a 75 mile radius of any existing Stratus
office or those of it's subsidiaries or affiliates..
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9. Soliciting Employees.
The Executive promises and agrees that during the term of his
employment and for a period of one (1) year thereafter, regardless
of reason for termination, he will not, directly or indirectly
solicit any Company employees to work for any other business,
individual, partnership, firm, corporation, or entity.
10. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of
the Company, shall have access to, receive and be entrusted
with confidential information, including but not limited to
systems technology, field operations, reimbursement,
development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales
information, data, specifications and processes presently
owned or at any time in the future developed, by the Company
or its agents or consultants, or used presently or at any time
in the future in the course of its business that is not
otherwise part of the public domain (collectively, the
"Confidential Material"). All such Confidential Material is
considered secret and will be available to the Executive in
confidence. Except in the performance of duties on behalf of
the Company, the Executive shall not, directly or indirectly
for any reason whatsoever, disclose or use any such
Confidential Material, unless such Confidential Material
ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain.
All records (including customer, client and employee records
and lists), files, drawings, documents, notes, disks,
diskettes, tapes, magnetic media, photographs, equipment and
other tangible items, wherever located, relating in any way to
the Confidential Material or otherwise to the Company's
business, which the Executive prepares, uses or encounters
during the course of his employment, shall be and remain the
Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement
by any means, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of
the Confidential Material, not previously delivered to the
Company, that may be or at any previous time has been in the
Executive's possession or under the Executive's Control.
(b) The Executive hereby acknowledges that the sale or
unauthorized use or disclosure of any of the Company's
Confidential Material by any means whatsoever and at any time
before, during or after the Executive's employment with the
Company shall constitute unfair competition. The Executive
agrees he shall not engage in unfair competition either during
the time employed by the Company or any time thereafter.
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11. Modification and Waiver.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and the Chief Executive Officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect not the subject matter hereof have been
made by ether party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New Jersey without
regard to its conflicts of law principles.
12. Validity.
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Arbitration.
Any dispute or controversy arising under or in connection with this
Agreement or Executive's employment by the Company shall be settled
exclusively by arbitration, conducted before a single neutral arbitrator
in accordance with the American Arbitration Association's National Rules
for Resolution of Employment Disputes as then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction;
provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of Sections 8,
9, or 10 of this Agreement and the Executive hereby consents that such
restraining order or injunction may be granted without the necessity of
the Company's posting nay bond, and provided, further, that the Executive
shall be entitled to seek specific performance of his right to be paid
until the date of employment termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
The fees and expenses of the arbitrator shall be borne by the party
seeking arbitration.
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<PAGE>
15. Indemnification.
The Company hereby agrees to indemnify and hold harmless the Executive for
any and all disputes that may arise as a result of the lawful exercise of
the Executive's duties. This clause shall not apply to disputes between
the Company and the Executive.
16. Entire Agreement.
This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement of
the parties hereto in respect of the subject matter contained herein is
hereby terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
EXECUTIVE STRATUS SERVICES GROUP, INC.
/s/Mark S. Levine By: /s/Joseph J. Raymond
- --------------------- ------------------------------
Mark S. Levine Joseph J. Raymond, Chairman &
Chief Executive Officer
8
Exhibit 10.1.5
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made as of this 7th
day of May, 1998, between STRATUS SERVICES GROUP, INC., a Delaware Corporation
(the "Company"), and A. GEORGE KOMER (the "Executive").
RECITALS
It is the desire of the Company to retain the services of the
Executive and to recognize the Executive's contribution to the
Company.
The Company and the Executive wish to set forth certain terms and
conditions of Executive's employment.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below, the parties
here to agree as follows:
1. Positions and Duties.
The Executive shall serve as the President - Staffing Services Division.
However, the Executive may serve in such positions, undertake such duties
and have such authority as the Company, shall assign to the Executive in
it's sole and absolute discretion. The Company has the right to change the
nature, amount or level of authority and responsibility assigned to the
Executive at any time, with or without cause. The Company may also change
the title or titles assigned to the Executive at any time, with or without
cause. The Executive agrees to devote substantially all of his working
time and efforts to the business and affairs of the Company. The Executive
further agrees that he shall not undertake any outside activities which
create a conflict of interest with his duties to the Company, or which, in
the judgment of the Board of Directors of the Company, interfere with the
performance of the Executive's duties to the Company.
2. Term.
This agreement shall commence as of the date stated above and shall
continue until terminated according to the provisions of this
agreement.
3. Compensation and Benefits.
(a) Salary and Bonuses. The Executive's base salary shall be
$165,000.00 per annum. His signing bonus shall be $50,000.00,
payable $25,000.00 six months after signing this agreement and
$25,000 on the anniversary date.
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(b) Stock Compensation. The Executive shall be granted 125,000
options to purchase common stock of the Company at $2.00 per
share. Said options shall vest at the rate of 31,125 per year
and shall be payable on the anniversary date of this
Agreement. The Executive must be employed by the Company to
receive the options.
(c) Profit Sharing. The Executive shall be entitled to a
percentage of profits of the Staffing Services Division. Such
percentage shall be determined by the parties after the first
year of operations under this agreement but in no event shall
it be less than the bonus amount stated above. The Profit
Sharing plan will commence with the beginning of the second
year of this Agreement.
(d) Expenses. During the term of the Executive's employment, the
Executive shall be entitled to receive reimbursement for all
reasonable and customary expenses incurred by the Executive in
performing services for the Company in accordance with the
Company's reimbursement policies as they may be in effect from
time to time. The executive shall not be entitled to an
automobile expense account. The parties to this Agreement
recognize that such policies may be amended and/or terminated
by the Company at any time.
(e) Health Benefits. The Company shall pay the full premium amount
for the Executive and his family for medical and dental
coverage.
(f) 401K. The Executive shall be entitled to the same 401K program
as may be in effect from time to time for the other
executives.
(g) Life Insurance. The Executive shall be entitled to the same
Life Insurance program as may be in effect from time to time
for the other executives.
(h) Vacation. The Executive shall be entitled to four (4) weeks of
paid vacation annually. However, all vacation must be used in
the present year and cannot be carried over into the following
year.
(i) Other Benefits. The Executive shall be entitled to participate
in all employee benefit plans, programs and arrangements of
the Company (including, without limitation, stock option plans
or agreements and insurance, retirement and vacation plans,
programs and arrangements), in accordance with the terms of
such plans, programs or arrangements in effect during the
period of the Executive's employment. The parties to this
Agreement recognize that the Company may terminate or modify
such plans, programs or arrangements at any time. In addition,
the Executive shall abide by and be entitled to the same
holiday and sick pay policy as is in effect for the general
staff of the Company.
2
<PAGE>
4. Grounds for Termination.
The Executive's employment may be terminated on any of the following
grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving
the other party to this Agreement at least 30 days advance
written notice of such termination.
(b) Death. The Executive's employment hereunder shall terminate
upon his death.
(c) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been
unable to perform the essential functions of his position,
even with reasonable accommodation that does not impose an
undue hardship on the Company, on a full-time basis for the
entire period of six (6) consecutive months, and within thirty
(30) days after written notice of termination is given (which
may occur before or after the end of such six month period),
shall not have returned to the performance of his duties
hereunder on a full-time basis (a "disability"), the Company
may terminate the Executive's employment hereunder.
(d) Cause. The Company may terminate the Executive's employment
hereunder for cause. For purposes of this Agreement, "cause"
shall mean that the Company, acting in good faith based upon
the information then known to the Company, determines that the
Executive has engaged in or committed: willful misconduct;
theft, fraud or other illegal conduct; refusal or
unwillingness to substantially perform his duties (other than
such failure resulting from the Executive's disability) after
written demand for substantial performance is delivered by the
Company that specifically identifies that manner in which the
Company believes the Executive has not substantially performed
his duties; insubordination; any willful act that is likely to
have the effect of injuring the reputation or business of the
Company; violation of any fiduciary duty; violation of the
Executive's duty of loyalty to the Company; or a breach of any
term of this Agreement. For purposes of this Section 4(d), no
act, or failure to act, on the Executive's part shall be
considered willful unless done or omitted to be done, by his
not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
5. Payments upon Termination.
(a) Without Cause or With Good Reason. In the event that the
Executive's employment is terminated by the Company for any
reason other than death, disability or cause as defined in
Section 3(b), (c) and (d) of this Agreement, or in the event
that the Executive terminates his employment hereunder with
Good Reason, the Executive shall be entitled to receive
severance pay. Such severance
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shall be the greater of: (a) one month's salary for each year
worked or (b) three months salary, (the "Severance Period")
less any amounts required to be withheld by applicable law.
The Company will also pay to the Executive any earned but
unused vacation time and any accrued but unpaid profit sharing
at the rate of pay in effect on the date of the notice of
termination. In addition, the Company will maintain insurance
and benefits for the Executive during the Severance Period.
(b) Release of all Claims. The Executive understands and agrees
that the Company's obligation to pay the Executive severance
pay under this Agreement is subject to the Executive's
execution of a valid written waiver and release of all claims
which the Executive may have against the Company and/or its
successors in a form acceptable to the Company in its sole and
absolute discretion.
(c) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause,
the Company shall not be obligated to pay the Executive any
amount other than earned unused vacation, reimbursement for
business expenses incurred prior to his termination in
compliance with the Company's reimbursement policies, any
unpaid salary for days worked prior to the termination and
accrued but unpaid profit sharing amounts.
6. Successors/Material Change In Ownership; Binding Agreement.
(a) In the event that there is a material change in ownership of
the Company, whether direct or indirect, by purchase, merger,
consolidation or otherwise, the Company will use it's best
efforts to secure the assumption of this Agreement by the
successor ownership in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such assumption and agreement prior to the effectiveness of
any such succession shall entitle the Executive to
compensation from the Company in the same amount and on the
same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any successor to its
business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 5 or which
otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrator,
successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts would still be payable
to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the
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Executive's devisee, legatee, or other designee or, if there
be no such designee, to the Executive's estate.
7. Notices.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. George Komer
4657 Jefferson Township Lane
Marietta, GA 30066
If to the Company:
Stratus Services Group, Inc.
500 Craig Road, 2nd Floor
Manalapan, NJ 07726
Attn: Chief Executive Officer
With a copy to the attention of: President, Stratus Services Group, Inc.
or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
8. Antisolicitation.
The Executive promises and agrees that, during the period of his
employment by the Company and for a period of two (2) years thereafter,
and, regardless of reason for termination, he will not influence or
attempt to influence customers of the Company or any of its present or
future subsidiaries or affiliates, either directly or indirectly, to
divert their business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
9. Noncompetition.
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The Executive promises and agrees that during the term of his employment
and for a period of one (1) year following his termination, regardless of
reason for termination, he will not enter into business or work with or
for any business, individual, partnership, firm, corporation or other
entity then in competition with the business of the Company or any
subsidiary or affiliate of the Company.
10. Soliciting Employees.
The Executive promises and agrees that during the term of his employment
and for a period of one (1) year following his termination, regardless of
reason for termination, he will not, directly or indirectly solicit any
Company employees to work for any other business, individual, partnership,
firm, corporation, or entity.
11. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of
the Company, shall have access to, receive and be entrusted
with confidential information, including but not limited to
systems technology, field operations, reimbursement,
development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales
information, data, specifications and processes presently
owned or at any time in the future developed, by the Company
or its agents or consultants, or used presently or at any time
in the future in the course of its business that is not
otherwise part of the public domain (collectively, the
"Confidential Material"). All such Confidential Material is
considered secret and will be available to the Executive in
confidence. Except in the performance of duties on behalf of
the Company, the Executive shall not, directly or indirectly
for any reason whatsoever, disclose or use any such
Confidential Material, unless such Confidential Material
ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain.
All records (including customer, client and employee records
and lists), files, drawings, documents, notes, disks,
diskettes, tapes, magnetic media, photographs, equipment and
other tangible items, wherever located, relating in any way to
the Confidential Material or otherwise to the Company's
business, which the Executive prepares, uses or encounters
during the course of his employment, shall be and remain the
Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement
by any means, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of
the Confidential Material, not previously delivered to the
Company, that may be or at any previous time has been in the
Executive's possession or under the Executive's Control.
(b) The Executive hereby acknowledges that the sale or
unauthorized use or disclosure of any of the Company's
Confidential Material by any means
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whatsoever and at any time before, during or after the
Executive's employment with the Company shall constitute
unfair competition. The Executive agrees he shall not engage
in unfair competition either during the time employed by the
Company or any time thereafter.
12. Modification and Waiver .
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and the Chief Executive Officer or the President
of the Company. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect not the subject matter
hereof have been made by ether party which are not set forth expressly in
this Agreement. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of New Jersey
without regard to its conflicts of law principles.
13. Validity.
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will
constitute one and the same instrument.
15. Arbitration.
Any dispute or controversy arising under or in connection with this
Agreement or Executive's employment by the Company shall be settled
exclusively by arbitration, conducted before a single neutral arbitrator
in accordance with the American Arbitration Association's National Rules
for Resolution of Employment Disputes as then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction;
provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any
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violation of the provisions of Sections 7, 8, 9, or 10 of this Agreement
and the Executive hereby consents that such restraining order or
injunction may be granted without the necessity of the Company's posting
nay bond, and provided, further, that the Executive shall be entitled to
seek specific performance of his right to be paid until the date of
employment termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. The fees and expenses
of the arbitrator shall be borne by the party seeking arbitration.
16. Entire Agreement.
This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement of
the parties hereto in respect of the subject matter contained herein is
hereby terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
EXECUTIVE STRATUS SERVICES GROUP, INC.
/s/A. George Komer By: /s/Joseph J. Raymond
- ------------------------ -----------------------------
A. George Komer. Joseph J. Raymond, Chairman &
Chief Executive Officer
8
Exhibit 10.1.6
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made as of this 1st
day of September, 1997, between STRATUS SERVICES GROUP, INC., a Delaware
Corporation (the "Company"), and MICHAEL A. MALTZMAN (the "Executive").
RECITALS
It is the desire of the Company to retain the services of the
Executive and to recognize the Executive's contribution to the
Company.
The Company and the Executive wish to set forth certain terms and
conditions of Executive's employment.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below, the parties
here to agree as follows:
1. Positions and Duties.
The Executive shall serve as the Chief Financial Officer and Treasurer.
The Executive agrees to devote substantially all of his working time and
efforts to the business and affairs of the Company. The Executive further
agrees that he shall not undertake any outside activities which create a
conflict of interest with his duties to the Company, or which, in the
judgment of the Board of Directors of the Company, interfere with the
performance of the Executive's duties to the Company.
2. Term.
This agreement shall commence as of the date stated above and shall
continue until terminated according to the provisions of this agreement.
3. Compensation and Benefits.
(a) Salary and Bonuses. The Executive's base salary shall be
$125,000 or other such amount that may be adjusted from
time-to-time.
(b) Stock Compensation. The Executive shall be granted 125,000
options to purchase common stock of the Company at $2.00 per
share. Said options shall vest at the rate of 31,250 per year
for four years and shall be payable on the anniversary date of
this Agreement. The Executive must be employed by the Company
to receive the options.
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(c) Profit Sharing. The Executive shall be entitled to .3% of the
fiscal year Gross Margin, limited to 100% of base salary, if
the Company reports a net profit. If the Company reports any
loss, the Executive's bonus is limited to $7,500.00.
(d) Expenses. During the term of the Executive's employment, the
Executive shall be entitled to receive reimbursement for all
reasonable and customary expenses incurred by the Executive in
performing services for the Company in accordance with the
Company's reimbursement policies as they may be in effect from
time to time. The parties to this Agreement recognize that
such policies may be amended and/or terminated by the Company
at any time.
(e) Health Benefits. The Company shall pay the full premium amount
for the Executive and his family for medical and dental
coverage.
(f) 401K. The Executive shall be entitled to the same 401K program
as may be in effect from time to time for the other
executives.
(g) Life Insurance. The Executive shall be entitled to the same
Life Insurance program as may be in effect from time to time
for the other executives.
(h) Vacation. The Executive shall be entitled to four (4) weeks of
paid vacation annually. However, all vacation must be used in
the present year and cannot be carried over into the following
year.
(i) Other Benefits. The Executive shall be entitled to participate
in all employee benefit plans, programs and arrangements of
the Company (including, without limitation, stock option plans
or agreements and insurance, retirement and vacation plans,
programs and arrangements), in accordance with the terms of
such plans, programs or arrangements in effect during the
period of the Executive's employment. The parties to this
Agreement recognize that the Company may terminate or modify
such plans, programs or arrangements at any time. In addition,
the Executive shall abide by and be entitled to the same
holiday and sick pay policy as is in effect for the general
staff of the Company.
4. Grounds for Termination.
The Executive's employment may be terminated on any of the following
grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving
the other party to this Agreement at least 30 days advance
written notice of such termination.
(b) Death. The Executive's employment hereunder shall terminate
upon his death.
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(c) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been
unable to perform the essential functions of his position,
even with reasonable accommodation that does not impose an
undue hardship on the Company, on a full-time basis for the
entire period of six (6) consecutive months, and within thirty
(30) days after written notice of termination is given (which
may occur before or after the end of such six month period),
shall not have returned to the performance of his duties
hereunder on a full-time basis (a "disability"), the Company
may terminate the Executive's employment hereunder.
(d) Cause. The Company or the Executive may terminate the
Executive's employment hereunder for cause. For purposes of
this Agreement, "cause" shall mean that the Company, acting in
good faith based upon the information then known to the
Company, determines that the Executive has engaged in or
committed: willful misconduct; theft, fraud or other illegal
conduct; refusal or unwillingness to substantially perform his
duties (other than such failure resulting from the Executive's
disability) after written demand for substantial performance
is delivered by the Company that specifically identifies that
manner in which the Company believes the Executive has not
substantially performed his duties; insubordination; any
willful act that is likely to have the effect of injuring the
reputation or business of the Company; violation of any
fiduciary duty; violation of the Executive's duty of loyalty
to the Company; or a breach of any term of this Agreement. For
purposes of this Section 4(d), no act, or failure to act, on
the Executive's part shall be considered willful unless done
or omitted to be done, by his not in good faith and without
reasonable belief that his action or omission was in the best
interest of the Company.
5. Payments upon Termination.
(a) Without Cause or With Good Reason. In the event that the
Executive's employment is terminated by the Company for any
reason other than death, disability or cause as defined in
Section 3(b), (c) and (d) of this Agreement, or in the event
that the Executive terminates his employment hereunder with
Good Reason, the Executive shall be entitled to receive
severance pay. Such severance shall be the greater of: (a) one
month's salary for each year worked or (b) three months
salary, less any amounts required to be withheld by applicable
law. The Company will also pay to the Executive any earned but
unused vacation time and any accrued but unpaid profit sharing
at the rate of pay in effect on the date of the notice of
termination. In addition, the Company will maintain insurance
and benefits for the Executive during the Severance Period
(b) Release of all Claims. The Executive understands and agrees
that the Company's obligation to pay the Executive severance
pay under this Agreement is subject to the Executive's
execution of a valid written waiver and release of all claims
which
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the Executive may have against the Company and/or its
successors in a form acceptable to the Company in its sole and
absolute discretion.
(c) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause,
the Company shall not be obligated to pay the Executive any
amount other than earned unused vacation, reimbursement for
business expenses incurred prior to his termination in
compliance with the Company's reimbursement policies, and any
unpaid salary for days worked prior to the termination and
accrued but unpaid profit sharing amounts.
6. Successors/Material Change in Ownership; Binding Agreement.
(a) In the event that there is a material change in ownership of
the Company, whether direct or indirect, by purchase, merger,
consolidation or otherwise, the Company will use it's best
efforts to secure the assumption of this Agreement by the
successor ownership in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain
such assumption and agreement prior to the effectiveness of
any such succession shall entitle the Executive to
compensation from the Company in the same amount and on the
same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean
the Company as herein before defined and any successor to its
business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 6 or which
otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrator,
successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts would still be payable
to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
7. Notices.
For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
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If to the Executive:
Mr. Michael A. Maltzman
206 Muskflower Court
Toms River, New Jersey 08753
If to the Company:
Stratus Services Group, Inc.
500 Craig Road, 2nd Floor
Manalapan, NJ 07726
Attn: J. Todd Raymond, Esq., General Counsel
With a copy to the attention of: Chief Executive Officer
or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
8. Antisolicitation.
The Executive promises and agrees that, during the period of his
employment by the Company and for a period of two (2) years thereafter,
regardless of reason for termination, he will not influence or attempt to
influence customers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any subsidiary or
affiliate of the Company within a 75 mile radius of any existing Stratus
office or those of it's subsidiaries or affiliates..
9. Soliciting Employees.
The Executive promises and agrees that during the term of his employment
and for a period of one (1) year thereafter, regardless of reason for
termination, he will not, directly or indirectly solicit any Company
employees to work for any other business, individual, partnership, firm,
corporation, or entity.
10. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of
the Company, shall have access to, receive and be entrusted
with confidential information, including but not limited to
systems technology, field operations, reimbursement,
development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales
information, data, specifications and processes presently
owned or at any time in the future developed, by the Company
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or its agents or consultants, or used presently or at any time
in the future in the course of its business that is not
otherwise part of the public domain (collectively, the
"Confidential Material"). All such Confidential Material is
considered secret and will be available to the Executive in
confidence. Except in the performance of duties on behalf of
the Company, the Executive shall not, directly or indirectly
for any reason whatsoever, disclose or use any such
Confidential Material, unless such Confidential Material
ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain.
All records (including customer, client and employee records
and lists), files, drawings, documents, notes, disks,
diskettes, tapes, magnetic media, photographs, equipment and
other tangible items, wherever located, relating in any way to
the Confidential Material or otherwise to the Company's
business, which the Executive prepares, uses or encounters
during the course of his employment, shall be and remain the
Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement
by any means, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of
the Confidential Material, not previously delivered to the
Company, that may be or at any previous time has been in the
Executive's possession or under the Executive's Control.
(b) The Executive hereby acknowledges that the sale or
unauthorized use or disclosure of any of the Company's
Confidential Material by any means whatsoever and at any time
before, during or after the Executive's employment with the
Company shall constitute unfair competition. The Executive
agrees he shall not engage in unfair competition either during
the time employed by the Company or any time thereafter.
11. Modification and Waiver.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and the Chief Executive Officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect not the subject matter hereof have been
made by ether party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New Jersey without
regard to its conflicts of law principles.
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12. Validity.
The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Indemnification.
The Company hereby agrees to indemnify and hold harmless the Executive for
any and all disputes that may arise as a result of the lawful exercise of
the Executive's duties. This clause shall not apply to disputes between
the Company and the Executive.
15. Entire Agreement.
This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and supersedes all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto; and any prior agreement of
the parties hereto in respect of the subject matter contained herein is
hereby terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
EXECUTIVE STRATUS SERVICES GROUP, INC.
/s/Michael A. Maltzman By: /s/Joseph J. Raymond
- -------------------------- ------------------------------
Michael A. Maltzman Joseph J. Raymond, Chairman &
Chief Executive Officer
7
Exhibit 10.1.7
CONSULTING AGREEMENT
CONSULTING AGREEMENT (the "Agreement"), dated as of August 11, 1997 (the
"Commencement Date"), by and between Stratus Services Group, Inc., a Delaware
corporation (the "Company"), and Jeffrey Raymond, an individual residing at 283
Concord Court, Freehold, New Jersey 07728 ("Consultant").
WHEREAS, the Company is in the business of providing temporary staffing
services (the "Business"); and
WHEREAS, Consultant is an individual with experience in the Business; and
WHEREAS, the execution of this Agreement is a condition to the obligations
of the Company to consummate the transactions contemplated by the Asset Purchase
Agreement, dated as of July 9, 1997, among the Company, Royalpar Industries,
Inc., Ewing Technical Design, Inc., LPL Technical Service, Inc., and Mainstream
Engineering Co., Inc. (the "Purchase Agreement").
WHEREAS, the Company desires to retain Consultant as a consultant and
Consultant is desirous of, and wishes to enter into, such an arrangement, on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
1.1 "Additional Term" shall have the meaning assigned to it in Section 3.
1.2 "Affiliate" shall mean a corporation which, directly or indirectly,
controls, is controlled by or is under common control with the Company, and for
purposes hereof, "control" shall mean the ownership of 20% or more of the Voting
Stock of the corporation in question.
1.3 "Board" shall mean the Board of Directors of the Company.
<PAGE>
1.4 "Business" shall mean the business to be conducted by the Company,
including providing temporary staffing services and other enterprises related
thereto in which the Company shall engage.
1.5 "Commencement Date" shall be the effective date of the Closing (as
such term is defined in the Purchase Agreement) under the Purchase Agreement.
1.6 "Confidential Information" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
subscriber, advertiser, vendor and customer lists, pricing policies, operational
methods, methods of doing business, technical processes, formulae, designs and
design projects, inventions, research projects, strategic plans, product
information, production know-how and other business affairs of the Company or
its Affiliates, which (i) is or are designed to be used in or are or may be
useful in connection with the Business of the Company or any Affiliate thereof,
or which, in the case of any of these entities, results from any of the research
or development activities of any such entity, which (ii) is private or
confidential in that it is not generally known or available to the public,
except as the result of unauthorized disclosure by or information supplied by
Consultant, or (iii) which gives the Company or any Affiliate an opportunity or
the possibility of obtaining an advantage over competitors who may not know or
use such information or who are not lawfully permitted to use the same.
1.7 "Disability" shall mean that the Company has determined that as a
result of mental and/or physical illness of Consultant, Consultant is unable to
perform his services hereunder or in accordance with the terms of this
Agreement.
1.8 "Initial Term" shall have the meaning assigned to it in Section 3.
1.9 "Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
1.10 "Service Area" shall mean the continental United States of America.
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1.11 "Subsidiary" shall mean a corporation of which more than 50% of the
Voting Stock is owned, directly or indirectly, by the Company.
1.12 "Termination Date" shall have the meaning assigned to it in Section
3.
1.13 "Voting Stock" shall mean capital stock of a corporation which gives
the holder the right to vote in the election of directors for such corporation
in the ordinary course of business and not as the result of, or contingent upon,
the happening of any event.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. RETENTION AND DUTIES OF CONSULTANT
2.1 Retention; Duties. The Company hereby retains Consultant, and
Consultant hereby accepts appointment as consultant to the Company. The
principal duty of Consultant shall be as described in Exhibit A.
Consultant shall receive instructions for the performance of its duties
hereunder from the President of the Company.
2.2 Performance of Duties. Consultant will devote substantially all his
working time and effort during the Initial Term and any Additional Term. During
the Initial Term and any Additional Term, Consultant shall not engage in or
become employed directly in the commercial or professional business of any other
Person, nor shall he act as a consultant to or provide any services to, whether
on a remunerative basis or otherwise, the commercial or professional business of
any other Person, in each case which is directly competitive with the Business
of the Company, without the written consent of the Board, which consent will not
be unreasonably withheld.
3. TERM OF CONSULTATION
3.1 Initial Term. The retention of Consultant pursuant to this Agreement
shall commence as of the Commencement Date and end on the six month anniversary
of the
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Commencement Date (the "Initial Term"), unless sooner terminated pursuant to
Section 6 of this Agreement or extended as provided in Section 3.2 (the
"Termination Date").
3.2 Extension of Term. If Consultant's services hereunder have not
previously been terminated in accordance with Section 6 hereof, then at the end
of the Initial Term the term of this Agreement shall be automatically extended
for successive six month terms (an "Additional Term"), unless the Company shall
provide written notice to Consultant one month or more prior to such end of the
Additional Term that this Agreement will not be so extended. The rights of
termination set forth in Section 6 shall be applicable during such extended
term.
4. COMPENSATION
The Company shall pay Consultant as compensation for all of the services
to be rendered by him hereunder during the Initial Term and any Additional Term,
and in consideration of the various restrictions imposed upon Consultant during
the Initial Term and any Additional Term, and otherwise under this Agreement,
$9,5833.33 per month. In addition, the Company will make available to Consultant
an office and secretarial support and employee welfare benefits made available
to employees of the Company.
5. REIMBURSEMENT FOR EXPENSES
The Company shall pay or reimburse Consultant for all reasonable expenses
actually incurred or paid by him during the Initial Term and any Additional Term
in the performance of his services under this Agreement, upon presentation of
such bills, expense statements, vouchers or such other supporting information as
the Company may reasonably require. In the event the Company requires Consultant
to travel on business during the Initial Term or any Additional Term, Consultant
shall be reimbursed for such travel expenses in accordance with this Section.
6. TERMINATION OF AGREEMENT
6.1 Termination for Cause. The Company may terminate this Agreement
hereunder at any time by written notice for cause given to Consultant by the
Board after compliance with
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this Section. The Termination Date shall be the date such written notice is
given. The following constitutes the only conduct which serves as the basis for
termination of this Agreement "for cause": (i) gross or willful neglect of the
duties assigned to Consultant under this Agreement or material breach by
Consultant of this Agreement in each case continuing 90 days after written
notice to Consultant from the Board of such neglect or breach and the failure by
Consultant to take reasonable corrective actions, or (ii) Consultant declines to
follow any written, lawful instruction of the Board consistent with this
Agreement. The determination of whether "cause" exists for purposes of the
foregoing shall be made by the Board after Consultant has been offered the
opportunity to participate with his advisors including his legal counsel in the
deliberations of the Board. The determination by the Board as to "cause" must be
in writing, stating, in detail, the basis for termination for cause. Such
determination by the Board may not be made by the Board until after Consultant
shall have been offered the opportunity to participate in the deliberations of
the Board on this issue as provided above.
6.2 Termination for Death of Disability. This Agreement will terminate
upon the death of Consultant or upon thirty (30) days' prior written notice from
the Company to Consultant in the event of Disability of Consultant.
6.3 Termination Without Cause. After the Initial Term, Consultant may
terminate this Agreement hereunder for any reason whatsoever after written
notice by him to the Company. The Termination Date shall be thirty (30) days
after the giving of such notice.
6.4 Payment Upon Termination. On and after the Termination Date,
Consultant shall not be entitled to any further payments from the Company
hereunder; provided, however, that Consultant shall be entitled to payment of
his fees pursuant to Section 4 through the Termination Date to the extent not
paid and Consultant will also be reimbursed for expenses in accordance with
Section 5 properly incurred prior to the Termination Date.
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7. REPRESENTATIONS AND WARRANTIES BY CONSULTANT
Consultant hereby represents and warrants to the Company, the same being
part of the essence of this Agreement, that as of the Commencement Date, he is
not a party to any agreement, contract or understanding, and that no facts or
circumstances exist which would in any way restrict or prohibit him in any
material way from undertaking or performing any of his obligations under this
Agreement. The foregoing representation and warranty shall remain in effect
throughout the Initial Term and any Additional Term.
8. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
8.1 Acknowledgment of Confidentiality. Consultant understands and
acknowledges that he may obtain Confidential Information during the course of
his retention hereunder by the Company. Consultant further acknowledges that the
services to be rendered by him are of a special, unique and extraordinary
character and that, in connection with such services, he will have access to
Confidential Information vital to the Company's and Affiliates' business.
Accordingly, Consultant agrees that he shall not, either during the Initial Term
or any Additional Term or at any time within one year after the Termination
Date, (i) use or disclose any such Confidential Information outside the Company
and Affiliates; or (ii), except as required in the proper performance of its
services hereunder, remove or aid in the removal from the premises of the
Company or any Affiliate, of any Confidential Information or any property or
material relating thereto.
The foregoing confidentiality provisions shall cease to be applicable to
any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by Consultant of his
obligations under this Section 8).
In the event Consultant is required by law or a court order to disclose
any such Confidential Information, he shall promptly notify the Company of such
requirement and provide the Company with a copy of any court order or of any law
which in his opinion requires such
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disclosure and, if the Company so elects, permit the Company an adequate
opportunity, at its own expense, to contest such law or court order.
8.2 Delivery of Material. Consultant shall promptly, and without charge,
deliver to the Company on the termination of his retention hereunder, or at any
other time the Company may so request, all memoranda, notes, records, reports,
manuals, computer disks, videotapes, drawings, blueprints and other documents
(and all copies thereof) relating to the Business of the Company and the
Affiliates, and all property associated therewith, which he may then possess or
have under his control.
8.3 Vendor Lists. Consultant acknowledges that (i) all lists of customers
and vendors of the Company or of its Affiliates developed during the course of
Consultant's retention and/or by the Company are and shall be the sole property
of the Company and its Affiliates, as the case may be, and Consultant further
acknowledges and agrees that he neither has nor shall have any personal right,
title or interest therein; (ii) such lists are and must continue to be
confidential; and (iii) such lists are not readily accessible to competitors of
the Company or its Affiliates.
8.4 Ideas, Programs, Etc. If, during the Initial Term or any Additional
Term, Consultant invents or develops any ideas, vendor lists or the like,
relating to or useful in connection with the Business of the Company as a result
of his retention hereunder, the same are and shall remain the property of the
Company, and he will promptly deliver all copies of the same to the Company,
assign his interest therein to the Company and execute such documents as
Company's counsel may request to convey title thereto to the Company. Consultant
shall not be entitled to any compensation, other than as provided in this
Agreement, for carrying out his obligations to the Company under Subsection 8.4
or any other Subsection of this Section 8.
8.5 Extension of Section 8. All of the provisions of Section 8 shall be
deemed to be applicable to all Confidential Information, and to all ideas,
programs, etc., as referred to in Subsection 8.4, to which Consultant may have
obtained access or which he may have invented or developed during his retention
by the Company.
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8.6 Noncompetition. During the Initial Term and any Additional Term(s),
Consultant shall not, either directly or indirectly, (a) solicit, service,
obtain, or accept orders for services competitive with those of the Company from
any of the Company's actual or prospective customers; (b) commence, engage in,
or participate in any business competitive with that of the Company within the
geographic area in which the Company does business; or, (c) solicit, divert,
take away, interfere with, or attempt to induce any employee or agent of the
Company to leave his employ with the Company in order to participate in any
business competitive with the Company.
9. DISPUTES AND REMEDIES
9.1 WAIVER OF JURY TRIAL. CONSULTANT AND THE COMPANY HEREBY WAIVE THE
RIGHT TO A TRIAL BY JURY IN THE EVENT OF ANY DISPUTE WHICH ARISES UNDER THIS
AGREEMENT.
9.2 Injunctive Relief. If Consultant commits a breach, or threatens to
commit a breach, of any of the provisions of Section 8, the Company shall have
the following rights and remedies (each of which shall be independent of the
other, and shall be severally enforceable, and all of which shall be in addition
to, and not in lieu of, any other rights and remedies available to the Company
at law or in equity):
(i) the right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged by Consultant that any such breach or threatened breach will or may
cause irreparable injury to the Company and that money damages will or may not
provide an adequate remedy to the Company; and
(ii) the right and remedy to require Consultant to account for and
pay over to the Company all compensation, profits, monies, increments, things of
value or other benefits, derived or received by Consultant as the result of any
acts or transactions constituting a breach of any of the provisions of Section 8
of this Agreement, and Consultant hereby agrees to account for
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and pay over all such compensation, profits, monies, increments, things of value
or other benefits to the Company.
9.3 Partial Enforceability. If any provision contained in Section 8, or
any part thereof, is construed to be invalid or unenforceable, the same shall
not affect the remainder of Consultant's agreements, covenants and undertakings,
or the other restrictions which he has accepted, in Section 8, and the remaining
such agreements, covenants, undertakings and restrictions shall be given the
fullest possible effect, without regard to the invalid parts.
9.4 Intention of Parties. It is therefore the specific intention of the
parties, any general considerations of public policy to the contrary
notwithstanding, that the provisions of Section 8 of this Agreement shall be
enforced as written and to the fullest extent possible.
9.5 Adjustment of Restrictions. Despite the prior provisions of this
Section 9, if any covenant or agreement contained in Section 8, or any part
thereof, is held by any court of competent jurisdiction to be unenforceable
because of the duration of such provision, the court making such determination
shall have the power to reduce the duration of such provision and, in its
reduced form, such provision shall be enforceable.
9.6 Attorneys Fees and Expenses. In the event that any action, suit or
other proceeding at law or in equity is brought to enforce the provisions of
this Agreement, or to obtain money damages for the breach thereof, and such
action results in the award of a judgment for money damages or in the granting
of any injunction in favor of the Company, then all reasonable expenses,
including, but not limited to, reasonable attorneys' fees and disbursements
(including those incurred on appeal) of the Company in such action, suit or
other proceeding shall (on demand of the Company) forthwith be paid by
Consultant. If such action results in a judgment in favor of Consultant, then
all reasonable expenses, including but not limited to, reasonable attorney's
fees and disbursements (including those incurred on appeal) of Consultant in
such action, suit or other proceeding shall (on demand of Consultant) forthwith
be paid by the Company.
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10. SURVIVAL
The provisions of Sections 8 and 9 and this Section 10 shall survive
termination of this Agreement and remain enforceable according to their terms.
11. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provisions
hereof.
12. NOTICES
All notices, demands and requests required or permitted to be given under
the provisions of this Agreement shall be deemed duly given if made in writing
and delivered personally or mailed by postage prepaid certified or registered
mail, return receipt requested, accompanied by a second copy sent by ordinary
mail, which notices shall be addressed as follows:
If to the Company:
Stratus Services Group, Inc.
200 Schultz Drive, Third Floor
Red Bank, New Jersey 07701
Attn: Michael J. Rutkin, President
with a copy to:
Crummy, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Attn: Frank E. Lawatsch, Jr., Esq.
If to Consultant:
Jeffrey Raymond
283 Concord Court
Freehold, New Jersey 07728
By notifying the other parties in writing, given as aforesaid, any party
may from time-to-time change its address or the name of any person to whose
attention notice is to be given, or
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may add another person, to whose attention notice is to be given, in connection
with notice to any party.
13. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or duties hereunder may be
assigned or delegated by Consultant. This Agreement is not assignable by the
Company except to any successor in interest which takes over all or
substantially all of the business of the Company, as it is conducted at the time
of such assignment. Any corporation into or with which the Company is merged or
consolidated or which takes over all or substantially all of the business of the
Company shall be deemed to be a successor of the Company for purposes hereof.
This Agreement shall be binding upon and, except as aforesaid, shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
14. ENTIRE AGREEMENT AND WAIVER
14.1 Integration. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
14.2 No Waiver. No waiver or modification of any of the provisions of this
Agreement shall be valid unless in writing and signed by or on behalf of the
party granting such waiver or modification. No waiver by any party of any breach
or default hereunder shall be deemed a waiver of any repetition of such breach
or default or shall be deemed a waiver of any other breach or default, nor shall
it in any way affect any of the other terms or conditions of this Agreement or
the enforceability thereof. No failure of the Company to exercise any power
given it hereunder or to insist upon strict compliance by Consultant with any
obligation hereunder, and no custom or practice at variance with the terms
hereof, shall constitute a waiver of the right of the Company to demand strict
compliance with the terms hereof.
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Consultant shall not have the right to sign any waiver or modification of
any provisions of this Agreement on behalf of the Company, nor shall any action
taken by Consultant reduce his obligations under this Agreement.
This Agreement may not be supplemented or rescinded except by instrument
in writing signed by all of the parties hereto after the Commencement Date.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein.
15. GOVERNING LAW
This Agreement shall be governed by and construed, and the rights and
obligations of the parties hereto enforced, in accordance with the laws of the
State of New Jersey without reference to the conflict of laws principles
thereof.
16. HEADINGS
The Section and Subsection headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
17. EMPLOYMENT, PARTNERSHIP, ETC. STATUS
The Company and Consultant agree that Consultant is not an employee of the
Company and this Agreement does not constitute a partnership or joint venture
between the Company and Consultant. Consultant is an independent contractor with
respect to the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above, which shall be deemed to be the Commencement Date.
STRATUS SERVICES GROUP, INC.
By: /s/ Michael J. Rutkin
---------------------------------
Name:
Title: President
/s/ Jeffrey Raymond
-------------------------------------
JEFFREY RAYMOND
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EXHIBIT A
Responsibilities: Consultant will supervise the collection of accounts
receivable for Royalpar Industries, Inc., Ewing
Technical Design, Inc., LPL Technical Service, Inc.,
and Mainstream Engineering Co., Inc. ("RII") and will
use all of his efforts to maintain all existing
relationships with each of RII's clients in order to
effect a smooth and orderly transition from RII to
the Company. In addition, Consultant will assist in
due diligence of acquisitions of similar companies by
the Company.
Exhibit 10.2
LEASE AGREEMENT
This Agreement is made on October 1, 1997
BETWEEN KR HOLDINGS, INC. a New Jersey Corporation,
located at 500 Craig Road, Manalapan, New Jersey 07726
as LANDLORD
AND STRATUS SERVICES GROUP, INC., a New Jersey
Corporation, having offices at 500 Craig Road,
Manalapan, NJ 07726, as TENANT.
WITNESSETH THAT Landlord does hereby lease to Tenant and Tenant does
hereby rent from Landlord, the following described premises: 4620.73 square feet
of rentable space on the second floor of the Craig Corporate Center, located at
500 Craig Road, Manalapan Township, Monmouth County, New Jersey, as shown in the
drawing attached as "EXHIBIT A-1 " (Demised Premises)
for a term of five (5) years, COMMENCING on October 1, 1997 and ENDING on
September 30, 2002, to be used and occupied for no other purpose than general or
professional offices.
UPON THE FOLLOWING CONDITIONS AND COVENANTS:
1st: PAYMENT OF RENT: tenant covenants and agrees to pay to Landlord, as
minimum rent for and during the term hereof, the sum of THREE HUNDRED NINETY TWO
THOUSAND, SEVEN HUNDRED SIXTY TWO 03/100 DOLLARS ($ 392,762.03 ), in the
following manner:
Years 1 $16.50 /TE $6,353.50/month $76,242.04/year
Years 2 $16.75 /TE $6,449.76/month $77,397.22/year
Years 3 $17.00 /TE $6,546.03/month $78,552.41/year
Years 4 $17.25 /TE $6,642.29/month $79,707.59/year
Years 5 $17.50 /TE $6,738.56/month $80,862.77/year
Rent is payable monthly, in advance, on the first calendar day of each month at
the office of the Landlord, KR HOLDINGS, INC., 500 CRAIG ROAD, MANALAPAN, NEW
JERSEY 07726.
2nd: REPAIRS AND CARE: Tenant has examined the premises and has entered
into this lease without any representation on the part of Landlord as to the
condition thereof. Tenant shall take good care of the premises and shall at
Tenant's own cost and expense, make all non-structural repairs, including
painting and decorating, and shall maintain the premises in good condition and
state of repair, and at the end or other expiration of the term hereof shall
deliver up the rented premises in good order and condition, wear and tear from a
reasonable use thereof, and damage by the elements not resulting from the
neglect or fault of Tenant, excepted. Tenant shall neither encumber not obstruct
the sidewalks, driveways, yards, entrances, hallways and stairs buy shall keep
in a clean condition. Landlord shall be responsible for all structural repairs
and alterations at its expense, including but not limited to repair and
maintenance of the plumbing, heating, air conditioning and ventilation systems
affecting the demised premises.
3rd: COMPLIANCE WITH LAWS, ETC.: Tenant shall promptly comply with all
laws, ordinances, rules, regulations, requirements and directives of the
Federal, State and Municipal Governments or Public Authorities and of all their
departments, bureaus and subdivisions, applicable to and affecting the said
premises, their use and occupancy, for the correction, prevention and abatement
of nuisances, violations or other grievances in, upon or connected with the said
premises, during the term hereof, and shall promptly comply with all orders,
regulations, requirements and directives of the Board of Fire Underwriters or
similar authority and of any insurance companies which have issued or are about
to issue policies of insurance covering the said premises and its contents, for
the prevention of fire or other casualty, damage or injury, at Tenant's own cost
and expense; provided same shall not require structural alteration or the
addition of sprinklers, which shall be the responsibility of the Landlord.
<PAGE>
4th: ASSIGNMENT: Tenant shall not assign, mortgage or hypothecate this
lease, not sublet or sublease the premises or any part thereof; nor occupy or
use the leased premises or any part thereof, nor permit or suffer the same to be
occupied or sued for any purposes other than as herein limited, nor for any
purpose deemed unlawful, disreputable, or extra hazardous, on account of fire or
other casualty. See Article 37 regarding subletting.
5th: ALTERATIONS AND IMPROVEMENTS: No alterations, additions or
improvements shall be made, and no climate regulating, air conditioning,
cooling, heating or sprinkler systems, television or radio antennas, heavy
equipment, apparatus and fixtures shall be installed in or attached to the
leased premises, without the written prior consent of Landlord. Unless otherwise
provided herein, all such alterations, additions or improvements and systems,
when made, installed in or attached to the said premises, shall belong to and
become the property of Landlord and shall be surrendered with the premises and
as part thereof upon the expiration or sooner termination of this lease, without
hindrance, molestation, or injury.
6th: FIRE AND OTHER CASUALTY:
a) If the Demised Premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Landlord or
Landlord's Agent.
b) If the Demised Premises ore totally damaged or rendered wholly unusable
by fire or other casualty, then the rent, Operating Costs, Fuel, Utilities and
Electric Costs and Real Estate Taxes shall be proportionately paid up to the
time of the casualty and shall cease until the date when the Demised Premises
shall have been repaired and restored by Landlord subject to Landlord's and
Tenant's rights to terminate this Lease as provided for below in Section D of
this Article 6.
c) If the Demised Premises are partially damaged or rendered partially
unusable by fire or other casualty, the Demised Premises shall be repaired by
and at the expense of Landlord subject to Landlord's and Tenant's rights to
terminate this Lease as provided for below in Section D of this Article 6, and
the rent, Operating Costs, and Fuel, Utilities and Electric Costs and Real
Estate Taxes until such repair shall be substantially completed, shall be
equitably adjusted to the extent Tenant is deprived of such use.
d) If the Office building is damaged to such extent that the cost of
restoration, as reasonably estimated by Landlord, will equal or exceeds twenty
(20%) percent of the value of the Office building (exclusive of footing and
foundations) just prior to the occurrence of the damage, or if the Demised
Premises are rendered wholly unusable, or if Landlord shall decide to demolish
the Demised Premises and not to rebuild the Demised Premises and/or Office
Building and/or Office Building regardless of whether or not the Demised
Premises are damaged, or if twenty (20%) percent or more of the Demised Premises
are damaged, then in any of such events, Landlord may elect to terminate the
Lease by written notice to Tenant given within sixty (60) days after such fire
of casualty specifying a date for the expiration of this Lease, which date shall
not be more that sixty (60) days after the giving of such notice and upon the
date specified in such notice the term of this Lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this Lease and Tenant shall forthwith quit, surrender and vacate the Demised
Premises without prejudice, however, to Landlord's rights and remedies against
Tenant under the Lease provisions in effect prior to such termination, and any
rent or additional rent owing shall be paid up to such date and any payments of
rent made by tenant which were on account of any period subsequent to such date
shall be returned to Tenant. Notwithstanding anything to the contrary set forth
above, if the Demised Premises or the Common Office Facilities necessary for the
use and enjoyment of the Demised Premises are not damaged by fire or casualty,
Landlord will not exercise its right to terminate this Lease pursuant to the
provisions above unless Landlord also terminates the leases of other similarly
situated tenants, if any, occupying spaces comparable in size to the Demised
Premises. Unless Landlord shall serve a termination notice as provided for
herein, Landlord shall make the repairs and restorations under the conditions of
B and C hereof, with all reasonable expedition subject to delays due to
adjustment of insurance claims, labor troubles, force majuere and causes beyond
Landlord's control; provided, however,
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Landlord shall have no obligation to make any repairs to fixtures, or other
improvements installed by Tenant, except for Alterations. If the Demised
Premises shall be destroyed or damaged by fire or other casualty and if, in the
reasonable opinion of the contractor selected by Landlord, the restoration
cannot reasonably be completed (meaning completed subject only to routine punch
list items and, in any event, in such condition as to permit Tenant's full use
and enjoyment) within one hundred eighty (180) days after the casualty, then, in
such event, tenant may, at its election, terminate this Lease by notifying
Landlord within fifteen (15) days of notice by Landlord to tenant that the
restoration cannot reasonably be completed within one hundred eighty (180) days
after the date of such casualty. If such restoration is not, in fact, completed
for any reason other than tenant's acts or omissions within one hundred fifty
(150) days after the date of such casualty, Tenant may, at its opinion,
terminate this Lease by sending written notice thereof to Landlord at any time
after the expiration of such one hundred fifty (15) day period, in which case
this Lease shall terminate on the date which is thirty (3) days after receipt of
the notice by Landlord, unless Landlord substantially completed such restoration
within such thirty (30) day period, in which case, Tenant's notice of
termination shall be null and void and of no further force and effect.
Notwithstanding anything to the contrary contained herein, the time periods for
Landlord to restore Demised Premises, pursuant to the Article 6D, shall not be
extended due to force majeure as provided for in Article 20th.
e) Tenant hereby releases and waives all rights of recovery against
Landlord, its agents and employees for damage or destruction to its fixtures,
equipment or property arising out of fire or casualty whether or not caused by
the acts or negligence of Landlord, its agents or employees. Landlord hereby
releases and waives all rights of recovery against Tenant, its agents and
employees for damage or destruction or its office Building, fixtures, equipment
or property arising out of fire or casualty whether or not caused by the acts of
negligence of Tenant, its agent or employees to the extent such losses are
covered by Landlord's insurance. Tenant acknowledges that Landlord will not
carry insurance on Tenant's furniture or furnishings or any fixtures or
equipment, improvements, or property of Tenant and agrees that Landlord will not
in any event be obligated to repair any damage thereto or replace the same,
except for Alterations (which included Tenant's Work) as set forth above.
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f) Tenant shall not knowingly do or permit to be done any act or thing
upon the Demised Premises which will invalidate or be in conflict with fire
insurance policies covering the Office Building or fixtures and property herein.
Tenant shall, at its expense, comply with all reasonable requirements of any
insurance company which may be applicable to Tenant's use and occupancy of the
Demised Premises, provided that the necessity for such compliance results from
the manner and method of use and occupancy of the Demised Premises by Tenant,
and shall not do, or permit anything to be done, in or upon the Office Building
and/or Demised Premises or bring or keep anything therein, or used the Demised
Premises in a manner which shall increase the rate of public liability insurance
and/or the rate of fire insurance on the Office Building.
7th: INSPECTION AND REPAIR: Tenant agrees that Landlord and Landlord's
agents, employees or other representatives, shall have the right to enter into
and upon the said premises or any part thereof, at all reasonable hours and upon
reasonable notice to the extent possible, for the purpose of examining the same
or making such repairs or alterations therein as may be necessary for the safety
and preservation thereof. This clause shall not be deemed to be a covenant by
Landlord nor be construed to create an obligation on the part of Landlord to
make such inspection and repair.
This is to include the running of piping, wiring, etc., which Landlord in
its sole judgment may find necessary for the building of which the demised
premises are a part.
This clause shall not be deemed to be a covenant by Landlord nor be
construed to create an obligation on the part of landlord to make such
inspection or repairs. With exception of emergency situations, entry shall be
preceded by reasonable prior oral or written notice, and wherein Landlord, its
agents, employees and/or representatives shall make best efforts to notify and
exercise due care and not interfere with the operation of Tenant's business to
the extent reasonably possible as expressly required in the Lease.
8th: RIGHT TO EXHIBIT: Tenant agrees to permit the Landlord's agents,
employees, or other representatives to show the premises to persons wishing to
rent or purchase the same, upon reasonable notice and without undue interference
to Tenant's business, and Tenant agrees that on and after 180 days next
preceding the expiration of the term hereof, Landlord or Landlord's agents,
employees or other representatives shall have the right to place notices at the
front of the building or any part thereof, offering the premises for rent or for
sale, and Tenant hereby agrees to permit the same to remain thereon without
hindrance or molestation.
9th: GLASS, ETC. DAMAGE REPAIRS: In case of the destruction of or any
other damage to the glass in the leased premises, or the destruction of or
damage of any kind whatsoever to the said premises, caused by the carelessness,
negligence, or improper conduct on the part of Tenant or Tenant's agents,
employees, guests, licensees, invitees, subtenants, assignees or successors,
Tenant shall repair the said damage or replace or restore any destroyed parts of
the premises, as speedily as possible, at Tenants own cost and expense.
10th: SIGNS: Tenant shall not place nor allow to be placed any signs of
any kind whatsoever upon, in or about the said premises or any part thereof,
except of a design and structure and in or at such places as may be indicated
and consented to by Landlord in writing, which consent shall not be unreasonably
withheld or delayed. In case Landlord or Landlord's agents, employees or
representatives shall deem it necessary to remove any such signs in order to
paint or make any repairs, alterations or improvements in or upon said premises
or any part thereof, they may be so removed, but shall be replaced at Landlord's
expense when said repairs, alterations or improvements have been completed. Any
signs permitted by Landlord shall at all times conform with all municipal
ordinances or other laws and regulations applicable thereto.
11TH: NON-LIABILITY OF LANDLORD: Landlord shall not be liable for any
damage or injury which may be sustained by tenant or any other person, as a
consequence of the failure, breakage, leakage or obstruction of the water,
plumbing, steam, sewer, waste or soil pipes, roof, drains, leaders, gutters,
valleys, downspouts or the like or of the electrical, gas, power, conveyor,
refrigeration, sprinkler, air-conditioning or heating systems, elevators or
hoisting equipment, not resulting from Landlord's gross negligence or willful
misconduct; or by reason of the elements,; or resulting from the carelessness,
negligence, or improper
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conduct on the part of any other Tenants or this or any other Tenant's agents,
employees, guests, licensees, invitees, subtenants, assignees or successors; or
resulting from Landlord's (or Landlord's agents, employees, guests, licensees,
invitees, tenants, assignees or successors) negligent act or omission not
constituting gross negligence or willful misconduct; or attributable to any
interference with, interruption of or failure, beyond the control of Landlord,
of any services to be furnished or supplied by Landlord.
12th: MORTGAGE PRIORITY: This lease shall not be a lien against the said
premises in respect to any mortgages that may hereafter be placed upon said
premises. The recording of such mortgage or mortgages shall have preference and
precedence and be superior and prior in lien to this lease, irrespective of the
date of recording and Tenant agrees to execute any instruments, without cost,
which may be deemed necessary or desirable, to further effect the subordination
of this lease to any such mortgage or mortgages, provided, however, that the
lender under any such mortgage shall acknowledge and agree that, during the
one-year period commencing on the execution of the mortgage, so long as Tenant
is not default of any term, covenant or condition of the Lease, tenant shall not
be disturbed by
lender in Tenant's possession, enjoyment, use and occupancy of the premises.
Such non-disturbance agreement (a) shall be in substance and form acceptable to
lender, (b) shall not extend beyond the on-year period commencing on the
execution of the mortgage, and c) shall only apply to the first such mortgage
affecting the premises after the date of this lease. A refusal by tenant to
execute such instruments shall entitle Landlord to the option of canceling this
lease, and the term hereof is hereby expressly limited accordingly.
13th: SECURITY: Tenant has this day deposited with Landlord the sum of $ ,
as security for the payment of the rent hereunder and the full and faithful
performance by tenant of the covenants and conditions on the part of the Tenant
to be performed. Said sum shall be returned to Tenant, without interest, after
the expiration of the term hereof, provided that tenant has fully and faithfully
performed all such covenants and conditions and is not in default or arrears in
rent. During the term hereof, Landlord may, if Landlord so elects, apply such
security, to make good any default by tenant, in which event Tenant shall, on
demand, promptly restore said security to its original amount. Liability to
repay said security to Tenant shall run with the reversion and title to said
premises whether any change in ownership thereof be by voluntary alienation or
as the result of judicial sale, foreclosures or other proceedings, or the
exercise of a right of taking or entry by any mortgagee. Landlord shall assign
or transfer said security, for the benefit of Tenant, to any subsequent owner or
holder of the reversion or title to said premises, in which case the assignee
shall become liable for the repayment thereof as herein provided, and the
assignor shall be deemed to be released by tenant from all liability to return
such security. This provision shall be applicable to every alienation or change
in title and shall in no way be deemed to permit landlord to retain the security
after termination of Landlord's ownership of the reversion or title. Tenant
shall not mortgage, encumber or assign said security without the written consent
of Landlord.
14th: INCREASE OF INSURANCE RATES: If for any reason it shall be
impossible to obtain fire and other hazard insurance on the building and
improvements on the leased premises, in an amount and in the form, from an
insurance company with an A.M. Best Rating of "A" or Better, generally available
for buildings of this type in New Jersey, Landlord may, if Landlord so elects at
any time thereafter, terminate this lease and the term hereof , upon giving to
Tenant ninety (90) days notice in writing of Landlord's intention so to do, and
upon the giving of such notice this lease and the term thereof shall terminate.
If by reason of the use to which the premises are put by Tenant or character of
or the manner in which Tenant's business is carried on, the insurance rates for
fire and other hazards shall be increased, Tenant shall upon demand pay to
Landlord, as rent, the amounts by which the premises for such insurance are
increased. Such payment shall be paid with the next installment of rent but in
no case later than one month after such demand, whichever occurs sooner.
15th: CONDEMNATION AND EMINENT DOMAIN: If the land and premises leased
herein, or a major portion thereof, of which the leased premises are a part,
shall be taken under eminent domain or condemnation proceedings, or if suit or
other action shall be instituted for the taking or condemnation thereof, or in
lieu of any formal condemnation proceedings or actions, Landlord shall grant
option to purchase and or shall sell and convey the said premises or any portion
thereof, to the governmental or other
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public authority, agency, body or public utility, seeking to take said land and
premises or any portion thereof, then this lease, at the option of the Landlord,
shall terminate, and the term hereof shall end as of such date and Landlord
shall fix by notice in writing; and Tenant shall have no claim or right or claim
to be entitled to any portion of any amount which may be awarded as damages or
paid as the result of such condemnation proceedings or paid as the purchase
price of such option, sale or conveyance in lieu of formal condemnation
proceedings; and all rights of Tenants to damages, if any, are hereby assigned
to Landlord. Tenant agrees to execute and deliver any instruments, at the
expense of the Landlord, as may be deemed necessary or required to expedite any
condemnation proceedings or to effectuate a proper transfer of title to such
governmental or other public authority, agency, body or public utility seeking
to take or acquire the said lands and premises or any portion thereof. Tenant
covenants and agrees to vacate the said premises, remove all tenant's personal
property therefrom and deliver up peaceable possession thereof to Landlord or to
such other party designated by Landlord in the aforementioned notice. Failure by
Tenant to comply with any provisions in this clause shall subject Tenant to such
costs, expenses, damages and losses as Landlord may incur by reason of Tenant's
breach thereof.
16th: REMEDIES UPON TENANT'S DEFAULT:
a) If Tenant defaults in the performance of any of its obligations
hereunder, and such default continues for ten (10) days after the giving of
notice of such default with respect to the failure to pay any monies, or thirty
(30) days after the giving of notice of default with respect to the failure to
perform or comply with any non-monetary obligations of Tenant hereunder, then
Landlord may at its option terminate this Lease upon giving ten (10) days notice
of termination to Tenant, in which event neither Tenant nor any person claiming
through or under Tenant shall be entitled to possession or to remain in
possession of the Demised Premises but shall forthwith quit and surrender the
Demised Premises. Tenant shall have reasonable additional time beyond thirty
(30) days to cure a non-monetary default of Tenant has commenced to cure same
within thirty (3) days and thereafter proceeds with due diligence to cure same.
b) I. In the event that Tenant defaults under this Lease and such default
entitles Landlord to possession of the Demised Premises as hereinabove provided,
Landlord shall have the right to enter the Demised Premises, remove Tenant's
property and effects, without terminating this Lease or releasing Tenant, in
whole or in part, from Tenant's obligations to pay rent and all its other
obligations hereunder for the full term, relet the Demised Premises or any part
thereof, either in the same or for the account of Tenant, for such rent and for
such term or terms as Landlord may see fit, which term may, at Landlord's
option, extend beyond the balance of the term of this Lease. Landlord shall not
be required to accept any tenant offered by Tenant or to observe any
instructions given by Tenant about such reletting. In any such case, Landlord
may make such reasonable repairs, alterations and additions in and to the
Demised Premises and redecorate the same as it sees fit. Tenant shall pay
Landlord and deficiency between the rent hereby reserved and covenanted to be
paid and the net amount of rents collected on such reletting for the balance of
the term of this Lease, as well as any reasonable expense of repairing, altering
and redecorating the Demised Premises and otherwise preparing the same for
re-rental. All such expenses shall be paid by Tenant as additional rent upon
demand by Landlord. Any deficiency in rental shall be paid in monthly
installments, upon statements rendered by landlord by tenant. For the purpose of
determining the deficiency in rent, whether payable in installments or the
entire rental for the balance of the term, the rent reserved shall be deemed to
be guaranteed minimum rental herein provided for, as reduced by any rent
collected by reletting. Any suit brought to collect the amount of deficiency for
any one or more months shall not preclude any subsequent suit to collect the
deficiency for any subsequent months.
b) 2. In any case where Landlord has recovered possession of the Demised
Premises by reason of Tenant's default, Landlord may at Landlord's option, at
any time thereafter, without notice or other action by Landlord, and without
prejudice to any other rights or remedies Landlord might have hereunder or at
low or equity, become entitled to recover from Tenant, as damages for such
default, in addition to such other sums herein agreed to be paid by Tenant (to
the date of re-entry, expiration and/or dispossess), the amount, if any, by
which (i ) the sum of the fixed rent and additional rent (conclusively presuming
the additional rental to be the same as was payable for the Calendar Year
immediately preceding termination of the Lease) from the date of such default to
the date of expiration of the ten otherwise remaining term of this Lease;
exceeds (ii) the then fair and reasonable rental value of the Demised Premises
for the same period. If the Demised Premises or any part thereof is relet on an
arms-length basis by Landlord for the unexpired portion
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of the term of this Lease or any part thereof, before presentation of proof of
such damages to any court, commission or tribunal, the amount of rent reserved
upon such reletting shall, prima facie, be the fair and reasonable rental value
for the Demised Premises, or part thereof, so relet during the term of the
reletting. Said damages shall become due and payable to Landlord immediately
upon such default of this Lease and without regard to whether this Lease be
terminated or no; and if this Lease be terminated, without regard to the manner
in which it is terminated. In the computation of such damage, the difference
between any installments of fixed rent and additional rental thereafter becoming
due and the fair and reasonable rental value of the Demised Premises for the
period of which such installment was payable shall be discounted to the date of
such default at the rate of not more than four (4%) percent per annum;
c) In addition to the rights granted to Landlord pursuant to Section B of
this Article 16, Landlord may require that, upon any termination of this Lease,
whether by lapse of time, the exercise of any option by Landlord to terminate
the same, or in any other manner whatsoever, or upon any termination of Tenant's
right to possession without termination of this Lease, Tenant shall at once
surrender possession of the Demised Premises to Landlord and immediately vacate
the same, and shall remove all its effects therefrom. If tenant fails to do so,
Landlord may, upon ten (10) days' notice, re-enter the Demised Premises, with or
without process of law, and repossess itself thereof as in its former estate and
expel and remove Tenant and any other person and properties therefrom, using
such reasonable force as may be necessary, without being deemed guilty of
conversion, trespass, eviction or forcible entry, and without thereby waiving
Landlord rights to rent or any other rights given Landlord under this Lease or
at law or in equity.
d) Tenant is in default of its obligations under this Lease, Landlord can
cure the default and Tenant shall forthwith pay to Landlord, as additional rent,
a sum of money equal to all reasonable amounts expended by landlord in curing
such default. If suit is brought by Landlord on account of any default and if
default is established, Tenant shall pay to Landlord all reasonable expenses of
such suit, as additional rent, including without limitation, reasonable
attorney's fees in the institution of any dispossession act or any other actions
as a result of Tenant's default. Any payment by tenant of a sum of money less
than the entire amount due Landlord at the time of such payment shall be applied
to the obligations of Tenant furthest in arrears. No endorsement or statement on
any check or accompanying any payment shall be deemed an accord and satisfaction
and any payment accepted by landlord shall be without prejudice to Landlord's
right to obtain the balance due or pursue any other remedy available to Landlord
in law and in equity.
e) If Tenant defaults in any payment of rent or additional rent, interest
shall accrue commencing on the fifth (5th) day following such due date until
paid at the greater of (i) interest at PNC Bank's Base Rate (as herein defined)
per annum plus tow (2%) percent per annum, or (ii) one and one-half percent (1
1/2%) per month, or if such rate is illegal, at the highest rate permitted by
law. PNC Bank's Base Rate shall mean the annual rate of interest announced
publicly by PNC Bank (or its successors) from time to time as its Base Rate (or
if same is discontinued, then the substitute rate therefor as announced by PNC
Bank (or its successors) or if no substitute rate is announced by PNC Bank (or
its successors), then the prime rate (the base rate on corporate loans) or
equivalent rate as published daily in The Wall Street Journal under the heading
"Money Rates".
f) If, at any time during the term of this Lease, there shall be filed by
or against Tenant, in any court pursuant to any statute either of the United
State for any state, a petition in bankruptcy or insolvency or for the
reorganization or for the appointment of a receiver, trustee or liquidator of
all or any portion of the assets of Tenant or if Tenant makes an assignment for
the benefit of creditors, or if Tenant admits in writing its or their inability
to pay its or their debts, and if, within ninety (90) days thereafter, Tenant
fails to secure a discharge thereof this Lease at the option of Landlord may be
canceled and terminated, in which event neither Tenant not any person claiming
through or under Tenant shall be entitled to possession or to remain in
possession of the Demised Premises but shall forthwith quit and surrender the
Demised Premises. Landlord shall have the right to remove all persons, goods,
fixtures and chattels therefrom, by force or otherwise, without liability for
damages.
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g) Landlord agrees to use commercially reasonable efforts to mitigate
damages in the event of a default by Tenant (which shall not, however, obligate
Landlord to relet the Demised Premises during any period for which Landlord has
alternate comparable vacant premises in the Office Building).
h) In addition to any and all remedies set forth herein, Landlord shall
have all remedies available at law or in equity and any and all remedies shall
be cumulative and non exclusive.
17th: REMOVAL OF TENANT'S PROPERTY: Any equipment, fixtures, goods or
other property of Tenant, not removed by Tenant upon the termination of this
lease, or upon any quitting, vacating or abandonment of the premises by Tenant,
or upon Tenant's eviction, shall be considered as abandoned and Landlord shall
have the right, without any notice to tenant, to sell or otherwise dispose of
the same, at the expense of Tenant, and shall not be accountable to tenant for
any part of the proceeds of such sale, if any.
18th: REIMBURSEMENT OF LANDLORD: If Tenant shall fail or refuse to comply
with and perform any such conditions and covenants of the within lease, Landlord
may, if Landlord so elects, carry out and perform such conditions and covenants,
at the cost and expense of Tenant, and the said cost and expense shall be
payable on demand, or at the option of Landlord shall be added to the
installment of rent due immediately thereafter but in no case later than one
month after such demand, whichever occurs sooner, and shall be due and payable
as such. This remedy shall be in no addition to such other remedies as Landlord
may have hereunder by reason of the breach by Tenant of any of the covenants and
conditions in this lease contained.
19th: NON-PERFORMANCE BY LANDLORD: This lease and the obligation of Tenant
to pay the rent hereunder and to comply with the covenants and conditions
hereof, shall not be affected, curtailed, impaired, or excused because of
Landlord's inability to supply any service or material called for herein by
reason of any rule, order, regulation or preemption by any governmental entity,
authority, department, agency, or subdivision or for any delay which may arise
by reason of negotiations for the adjustment of any fire or other casualty loss
or because of strikes or other labor trouble or for any cause beyond the control
of the Landlord.
20th: VALIDITY OF LEASE: The terms, conditions, covenants and provisions
of this lease shall be deemed to be severable. If any clause or provision herein
contained shall be adjudged to be invalid or unenforceable by a court of
contempt jurisdiction or by operation of any applicable law, it shall not affect
the validity of any other clause or provision herein, but such other clauses or
provisions shall remain in full force and effect.
21st: NON-WAIVER BY LANDLORD: The various rights, remedies, options and
elections of Landlord, expressed herein, are cumulative, and the failure of
Landlord to enforce strict performance by Tenant of the conditions and covenants
of this lease or to exercise any election or option or to resort or have
recourse to any remedy herein conferred or the acceptance by Landlord of any
installment of rent after any breach by Tenant in any one or more instances
shall not be construed or deemed to be a waiver or a relinquishment for the
future by Landlord of any such conditions and covenants, options, elections, or
remedies, but same shall continue in full force and effect.
22nd: NOTICES: All notices, demands, and requests which any or are
required to be given by either party hereunder to the other, shall be in
writing. All notices, demands and requests by Landlord to Tenant shall be deemed
to have been properly given if sent by registered or certified mail, return
receipt requested, postage prepaid, addressed to Tenant at:
TENANT: STRATUS SERVICES GROUP, INC.
500 CRAIG ROAD
MANALAPAN, NEW JERSEY 07726
or to such other addressed as Tenant may from time to time designate by written
notice to Landlord.
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All notices, demands, and requests by Tenant to Landlord shall be deemed
to have been properly given if sent by registered or certified mail, return
receipt requested, postage prepaid, addressed to Landlord at:
LANDLORD: KR HOLDINGS, INC.
500 CRAIG ROAD
MANALAPAN, NEW JERSEY 07726
All notices referred to hereunder shall be deemed given upon receipt after
said notice is mailed by United States registered or certified mail as
aforesaid, in any post office or branch post office regularly maintained by the
United States Government.
23rd: TITLE AND QUIET ENJOYMENT: Landlord covenants and represents that
Landlord is the owner of the premises herein leased and has the right and
authority to enter into, execute and deliver this lease; and does further
covenant that Tenant, on paying the rent and performing the conditions and
covenants herein contained, shall and may peacefully and quietly have, hold, and
enjoy the leased premises for the term aforementioned.
24th: ENTIRE CONTRACT: This lease contains the entire contract between the
parties. No representative, agent or employee of Landlord has been authorized to
make any representations or promises with reference to the within lease or to
vary, alter or modify the terms hereof. No additions, changes or modifications,
renewals or extensions hereof, shall be binding unless reduced in writing and
signed by Landlord and Tenant.
25th: SERVICES PROVIDED BY LANDLORD: Landlord shall provide:
a) Heating, ventilation and air conditioning (hereinafter called "HVAC")
to the Demised Premises during Building Hours, as appropriate for the season,
and lighting and electric energy for the Common Office Facilities as in
Landlord's sole judgment is necessary or desirable to insure proper operation of
the Office Building. As used in this Lease the "Building Hours" shall be Monday
through Friday, 8:00 a.m. to 7:00 p.m., and Saturday from 9:00 a.m. to 2:00
p.m., excluding Sunday and those holidays set forth as follows: New Year's Day,
President's Day, memorial Day, July 4th, Labor Day, Thanksgiving Day, and
Christmas Day. Landlord shall furnish HVAC for usual Office Building
requirements as set forth above. At additional cost to Tenant, based upon a
charge of Sixty and 00/100 ($60.00) Dollars per hour of any part thereof, as
such charge may be adjusted by Landlord from time to time upon written notice
thereof to Tenant, Landlord shall provide HVAC to the Demised Premises at other
times, provided that, with respect to any such additional service, a) Tenant
shall notify Landlord and request the same twenty-four (24) hours in advance and
b) if another tenant or tenants in the Office Building request such additional
service for the same period of time and same HVAC units which serve the Demised
Premises also serve such tenant's premises, then the additional cost will be
shared between Tenant and such tenant or tenant's based on the floor area of the
Demised Premises compared to the floor area of the premises leased by such other
tenant or tenant's. By way of example and not limitation, assume that Tenant
requests HVAC service Saturday morning from 9:00 a.m. to 12:00 p.m. and another
tenant in the Office Building who leased 14,735 square feet and whose HVAC is
provided through the same HVAC unit which also supplies the Demised Premises and
such other tenant also requests such HVAC service for the same day and time,
then the cost for such HVAC service to Tenant for such Saturday would be Forty
and 30/100, calculated as follows:
3 hours x $60 = $180.00 x [4252 sq. ft./4252 sq. ft. + 14,735 sq. ft.] =
$40.30
b) Running fresh hot and cold water for adequate Tenant purposes.
c) Cleaning services as set forth on Exhibit "B" annexed hereto and made a
part hereof, subject however to the conditions therein stated. Except as
provided for on Exhibit "B", Tenant shall pay the costs of all other cleaning
services required by Tenant.
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d) Removal of ice and snow from the walks, drives, parking areas (and
access ways thereto), curbs and other exterior Common Office Facilities.
e) Self-service elevators.
f) Exterior landscaping.
g) Notwithstanding anything to the contrary contained in this Lease,
Landlord shall not be liable, under any circumstances, provided
Landlord is acting reasonably, for loss of, or injury to Tenant or
to property, including, without limitation, any claims for damage to
computers, stored information or any similar loss or damage, however
occurring, through or in connection with or incidental to the
furnishing of , or failure to furnish any of the services provided
for in this Article 25 or for any services provided to tenant under
any of the other terms and conditions of this Lease or for any
interruption to Tenant's business however occurring, for more than a
period of five (5) continuous business days.
26th: CERTIFICATE OF OCCUPANCY: Tenant will not at any time use or occupy
the demised premises in violation of the certificate of occupancy issued for the
building of which the demised premises are a part.
27th: RULES AND REGULATIONS: Tenant and Tenant's servants, employees,
visitors and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules and
Regulations as landlord or Landlord's agents may from time to time adopt. Notice
of any additional rules or regulations shall be given at least ten (10) days
prior to becoming effective. The right to dispute the reasonableness of any
additional Rule or Regulation upon Tenant's part shall be deemed waived unless
the same shall be asserted by service of a notice in writing upon landlord
within ten (10) days after the serving of notice thereof. Nothing in this lease
contained shall be construed to impose upon Landlord any duty or obligation to
enforce the Rules and Regulations or terms, covenants or conditions in any other
lease as against any other tenant and Landlord shall not be liable to Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees.
28th: ADDITIONAL RENT, TAXES, AND OPERATING EXPENSES:
28.1 Tenant shall pay additional rent from time to time as provided in
this Article to reflect any increase in taxes and building operating costs and
Tenant shall pay such increases as "Additional Rent" as hereinafter provided.
28.2 Definitions - For the purpose of this article the following terms
shall have the meanings set forth below:
a) The demised premises ("Demised Premises or "Premises") shall be deemed
to contain a floor area of 4,4620.73 square feet and the building of which the
Demised Premises forms a part ("Building") shall be deemed to contain a total
area of 30,848 square feet. Consequently the percentage of Tenant's occupancy of
the entire Building (the "Occupancy Percentage") shall be
b) "Taxes" or real estate taxes, as referred to herein shall mean taxes
and assessments, special or otherwise, upon or with respect to the building and
the land upon which it is located, assessed, levied, or imposed by any
governmental authority having jurisdiction. Nothing herein contained shall
require Tenant to pay or be charged for any portion of municipal , state, or
federal income taxes assessed against Landlord; municipal, state, or federal
capital levy, estate, succession, inheritance or transfer taxes of Landlord;
corporation franchise taxes imposed upon Landlord or any corporate owner of the
fee of the demised premises; provided, however, that if at any time during the
term of this lease the methods of taxation prevailing at the commencement of the
term hereof shall be altered so as to cause the whole or any part of the taxes
and assessments how or hereafter levied, assessed or imposed on real estate and
the improvements
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thereon to be levied, assessed and imposed, wholly or partially as a capital
levy or otherwise or on the rents received therefrom; or if any tax, corporation
franchise tax, assessment, levy (including but not limited to any municipal,
state, or federal levy) imposition or charge, or any part thereof, shall be
measured by or based in whole or in part, upon the demised premises and shall be
imposed upon Landlord, then all such taxes, assessments, levies, impositions, or
charges, or the part thereof so measured or based, but only to the extent that
they are so substituted and are applicable to any period or periods within the
term of this lease, shall be deemed to be included within the term taxes or real
estate taxes for the purposes hereof, to the extent that such taxes would be
payable if the demised premises were the only property of Landlord subject to
such taxes and revenues and income received by Landlord from demised premises
were the only revenues and income of Landlord.
c) The "Base Tax Year" shall mean the calendar year ending December 31,
1998 and a "Tax Year" shall mean any calendar year thereafter.
28.3: Taxes: If the taxes for any tax year during the term of this lease
shall be greater than the real estate tax for the Base Tax Year, then tenant
shall pay to Landlord, as additional rent, an amount equal to the Occupancy
Percentage of such excess. Landlord will submit a copy of the Landlord's tax
bills indicating the taxes to be paid and will bill the Tenant monthly for the
amount of tax due. Tenant will remit within thirty (30) days of receipt from
Landlord. Tenant shall thereafter, for the balance of the Operating Year, make
monthly payments on one-twelfth (1/12th) of said increase, to reflect the change
as of the Billing Date, which amounts shall be credited for the account of
Tenant against the annual payment due on the succeeding Billing Date. Real
estate taxes, if any, shall be considered additional rent and Landlord shall
have same remedies in the event of non-payment as specified in the lease for
default in rent.
28.4: Building Operating Costs
a) Tenant hereby agrees that for each operating year during the term of
this lease in which the total Building Operating Costs (as hereinafter defined)
shall exceed the Building Operating Costs for the First Operating Year, Tenant
shall pay to Landlord, as Additional Rent, an amount equal to the Occupancy
Percentage of such excess within thirty (3) days after presentation of
Landlord's statement (the "Operating Statement"), thereof, which shall be ninety
(90) days after the commencement of such Operating Year (the "Billing Date").
Tenant shall thereafter, for the balance of that Operating Year, make monthly
payments of one-twelfth (1/12th) of said increase, to reflect the change as of
the Billing Date, which amounts shall be credited for the account of Tenant
against the annual payment due on the succeeding Billing Sate. The Operating
Statement shall indicate: (i) the initial additional amount required to be paid
by Tenant as Additional Rent as in this Article provided; (ii) and the manner in
which such adjustment is completed.
b) The Building Operating Costs include each and every reasonable expense
incurred in connection with the ownership, administration, management, operation
and maintenance of the property, including but not limited to, the allocable
portion of wages, salaries and fees paid to persons either employed by Landlord
to engaged as independent contractors in the operation of the real estate, and
such other typical items of expense as indicated below. All such costs shall be
reflected on a comparative statement (the "Statement"), which shall be exhibited
to the Tenant upon request.
c) The expenses referred to in this Article shall be determined in
accordance with generally accepted accounting principles and each Statement
furnished shall be certified by Landlord as true and correct. Tenant or its
representatives shall have the right, at its own expense, upon reasonable notice
and during reasonable hours, to inspect the books of the Landlord for the
purposes of verifying the information contained in any Statement provided prior
written request for such inspection shall be made by Tenant within six (6)
months after receipt of such statement.
d) Some of the typical items of expense comprising the Building Operating
Costs and to be included in the Statement are:
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1. General repairs and maintenance.
2. Utility Costs, including but not limited to, cost of electricity to
power HVAC units serving the entire Building (both tenant and common
areas), cost of oil or other fuel required to heat the entire
Building, cost of electricity to light the common areas.
3. Cleaning costs, including but not limited to, window cleaning,
general interior office cleaning, cleaning of common areas.
4. Service contracts, including but not limited to, contracts for
elevator service, HVAC service, rubbish removal, carting, janitorial
and watchman services, snow removal.
5. Costs of landscaping.
6. Cost of insurance.
7. Fees and/or salaries of superintendents, engineers, custodians.
8. Towel and paper supplies service for all common lavatories.
9. Building Operating Costs shall not include leasing commissions,
advertising or promotional expenses, or costs relating to special or
extraordinary services provided to any other Tenant in the building
but not to tenant, or for which Landlord is fully reimbursed by any
Tenant.
28.5: If, pursuant to any Statement showing Taxes and Building Operating
Costs for either the base period for Taxes or Operating Costs, or for any
subsequent period, there shall be an increase or refund of either Taxes or
Building Operating Costs, or for the period covered by such Statement, the
Statement shall be appropriately adjusted, and the amount payable by the Tenant
to the Landlord as a refund shall be revised, adjusted and paid accordingly. If
such adjustment takes place after the expiration of the term of this lease, this
provision shall be deemed to have survived such expiration. Tenant shall be
entitled to receipt of a refund or reduction of Additional Rent, as appropriate,
resulting from reductions of taxes or Building Operating Costs; however, it is
agreed by the parties that any reduction shall not in any way operate to reduce
the Minimum Rent.
28.6: Any increase or decrease in Additional Rent under this Article shall
be pro-rated for the final Operating Year if such Operating Year covers a period
of less than twelve (12) full months. Tenant's obligation to pay and Landlord's
obligation to refund Additional Rent under this Article for the final Operating
Year shall survive the expiration of the term of this lease.
29th: COMMENCEMENT OF TERM; ESTIMATED COMMENCEMENT DATE:
29.1: The parties intend that the Commencement Date is OCTOBER 1, 1997.
29.2: After the Commencement Date, Landlord and Tenant, promptly upon the
request of either of them, will execute and deliver to each other an agreement
in recordable form setting forth the Commencement and Termination Dates.
29.3: If, prior to the Commencement Date, Tenant shall enter to the
demised premises to make any installations of its equipment, fixtures and
furnishings, Landlord shall have no liability or obligation for the care or
preservation of Tenant's property.
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29.4: Landlord agrees to provide a demising entry/exit door and partition
from the Tenant's premises into the rear of the first floor lobby on the south
side of the elevator.
30th: OMITTED
31ST: ELECTRIC CURRENT:
31.1: landlord shall furnish to Tenant electric service which tenant shall
require in the Demised Premises for normal lighting and equipment (which
electric service is hereinafter called the "Tenant Electric Services"). All
installations of electrical fixtures, appliances and equipment within the
Demised Premises shall be subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld, delayed or conditioned. However,
notwithstanding anything to the contrary contained herein, Tenant's Electric
Service shall in no event include electric current for any future computer
installation or for any future equipments needing greater than a fifteen (15)
amp line excluding customary copying machines and an existing Qantel
Mini-Frame/Server used by Tenant for operations within the Demised Premises.
Landlord shall not be liable in any way to Tenant for failure or defect in the
supply or character of electric energy furnished to the Demised Premises by
reason of any requirement, act or omission of the public utility serving the
Office Building with electricity or for any other reason.
31.2: Tenant shall pay to Landlord from and after the date that Tenant
takes possession of the Demised Premises, but no later than the Commencement
Date, as additional rent for Tenant Electric Service the sum of One and 50/100
($1.50) Dollars per annum for each rentable square foot leased to Tenant (which
sum is hereinafter called the "Tenant Electric Amount") payable in equal monthly
installments in advance on the first day of the month. Such Tenant Electric
Amount shall, however, be subject to adjustment from time to time during the
term of this Lease, as the cost of Tenant Electric Amount is determined by
survey (performed at Landlord's discretion and expense) to be in excess of
Tenant Electric Amount, whether resulting from an increase in electric energy
rates, the use by tenant of electric costing in excess of Tenant Electric
Amount, from the installation of additional fixtures, appliance or equipment,
with or without Landlord's consent, or use of electric current at times other
than the Building Hours, and conversely, Tenant shall receive a reduction in
Tenant Electric Amount in the event that Tenant Electric Service as determined
by survey shall amount of less than Tenant Electric Amount. Should a survey
determine that the Tenant's electrical costs should increase, Tenant reserves
the option to have their demised premises sub-metered with the associates costs
shared equally by Tenant and Landlord. Notwithstanding anything to the contrary
contained herein, Landlord may, at its option, and at its expense at any time
during the term of this Lease arrange to have the electric usage directly
metered to the Demised Premises, in which event, Tenant will pay the utility
company (or Landlord in the event of submetering) for such usage.
32nd: LIABILITY INSURANCE: Tenant agrees to provide, on or before the
Commencement Date, a Certificate of Insurance. Tenant shall maintain, at its own
cost and expense, comprehensive general liability insurance on a single limit
basis with reasonable standard deductible amounts, having the minimum limits of
coverage in the amount of Two Million and 00/100 ($2,000,000.00) Dollars.
Landlord shall be named as an additional insured under the policy. The insurance
policy shall also provide that the hold harmless and indemnification wording of
the Lease is insured under the policy. Such policy shall include a provision
that at least thirty (30) days prior written notice of cancellation be given to
Landlord. All policies of insurance required by Tenant under this Lease shall be
written and signed by solvent and responsible insurance companies properly
licensed and authorized to do business in New Jersey. At or prior to the
commencement of the term of this Lease, Tenant shall provide Landlord with
certificates of Tenant's insurers evidencing the insurance coverage required by
Tenant under this Lease. In addition, Tenant shall deliver to Landlord renewal
policies or certificates thereof not later than thirty (30) days prior to the
expiration of any such policy.
33RD: PARKING FACILITIES:
33.1: Landlord hereby grants to Tenant the license (the "License") to park
cars ("Allotted Parking"), for use solely by Tenant and Tenant's employees,
guests, and invitees in the parking area or areas serving the premises.
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33.2: In the event of an over-use, Landlord shall have the right to revoke
the License. In the event the number of parking spaces in the Designated Parking
Area is reduced by circumstances beyond the control of Landlord, the Allotted
Parking shall be reduced accordingly.
34th: ACCESS AND COMMON OFFICE FACILITIES:
34.1: Anything to the contrary contained in this lease notwithstanding,
Landlord and all tenants, including Tenant hereunder, shall have a mutual right
of access for emergency purposes through such areas where the same may be
required and through the demised premises of any Tenant in the Building.
34.2: Tenant shall have the right of non-exclusive use, in common with
others, of (a) automobile parking areas and driveways (subject to Article 34th
hereof); (b) footways; and (C) such elevator and other facilities as many be
constructed and designated from time to time by Landlord in the Building, all to
be subject to the terms and conditions of the lease and to reasonable rules and
regulations for the use thereof as prescribed from time to time by Landlord.
34.3: The Common Office Facilities include, without limitation, the lobby,
hallways, elevator(s), fire stairs and all other general Office Building
facilities that service the Office Building tenants, including without
limitation air conditioning rooms, fan rooms, elevator shafts, machine rooms,
flues, stacks, pipe shafts and vertical ducts with their enclosing walls, and
the parking areas, roadways, pathways, sidewalks, landscaped areas, interior and
exterior walls, walkways, driveways, entrances and exits, curbs culverts,
drainage facilities, barriers, fences, gates, retaining walls, hydrants,
sprinkler equipment, fire pumps, lighting equipment, utility lines located in
and serving the Office Building and all other facilities and apparatus located
in and serving the Office Building. The Common Office Facilities shall be
subject to the exclusive control and management of Landlord and Landlord shall
have the right to establish, modify, change and enforce reasonable rules and
regulations with respect to the Common Office Facilities and Tenant agrees to
abide by and conform with such rules and regulations. Landlord agrees that such
rules and regulations will be applied in a reasonable and uniform manner to the
extent that such rules and regulations are reasonably applicable to other
tenancies in the Office building. Tenant agrees that any party making a delivery
to Tenant at the Demised Premises will park its trucks or delivery vehicles only
in such loading area as Landlord from time to time designates for that purpose.
Landlord shall have the right to close any part of the common Office Facilities
for such time as may, in the opinion of Landlord's counsel, be necessary to
prevent a dedication thereof, or the accrual of any rights in any person, or to
clean and repair the same, and to close any part of the parking area for such
time as Landlord deems necessary in order to discourage non-tenant parking and
to do other things in the Common Office Facilities as Landlord in its discretion
deems reasonable and necessary for the benefit of the Office Building. Landlord
may, in its absolute discretion, make such changes, modifications or additions
to the Common Office Facilities as it deems necessary.
35th: BROKERS:
35.1: Tenant represents that ______________ is the only broker with whom
it has dealt in connection with the leased premises.
35.2: Landlord agrees to pay a commission to said brokers in accordance
with a separate agreement between them; and Tenant agrees to defend, indemnify
and hold harmless the Landlord, its affiliates and/or subsidiaries from any
expense or liability arising out of a claim for commission by any other broker
claiming or alleging to have acted on behalf of or to have dealt with Tenant.
36th: CLEANING SERVICES: Landlord shall provide services for maintenance
of grounds, common areas and parking areas and such other cleaning services
within the demised premises as are set forth on "Cleaning Service Rider,"
annexed hereto and made a part hereof as Exhibit "B."
37th: ASSIGNMENT, SUBLETTING:
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37.1: If the Tenant shall desire to sublet all or any portion of the
leased premises, it shall first submit in writing to Landlord:
(a) the name and address of the proposed sublesee;
(b) the terms and conditions of the proposed subletting;
(c) the nature and character of the business of the proposed sublessee;
(d) evidence that the proposed sublessee is a United States citizen or
citizens or a corporation qualified to do business in the State of
New Jersey and organized and existing under the laws of one of the
States of the United States;
(e) banking, financial and other credit information relating to the
proposed sublessee reasonably sufficient to enable Landlord to
determine the proposed sublessee's financial responsibility, and
(f) plans and specifications for Tenant's layout, partitioning, and
electrical installments for the portion of the premises to be
sublet.
37.2: If the nature and character of the business of the proposed
sublessee, and the proposed use and occupancy of the leased premises or any
portion thereof by the proposed sublessee is in keeping and compatible with the
dignity and character of the Building, then Landlord agrees not to unreasonably
withhold or delay its consent to any such proposed subletting.
37.3: Notwithstanding the provisions of this Article 37, Tenant shall have
the right to sublet the premises or any part hereof to representatives or
affiliates of Tenant, without consent of Landlord. Notice of such a sublet will
be provided to Landlord in writing, 6o days in advance.
37.4: Any subletting hereunder shall not in any event release or discharge
Tenant hereunder of or from any liability, whether past, present, or future,
under this lease, and Tenant shall continue liable hereunder. The subtenant
shall agree to occupy the Premises subject to all of the terms, covenants,
conditions, provisions and agreements of this lease to the extent of the space
sublet; and Tenant shall deliver to Landlord promptly after execution an
executed duplicate original copy of such sublease and an agreement of compliance
by such subtenant.
37.5: Tenant shall be responsible for obtaining all permits and approvals
required by any governmental or quasi-governmental agency for any work or
otherwise required in connection with the proposed sublease and Tenant is
furthermore responsible for and is required to reimburse Landlord for all costs
including legal fees which Landlord incurs in reviewing the proposed sublease
and any permits, approvals and applications for the construction of the
subleased premises. Tenant's failure to obtain any of the above mentioned
permits and approvals or to submit same and a duplicate original copy of the
sublease and an agreement of assumption by the subtenant to Landlord within
fifteen (15) days of the execution or submission of such items shall constitute
a default under this lease.
38th: TENANT'S COOPERATION; REASONABLE MODIFICATIONS; ESTOPPEL
CERTIFICATE; MEMORANDUM OF LEASE:
38.1: If, in connection with obtaining financing for the Building and/or
the real estate, or otherwise upon the interest of the Landlord, as Lessee,
under any ground or underlying lease, any lending institution shall request
reasonable modifications of this lease as a condition of such financing , Tenant
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covenants not to unreasonably withhold or delay its agreement to such
modification, upon Landlord's request, provided that such modification does not
materially or adversely affect the rights of Tenant under this lease.
38.2: Landlord and Tenant agree at any time and from time to time, upon
not less than twenty (20) days prior written request, that Tenant shall execute,
acknowledge and deliver to Landlord, or its designee, a statement in writing
certifying that (a) this lease is unmodified and is in full force and effect
(or, if there have been modification, that the same are in full force and
effect, as modified); (b) the dates to which the Minimum Rent and Additional
Rent have been paid; and (C) rents paid in advance, if any. It is intended
hereby that any such statement delivered pursuant to this Article may be relied
upon by a prospective purchaser of Landlord's interest or a mortgagee of
Landlord's interest, or any assignee of any mortgage upon Landlord's interest in
the real property. The foregoing obligation shall be deemed a substantial
obligation of the tenancy, the breach of which shall give Landlord those
remedies herein provided for in an event of default.
38.3: At any time during the term of this lease and within thirty (30)
days after written request therefore from either party, Landlord and Tenant will
execute, acknowledge and deliver a memorandum of this lease for recording.
39th: LIMITATION OF LIABILITY; DEFINITION OF "LANDLORD": Notwithstanding
anything to the contrary herein provided, each and every term, covenant,
condition and provision of this lease is hereby made specifically subject to the
provisions of this Article 39. The term "Landlord" as used in this lease means
only the owner or lessor for the time being of the Building, so that in the
event of any conveyance of such interest and the transfer to the transferee of
any funds then being held under this lease by such owner, Landlord shall be and
hereby is entirely freed and relieved of any and all obligations of Landlord
hereunder thereafter accruing, and it shall be deemed without further agreement
between the parties and such grantee(s) that the grantee has assumed and agreed
to observe and perform all obligations of Landlord hereunder. It is expressly
understood and agreed by Tenant that none of Landlord's covenants, undertakings
or agreements are made or intended as personal covenants, undertakings or
agreements of Landlord individually and any liability for damage or breach or
non-performance by Landlord shall be collectible only against the partnership
and no personal liability is assumed by, nor ant any time may be asserted
against partners of Landlord or any agents, employees, or legal representatives,
all such liability, if any, being expressly waived and released by Tenant.
40th: STATUTORY WAIVER: Tenant waives the benefit of New Jersey Revised
Statutes, Title 46, Chapter 8, Sections 6 and 7. Tenant agrees that it will not
be relieved of the obligations to pay the Minimum Rent or any additional rent in
case of damage to or destruction of the Building, except as provided in Article
6th of the printed portion of this lease.
41st: CORPORATE AUTHORITY:
41.1: Tenant represents that the undersigned officer(s) has (have) been
duly authorized to enter into this lease and that the execution and consummation
of this lease by Tenant does not and shall not violate any provision of any
by-law, agreement, order, judgment, governmental regulation or any other
obligation to which Tenant is a party or is subject.
41.2: Upon execution hereof, Tenant shall deliver an appropriate
certification by its Secretary and Assistant Secretary to the above effect.
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42nd: PERSONAL PROPERTY TAXES: Tenant agrees to pay all taxes imposed on
the personal property of Tenant used in connection with the premises, and hold
Landlord harmless therefrom.
43rd: BUILDING CHANGES: This lease shall not be affected or impaired by
any change to any lawns, sidewalks or streets adjacent to or around the
Building, except as provided in the provisions of this lease dealing with
condemnation.
44th: HOLDING OVER: If Tenant holds possession of the premises beyond the
Termination Date or prior expiration of the term, Tenant shall become a tenant
from month-to-month at the Minimum Rent and Additional Rent payable hereunder
and upon all other terms and conditions of this lease, and shall continue to be
such month-to-month tenant until such tenancy shall be terminated and such
possession shall cease. Nothing contained in this lease shall be construed as a
consent by Landlord to the occupancy or possession by Tenant of the premises
beyond the termination date or prior expiration of the term, and Landlord, upon
said termination date or prior expiration of the term, and Landlord, upon said
termination date or prior expiration of the term hereof, shall be entitled to
the benefit of all legal remedies that now may be in force or may be hereafter
enacted relating to the speedy repossession of the premises.
45th: SEVERABILITY OF PROVISIONS: If any term or provision of this lease
or the application thereof to any party or circumstance shall to any extent be
invalid or unenforceable, the remainder of this lease or the application of such
term, or provision to parties or circumstances other than those to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this lease shall be valid and enforced to the fullest extent
permitted by law.
46th: NO OFFER OF AGREEMENT: No employee or agent of Landlord, no broker,
and no agent of any broker has authority to make or agree to make a lease or any
other agreement or undertaking in connection herewith, including, but not
limited to the modification, amendment or cancellation of a lease. The mailing
or delivery of this document by the Landlord or its agent to Tenant, its agent
or attorney shall not be deemed an offer by the Landlord to lease the premises
on the terms herein. This lease shall not be effective, no shall Tenant have any
rights with respect thereto, unless and until Landlord shall execute this lease
and deliver the same to Tenant.
47th": LATE CHARGE: In the event rent is not received by Landlord by the
tenth day of each month, there will be a late charge of $200.00. In addition,
interest will run from the tenth of the month at the rate of one and one-half
percent (1-1/2%) per month on any amounts due. There will be a charge of $35.00
for any check returned for insufficient funds. In the event legal action is
commenced for non-payment of rent, Tenant shall, in addition to court costs, be
responsible for reasonable legal fees actually incurred. All of the charges in
this Article 47 shall be collectible as Additional Rent. Such charges shall not
constitute a waiver of any other of the Landlord's rights or remedies.
48th: CONFORMATION WITH LAWS AND REGULATIONS: Landlord may pursue the
relief or remedy sought in an invalid clause, by conforming the said clause with
the provisions of the statutes or the regulations of any governmental agency in
such case made and provided as if the particular provisions of the applicable
statues or regulations were set forth herein at length.
49th: In all references herein to any parties, persons, entities or
corporations the use of any particular gender or the plural or singular number
is intended to include the appropriate gender or number as the text of the
within instrument may require. All the terms, covenants and conditions herein
contained shall be for and shall inure to the benefit of and shall bind the
respective parties hereto, and their heirs, executors, administrators, personal
or legal representatives, successors and assigns.
50th: OPTION TO RENEW: Provided that the Tenant is not in default under
any of the provisions of this Lease, the Tenant shall have an option to renew
this Lease for two (2) periods of five (5) years each upon the same terms and
conditions as are provided herein except for rental which is to be determined in
accordance with the provisions of Article 50 (a). In order to exercise these
options, tenant must notify Landlord, in writing, by certified mail, at least
one hundred eighty (180) days, on or about May 31, 2002, prior to the expiration
of the original term of this Lease for the first option and at least one hundred
eighty (180) days prior to the expiration of the first option for the second
option.
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51st: BUILDING AMENITIES
51.1: BASEMENT STORAGE ALLOCATION: Notwithstanding Tenant's right to use
any portion of the basement; Landlord and its employees and agents retain a
right of access to such basement space on reasonable oral advance notification
of Tenant to perform inspection, maintenance, repair or construction activities
and with no notice if an emergency situation arises, although Landlord will
attempt to notify Tenant to the extent reasonably possible. Notification is
given sufficiently in advance if given more than Twenty Four (24) hours in
advance.
Landlord and Tenant acknowledge and agree that a portion of the
basement storage area, if allocated, is contiguous to the buildings common
loading dock. As such, Tenant occupying the storage unit containing this loading
dock, agrees to provide access to all building tenants existing or in the
future.
52nd: MECHANIC'S LIENS: Tenant covenants not to suffer or permit any
mechanic's materialmen's construction or other liens to be filed against the fee
interest of Landlord, nor against Tenant's leasehold interest in the Demised
Premises by reason of work, labor, services or materials supplied or claimed to
have been supplied to Tenant or any contractor, subcontractor or any other party
or person acting at the request of Tenant, or anyone holding the Demised
Premises or any part thereof by, through or under Tenant, unless Tenant shall,
within fifteen (15) days after receiving notice of the filing thereof , cause
the same to be is charged of record by payment, deposit, bond or order of a
court of competent jurisdiction or otherwise. Nothing contained in this Lease
shall be deemed or construed in any way as constituting written authorization by
Landlord to the making of any alterations or additions by tenant for purposes of
New Jersey's Construction Lien Law, ch. 318, 1993, N.J. Laws 3 or any amendment
thereof or constituting a request by Landlord, expressed or implied, to any
contractor, subcontractor, laborer or material man for the performance of any
labor or the furnishing of any materials for the use or benefit of Landlord.
53rd: INDEMNITY: Tenant shall indemnify and hold Landlord harmless from
and against all loss, cost, damages, expenses and liability of any nature
including reasonable attorneys' fees arising out of or in connection with any
act or omission of Tenant, its agents, contractors or employees or including,
but not limited to, claims as a result of injury to or death of any person or
property damage or claims of Tenant's employees or arising out of or in
connection with Tenant's use and possession of the Demised Premises, or its
breach of this Lease, provided, however, nothing contained herein shall require
Tenant to indemnify Landlord or any other party with respect to any loss, cost,
damage, expense or liability of any nature arising out of or to the extent of
any act or neglect of Landlord or its agents or employees. Tenant shall
immediately respond and assume the investigation, defense and expense of all
such claims and causes of action. Landlord may, at its expense, join in such
defense with counsel of its own choosing.
54th: ENVIRONMENTAL LAWS:
(a) Tenant, its agents, contractors, employees or invitees shall not
process, store, use, handle, generate, manufacture, bury or treat any Hazardous
Material (as hereinafter defined) at the Demised Premises and/or the Office
Building or permit to be processed, stored, used, handled, generated,
manufactured, buried or treated any Hazardous Material at the Demised Premises
and/or the Office Building (other than small quantities of normal office
supplies used at the Demised Premises such as cleaning supplies and copier
supplies, provided same are properly stored, handled and disposed of in
compliance with all Environmental Laws and comply with the "De Minimus quantity
exemption standards under ISRA"). Tenant shall not (either with or without
negligence) cause or permit the escape, disposal, discharge or release of any
Hazardous Material. "Hazardous Material" means (i) any biologically or
chemically active substance or material, or (ii) any hazardous wastes or
hazardous substances as defined in
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any Environmental law (as hereinafter defined), including, without limitation,
any asbestos, PCB, toxic noxious or radioactive substance, methane, volatile
hydrocarbons, industrial solvents or any other material or substance which could
cause or constitute a health, safety or other environmental hazard to any person
or property. "Environmental Law" means any applicable federal, state or local
environmental and cleanup statutes, laws, rules or regulations, ordinances,
orders decrees and interpretations now or hereafter in effect, including,
without limitation: (1) Industrial site Recovery Act, 1993 N.J. Laws, Chapter
139 and all regulations promulgated thereunder ("ISRA"); (2) the Spill
Compensation and Control Act N..J.S.A. 58:10-23.11, et seq; (3) the
Comprehensive Environmental Response, compensation and Liability Act, 42 U.S.C.
9601, et seq; (4) the Toxic Substance Control Act, 15 U.S.C. 2601, et seq.; and
any amendments thereto and regulations promulgated thereunder. If any lender or
governmental agency shall ever require testing to ascertain whether or not there
has been any release of Hazardous Material, then the reasonable costs thereof
shall be reimbursed by Tenant to Landlord upon demand as additional charges if
such requirement applies to the Demised Premises and is caused or permitted by
Tenant, its agents, employees, contractors or invitees. In addition, tenant
shall execute affidavits, representations and the like from time to time at
Landlord's request concerning Tenant's best knowledge and belief regarding the
presence of Hazardous Material on the Demised Premises. In all events, Tenant
shall indemnify Landlord in the manner provided in Article 53 of this Lease form
any release of Hazardous Materials on the Demised Premises occurring while
tenant is in possession and is caused or permitted by Tenant, its agents,
employees, contractors or invitees, or elsewhere if caused by Tenant or persons
acting under Tenant.
(b) Tenant shall, at Tenant's own expense, comply with all Environmental
Laws. Tenant shall, at Tenant's own expense, keep and maintain the Demised
Premises and/or the Office Building free from Hazardous Materials (other than
small quantities of normal office supplies used at the Demised premises such as
cleaning supplies and copier supplies provided same are properly stored handled
and disposed of in compliance with all Environmental Laws and comply with the
"De Minimus Quantity exemption standard under ISRA") and the leaks, discharges,
releases or spills thereof and free from contamination of Hazardous Materials
arising out of Tenant's use and occupancy of the Demised Premises or the acts or
omissions of Tenant, its agents, contractors, employees or invitees. Tenant
shall (1) notify Landlord immediately in the event of any spill or other release
of any Hazardous Material at, in, on, under or about the Demised Premises, (2)
promptly forward to Landlord copies of any notices received by Tenant relating
to any violations or alleged violations of any Environmental Law and (3)
promptly pay when due any fine or assessment against Landlord, Tenant or the
Demised Premises relating to any violation of an Environmental Law during the
term of this Lease. Should any Governmental Authority (as hereinafter defined)
determine that a cleanup plan must be prepared and that a cleanup must be
undertaken because of any storage, spills, releases or discharges of Hazardous
Material at the
Demised Premises which occurred during the term of this Lease, then Tenant shall
at Tenant's own expense, prepare and submit the required plans and financial
assurances, and carry out the approved plans.
( c ) Tenant represents that it will use the Demised Premises only as an
office for the performance of general administrative, personnel, supervisory,
accounting, purchasing, engineering and systems planning, advertising, legal,
financial, sales or other related management functions, travel-related services,
or lawful ancillary uses related to office. Tenant shall not do or permit
anything to be done in the Demised Premises that would render the Demised
Premises subject to the provisions of ISRA. Tenant hereby warrants and
represents to landlord that Tenant's operation does not and will not include the
generation, storage, discharge, release, disposal, handling, treatment or
manufacturing of any Hazardous Material. Tenant warrants and represents that it
will not, without the prior written consent of Landlord, engage in any activity
which will classify the Demised Premises (or any portion thereof) as an
"industrial establishment", as such term is defined in ISRA. Should the
agreements and/or representations of the preceding sentences be breached,
Landlord may declare this Lease to be in default and, in addition to all other
remedies available to Landlord as set forth herein, Landlord my require Tenant
to immediately remove all Hazardous Material at Tenant's sole cost and expense
or Landlord may do same at Tenant's sole cost and expense, performing all
engineering or other tests required to assure Landlord and all interested
governmental agencies that the Demised Premises and/or the Office Building have
been restored to a safe conditions.
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(d) Tenant shall, at Tenant's own expense, make all submissions to,
provide all information to, and comply with all requirements of any Governmental
Authority (as hereinafter defined) with respect to environmental Laws related to
Tenant's, or its agents, employees, contractors or invitees', acts or omissions,
or Tenant's method and manner of use of the Demised Premises. The term
"Governmental Authority" shall mean the Federal government, or any state or
other political subdivision thereof, or public officers or any agency, court or
body of the Federal Government, any state or other political subdivision
thereof, exercising executive, legislative, judicial, regulatory or
administrative functions.
(e) Tenant agrees to fully cooperate with Landlord and provide such
documents, affidavits and information as may be requested by Landlord ( i ) to
comply with any Environmental Law, (ii) to comply with the request of any
lender, purchaser or tenant, and/or (iii) for any other reason deemed necessary
by Landlord in its sole discretion.
(f) Tenant's failure to abide by any of the terms of this Article 54 shall
be restrainable by injunction.
(g) The provisions of this Article 54 shall survive the termination,
cancellation, modification, expiration, rescission or revision of this Lease.
55th: WAIVER OF TRIAL BY JURY: LANDLORD AND TENANT WAIVE THE RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY
MADE BY TENANT AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON
ACTING ON BEHALF OF LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT
FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO
BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD
THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. TENANT FURTHER ACKNOWLEDGES
THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER
PROVISION AND AS EVIDENCE OF SAME HAS EXECUTED THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals or caused there presents to be signed by their proper corporate officers
and their proper corporate seal to be hereto affixed, the day and year first
above written.
KR HOLDINGS, INC.
LANDLORD
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Witness/Attest:
/s/ Richard J. Schecher
--------------------------------
/s/ K. McGackin
- --------------------- Name: Richard Schecher
--------------------------
Title: President
--------------------------
Date: October 5, 1997
--------------------------
STRATUS SERVICES GROUP, INC.
Witness/Attest: TENANT
/s/ Michael A. Maltman
--------------------------------
/s/ B. Duncan Name: Michael A. Maltzman
- --------------------- ---------------------------
Title: CFO
--------------------------
Date: 10/2/97
--------------------------
EXHIBIT B
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CLEANING SERVICE RIDER
General Cleaning Office Area
Cleaning Services provided five (5) days per week.
Cleaning hours Monday through Friday, between 5:30 p.m. and before 8:00 a.m. of
the following day.
On the last day of the week the work will be done after 5:30 p.m. on Friday but
before 8:00 a.m. Monday.
No cleaning on holidays.
Furniture will be dusted and desk tops will be wiped clean. However, desks with
loose papers on the top will not be cleaned.
Window sills and baseboards to be dusted and washed when necessary.
Office wastepaper baskets will be emptied.
Cartons or refuse in excess of that which can be placed in wastepaper baskets
will not be removed. Tenants are required to place such unusual refuse in trash
cans or a spot designated by the Landlord.
Cleaner will not remove nor clean tea or coffee cups or similar containers;
also, if such liquids are spilled in wastebaskets, the wastebaskets will be
emptied but not otherwise cleaned.
Vinyl asbestos floors will be swept daily.
Carpets will be swept daily and vacuumed three (3) times per week.
All closet shelving, coat racks, etc. will be dusted weekly.
Seat cushions on chairs, sofas, etc., will be vacuumed weekly.
Lavatories
All lavatory floors to be swept and washed with disinfectant nightly.
Tile walls and dividing partitions to be washed and disinfected weekly.
Basins, bowls, urinals to be washed and disinfected daily.
Mirrors, shelves, plumbing work, bright work, and enamel surfaces cleaned
nightly.
Waste receptacles and wash dispensaries to be filled with appropriate tissues,
towels, and soap as needed.
Main Lobby, Elevators, Building Exterior, and Corridors
Wipe and wash all floors in Main Lobby nightly.
Wipe and/or vacuum elevator floor nightly.
Polish floors weekly in elevator.
Carpet to be vacuumed weekly.
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Floors to be machine cleaned annually and the marble in foyer to be stripped and
cleaned and retreated annually.
Elevator cab to be wiped clean daily and thoroughly cleaned and polished weekly.
Lobby walls, glass, etc., to be wiped clean daily and thoroughly cleaned and
polished weekly.
Lobby entrance doors, windows, to be washed weekly.
Windows will be cleaned when necessary but not less than once every eight weeks,
inside and once every six (6) months outside.
Miscellaneous Services
Sweep sidewalk in front of building entrances daily.
Keep stairways clean at all times.
Keep Custodian's Rooms and Mechanical Rooms clean and in orderly condition at
all times.
Work Excluded
Cleaning services do not include the washing nor polishing, nor waxing of
furniture, files, cabinets, wastebaskets or other personal property of Tenant.
When such work is necessary, Tenant may make necessary arrangements for same
directly with Landlord's cleaning employees or, if preferred, with independent
third part contractors.
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RULES & REGULATIONS
Referred to in Foregoing Lease
(See Paragraph #27)
1. the sidewalks, halls, passageways, elevators and stairways shall not be
obstructed by any of the tenants, or used by them for any other purpose
than ingress and egress to or from their respective offices.
2. The floors, skylights, windows, doors and transoms that reflect or admit
light into passageways, or into any place in said building shall not be
covered or obstructed by any of the tenants. The toilet-rooms,
water-closet and other water apparatus shall not be used for any purposes
other than those for which they were constructed, and no sweepings,
rubbish, rags, ashes, ink, chemicals or the refuse from electric batteries
or other unsuitable substances shall be thrown therein. Any damage
resulting from such misuse or abuse shall be borne by the tenant by whom
or by whose employees it shall be caused.
3. No new exterior sign, advertisement, notice or thing shall be inscribed,
painted, or affixed on or in any part of said building. Lettering on
office doors only shall be permitted, and only of such color, size and
style as shall be first designated by the Lessor and endorsed hereon.
No interior signs, advertisement, notice or thing shall be inscribed,
painted, or affixed on or in any part of said building, without the
Landlord's prior written approval which shall not be unreasonably
withheld.
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4. No safe shall be put or hoisted in any part of the building except under
the direction of the Lessor. Tenants shall arrange with the Lessor's agent
as to time for receiving or delivering safes, furniture, or freight.
5. No tenant shall do or permit anything to be done in said premises, or
bring or keep anything therein, which will in any way increase the rate of
fire insurance on said building, or on property kept therein, or obstruct
or interfere with the rights of other tenants, or conflict with the laws
relating to fires, or with the regulations of the Fire Department, or with
any insurance policy upon said building or any part thereof, or conflict
with any of the rules and ordinances of the Township of Manalapan or with
any laws or regulations of the State of New Jersey or of the United
States, or of any department or authority of either State of Federal
Government.
6. No tenant shall employ any person or persons, other than the Lessor's
janitor, or his assistants, for the purpose of cleaning or of taking
charge of said premises, it being understood and agreed that the Lessor
shall be in no way responsible to any tenant for any damage done to the
furniture or other effects of any tenant by the janitor or any of his
employees, or any other person, or for any loss of property from leased
premises, however occurring. Tenants shall see that the windows are closed
and the doors securely locked before leaving the demised premises. No
additional locks shall be installed on any doors on the demised premises
by the Lessee.
EXHIBIT A-3
PARKING:
25
<PAGE>
Landlord will not designate assigned Parking Spaces for Tenant. Landlord agrees
not to have a charge for parking.
26
Exhibit 10.3
SALE AND PURCHASE AGREEMENT
as of August 11, 1997
Stratus Services Group, Inc.
500 Craig Road
Manalapan, New Jersey 07726
Attn: Mr. Michael J. Rutkin
President
Ladies and Gentlemen:
This letter will set forth the agreement between AGR Financial, LLC
(together with its successors and assigns, "AGR") and Stratus Services Group,
Inc., a corporation organized and existing under the laws of Delaware (the
"Seller"), with respect to the terms upon which AGR may purchase accounts
receivable from the Seller.
Receivables to be Offered; Procedures for Purchase.
Upon the terms and conditions provided herein, the Seller will
from time to time offer to sell and assign to AGR, on an exclusive basis (except
to the extent otherwise agreed in writing by AGR) and AGR shall purchase (to the
extent set forth herein), all of those certain present and future accounts
receivable, contract rights and other obligations for payment of money (the
"Receivables"), owing to the Seller arising out of the performance by Seller
(including, without limitation, by employees, agents, independent contractors or
other personnel employed by Seller or contracted for by Seller) of temporary or
personnel services for any third party approved by AGR (each, a "Payor"). The
Receivables purchased by AGR shall be identified from time to time in an
assignment (each, an "Assignment") substantially in the form of Exhibit A.
Seller acknowledges and agrees that prior to offering any
Receivables to AGR hereunder which Seller has purchased from any person,
corporation or entity which is a debtor in a case under the U.S. Bankruptcy Code
or which arises out of any contract or agreement purchased or acquired by Seller
from such a debtor, Seller shall notify AGR in writing and deliver to AGR such
agreements, documents, opinions and court orders as AGR may reasonably request.
Receivables will be purchased from time to time in groups (each such
group of Receivables, a "Batch"). Information with respect to each proposed
Batch shall be transmitted to AGR by modem or in diskette form acceptable to
AGR, electronically pursuant to instructions provided from time to time by AGR
or in any other medium acceptable to AGR. Simultaneously with providing such
information, the Seller shall
<PAGE>
deliver to AGR copies of invoices with respect to the Receivables in such
proposed Batch, in the same order as presented on the diskette or in the
electronic transmission, accompanied by a copy of the Internal Revenue Service
tax deposit forms and an original of the deposit receipts, stamped by a
depository bank, evidencing all prior weeks' tax deposits since the most recent
delivery of such information hereunder and any other information as requested by
AGR from time to time.
The Seller shall offer the Batches of Receivables to AGR by
providing the information referred to in Section 1(b). Upon review of such
information, AGR shall determine which Receivables shall be purchased (the
"Purchased Receivables") and shall send to the Seller the fully completed
Assignment with respect to each such Batch of Purchased Receivables. The Seller
shall promptly execute and return the Assignment to AGR upon Seller's approval
of the terms thereof.
AGR hereby agrees that, to the extent that (i) Receivables offered
by the Seller are otherwise in compliance with the terms and provisions of this
Agreement, including, without limitation, the representations contained herein,
(ii) the Seller is not an Impaired Seller (as defined below) at such time, and
(iii) AGR has approved such Payor and AGR's then existing internal credit limits
with respect to the Payor of such Receivables will not be exceeded, AGR will
purchase Batches of Receivables from the Seller for the term of this Agreement
set forth in Section 12 hereof, provided, however, under no circumstances shall
AGR be obligated to purchase a Batch of Receivables if, after giving effect to
such purchase, the Aggregate Advance Exposure (as defined in Section 2(d)) of
all Batches of Receivables purchased from the Seller outstanding on such date
exceeds $3,000,000 or such higher amount as AGR shall in its sole discretion
approve (the "Advance Limit").
As used herein, "Impaired Seller" means the Seller at such time as
any of the following events shall have occurred and be continuing with respect
to Seller: default in payment of any amount due hereunder to AGR, whether on
demand or otherwise; suspension or liquidation by the Seller of its usual
business or suspension or expulsion of the Seller from any exchange; calling of
a meeting of creditors; assignment by the Seller for the benefit of creditors;
dissolution, bulk sale or notice thereof effected or given by the Seller;
creation of a security interest in any assets of the Seller which are or shall
be subject to liens granted to AGR by the Seller without consent of AGR;
insolvency of any kind, attachment, distraint, garnishment, levy, execution,
judgment, application for or appointment of a receiver or custodian, filing of a
voluntary or involuntary petition under any provision of the U.S. Bankruptcy
Code or amendments thereto, of, by or against the Seller or any property or
rights of the Seller, which in the case of any such involuntary proceeding shall
remain undismissed for a period of sixty (60) days or more; filing of a petition
or institution of any proceeding by or against the Seller for any relief under
any bankruptcy or insolvency laws or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions or extensions, which
in the case of any such involuntary proceeding shall remain undismissed for a
period of sixty (60) days or more; any governmental authority or any court at
the instance of any governmental authority shall take possession of any
substantial part of the property of the Seller or shall
<PAGE>
assume control over the affairs or operations of the Seller; any statement,
representation or warranty made by the Seller in any document, agreement or
financial statement delivered to AGR shall prove to be false in any material
respect when made; failure of the Seller or any other party thereto to comply
with any term of this Agreement or any other document or agreement executed in
connection herewith (collectively, the "Purchase Documents"); failure of the
Seller, on request, to furnish to AGR any financial information, or to permit
inspection by AGR of any books or records; any change in, or discovery with
regard to, the condition or affairs of the Seller which, in AGR's opinion,
increases its risk; or if AGR for any other reason deems itself insecure.
The sale of the Batches of Purchased Receivables includes all
accounts and general intangibles, all rights, remedies, guaranties, security
interests and liens, all records (including computer records) and other property
evidencing any of the foregoing and all proceeds of any of the foregoing which
relate to or are associated with that Batch of Purchased Receivables
(collectively, the "Transferred Property").
All invoices with respect to Receivables sent by the Seller to
Payors shall show on the face thereof the following legend and Seller shall not
change such legend or permit any Payor to deviate from the payment instructions
therein:
This Receivable has been assigned to and is owned by or subject to a security
interest of AGR Financial, LLC and is payable only in United States Dollars. All
payments shall be made to AGR Financial, LLC, P.O. Box 23205, Newark, New Jersey
07189.
Purchase Price, etc.
The purchase price (the "Purchase Price") for each Batch of
Purchased Receivables purchased by AGR will be paid in the following two
components: (i) an initial cash amount (the "Advanced Amount") equal to 90%,
except that AGR may in its sole discretion reduce such percentage to 85% (such
percentage in effect from time to time, the "Advance Rate") multiplied by the
net face amount of each Purchased Receivable in such Batch less all discounts
(calculated on shortest terms), credits and allowances of any nature at any time
issued, owed or claimed by Payors (the "Expected Net Receivable"); and (ii) a
Seller Interest (as hereinafter defined) in all amounts collected with respect
to such Batch in excess of the Break-even Point (as hereinafter defined) with
respect thereto.
The Seller Interest will be any amounts collected in excess of the
Break-even Point and will be determined separately for each Batch purchased from
the Seller, in accordance with the schedule included in each Assignment, except
as set forth in Section 2(c).
The "Break-even Point" with respect to a Batch will be an amount
equal to the Advanced Amount plus the Purchase Fee (as defined below) applicable
thereto and any other charges, costs and fees agreed to by Seller and AGR (the
"Other Fees"); provided however, that after the Seller has ceased selling
Receivables to AGR or AGR
<PAGE>
has ceased purchasing Batches from the Seller, unless such event has been caused
by the Advance Limit set forth in Section 2(d), AGR shall combine all Batches
for which the Break-even Point has not yet been reached, and treat such Batches
as a single Batch, at which time the Break-even Point will become the total
Advanced Amount plus the total Purchase Fees and Other Fees for all of such
combined Batches.
As of any date of determination, the "Aggregate Advance Exposure"
will be an amount equal to the aggregate of the Advanced Amounts of all Batches
of Receivables which have not yet reached the Break-even Point, less any
collections with respect to such Batches of Receivables.
The Purchase Fee is an amount calculated by multiplying the Expected
Net Receivable by 1.3765% at such times as the Advance Rate is 90% and 1.3% at
such times as the Advance Rate is 85%, subject to adjustment from time to time
as calculated by AGR in the event that the prime rate of interest established
from time to time by Summit Bank N.A. shall increase or decrease above or below
8.5% per annum (the "Purchase Fee"). The Purchase Fee shall be deducted from the
collections on Receivables and retained by AGR.
The parties hereby acknowledge and agree that the Purchase Price has
been calculated to take into account any services provided by the Seller with
respect to Purchased Receivables, and no other amount with respect to the
providing of services for any Batch shall be payable to the Seller.
The Seller acknowledges and agrees that the Advance Rate and
percentage used for calculating the Purchase Fee may be changed from time to
time in the sole discretion of AGR.
In the event that any Purchased Receivable shall not be paid within
the number of days after invoice date set forth in the schedule in the
Assignment covering such Purchased Receivable, the Seller shall pay to AGR a
daily percentage finance charge equal to .043%, subject to adjustment from time
to time as calculated by AGR in the event that the prime rate of interest
established from time to time by Summit Bank N.A. shall increase or decrease
above or below 8.5% per annum, on the unpaid amount of such Purchased Receivable
for the period from such number of days after the invoice date until the earlier
of the payment thereof and the date the Break-even Point is reached with respect
to the Batch of Receivables which included such Purchased Receivables.
Certain Procedures.
AGR will transmit by wire or, if requested by Seller, by check the
Advanced Amount of the Purchase Price for each Batch of Purchased Receivables on
the next business day following the business day of AGR's receipt of the
Assignment covering such Batch executed by the Seller or, if such Assignment is
received after 1:00 p.m., on the second business day thereafter (a "Purchase
Date").
<PAGE>
All wire and other transfer charges shall be for the account of the
Seller.
Upon such payment, the Seller will have sold to AGR all of the
Seller's right, title and interest in such Batch of Purchased Receivables and
other Transferred Property and in any proceeds thereof, and AGR will be the sole
and absolute owner thereof and will own all of the Seller's rights and remedies
represented by such Batch of Purchased Receivables (including, without
limitation, rights to direct or indirect payment from the respective Payors on
such Batch of Purchased Receivables), and AGR will have obtained all of the
Seller's rights under all guarantees, assignments and securities with respect to
each Purchased Receivable included in such Batch.
The Seller shall execute (or cause to be executed) all required
Uniform Commercial Code releases or financing statements in favor of AGR.
Collection and Servicing of Purchased Receivables. Prior to the sale
of any Batch of Receivables hereunder, the Seller shall establish an account for
all of its Receivables (the "Lockbox Account"), at Summit Bank or at such other
bank as AGR may approve in writing (the "Lockbox Bank"), and shall enter into an
agreement relating thereto in form and substance satisfactory to AGR and the
Lockbox Bank. The Lockbox Account shall be an account in the name of AGR or its
designee, and shall be the sole and exclusive property of AGR and its designee.
All charges in connection with the Lockbox Account shall be for the
account of the Seller.
In the event that the Seller directly receives any payments in
respect of Purchased Receivables, the Seller shall within two (2) Business Days
after receipt thereof (i) deposit in the Lockbox Account all such payments on
Purchased Receivables and (ii) send to AGR or its designee all remittance
advices accompanying such payments or, if no such remittance advice accompanied
any such payment, notice of the amount so received.
Upon AGR's receipt of a remittance advice from the Lockbox Bank
confirming that it has received payments on Receivables purchased, funds will be
posted by AGR (the "Application of Payments"), to the specific Receivable within
AGR's respective Batch. Such funds will be retained by AGR until the aggregate
Break-even Point with respect to such Batch is reached. Thereafter, such amounts
shall be payable to Seller as the Seller Interest promptly after receipt thereof
(subject, in each case, to permitted offsets under this Agreement) on each
Friday or if such day is not a business day, the next succeeding business day
(each a "Settlement Date").
On each Settlement Date, AGR will deliver to the Seller a report
(the "Settlement Report") substantially in the form of Exhibit B hereto. Each
Settlement Report will set forth AGR's Application of Payments with respect to a
Batch together with a list of Ineligible Receivables (as defined in Section 6
below) included in such Batch. Such Settlement Report may also list those
Receivables included in such Batch
<PAGE>
with respect to which AGR has been unable to make a determination as to their
continuing eligibility (the "Outstanding Receivables"). In the event that Seller
has not disputed the Application of Payments contained in any Settlement Report
within thirty (30) business days after its receipt by Seller, then all such
undisputed Application of Payments shall be deemed final.
The Seller shall be responsible for servicing and collection of
Purchased Receivables subject to the terms and conditions of a Servicing
Agreement, dated as of August __, 1997 by and between the Seller, as primary
servicer (the "Primary Servicer"), and AGR. AGR shall have the right, upon the
terms and conditions set forth in such Servicing Agreement, to terminate such
Servicing Agreement and to designate a "Back-up Servicer" which may be AGR.
Misdirected Payments; Erroneous Payments.
If a Payor shall make payment of a Purchased Receivable to the
Seller or to a person or location other than as provided in the invoice therefor
("Misdirected Payments"), the Seller (at its own cost and expense) shall
promptly take all necessary steps to effect collection of such Misdirected
Payment from any other party claiming an interest therein or having possession
thereof and (i) hold such payment in trust for AGR, (ii) segregate such payment
and not deposit such payment in the Seller's own account, nor commingle such
payment with the Seller's own funds or other assets and (iii) deliver such
payment no later than the close of business on the day of receipt to the Lockbox
Account.
The Seller agrees to pay, on demand, a finance charge on any
Misdirected Payment received by the Seller that is not deposited in the Lockbox
Account within 48 hours after receipt by the Seller during the period from the
Seller's receipt thereof until such payment is deposited at a rate per day equal
to .043%, but in no event in excess of the maximum rate permitted under
applicable law (the "Interest Rate").
If AGR shall receive any payment from any Payor of any
receivable or claim not included as a Purchased Receivable in any Batch
("Erroneous Payment"), AGR shall, upon identification of such Erroneous Payment
by Seller, and confirmation by AGR (at the sole cost and expense of Seller) that
such is an Erroneous Payment, use its best efforts to promptly take all
necessary steps to deliver or remit funds equal to the amount of such Erroneous
Payment to Seller on the next Settlement Date.
The Seller will cooperate with AGR and its agents in the
identification of sums deposited into the Lockbox Account, which cooperation
shall continue until all Purchased Receivables sold hereunder have been
collected. In the event any sums deposited into the Lockbox Account cannot be
identified to the satisfaction of AGR, such sum shall be posted to the
appropriate Purchased Receivable as determined by AGR in its sole discretion.
Ineligible Receivables and Defaulted Receivables.
<PAGE>
If a breach of any of the representations or warranties contained
herein relating to a Purchased Receivable (each, an "Ineligible Receivable")
shall be discovered at any time prior to the date the Break-even Point is
reached with respect to the Batch of Receivables including such Purchased
Receivable, the Seller shall cure such breach in accordance with this Section 6.
If any Purchased Receivable shall not be paid in full within 90 days following
its original invoice date (or, in the case of any Purchased Receivable
designated by AGR from time to time prior to AGR's purchase thereof, 60 days
after its original invoice date), such Purchased Receivable shall be treated as
a Defaulted Receivable hereunder.
The Seller shall, on the next Settlement Date after discovery of an
Ineligible Receivable or Defaulted Receivable or in the absence of a Settlement
Date, promptly upon demand, repurchase any Ineligible Receivable or Defaulted
Receivable (a "Repurchased Receivable") from AGR at a repurchase price (the
"Repurchase Price") equal to (i) the Break-even Point determined for such
Repurchased Receivable, less (ii) any amount collected by AGR with respect to
such Ineligible Receivable or Defaulted Receivable (which amount AGR shall
retain), plus (iii) interest equal to the Interest Rate on such difference of
(i) minus (ii) for each day from the earlier of either the Settlement Date that
payment of the Repurchase Price is due or the date the Repurchase Price is
demanded to but excluding the date the Repurchase Price is paid. The Break-even
Point for any such Repurchased Receivable shall be the allocable portion of the
Advanced Amount for the Batch that included such Repurchased Receivable and of
the Purchase Fee with respect thereto.
Upon payment of the Repurchase Price, AGR shall be deemed to have
resold the Ineligible Receivable or Defaulted Receivable, including any
Transferred Property with respect thereto, to the Seller without any
representation, warranty or recourse whatsoever, and shall have no further
obligation to the Seller with respect to such Repurchased Receivable, but such
resale shall not affect or impair any security interest therein held by AGR or
AGR's rights under Section 2(h). AGR shall take such actions as may be
reasonably required to reassign an Ineligible Receivable or Defaulted Receivable
to the Seller. In addition to all other rights and remedies available to AGR at
law or in equity, AGR may offset against any amounts it owes the Seller under
this Agreement any amounts due AGR with respect to Repurchased Receivables.
If after receipt of any payment of all or any part of the Repurchase
Price for any Repurchased Receivable, AGR is compelled to surrender such payment
to any person or entity because such payment is determined to be void or
voidable as a preference, impermissible set-off, or for any other reason caused
by or related to the Seller, the Seller shall be liable to AGR for, and shall
indemnify and hold AGR harmless for, the amount of such payment surrendered and
any damages resulting therefrom. The Seller's obligations under this Section
6(d) shall survive any termination of this Agreement.
Closing Costs.
<PAGE>
Closing costs of approximately $10,000 as set forth in a closing
cost statement prepared by AGR will be subtracted from the initial Advanced
Amount. Closing costs include but are not limited to the expense of AGR's site
review, legal fees and expenses, fees and expenses arising from the development
of the electronic or manual interface with AGR or its designee, as well as the
costs of administration and documentation.
Any filing fees and filing taxes relating to filing UCC Financing
Statements, UCC Terminations and UCC Releases required to be filed by Seller
shall be paid by Seller or reimbursed to AGR at closing.
Representations and Warranties. The Seller represents and warrants
to AGR as set forth in Exhibit C annexed hereto and made a part hereof.
Covenants. The Seller covenants and agrees with AGR as follows:
In connection with the initial purchase of Receivables by AGR,
the Seller will execute such financing statements under the Uniform Commercial
Code - Secured Transactions (naming AGR as secured party) as AGR may reasonably
request with respect to all Receivables. From time to time, upon reasonable
request, the Seller will provide AGR with any additional information, will
execute and deliver to AGR any additional agreements, instruments, documents or
financing statements and will take all actions deemed by AGR as necessary or
desirable to effectuate the provisions of the Purchase Documents, to evidence,
protect and perfect the assignment of the title to the Purchased Receivables and
to facilitate the collection of the Purchased Receivables.
With respect to each Batch of Receivables purchased hereunder,
each of AGR and the Back-up Servicer described in the Servicing Agreement, and
their agents and representatives are hereby irrevocably constituted and
designated as the Seller's attorneys-in-fact, which irrevocable power of
attorney is coupled with an interest, (i) to endorse or sign the Seller's name
to financing statements, remittances, invoices, assignments, checks, drafts or
other instru ments or documents in respect of the Receivables, (ii) to notify
Payors to make payments on the Receivables directly to AGR, and (iii) to bring
suit in the Seller's or their name and to settle or compromise such Purchased
Receivables as AGR or the Back-up Servicer may, in its discre tion, deem
appropriate.
The Seller will pay all AGR's costs and expenses, including,
without limitation, reasonable attorneys' fees and expenses, which may be
expended or incurred by or on behalf of AGR in enforcing or attempting to
enforce any of AGR's rights against the Seller under the Purchase Documents, all
of which costs and expenses if not paid within ten (10) business days after
written demand shall bear interest at the Interest Rate for each day to but
excluding the payment date.
<PAGE>
The Seller will (i) treat transfers to AGR of Receivables
hereunder as a sale for tax purposes, and, with respect to reporting on its
financial statements, in accordance with generally accepted accounting
principles (which method is presently contemplated by the Seller to be the
reporting of such transfer as a sale), and will advise all persons who inquire
about the ownership of such Receivables that they have been sold to AGR; (ii)
not treat any such Receivables as an asset on the Seller's books and records;
(iii) record in Seller's books, records and computer files that such Receivables
have been sold to AGR; (iv) pay all taxes, if any, relating to the transfer of
such Receivables to AGR; (v) not assign or grant any security interest in any
Receivables except to AGR; (vi) in the event AGR collects any Receivables, not
impede or interfere with AGR's collection of such Receivables; (vii) not amend,
waive or otherwise permit or agree to any deviation from the terms or conditions
of such Receivables; and (viii) promptly bill Receivables on the same bases and
using the same policies and practices that it has used in the past unless AGR
has been advised in writing of a change prior to the purchase of such
Receivables. AGR or its designated representatives from time to time may contact
Payors to verify Receivables and payments thereof, inspect, check, take copies
of or extracts from the Seller's books, records and files, and the Seller will
make the same available to AGR or such representatives at any reasonable time
for such purposes.
Notwithstanding anything to the contrary set forth in this Section
9(d), the Seller shall not be required to treat any of the transactions
contemplated by this Agreement in a manner that would not comply with any
applicable law or not comply with any requirement imposed by Seller's accounting
firm in order for such accounting firm to certify that Seller's financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied.
If deemed necessary by AGR or the Back-up Servicer and upon
reasonable notice, the Seller agrees that AGR or the Back-up Servicer, upon the
request of AGR, will be permitted to have at least one of its agents or
representatives physically present in the Seller's administrative offices during
normal business hours to assist and/or monitor the Seller in performing its
obliga tions under this Agreement.
So long as this Agreement is in effect, the Seller will
deliver to AGR (i) within 45 days after the end of each fiscal quarter, the
Seller's consolidated financial statements for such period and for that portion
of its fiscal year through the end of such period, certified by its chief
financial officer, (ii) within 90 days after the end of the Seller's fiscal
year, the Seller's audited annual consolidated financial statements for such
year (or if such statements are not audited, statements certified by the
Seller's chief financial officer), and (iii) promptly upon request, such other
information concerning the Seller as AGR may from time to time request. All
financial statements delivered to AGR will be prepared in accordance with
generally accepted accounting principles consistently applied and on a basis
consistent with those previously submitted to AGR. The Seller will not change
its accounting coding system for its Receivables without prior written
notification to AGR of such change.
<PAGE>
The Seller shall promptly notify AGR in the event of any
action, suit, proceeding, dispute, offset, deduc tion, defense or counterclaim
that is or may be asserted by a Payor with respect to any Purchased Receivable
or upon the occurrence of any event of default under any loan agreement or note
to which the Seller is a party or by which it is bound. The Seller shall make
all payments to the Payors necessary to prevent the Payors from offsetting any
earlier overpayment to the Seller or other obligation of the Seller against any
amounts the Payors owe on any Purchased Receivables.
Upon request by AGR, the Seller shall execute and deliver to
AGR a security agreement, in form and substance acceptable to AGR, granting to
AGR a first priority security interest in and to any and all of the Seller's
personal property and assets and all the proceeds thereof, as security for any
and all obligations the Seller may owe AGR hereunder.
The Seller shall notify AGR in writing at least 30 days prior to any
change in the location of the Seller's principal place of business, chief
executive office or any other locations where the Seller maintains any assets or
records with respect to its accounts, or any change in the name of the Seller as
set forth at the beginning of this Agreement or in the other names (if any) set
forth under its name on the signature pages hereof.
Security Interest. In the event that, contrary to the mutual intent
of the Seller and AGR, any purchase of Purchased Receivables is not
characterized as a sale, the Seller shall, effective as of the date hereof, be
deemed to have granted (and the Seller does hereby grant) to AGR a first
priority security interest in and to any and all the Purchased Receivables and
the proceeds thereof to secure the repayment of all amounts advanced to the
Seller hereunder with accrued interest thereon, and this Agreement shall be
deemed to be a security agreement. With respect to such grant of a security
interest, AGR may at its option exercise from time to time any and all rights
and remedies available to it under the Uniform Commercial Code or otherwise. The
Seller agrees that ten (10) business days shall be reasonable prior notice of
the date of any public or private sale or other disposition of all or part of
the Purchased Receivables.
Remedies. Each of AGR's rights and remedies under this Agreement is
cumulative, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies AGR may have under applicable law.
AGR shall have the right, in AGR's sole discretion, to determine which rights
and remedies, and in which order any of the same, are to be exer cised. No act,
failure or delay by AGR shall constitute a waiver of any of AGR's rights and
remedies.
Term and Termination. The term of this Agreement shall be 24 months
from the date of the first purchase of a Batch hereunder and shall be renewable
automatically for successive one-year terms unless either the Seller or AGR
shall have notified the other party, not less than 60 days prior to the
expiration of the current term of
<PAGE>
this Agreement, of its intention not to renew such term. However, AGR may
terminate this Agreement at any time upon notice to the Seller in the event that
AGR is unable to continue its financing or funding necessary to perform its
obligations hereunder. All other provisions of this Agreement, including without
limitation Sections 6 and 13, shall survive the termination of this Agreement.
The Seller shall not permit any of its subsidiaries or affiliates
(which shall include all persons, firms, corporations or other entities who
control the Seller, are controlled by the Seller or are under common control
with the Seller and which are engaged in the temporary or other personnel or
employee leasing business) to sell or assign or grant security interests in any
of their accounts receivable or other rights to payment of money without the
prior written consent of AGR.
No Assumption; Indemnification; Etc.
(a) This Agreement shall not constitute an assumption by AGR of any
obliga tion to a Payor.
(b) The Seller shall indemnify and hold harmless AGR and its
officers, directors, members, employees and agents, from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever (including
reasonable attorneys' fees) which may be imposed on, incurred by or asserted
against any of them in any way relating to or arising out of (i) any breach by
the Seller of any representation, warranty or covenant contained in any Purchase
Document, or (ii) the purchase of Receivables by AGR and the other transactions
contemplated by the Purchase Documents, provided, however, that with respect to
clause (ii) of this Section 13(b), Seller shall not be obligated to indemnify or
pay any such amount to the extent resulting from the gross negligence or willful
misconduct of AGR.
(c) Any amount payable by the Seller to AGR under any provision of
this Agreement shall be paid without any deduction, counterclaim, recoupment or
set-off by the Seller of any kind.
Controlling Law. This Agreement, each of the other Purchase
Documents and all of the rights and obligations of the parties hereunder and
thereunder shall be governed by and interpreted in accordance with the laws of
the State of New York.
WAIVER OF JURY TRIAL AND JURISDICTION. EACH OF THE SELLER AND AGR
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT
OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENT OR
AGREEMENT EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS
<PAGE>
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE SELLER OR AGR. THIS PROVISION IS
A MATERIAL INDUCEMENT FOR AGR'S ENTERING INTO THIS AGREEMENT.
The Seller hereby agrees that ANY LEGAL ACTION OR PROCEEDING AGAINST
THE SELLER WITH RESPECT TO THIS AGREEMENT OR ANY PURCHASE DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK OR OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, as AGR may
elect, and, by execution and delivery hereof, the Seller accepts and consents
to, for itself and in respect of its property, generally and unconditionally,
the jurisdiction of the aforesaid courts and agrees that such jurisdiction shall
be exclusive, unless waived by AGR in writing. Nothing herein shall limit the
right of AGR to bring proceedings against the Seller in the courts of any other
jurisdiction. Service of process out of any such courts may be made, without
limitation, by mailing copies thereof by registered or certified mail, postage
prepaid, to the Seller at its address for notices as specified herein and will
become effective 30 days after such mailing. The Seller agrees that Sections 5
1401 and 5 1402 of the General Obligations Law of the State of New York shall
apply to this Agreement and the Purchase Documents and waives any right to any
defense of, or to dismiss any action or proceeding brought before said court on
the basis of, forum non conveniens.
Miscellaneous.
This Agreement and the related agreements, instruments and
documents executed in connection herewith embody the entire agreement and
understanding of the parties concerning the subject matter con tained herein and
therein. This Agreement and such related instruments, agreements and documents
supersede any and all prior agreements and understandings between the parties
with respect to such subject matter, whether oral or written.
This Agreement may only be amended in writing signed by all of
the parties hereto. No waiver shall be effective unless it is in writing and is
signed by the waiving party. Any waiver shall be effective only in the specific
instance and for the specific purpose for which it is given.
This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective succes sors and assigns.
Notwithstanding the foregoing, the Seller may not assign this Agreement or its
rights hereunder without first obtaining AGR's prior written consent, and any
such purported assignment without AGR's prior written consent shall be void and
of no force and effect. The Seller acknowledges and consents that AGR may
pledge, assign or transfer its rights and obliga tions hereunder and its
interest in the Purchase Documents, the Purchased Receivables, any security
agreement referred to in Section 9(h) and any security interest referred to in
<PAGE>
Section 10 to another party or parties, including as collateral security for any
indebtedness or obligations of AGR.
The invalidity or unenforceability of any provi sion of this
Agreement shall not impair the validity or enforce ability of any other
provisions.
All notices and other communications provided for herein shall
be in writing and shall be deemed to have been given when delivered by facsimile
transmission (with evidence of transmission) or overnight delivery service or
three days after the date mailed by first class registered or certified mail,
postage prepaid, to the following addresses, or at such other address as may be
furnished from time to time by notice to the other party:
If to AGR: AGR Financial, LLC
100 Metroplex Drive
Edison, New Jersey 08817
Telecopier No: (908)572-5959
If to the Seller: Stratus Services Group, Inc.
500 Craig Road
Manalapan, New Jersey 07726
Attn: Mr. Michael J. Rutkin, President
Telecopier No: (908)866-0060
The representations, warranties and covenants of the Parties
contained herein shall survive the purchase of the Purchased Receivables and
shall remain in effect notwithstanding any investigation made by or on behalf of
AGR and notwithstanding any knowledge (actual or implied) that AGR may have
which is inconsistent herewith.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which shall
constitute one and the same instrument.
If the foregoing is acceptable to the Seller and the Seller agrees
to comply with the terms set forth in this Agreement, please acknowledge the
Seller's acceptance of and agreement to the foregoing by signing and returning
to AGR a copy of this Agreement. Upon signature by the parties below, it is the
intention of the parties to be legally bound hereby. The date of this Agreement
is the date it is signed by AGR as identified below.
<PAGE>
AGR FINANCIAL, LLC
By: /s/ G. Allen Geyer
----------------------------
Name: G. Allen Geyer
Title: Managing Member
Accepted and Agreed to:
Name of Seller:
STRATUS SERVICES GROUP, INC.
By: /s/ Michael J. Rutkin
----------------------------
Name:
--------------------------
Title: President
-------------------------
Address(es) of Chief Executive
Office and Chief Place of
Business of Seller:
Stratus Services Group, Inc.
500 Craig Road
Manalapan, New Jersey 07726
Other names used by Seller in past six years and trade names and names under
which Seller conducts business (if none, so state):
________None___________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
Address(es) of all other offices and places of business of Seller (if none, so
state):
None, except as set forth in the Security Questionnaire dated the date
hereof executed by Seller.
<PAGE>
EXHIBIT A TO SALE
AND PURCHASE AGREEMENT
ASSIGNMENT
The undersigned hereby sells, transfers and assigns to AGR
Financial, L.L.C., a Delaware limited liability company (together with its
successors and assigns, "AGR") the Receivables described in Schedule A annexed
hereto and made a part hereof. Capitalized terms used herein and not defined
herein shall have the meanings ascribed thereto in the Sale and Purchase
Agreement dated as of August 11th, 1997 between the undersigned and AGR (as
amended, modified or supplemented from time to time, the "Agreement"). The sale
of Receivables hereunder is made upon and subject to the terms and conditions
contained in the Agreement and as set forth in Schedule A hereto.
The undersigned hereby certifies that no breach of any
representation, warranty or covenant contained in the Agreement by the
undersigned has occurred.
IN WITNESS WHEREOF, the undersigned has executed this Assignment as
of the 11th day of August, 1997.
STRATUS SERVICES GROUP, INC.
-------------------------------
(TYPE OR PRINT NAME OF SELLER)
By /s/Michael J. Rutkin
--------------------------
Name:
Title:
<PAGE>
SCHEDULE A
TO ASSIGNMENT
BATCH NO. _______
INVOICE NO. PAYOR EXPECTED NET RECEIVABLE
- ----------- ----- -----------------------
_______________________
Total $________
Expected Net Receivables $__________
Advance Rate: __________%
Advanced Amount: $__________
Percentage for calculating
Purchase Fee: __________%
Purchase Fee: $__________
Other Fees: $__________
Break-even Point: $__________
Original Seller Interest $__________
Maximum No. of Days
after invoice date
permitted for payment: ______days
Daily Finance Charge: __________%
<PAGE>
EXHIBIT B TO SALE
AND PURCHASE AGREEMENT
AGR FINANCIAL, L.L.C
SETTLEMENT REPORT
Report as of Batch No.: _____
Week No. ____ Batch Date: _____
1. Expected Net Receivables $__________
2. Advanced Amount $__________
3. Purchase Fee $__________
4. Other Fee $__________
5. Break-even Point $__________
6. Cumulative Cash Collection
as of end of week $__________
7. Cash Collected and Posted
- Above Break-even $__________
- Below Break-even $__________
8. Ineligible Receivables
- Cumulative __________
- This period __________
9. Cumulative Collections Applied
at end of week $__________
10. Outstanding Purchased Receivables $__________
11. Purchase Price $__________
12. Original Seller Interest $__________
13. Cumulative Payments on Seller Interest $__________
14. Payments this Period $__________
15. Charges for Receivables
over ___ days $__________
16. Amount of Unpaid Seller Interest $__________
<PAGE>
EXHIBIT C
ANNEXED TO AND MADE A PART OF
SALE AND PURCHASE AGREEMENT
Seller represents and warrants as follows:
(a) With respect to the Seller, as of the date hereof and as of the date of each
purchase of Receivables:
(i) If the Seller is a corporation or a partnership, the Seller is duly
organized, validly existing and in good standing as such under the laws of the
jurisdiction of its organization, and has all the power and authority necessary
to carry on its business as now conducted and to enter into and perform this
Agreement and the other Purchase Documents. The execution, delivery and
performance by the Seller of the Purchase Documents have been duly authorized by
all appropriate action on behalf of the Seller. If the Seller is a sole
proprietorship, the Seller has the necessary power and capacity under applicable
law to carry on its business as now conducted and to enter into and perform the
Purchase Documents.
(i) When executed and delivered, the Purchase Documents will be legal, valid and
binding obligations of the Seller, enforceable against the Seller in accordance
with their respective terms. Upon the filing of financing statements and any
release or termination statements required prior to the purchase of any Batch in
all appropriate jurisdictions, any security interest in favor of AGR granted
under Section 9 will be valid, perfected and of the first priority.
(i) The Seller is not in violation of its charter or by-laws or other
organizational documents or in default in the performance or observance of any
contract, indenture, mortgage, loan agreement, lease or other material
instrument to which the Seller is a party or by which it or any of its
properties may be bound. The execution, delivery and performance of the Purchase
Documents will not violate any provision of law or regulation or any order or
decree of any court or governmental agency, or violate any provision of the
Seller's organizational documents (if a corporation or partnership) or any
agreement to which the Seller is a party or by which any of its assets are
bound, and will not be in conflict with, result in a breach of, or constitute a
default under, any such agreement or result in the creation of any lien or
security interest upon any of the Seller's assets, except in favor of AGR.
(ii) The Seller has all permits, licenses, certifications, authorizations,
approvals, consents and agreements of all Payors, governmental agencies and
instrumentalities and any other person, necessary or required for the Seller to
own the assets that it now owns, to carry on its business as now conducted, to
execute, deliver and perform the Purchase Documents, and to receive payments
from the Payors.
<PAGE>
(i) No authorization or approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by the Seller of this Agreement or any other
Purchase Document to be delivered hereunder except for the filing of the UCC
financing statements, all of which shall be in full force and effect.
(i) There are no actions, suits, investigations or proceedings pending or
threatened against the Seller before any court, government agency or other
tribunal, which, if adversely determined, could materially and adversely affect
its financial condition or operations or ability to perform under the Purchase
Documents, or could result in cost, loss, liability or expense in excess of
$10,000, and the Seller is not currently subject to, and has no intention of
commencing, any bankruptcy or insolvency proceeding.
(i) The Seller has properly filed all returns for all federal, state and local
taxes, including income and payroll taxes, on a timely basis or has an agreement
of settlement with an approved payment plan with the relevant agency or, if not
filed, extensions have been properly secured. The Seller has not failed to pay
any taxes, or interest and penalties relating hereto, on or before the due dates
thereof.
(i) The Seller is in compliance with all laws, acts, rules, regulations, orders,
decrees and directions of any governmental authority applicable to the Purchased
Receivables or any part thereof or any related contracts and with respect to the
Seller and its business and properties, a violation of which could materially
and adversely affect its financial condition or operations or its ability to
carry out its obligations hereunder or with respect to the Receivables.
(i) The pension and profit-sharing plans, if any, of the Seller (and its
subsidiaries, if any) are maintained in compliance with all laws and are fully
funded in accordance with the obligations of the Seller (and its subsidiaries,
if any) thereunder.
(i) The Seller is not aware of the occurrence of any event which materially and
adversely affects or could affect its financial condition or operations,
including its ability to perform its obligations hereunder and the transactions
contemplated in this Agreement, other than the events it has disclosed herein.
(i) There is no injunction, writ, restraining order or other order of any nature
materially and adversely affecting the Seller's performance of its obligations
hereunder and the transactions contemplated in this Agreement.
(i) The name of the Seller as set forth herein is the same as in its
organizational documents as filed in the jurisdiction in
<PAGE>
which it is organized, such name has not been changed in the last six years, and
the Seller has no trade names, fictitious names, assumed names or "doing
business as" names except as disclosed on the signature pages hereof.
(i) The address of the chief place of business of the Seller and the location(s)
of the office(s) where the Seller keeps all of the documents, agreements, books
and records relating to the Receivables are listed on the signature pages of
this Agreement and there have been no other such locations during the prior six
years.
(i) The Seller is solvent and will not become insolvent after giving effect to
the transactions contemplated by this Agreement, is paying its debts as they
become due and, after giving effect to the transactions contemplated by this
Agreement, will have adequate capital to conduct its business.
(i) The Seller has no subsidiaries and does not own any interest in any
partnership, joint venture or limited liability company, except as disclosed in
writing to AGR.
(a) With respect to each Receivable, as of the date such Receivable is purchased
(and after giving effect to such purchase):
(i) All documents and agreements relating to the Receivable that have been
delivered to AGR with respect to such Receivable are true and correct, and there
are no other documents or agreements modifying or affecting such Receivables;
the Seller has timely and properly invoiced the applicable Payor, and the Seller
has delivered or caused to be delivered to such Payor all supporting documents
with respect to such Receivable required by the applicable Payor; all
information set forth in the invoice and supporting claim documents is true,
complete and correct, and, if additional information is requested by the Payor,
the Seller will promptly provide the same and, if necessary, rebill such
Receivable.
(i) The Receivable is exclusively owned by the Seller and there is no security
interest, encumbrance, charge or lien in favor of any third party, nor any
recording or filing against the Seller, as debtor, covering or purporting to
cover any interest of any kind in any Receivable, except as has been released in
a manner satisfactory to AGR. With respect to the Purchased Receivable, all
right, title and interest of the Seller is vested in AGR, free and clear of any
lien, security interest, claim or encumbrance of any kind, and the Seller agrees
to defend the same against the claims of all persons.
(i) The Purchased Receivable (A) is payable, in an amount not less than its
Expected Net Receivable, by the Payor identified by the Seller as being
obligated to do so as of the date of purchase, (B) is based on an actual and
bona fide rendition of
<PAGE>
services or sale of goods to the Payor by the Seller in the ordinary course of
business, (C) is denominated and payable only in lawful currency of the United
States, and (D) is an account or general intangible within the meaning of the
Uniform Commercial Code of the state in which the Seller has its principal place
of business, or is a right to payment under a policy of insurance or proceeds
thereof, and is not evidenced by any instrument or chattel paper. There is no
obligor on any Purchased Receivable other than the Payor identified by the
Seller as the payor primarily liable on any Purchased Receivable.
(i) The Purchased Receivable is collectible in accordance with its terms and is
not past due and is not subject to any action, suit, proceeding or dispute
(pending or threatened), set-off, counterclaim, defense, abatement, suspension,
deferment, deductible, reduction or termination by the Payor.
(i) The Seller does not have any guaranty of, letter of credit providing credit
support for, or collateral security for, the Purchased Receivable, other than
any such guaranty, letter of credit or collateral security as has been assigned
to AGR, and any such guaranty, letter of credit or collateral security is not
subject to any lien, security interest, charge or encumbrance in favor of any
other person.
(i) No action other than the execution and delivery of this Agreement and the
Assignment, the filing of UCC financing statements in the State in which the
Seller's principal place of business and chief executive office is located and
the payment of the Advanced Amount by AGR is required to perfect the interest of
AGR, as a purchaser, assignee and transferee of accounts receivable, in the
Purchased Receivables, and all such actions have been or will be accomplished no
later than the date of its acquisition by AGR.
(i) Each Purchased Receivable complies with all laws and regulations applicable
thereto.
(i) None of the Purchased Receivables represents services furnished or provided
to or on behalf of any subsidiary, parent, associate or other entity or person
affiliated with the Seller.
(i) The Payor with respect to the Purchased Receivable is (A) not currently the
subject of any bankruptcy, insolvency or receivership proceeding, nor is it
unable to make payments on its obligations when due, and (B) located in the
United States.
(i) The proceeds of the sale of the Purchased Receivables will be used for the
business and commercial purposes of the Seller. The sale of the Purchased
Receivable hereunder is made in good faith and without actual intent to hinder,
delay or defraud present or future creditors of the Seller.
<PAGE>
(i) The Purchased Receivable constitutes the legal, valid and binding obligation
of the Payor enforceable in accordance with its terms.
(i) The Seller has the right to sell, assign and transfer each Purchased
Receivable pursuant to this Agreement, no consent from the related Payor or any
other person is required to effect the sale of any Purchased Receivable to AGR
and this Agreement vests and thereafter at all times will vest in AGR full right
and title in the Purchased Receivables purported to be conveyed hereby, and such
conveyance of the Purchased Receivables will constitute a valid assignment in
such Purchased Receivables enforceable against the Seller and all creditors of
and purchasers from the Seller prior to all other assignments, liens or pledges
thereof.
(i) There are no proceedings or investigations pending or threatened before any
court or governmental authority (a) asserting the invalidity in whole or in part
of such Purchased Receivable or any contract related thereto, (b) to the best of
the Seller's knowledge, asserting the bankruptcy or insolvency of the related
Payor, or (c) seeking any determination or ruling that might materially and
adversely affect the validity or enforceability of such Purchased Receivable or
any contract related thereto.
(i) No Purchased Receivable or contract related thereto contravenes any federal,
state or local laws, rules or regulations applicable thereto (including, without
limitation, laws, rules and regulations relating to usury, consumer protection,
truth in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy), and no party to such
related contract is in violation of any such law, rule or regulation.
(i) The representations, warranties and statements made by the Seller in the
Purchase Documents, any financial information with respect to the Seller
delivered to AGR or any other related documents, including, without limitation,
any description of the Purchased Receivable, remain true and correct and do not
contain any untrue statement of material fact or omit to state a material fact
necessary to make the statements made therein not misleading.
(i) No Purchased Receivable has aged more than 30 days from the date of service
giving rise thereto.
Exhibit 10.4.1
PROMISSORY NOTE
This Note made on the 14th day of October, 1998 between Stratus Services Group,
Inc. ("Borrower"), a Delaware corporation whose principal place of business is
500 Craig Road, Suite 201, Manalapan, New Jersey 07726 and J. Todd Raymond, Esq.
as Trustee with Power of Attorney ("Lender") residing at 29 Coronet Avenue,
Lincroft, NJ 07738, represents a promise by the borrower for the repayment of
principal and interest on the following Loan.
Terms and Conditions:
1. Amount of loan: $250,000 US
2. Term: 90 days (renewable upon the same terms for an additional 90
day period)
3. Interest Rate: 2% per month, payable monthly.
4. Additional Consideration: Upon signing, Borrower will transfer to
Lender 10,000 shares of Stratus Services Group, Inc. Common Stock.
5. Prepayment: Borrower can elect, at any time during the life of the
Note, to pre-pay the entire amount owed (plus accrued interest to
date of prepayment) without penalty.
6. Default: The Borrower shall be in default if any of the following
occur: (a) application for, or the appointment of, a receiver in
bankruptcy; (b) filing of any petition, or the commencement of any
action or any proceeding against borrower for relief under any
bankruptcy or insolvency laws or any laws relating to the relief of
debtors, readjustment of indebtedness or reorganizations; or (c)
violation of any of the foregoing provisions regarding repayment or
the payment of interest, the waiver of which does not constitute a
waiver of which does not constitute a waiver of default.
BORROWER: LENDER:
STRATUS SERVICES GROUP, INC.
/s/Joseph J. Raymond /s/ J. Todd Raymond
- ---------------------------- --------------------------------
Joseph J. Raymond, Chairman J. Todd Raymond, Esq.
and CEO Trustee With Powers of Attorney
GUARANTOR:
/s/Joseph J. Raymond
- ----------------------------
Joseph J. Raymond
Exhibit 10.5.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated August __, 1997, by and among STRATUS
SERVICES GROUP, INC., a Delaware corporation (the "Company"), and AGR FINANCIAL,
L.L.C. (the "Investor").
RECITALS
WHEREAS, Investor currently owns 200,000 shares of common stock, $.01 par
value per share, (the "Common Stock") of the Company; and
WHEREAS, The parties hereto deem it to be in their best interests to set
forth their rights and obligations in connection with public offerings and sales
of shares of Common Stock.
NOW THEREFORE, the parties agree as follows:
SECTION 1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect from time to time.
"Initial Public Offering" means the first underwritten public offering of
Common Stock for sale to the public for the account of the Company and offered
on a "firm commitment" or "best efforts" basis pursuant to an offering
registered under the Securities Act with the Commission on Form S-1 or its then
equivalent which closes.
"Other Shares" means at any time those shares of Common Stock which do not
constitute Primary Shares or Registrable Shares.
"Primary Shares" means at any time the authorized but unissued shares of
Common Stock or shares of Common Stock held by the Company in its treasury.
"Registrable Shares" means at any time, with respect to any Stockholder,
the Restricted Shares held by such Stockholder which constitute Common Stock.
"Restricted Shares" means at any time, with respect to any Stockholder,
the shares of Common Stock, any other securities which by their terms are
exercisable or exchangeable for or convertible into Common Stock or other
securities which are so exercisable or convertible and
<PAGE>
any securities received in respect thereof, which are held by such Stockholder
and which have not previously been sold to the public pursuant to a registration
statement under the Securities Act or pursuant to Rule 144 or which are not (or
would not be, upon any such exercise, exchange or conversion) eligible for sale
by the holder thereof under Rule 144(k) or any successor rule thereto or any
complementary rule thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
"Stockholders" means, collectively, the Investor and any person or entity
that acquires Restricted Shares directly or indirectly from the Investor in
accordance with Section 14.
"Transfer" means any disposition of any Restricted Shares or of any
interest therein which constitutes a sale within the meaning of the Securities
Act, other than any disposition pursuant to an effective registration statement
under the Securities Act and complying with all applicable state securities and
"blue sky" laws.
SECTION 2. Piggyback Registration.
If the Company at any time proposes for any reason to register Primary
Shares or Other Shares under the Securities Act (other than on Form S-4 or Form
S-8 promulgated under the Securities Act or any successor forms thereto or other
than in connection with an exchange offer or offering solely to the Company's
stockholders ) one year or more after the Initial Public Offering, it shall
promptly give written notice to each Stockholder of its intention to so register
the Primary Shares or Other Shares and, upon the written request, given within
10 days after delivery of any such notice by the Company, of any Stockholder to
include in such registration Registrable Shares held by such Stockholder (which
request shall specify the number of Registrable Shares proposed to be included
in such registration), the Company shall use its reasonable best efforts to
cause all such Registrable Shares to be included in such registration on the
same terms and conditions as the securities otherwise being sold in such
registration; provided, however, that if the managing underwriter advises the
Company that the inclusion of all Registrable Shares or Other Shares proposed to
be included in such registration would interfere with the successful marketing
(including pricing) of the Primary Shares proposed to be registered by the
Company, then the number of Primary Shares, Registrable Shares and Other Shares
proposed to be included in such registration shall be included in the following
order:
(a) first, the Primary Shares;
(b) second, the Registrable Shares and the Other Shares, pro rata
based upon the number of shares of Common Stock owned by each such
stockholder requesting registration; and
(c) third, to the Other Shares.
<PAGE>
SECTION 3. Expenses.
The Company shall bear the expense of all registrations effected pursuant
to Section 2, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and blue sky laws, printing expenses, and fees and
expenses of the Company's counsel and accountants, and the fees and expenses of
the Selling Stockholders' Counsel (as defined below), but excluding any
underwriters' or brokers' discounts or commissions and the fees of any counsel
to the Selling Stockholders, other than the Selling Stockholders' Counsel.
SECTION 4. Holdback Agreement.
(a) If the Company at any time shall register shares of Common Stock
under the Securities Act pursuant to an Initial Public Offering and the managing
underwriter for such registration shall request, the Stockholders shall not
sell, make any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Shares (other than those shares of Common Stock
included in such registration) without the prior written consent of the Company
for a period designated by the managing underwriter in writing to the
Stockholders, which period shall not begin more than 10 days prior to the
effectiveness of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement.
(b) If the Company at any time shall register shares of Common Stock
under the Securities Act (including any registration pursuant to Section 2) for
sale to the public after the Initial Public Offering and the managing
underwriter for such registration shall request, the Stockholders shall not
sell, make any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Shares (other than those shares of Common Stock
included in such registration) without the prior written consent of the Company
for a period designated by the managing underwriter in writing to the
Stockholders, which period shall not begin more than 10 days prior to the
effectiveness of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement.
SECTION 5. Preparation and Filing.
If and whenever the Company is under an obligation pursuant to the
provisions of this Agreement to use its commercially reasonable efforts to
effect the registration of any Registrable Shares, the Company shall, as
expeditiously as practicable:
(a) use its reasonable best efforts to cause a registration
statement that registers such Registrable Shares to become and remain
effective for a period of 180 days or until all of such Registrable Shares
have been disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares, a
prospectus relating thereto or any amended documents or supplements
relating to such a registration statement or prospectus, to one
<PAGE>
counsel selected by the holders of a majority of such Registrable Shares
(the "Selling Stockholders' Counsel"), copies of all such documents
proposed to be filed (it being understood that such five-business-day
period need not apply to successive drafts of the same document proposed
to be filed so long as such successive drafts are supplied to such counsel
in advance of the proposed filing by a period of time that is customary
and reasonable under the circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least a period of 180 days or until all of such
Registrable Shares have been disposed of (if earlier) and to comply with
the provisions of the Securities Act with respect to the sale or other
disposition of such Registrable Shares;
(d) notify in writing the Selling Stockholders' Counsel promptly (i)
of the receipt by the Company of any notification with respect to any
comments by the Commission with respect to such registration statement or
prospectus or any amendment or supplement thereto or any request by the
Commission for the amending or supplementing thereof or for additional
information with respect thereto, (ii) of the receipt by the Company of
any notification with respect to the issuance by the Commission of any
stop order suspending the effectiveness of such registration statement or
prospectus or any amendment or supplement thereto or the initiation or
threatening of any proceeding for that purpose and (iii) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of such Registrable Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purposes;
(e) use its commercially reasonable efforts to register or qualify
such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as any seller of Registrable Shares reasonably requests
and do any and all other acts and things which may be reasonably necessary
or advisable to enable such seller of Registrable Shares to consummate the
disposition in such jurisdictions of the Registrable Shares owned by such
seller; provided, however, that the Company will not be required to
qualify generally to do business, subject itself to general taxation or
consent to general service of process in any jurisdiction where it would
not otherwise be required so to do but for this paragraph (e);
(f) furnish to each seller of such Registrable Shares such number of
copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such seller of Registrable
Shares may reasonably request in order to facilitate the public sale or
other disposition of such Registrable Shares;
(g) use its commercially reasonable efforts to cause such
Registrable Shares to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or sellers
thereof to consummate the disposition of such Registrable Shares;
<PAGE>
(h) notify on a timely basis each seller of such Registrable Shares
at any time when a prospectus relating to such Registrable Shares is
required to be delivered under the Securities Act within the appropriate
period mentioned in paragraph (a) of this Section, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of such seller, prepare
and furnish to such seller a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the offerees of such shares, such prospectus shall
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(i) make available for inspection by the Selling Stockholders'
Counsel or any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent
retained by any such underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all information (together with the Records, the "Information")
reasonably requested by any such Inspector in connection with such
registration statement. Any of the Information which the Company
determines in good faith to be confidential, and of which determination
the Inspectors are so notified, shall not be disclosed by the Inspectors
unless (i) the disclosure of such Information is necessary to avoid or
correct a misstatement or omission in the registration statement, (ii) the
release of such Information is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction or (iii) such Information has
been made generally available to the public. The seller of Registrable
Shares agrees that it will, upon learning that disclosure of such
Information is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Information deemed
confidential;
(j) use its reasonable best efforts to obtain from its independent
certified public accountants "comfort" letters in customary form and at
customary times and covering matters of the type customarily covered by
comfort letters;
(k) use its commercially reasonable efforts to obtain from its
counsel an opinion or opinions in customary form;
(1) provide a transfer agent and registrar (which may be the same
entity and which may be the Company) for such Registrable Shares;
(m) issue to any underwriter to which any seller of Registrable
Shares may sell shares in such offering certificates evidencing such
Registrable Shares; provided,
<PAGE>
however, that the Company shall have the right to approve any such
underwriter with such approval not to be unreasonably withheld;
(n) list such Registrable Shares on any national securities exchange
on which any shares of the Common Stock are listed or, if the Common Stock
is not listed on a national securities exchange, use its commercially
reasonable efforts to qualify such Registrable Shares for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD") or such national securities exchange as the
holders of a majority of such Registrable Shares shall request;
(o) otherwise use its commercially reasonable efforts to comply with
all applicable rules and regulations of the Commission and make available
to its securityholders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months
beginning within three months after the effective date of the registration
statement, which earnings statements shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(p) use its commercially reasonable efforts to take all other steps
necessary to effect the registration of such Registrable Shares
contemplated hereby.
SECTION 6. Indemnification.
In connection with any registration of any Registrable Shares under the
Securities Act pursuant to this Agreement, the Company shall indemnify and hold
harmless the seller of such Registrable Shares, its officers and directors, each
underwriter, broker or any other person acting on behalf of such seller and each
other person, if any, who controls any of the foregoing persons within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, (or actions in respect thereof) to which any of
the foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse such seller, such officer or
director, such underwriter, such broker or such other person acting on behalf of
such seller and each such controlling person for any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
any Registrable Shares in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller or underwriter specifically for use
<PAGE>
in the preparation thereof; provided, further, that the foregoing indemnity
shall not inure to the benefit of any underwriter, with respect to any
preliminary prospectus, from who the person asserting any losses, claims,
damages and liabilities and judgments purchased Registrable Shares or any person
controlling such underwriter, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such underwriter to such
person, if required by law so to have been delivered, or prior to a written
confirmation of the sale of the Registrable Shares to such person, and if the
prospectus (as so amended and supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or judgment, unless such failure to
deliver the prospectus (as so amended and supplemented) was a result of
noncompliance by the Company with Section 5(f) hereof.
In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, each seller of Registrable Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section) the Company, each director
of the Company, each officer of the Company who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of such
seller, each person who controls any of the foregoing persons within the meaning
of the Securities Act and each other seller of Registrable Shares under such
registration statement with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the Commission, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, if such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company or such
underwriter through an instrument duly executed by such seller or underwriter
specifically for use in connection with the preparation of such registration
statement, preliminary prospectus, final prospectus, amendment, supplement or
document; provided, however, that the obligation to indemnify will be several,
not joint and several, among such sellers of Registrable Shares, and the maximum
amount of liability in respect of such indemnification shall be in proportion to
and limited to, in the case of each seller of Registrable Shares, an amount
equal to the net proceeds actually received by such seller from the sale of
Registrable Shares effected pursuant to such registration.
The indemnification required by this Section 6 will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred, subject to prompt refund in the event any
such payments are determined not to have been due and owing hereunder.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently
<PAGE>
incurred by the latter in connection with the defense thereof; provided,
however, that if any indemnified party shall have reasonably concluded that
there may be one or more legal or equitable defenses available to such
indemnified party which are additional to or conflict with those available to
the indemnifying party, or that such claim or litigation involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in
this Section, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section.
The indemnification provided for under this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of securities.
If the indemnification provided for in this Section is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such loss, claim, damage or liability as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the sellers of Registrable Shares agree that it would not be just and equitable
if contributions pursuant to this paragraph were determined by pro rata
allocation or by any other method of allocation which did not take into account
the equitable considerations referred to herein. The amount paid or payable to
an indemnified party as a result of the losses, claims, damages, liabilities or
expenses referred to above shall be deemed to include, subject to the limitation
set forth in the fourth paragraph of this Section 6, any legal or other expenses
reasonably incurred in connection with investigating or defending the same.
Notwithstanding the foregoing, in no event shall the amount contributed by a
seller of Registrable Shares exceed the aggregate net offering proceeds received
by such seller from the sale of its Registrable Shares.
<PAGE>
SECTION 7. Underwriting Agreement.
Notwithstanding the provisions of Sections 4, 5 and 6, to the extent that
the Company and the Stockholders selling Registrable Shares in a proposed
registration shall enter into an underwriting or similar agreement, which
agreement contains provisions covering one or more issues addressed in such
Sections, the provisions contained in such Sections addressing such issue or
issues shall be superseded with respect to such registration by such other
agreement.
SECTION 8. Information by Holder.
Each Stockholder selling Registrable Shares in a proposed registration
shall furnish to the Company such written information regarding such holder and
the distribution proposed by such Stockholder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
SECTION 9. Exchange Act Compliance.
From and after the date a registration statement filed by the Company
pursuant to the Exchange Act relating to any class of the Company's securities
shall have become effective and until the Company is no longer obligated to make
filings under Section 13(a) of the Exchange Act, the Company shall comply with
all of the reporting requirements of the Exchange Act and with all other public
information reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Common Stock. The Company shall
cooperate with each Stockholder in supplying such information as may be
necessary for such Stockholder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
SECTION 10. No Conflict of Rights.
The Company represents and warrants to the Stockholders that the
registration rights granted to the Stockholders hereby do not conflict with any
other registration rights granted by the Company.
SECTION 11. Restriction on Transfer.
(a) The Restricted Shares shall not be transferable except upon the
conditions specified in this Section, which conditions are intended to insure
compliance with the provisions of the Securities Act.
(b) Each certificate representing Restricted Shares shall (unless
otherwise permitted by the provisions of paragraph (c) and (d) below) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS AND MAY
<PAGE>
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL SUCH
SHARES ARE REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION
UNDER APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED AND (2) AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION
UNDER THE ACT IS NOT REQUIRED."
(c) The holder of any Restricted Shares by acceptance thereof
agrees, prior to any Transfer of any Restricted Shares, to give written notice
to the Company of such holder's intention to effect such Transfer and to comply
in all other respects with the provisions of this Section. Each such notice
shall describe the manner and circumstances of the proposed Transfer. Upon
request by the Company, the holder delivering such notice shall deliver a
written opinion, addressed to the Company, of counsel for the holder of
Restricted Shares, stating that in the opinion of such counsel (which opinion
and counsel shall be reasonably satisfactory to the Company) such proposed
Transfer does not involve a transaction requiring registration or qualification
of such Restricted Shares under the Securities Act or the securities or "blue
sky" laws of any state of the United States. Such holder of Restricted Shares
shall be entitled to Transfer such Restricted Shares in accordance with the
terms of the notice delivered to the Company, if the Company does not reasonably
object to such Transfer and request such opinion within fifteen days after
delivery of such notice, or, if it requests such opinion, does not reasonably
object to such Transfer within fifteen days after delivery of such opinion. Each
certificate or other instrument evidencing the securities issued upon the
Transfer of any Restricted Shares (and each certificate or other instrument
evidencing any untransferred balance of such Registered Shares) shall bear the
legend set forth in paragraph (b) above unless (i) in such opinion of counsel to
the holder of Restricted Shares (which opinion and counsel shall be reasonably
acceptable to the Company) registration of any future Transfer is not required
by the applicable provisions of the Securities Act or (ii) the Company shall
have waived the requirement of such legends.
(d) Notwithstanding the foregoing provisions of this Section, the
restrictions imposed by this Section upon the transferability of any Restricted
Shares shall cease and terminate when (i) any such Restricted Shares are sold or
otherwise disposed of (A) pursuant to an effective registration statement under
the Securities Act or (B) in a transaction contemplated by paragraph (c) above
which does not require that the Restricted Shares so transferred bear the legend
set forth in paragraph (b) hereof, or (ii) the holder of such Restricted Shares
has met the requirements for Transfer of such Restricted Shares under Rule
144(k) under the Securities Act (subject to the delivery of opinions as set
forth above). Whenever the restrictions imposed by this Section shall terminate,
the holder of any Restricted Shares as to which such restrictions have
terminated shall be entitled to receive from the Company, without expense, a new
certificate not bearing the restrictive legend set forth in paragraph (b) above
and not containing any other reference to the restrictions imposed by this
Section.
<PAGE>
SECTION 14. Termination.
This Agreement shall terminate and be of no further force or effect on the
earlier of (a) the date on which there remains no Restricted Shares outstanding
or (b) the date which is three years after the Initial Public Offering.
SECTION 13. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the Company and the
Stockholders and, subject to Section 14, their respective successors and
assigns.
SECTION 14. Assignment.
The Stockholders may assign their rights hereunder to any persons or
entities that acquires Restricted Shares from an Investor; provided, however,
that such person or entity shall, as a condition to the effectiveness of such
assignment, be required to execute a counterpart to this Agreement whereupon
such person or entity shall have the benefits of, and shall be subject to the
restrictions contained in, this Agreement with respect to such Restricted
Shares.
SECTION 15. Entire Agreement.
This Agreement contains the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior arrangements or
understandings with respect hereto.
SECTION 16. Notices.
All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument and
shall be deemed to have been duly given when delivered in person, by telecopy,
by nationally-recognized overnight courier, or by first class registered or
certified mail, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
the addressee to the address or if to the Company, to 200 Schulz Drive, Third
Floor, Red Bank, New Jersey 07701, and if to the Investors, to the address set
forth for such Investor on Schedule A attached hereto.
All such notices, requests, consents and other communications shall be
deemed to have been delivered (a) in the case of personal delivery or delivery
by telecopy, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day and (c) in the
case of mailing, on the third business day following such mailing if sent by
certified mail, return receipt requested.
SECTION 17. Modifications; Amendments; Waivers.
The terms and provisions of this Agreement may not be modified or amended,
except pursuant to a writing signed by the Company and the Stockholders holding
at least a majority of the Restricted Shares (based upon Common Stock
equivalents) then held by the Stockholders.
<PAGE>
SECTION 18. Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
SECTION 19. Headings.
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
SECTION 20. Severability.
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any provision of this Agreement would be held in any
jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 21. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to principles governing
conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first written above.
STRATUS SERVICES GROUP, INC.
By: /s/ Michael J. Rutkin
-----------------------------------------
Name:
Title: President
AGR FINANCIAL, L.L.C.
By: /s/ G. Allen Geyer
-----------------------------------------
Name:
Title: Managing Director
<PAGE>
Schedule A
Investor Address Shares of Common
-------- ------- ----------------
Stock
-----
AGR Financial, L.L.C. 100 Metroplex Drive 200,000
Edison, New Jersey
08817
Exhibit 10.5.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated August __, 1997, by and among STRATUS
SERVICES GROUP, INC., a Delaware corporation (the "Company"), and CONGRESS
FINANCIAL CORPORATION (WESTERN), a California corporation (the "Investor").
RECITALS
WHEREAS, Investor currently owns 200,000 shares of common stock, $.01 par
value per share, (the "Common Stock") of the Company; and
WHEREAS, The parties hereto deem it to be in their best interests to set
forth their rights and obligations in connection with public offerings and sales
of shares of Common Stock.
NOW THEREFORE, the parties agree as follows:
SECTION 1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect from time to time.
"Initial Public Offering" means the first underwritten public offering of
Common Stock for sale to the public for the account of the Company and offered
on a "firm commitment" or "best efforts" basis pursuant to an offering
registered under the Securities Act with the Commission on Form S-1 or its then
equivalent which closes.
"Other Shares" means at any time those shares of Common Stock which do not
constitute Primary Shares or Registrable Shares.
"Primary Shares" means at any time the authorized but unissued shares of
Common Stock or shares of Common Stock held by the Company in its treasury.
"Registrable Shares" means at any time, with respect to any Stockholder,
the Restricted Shares held by such Stockholder which constitute Common Stock.
"Restricted Shares" means at any time, with respect to any Stockholder,
the shares of Common Stock, any other securities which by their terms are
exercisable or exchangeable for or
<PAGE>
convertible into Common Stock or other securities which are so exercisable or
convertible and any securities received in respect thereof, which are held by
such Stockholder and which have not previously been sold to the public pursuant
to a registration statement under the Securities Act or pursuant to Rule 144 or
which are not (or would not be, upon any such exercise, exchange or conversion)
eligible for sale by the holder thereof under Rule 144(k) or any successor rule
thereto or any complementary rule thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
"Stockholders" means, collectively, the Investor and any person or entity
that acquires Restricted Shares directly or indirectly from the Investor in
accordance with Section 14.
"Transfer" means any disposition of any Restricted Shares or of any
interest therein which constitutes a sale within the meaning of the Securities
Act, other than any disposition pursuant to an effective registration statement
under the Securities Act and complying with all applicable state securities and
"blue sky" laws.
SECTION 2. Piggyback Registration.
If the Company at any time proposes for any reason to register Primary
Shares or Other Shares under the Securities Act (other than on Form S-4 or Form
S-8 promulgated under the Securities Act or any successor forms thereto or other
than in connection with an exchange offer or offering solely to the Company's
stockholders ) one year or more after the Initial Public Offering, it shall
promptly give written notice to each Stockholder of its intention to so register
the Primary Shares or Other Shares and, upon the written request, given within
10 days after delivery of any such notice by the Company, of any Stockholder to
include in such registration Registrable Shares held by such Stockholder (which
request shall specify the number of Registrable Shares proposed to be included
in such registration), the Company shall use its reasonable best efforts to
cause all such Registrable Shares to be included in such registration on the
same terms and conditions as the securities otherwise being sold in such
registration; provided, however, that if the managing underwriter advises the
Company that the inclusion of all Registrable Shares or Other Shares proposed to
be included in such registration would interfere with the successful marketing
(including pricing) of the Primary Shares proposed to be registered by the
Company, then the number of Primary Shares, Registrable Shares and Other Shares
proposed to be included in such registration shall be included in the following
order:
(a) first, the Primary Shares;
(b) second, the Registrable Shares and the Other Shares, pro rata
based upon the number of shares of Common Stock owned by each such
stockholder requesting registration; and
(c) third, to the Other Shares.
2
<PAGE>
SECTION 3. Expenses.
The Company shall bear the expense of all registrations effected pursuant
to Section 2, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and blue sky laws, printing expenses, and fees and
expenses of the Company's counsel and accountants, and the fees and expenses of
the Selling Stockholders' Counsel (as defined below), but excluding any
underwriters' or brokers' discounts or commissions and the fees of any counsel
to the Selling Stockholders, other than the Selling Stockholders' Counsel.
SECTION 4. Holdback Agreement.
(a) If the Company at any time shall register shares of Common Stock
under the Securities Act pursuant to an Initial Public Offering and the managing
underwriter for such registration shall request, the Stockholders shall not
sell, make any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Shares (other than those shares of Common Stock
included in such registration) without the prior written consent of the Company
for a period designated by the managing underwriter in writing to the
Stockholders, which period shall not begin more than 10 days prior to the
effectiveness of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement.
(b) If the Company at any time shall register shares of Common Stock
under the Securities Act (including any registration pursuant to Section 2) for
sale to the public after the Initial Public Offering and the managing
underwriter for such registration shall request, the Stockholders shall not
sell, make any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Shares (other than those shares of Common Stock
included in such registration) without the prior written consent of the Company
for a period designated by the managing underwriter in writing to the
Stockholders, which period shall not begin more than 10 days prior to the
effectiveness of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement.
SECTION 5. Preparation and Filing.
If and whenever the Company is under an obligation pursuant to the
provisions of this Agreement to use its commercially reasonable efforts to
effect the registration of any Registrable Shares, the Company shall, as
expeditiously as practicable:
(a) use its reasonable best efforts to cause a registration
statement that registers such Registrable Shares to become and remain
effective for a period of 180 days or until all of such Registrable Shares
have been disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares, a
prospectus relating thereto or any amended documents or supplements
relating to such a registration statement or prospectus, to one
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<PAGE>
counsel selected by the holders of a majority of such Registrable Shares
(the "Selling Stockholders' Counsel"), copies of all such documents
proposed to be filed (it being understood that such five-business-day
period need not apply to successive drafts of the same document proposed
to be filed so long as such successive drafts are supplied to such counsel
in advance of the proposed filing by a period of time that is customary
and reasonable under the circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least a period of 180 days or until all of such
Registrable Shares have been disposed of (if earlier) and to comply with
the provisions of the Securities Act with respect to the sale or other
disposition of such Registrable Shares;
(d) notify in writing the Selling Stockholders' Counsel promptly (i)
of the receipt by the Company of any notification with respect to any
comments by the Commission with respect to such registration statement or
prospectus or any amendment or supplement thereto or any request by the
Commission for the amending or supplementing thereof or for additional
information with respect thereto, (ii) of the receipt by the Company of
any notification with respect to the issuance by the Commission of any
stop order suspending the effectiveness of such registration statement or
prospectus or any amendment or supplement thereto or the initiation or
threatening of any proceeding for that purpose and (iii) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of such Registrable Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purposes;
(e) use its commercially reasonable efforts to register or qualify
such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as any seller of Registrable Shares reasonably requests
and do any and all other acts and things which may be reasonably necessary
or advisable to enable such seller of Registrable Shares to consummate the
disposition in such jurisdictions of the Registrable Shares owned by such
seller; provided, however, that the Company will not be required to
qualify generally to do business, subject itself to general taxation or
consent to general service of process in any jurisdiction where it would
not otherwise be required so to do but for this paragraph (e);
(f) furnish to each seller of such Registrable Shares such number of
copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such seller of Registrable
Shares may reasonably request in order to facilitate the public sale or
other disposition of such Registrable Shares;
(g) use its commercially reasonable efforts to cause such
Registrable Shares to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or sellers
thereof to consummate the disposition of such Registrable Shares;
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<PAGE>
(h) notify on a timely basis each seller of such Registrable Shares
at any time when a prospectus relating to such Registrable Shares is
required to be delivered under the Securities Act within the appropriate
period mentioned in paragraph (a) of this Section, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of such seller, prepare
and furnish to such seller a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the offerees of such shares, such prospectus shall
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(i) make available for inspection by the Selling Stockholders'
Counsel or any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent
retained by any such underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees
to supply all information (together with the Records, the "Information")
reasonably requested by any such Inspector in connection with such
registration statement. Any of the Information which the Company
determines in good faith to be confidential, and of which determination
the Inspectors are so notified, shall not be disclosed by the Inspectors
unless (i) the disclosure of such Information is necessary to avoid or
correct a misstatement or omission in the registration statement, (ii) the
release of such Information is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction or (iii) such Information has
been made generally available to the public. The seller of Registrable
Shares agrees that it will, upon learning that disclosure of such
Information is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Information deemed
confidential;
(j) use its reasonable best efforts to obtain from its independent
certified public accountants "comfort" letters in customary form and at
customary times and covering matters of the type customarily covered by
comfort letters;
(k) use its commercially reasonable efforts to obtain from its
counsel an opinion or opinions in customary form;
(1) provide a transfer agent and registrar (which may be the same
entity and which may be the Company) for such Registrable Shares;
(m) issue to any underwriter to which any seller of Registrable
Shares may sell shares in such offering certificates evidencing such
Registrable Shares; provided,
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<PAGE>
however, that the Company shall have the right to approve any such
underwriter with such approval not to be unreasonably withheld;
(n) list such Registrable Shares on any national securities exchange
on which any shares of the Common Stock are listed or, if the Common Stock
is not listed on a national securities exchange, use its commercially
reasonable efforts to qualify such Registrable Shares for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD") or such national securities exchange as the
holders of a majority of such Registrable Shares shall request;
(o) otherwise use its commercially reasonable efforts to comply with
all applicable rules and regulations of the Commission and make available
to its securityholders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months
beginning within three months after the effective date of the registration
statement, which earnings statements shall satisfy the provisions of
Section 11(a) of the Securities Act; and
(p) use its commercially reasonable efforts to take all other steps
necessary to effect the registration of such Registrable Shares
contemplated hereby.
SECTION 6. Indemnification.
In connection with any registration of any Registrable Shares under the
Securities Act pursuant to this Agreement, the Company shall indemnify and hold
harmless the seller of such Registrable Shares, its officers and directors, each
underwriter, broker or any other person acting on behalf of such seller and each
other person, if any, who controls any of the foregoing persons within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, (or actions in respect thereof) to which any of
the foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse such seller, such officer or
director, such underwriter, such broker or such other person acting on behalf of
such seller and each such controlling person for any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
any Registrable Shares in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller or underwriter specifically for use
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<PAGE>
in the preparation thereof; provided, further, that the foregoing indemnity
shall not inure to the benefit of any underwriter, with respect to any
preliminary prospectus, from who the person asserting any losses, claims,
damages and liabilities and judgments purchased Registrable Shares or any person
controlling such underwriter, if a copy of the pjospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such underwriter to such
person, if required by law so to have been delivered, or prior to a written
confirmation of the sale of the Registrable Shares to such person, and if the
prospectus (as so amended and supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or judgment, unless such failure to
deliver the prospectus (as so amended and supplemented) was a result of
noncompliance by the Company with Section 5(f) hereof.
In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, each seller of Registrable Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section) the Company, each director
of the Company, each officer of the Company who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of such
seller, each person who controls any of the foregoing persons within the meaning
of the Securities Act and each other seller of Registrable Shares under such
registration statement with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the Commission, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, if such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company or such
underwriter through an instrument duly executed by such seller or underwriter
specifically for use in connection with the preparation of such registration
statement, preliminary prospectus, final prospectus, amendment, supplement or
document; provided, however, that the obligation to indemnify will be several,
not joint and several, among such sellers of Registrable Shares, and the maximum
amount of liability in respect of such indemnification shall be in proportion to
and limited to, in the case of each seller of Registrable Shares, an amount
equal to the net proceeds actually received by such seller from the sale of
Registrable Shares effected pursuant to such registration.
The indemnification required by this Section 6 will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred, subject to prompt refund in the event any
such payments are determined not to have been due and owing hereunder.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently
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<PAGE>
incurred by the latter in connection with the defense thereof; provided,
however, that if any indemnified party shall have reasonably concluded that
there may be one or more legal or equitable defenses available to such
indemnified party which are additional to or conflict with those available to
the indemnifying party, or that such claim or litigation involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in
this Section, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section.
The indemnification provided for under this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of securities.
If the indemnification provided for in this Section is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such loss, claim, damage or liability as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the sellers of Registrable Shares agree that it would not be just and equitable
if contributions pursuant to this paragraph were determined by pro rata
allocation or by any other method of allocation which did not take into account
the equitable considerations referred to herein. The amount paid or payable to
an indemnified party as a result of the losses, claims, damages, liabilities or
expenses referred to above shall be deemed to include, subject to the limitation
set forth in the fourth paragraph of this Section 6, any legal or other expenses
reasonably incurred in connection with investigating or defending the same.
Notwithstanding the foregoing, in no event shall the amount contributed by a
seller of Registrable Shares exceed the aggregate net offering proceeds received
by such seller from the sale of its Registrable Shares.
SECTION 7. Underwriting Agreement.
Notwithstanding the provisions of Sections 4, 5 and 6, to the extent that
the Company and the Stockholders selling Registrable Shares in a proposed
registration shall enter into an underwriting or similar agreement, which
agreement contains provisions covering one or more issues addressed in such
Sections, the provisions contained in such Sections addressing such issue or
issues shall be superseded with respect to such registration by such other
agreement.
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<PAGE>
SECTION 8. Information by Holder.
Each Stockholder selling Registrable Shares in a proposed registration
shall furnish to the Company such written information regarding such holder and
the distribution proposed by such Stockholder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
SECTION 9. Exchange Act Compliance.
From and after the date a registration statement filed by the Company
pursuant to the Exchange Act relating to any class of the Company's securities
shall have become effective and until the Company is no longer obligated to make
filings under Section 13(a) of the Exchange Act, the Company shall comply with
all of the reporting requirements of the Exchange Act and with all other public
information reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Common Stock. The Company shall
cooperate with each Stockholder in supplying such information as may be
necessary for such Stockholder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
SECTION 10. No Conflict of Rights.
The Company represents and warrants to the Stockholders that the
registration rights granted to the Stockholders hereby do not conflict with any
other registration rights granted by the Company.
SECTION 11. Restriction on Transfer.
(a) The Restricted Shares shall not be transferable except upon the
conditions specified in this Section, which conditions are intended to insure
compliance with the provisions of the Securities Act.
(b) Each certificate representing Restricted Shares shall (unless
otherwise permitted by the provisions of paragraph (c) and (d) below) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER THE ACT AND SUCH LAWS OR
(1) REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED
AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED."
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(c) The holder of any Restricted Shares by acceptance thereof
agrees, prior to any Transfer of any Restricted Shares, to give written notice
to the Company of such holder's intention to effect such Transfer and to comply
in all other respects with the provisions of this Section. Each such notice
shall describe the manner and circumstances of the proposed Transfer. Upon
request by the Company, the holder delivering such notice shall deliver a
written opinion, addressed to the Company, of counsel for the holder of
Restricted Shares, stating that in the opinion of such counsel (which opinion
and counsel shall be reasonably satisfactory to the Company) such proposed
Transfer does not involve a transaction requiring registration or qualification
of such Restricted Shares under the Securities Act or the securities or "blue
sky" laws of any state of the United States. Such holder of Restricted Shares
shall be entitled to Transfer such Restricted Shares in accordance with the
terms of the notice delivered to the Company, if the Company does not reasonably
object to such Transfer and request such opinion within fifteen days after
delivery of such notice, or, if it requests such opinion, does not reasonably
object to such Transfer within fifteen days after delivery of such opinion. Each
certificate or other instrument evidencing the securities issued upon the
Transfer of any Restricted Shares (and each certificate or other instrument
evidencing any untransferred balance of such Registered Shares) shall bear the
legend set forth in paragraph (b) above unless (i) in such opinion of counsel to
the holder of Restricted Shares (which opinion and counsel shall be reasonably
acceptable to the Company) registration of any future Transfer is not required
by the applicable provisions of the Securities Act or (ii) the Company shall
have waived the requirement of such legends.
(d) Notwithstanding the foregoing provisions of this Section, the
restrictions imposed by this Section upon the transferability of any Restricted
Shares shall cease and terminate when (i) any such Restricted Shares are sold or
otherwise disposed of (A) pursuant to an effective registration statement under
the Securities Act or (B) in a transaction contemplated by paragraph (c) above
which does not require that the Restricted Shares so transferred bear the legend
set forth in paragraph (b) hereof, or (ii) the holder of such Restricted Shares
has met the requirements for Transfer of such Restricted Shares under Rule
144(k) under the Securities Act (subject to the delivery of opinions as set
forth above). Whenever the restrictions imposed by this Section shall terminate,
the holder of any Restricted Shares as to which such restrictions have
terminated shall be entitled to receive from the Company, without expense, a new
certificate not bearing the restrictive legend set forth in paragraph (b) above
and not containing any other reference to the restrictions imposed by this
Section.
SECTION 14. Termination.
This Agreement shall terminate and be of no further force or effect on the
earlier of (a) the date on which there remains no Restricted Shares outstanding
or (b) the date which is three years after the Initial Public Offering.
SECTION 13. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the Company and the
Stockholders and, subject to Section 14, their respective successors and
assigns.
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SECTION 14. Assignment.
The Stockholders may assign their rights hereunder to any persons or
entities that acquires Restricted Shares from an Investor; provided, however,
that such person or entity shall, as a condition to the effectiveness of such
assignment, be required to execute a counterpart to this Agreement whereupon
such person or entity shall have the benefits of, and shall be subject to the
restrictions contained in, this Agreement with respect to such Restricted
Shares.
SECTION 15. Entire Agreement.
This Agreement contains the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior arrangements or
understandings with respect hereto.
SECTION 16. Notices.
All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument and
shall be deemed to have been duly given when delivered in person, by telecopy,
by nationally-recognized overnight courier, or by first class registered or
certified mail, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
the addressee to the address or: if to the Company, to 200 Schulz Drive, Third
Floor, Red Bank, New Jersey 07701, and if to the Investors, to the address set
forth for such Investor on Schedule A attached hereto.
All such notices, requests, consents and other communications shall be
deemed to have been delivered (a) in the case of personal delivery or delivery
by telecopy, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day and (c) in the
case of mailing, on the third business day following such mailing if sent by
certified mail, return receipt requested.
SECTION 17. Modifications; Amendments; Waivers.
The terms and provisions of this Agreement may not be modified or amended,
except pursuant to a writing signed by the Company and the Stockholders holding
at least a majority of the Restricted Shares (based upon Common Stock
equivalents) then held by the Stockholders.
SECTION 18. Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
SECTION 19. Headings.
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
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SECTION 20. Severability.
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any provision of this Agreement would be held in any
jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 21. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to principles governing
conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement on the date first written above.
STRATUS SERVICES GROUP, INC.
By: /s/Michael J. Rutkin
--------------------------------------
Name: Michael J. Rutkin
Title: President
CONGRESS FINANCIAL CORPORATION (WESTERN)
By: /s/James DeSantis
--------------------------------------
Name:
Title: Senior Vice President
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Schedule A
Investor Address Shares of Common
-------- ------- ----------------
Stock
-----
Congress Financial Corporation 200,000
(Western)
Exhibit 10.6.1
STOCK PURCHASE
AND
INVESTOR AGREEMENT
STOCK PURCHASE and INVESTOR AGREEMENT, (this "Agreement") made as of
August __, 1997, by and between STRATUS SERVICES GROUP, INC., a Delaware
corporation (the "Company") and CONGRESS FINANCIAL CORPORATION (WESTERN), a
California corporation (hereinafter referred to as the "Purchaser").
Recitals:
WHEREAS, the Company is contemplating the purchase from Royalpar
Industries, Inc., a Delaware corporation, Ewing Technical Design, Inc., a
Delaware corporation, LPL Technical Service, Inc., a California corporation, and
Mainstream Engineering Co., Inc., a Delaware corporation (collectively, the
"Sellers"), certain of the assets held in connection with, necessary for, or
material to the business of the Sellers, for the purchase price and upon the
terms and subject to the conditions set forth in that certain Asset Purchase
Agreement among the Company and Sellers;
WHEREAS, the Company has agreed to sell and issue to Purchaser shares of
the Company's common stock (the "Common Stock") in consideration for Purchaser's
consenting to and releasing liens against certain of the assets that the Company
is contemplating purchasing from the Sellers;
WHEREAS, the Company and the Purchaser desire to set forth the terms upon
which the 200,000 shares of Common Stock, par value $.01 per share (the "Offered
Securities") are offered by and purchased from the Company by the Purchaser and
for the purpose of assuring compliance with the various securities laws;
WHEREAS, the Company desires to confirm certain representations and
warranties of the Purchaser.
NOW, THEREFORE, in consideration of the premises and the terms,
provisions, covenants and conditions hereinafter set forth, and for other
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the respective meanings set forth below. All capitalized terms used herein and
not defined in this Section 1 shall have the meanings ascribed to such terms
elsewhere in this Agreement.
<PAGE>
The term "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the federal
securities laws with respect to the registration and public offering of
securities of the Company.
The term "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, government entity or government or any group comprised
of one or more of the foregoing.
The term "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time and the rules, regulations, decisions and
interpretations promulgated thereunder or such other federal act, rules,
regulations, decisions and interpretations as may regulate and require the
registration of the public offering of securities of the Company.
2. The Purchaser, by acquiring the Offered Securities for the
consideration described in the Recitals, hereby covenants and agrees that:
(a) Except as herein provided, it will not directly or indirectly
offer for sale or sell (within the meaning of the Securities Act) any of the
Offered Securities to any Person unless pursuant to:
(i) an effective registration statement under the Securities
Act ("Registration Statement") filed by the Company
covering such offer and sale; or
(ii) an exemption from registration under the Securities Act;
provided that prior to any such proposed transfer, the
Purchaser shall give written notice to the Company of
the Purchaser's intentions to effect such transfer,
which notice shall be accompanied by such evidence as
may be reasonably satisfactory to the Company that the
proposed transfer may be effected without registration
under the Securities Act, or
(iii) the provisions of Rule 144 under the Securities Act, if
applicable or any successor rule thereto.
(b) Any offer or sale of the Offered Securities shall be made in
accordance with the federal and state securities laws (including the prospectus
delivery requirements of the Securities Act), of applicable jurisdictions and
any other applicable law.
(c) Each of the shares of the Offered Securities transferred as
above provided shall bear the appropriate restrictive legend unless in the
opinion of legal counsel for the Purchaser (which counsel and opinion (in form,
scope and substance) shall be satisfactory to the Company), such legend is not
required in order to establish compliance with any provisions of the Securities
Act.
3. The Purchaser hereby represents and agrees that:
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(a) If a corporation, the corporation has full power, authority and
capacity to execute this Agreement, to make the representations and agreements
contained in this Agreement and to purchase the Offered Securities and this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary actions on the part of the Purchaser and this Agreement is a
legal, valid and binding obligation of the Purchaser enforceable against it in
accordance with its terms; and
(b) The Purchaser understands each of the following representations
and agreements, and hereby represents and agrees to each of the following with
the understanding that the Company will rely upon these representations and
agreements in determining whether the Company may sell the Offered Securities to
the Purchaser under applicable securities laws:
(i) The purchase of the Offered Securities is a long-term
investment and involves a high degree of risk. There is
no present market for the Offered Securities and no
market is currently expected to develop. It is unlikely
that the Purchaser will be able to liquidate the
Purchaser's investment in the event of an emergency; in
the event of any disposition or liquidation of the
Offered Securities, the Purchaser could sustain a loss
of part or all of the Purchaser's investment. The
transferability of the Offered Securities is extremely
limited.
(ii) The Purchaser is an "accredited investor" as such term
is defined in Rule 501 of Regulation D promulgated
under the Securities Act. The Purchaser is able to bear
the economic risk of an investment in the Offered
Securities, including the loss of the entire
investment.
(iii) The Purchaser has prior substantial investment
experience, including investments in non-registered
securities, and the Purchaser recognizes the highly
speculative nature of an investment in the Offered
Securities.
(iv) The Purchaser has been afforded the opportunity to ask
questions of, and receive answers from, directors and
executive officers of the Company concerning the
Company , the terms and conditions of the offering of
the Offered Securities and any additional information
requested by the Purchaser. The Purchaser has been
furnished with all information and all documents which
the Purchaser has requested.
(v) Neither the offer nor the sale of the Offered
Securities is being registered under the Securities Act
or the
3
<PAGE>
securities laws of any state. The Offered Securities
are being offered and sold in reliance on exemptions
from registration under the Securities Act and the
various state securities laws for transactions not
involving any public offering. Accordingly, none of the
Offered Securities can be sold, pledged, hypothecated
or otherwise transferred (each individually a
"Transfer") by the Purchaser unless and until each is
registered under the Securities Act and the securities
laws of each applicable state or an exemption from
registration pursuant to the Securities Act and such
laws is available to the Purchaser.
(vi) The Company is relying on exemptions from the various
federal and state securities laws which depend, in
part, upon the Purchaser's investment intent and upon
the information the Purchaser has set forth in this
Agreement. This Agreement is delivered to the Company
by the Purchaser with the understanding and intent that
the Company will rely on the information contained in
this Agreement and with the Purchaser's consent to such
reliance.
(vii) The Offered Securities are being purchased by the
Purchaser for the Purchaser's own account for
investment and not for distribution or resale or
fractionalization thereof or reselling thereof or any
part thereof within the meaning of the Securities Act
other than in compliance therewith or in accordance
with an exemption therefrom. The Purchaser will not
transfer any of the Offered Securities unless they are
registered under the Securities Act and the securities
laws of each applicable state or unless an exemption
from each such registration is available for such
Transfer, and such Transfer will not violate the terms
of this Agreement or the Offered Securities. The
Purchaser has adequate means of providing for the
Purchaser's current needs and possible personal and
business contingencies and has no need for liquidity of
this investment in the Offered Securities.
(viii) The Purchaser specifically represents that it has not
received any advertisement, article, notice or other
communication published in a newspaper, magazine, or
similar media or broadcast over television or radio,
nor has the Purchaser attended any seminar or meeting
to
4
<PAGE>
which the Purchaser has been invited by any general
solicitation or general advertising.
(ix) The Purchaser understands that the Offering has not
been registered under the Securities Act, nor pursuant
to the provisions of the securities or other laws of
any other applicable jurisdictions, in reliance upon
the exemption for private offerings contained in
Section 4(2) of the Securities Act promulgated
thereunder and the laws of such jurisdictions. The
Purchaser is fully aware that the Offered Securities,
subscribed for by the Purchaser are being sold to the
Purchaser in reliance upon such exemptions based upon
the Purchaser's representations, warranties and
agreements. The Purchaser is fully aware of the
restrictions on sale, transferability and assignment of
the Offered Securities, and that the Purchaser must
bear the economic risk of an investment herein for an
indefinite period of time because the Offering has not
been registered under the Securities Act and,
therefore, the Offered Securities cannot be offered or
sold unless the Offering is subsequently registered
under the Securities Act or an exemption from such
registration is available.
(x) The Purchaser's execution and delivery of this
Agreement has been duly authorized by all necessary
action. The Purchaser will not pledge, transfer or
assign this Agreement, or the Offered Securities which
the Purchaser is acquiring pursuant to this Offering,
without complying with all applicable securities laws.
The Purchaser is making the investment hereunder for
the Purchaser's own account and not for the account of
others and for investment purposes only and not with a
view to or for the transfer, assignment, resale or
distribution thereof, in whole or in part. The
Purchaser has no present plans to enter into any such
contract, undertaking, agreement or arrangement.
(xi) The Purchaser agrees that the Purchaser shall not
cancel, terminate or revoke this Agreement or any other
agreement executed by the Purchaser with respect to the
purchase of the Offered Securities subject to the
qualification, however, that enforcement of the rights
and remedies created hereby is subject to bankruptcy,
insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws of general applicability
5
<PAGE>
relating to or affecting creditors rights and to
general equity principles and that, if the Purchaser is
an individual, this Agreement shall survive the
Purchaser's death or disability, except as pursuant to
the laws of the applicable jurisdiction.
(xii) The Purchaser is aware that the purchase of Offered
Securities is a speculative investment involving a
significant degree of risk and that there is no
guarantee that the Purchaser will realize any return of
or gain from the Purchaser's investment.
(xiii) The Purchaser acknowledges that the Company and its
officers and agents have made no representations or
warranties, whether orally or in writing, or express or
implied, as to the financial condition, assets,
operations, business, prospects or condition of the
Company.
(xiv) The Purchaser understands the meaning and legal
consequences of the foregoing representations and
warranties, which are true and correct as of the date
hereof and will be true and correct as of the date of
the Purchaser's purchase of the Offered Securities
subscribed for herein. Each such representation and
warranty shall survive such purchase.
4. The Company hereby represents and agrees that:
(a) Organization. The Company is a corporation duly organized,
validly existing and in good standing as a corporation under the laws of the
State of Delaware, with full corporate power and authority to own and operate
its business and properties and to carry on its business as presently conducted
by it.
(b) Authorization; Issuance of the Offered Securities. The Company
has the full corporate power and authority to enter into and perform this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement and of all documents and instruments required hereby and the
consummation of the transactions contemplated hereby by the Company have been
duly authorized by all necessary corporate action of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance of this Agreement on the part of the Company
or to consummate the transactions contemplated hereby. This Agreement and the
other documents and instruments to be delivered by the Company have been, or
will be, duly and validly executed and delivered by the Company and constitute,
or upon the execution and delivery thereof will constitute, the valid and
binding obligations of the Company, enforceable against it in accordance with
their respective terms, subject to the qualification, however, that enforcement
of the rights and remedies created hereby is subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws of general
applicability relating to or affecting
6
<PAGE>
creditors rights and to general equity principles. The Offered Securities when
issued and paid for as provided for in this Agreement will be duly issued, fully
paid and non-assessable.
(c) The Company agrees that the Purchaser shall not cancel,
terminate or revoke this Agreement or any other agreement executed by the
Company with respect to the purchase of the Offered Securities, subject to the
qualification, however, that enforcement of the rights and remedies created
hereby is subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws of general applicability relating
to or affecting creditors rights and to general equity principles.
(d) The Company understands the meaning and legal consequences of
the foregoing representations and warranties, which are true and correct as of
the date hereof and will be true and correct as of the date of the Purchaser's
purchase of the Offered Securities subscribed for herein.
6. Disclaimer of Warranties; No Recourse to the Company. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT: (i) THE COMPANY HEREBY
EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY AND ALL OF THE OFFERED SECURITIES; (ii) THE OFFERED SECURITIES
ARE BEING SOLD "AS IS" "WHERE IS"; AND (iii) THE PURCHASER SHALL HAVE NO
RECOURSE TO THE COMPANY WITH RESPECT TO ANY MATTER ARISING OUT OF OR RELATING TO
THE SALE OF OFFERED SECURITIES.
7. All notices, requests, claims, demands, waivers and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered by hand, if delivered personally or by
courier, or five business days after being deposited in the mail (registered or
certified mail, postage prepaid, return receipt requested) properly addressed as
set forth below. Any such notice or other communication shall be addressed (a)
if to the Purchaser, at the address set forth below or at such other address as
the Purchaser shall have furnished to the Company in writing, or (b) if to any
subsequent holder of any of the Offered Securities purchased by the Purchaser,
at such address as shown on the Security Register of the Company or (c) if to
the Company, to 200 Schulz Drive, Third Floor, Red Bank, New Jersey 07701 or to
such other address and/or to the attention of such other copied person as the
Company shall have furnished to the Purchaser and each such other holder in
writing.
8. Any modification, waiver, amendment or termination of this Agreement or
any provision hereof shall be effective only if in writing and signed by all
parties to this Agreement.
9. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. The
Purchaser shall not be permitted to assign any of the Purchaser's rights,
interests or obligations hereunder except as specifically permitted hereunder.
Nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
7
<PAGE>
10. In the event any provision of this Agreement shall be held invalid or
unenforceable by any court, such holding shall not invalidate or render
unenforceable any other provision of this Agreement.
11. This Agreement shall be interpreted and construed in accordance with
the laws of the State of Delaware. This Agreement and the terms of the Offered
Securities constitute the entire agreement among the parties with respect to the
matters set forth herein.
12. The preamble to this Agreement and all annexes, schedules and exhibits
annexed herein are incorporated herein by this reference as if set forth herein
in their entirety.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
STRATUS SERVICES GROUP, INC.
By: /s/ Michael J. Rutkin
-----------------------------------
Name: Michael J. Rutkin
Title: President
CONGRESS FINANCIAL CORPORATION (WESTERN)
By: /s/ James DeSantis
-----------------------------------
Name:
Title: Senior Vice President
9
Exhibit 10.6.2
STOCK PURCHASE
AND
INVESTOR AGREEMENT
STOCK PURCHASE and INVESTOR AGREEMENT, (this "Agreement") made as of
August __, 1997, by and between STRATUS SERVICES GROUP, INC., a Delaware
corporation (the "Company") and AGR FINANCIAL, L.L.C. (hereinafter referred to
as the "Purchaser").
Recitals:
WHEREAS, the Company is contemplating to purchase from Royalpar
Industries, Inc., a Delaware corporation, Ewing Technical Design, Inc., a
Delaware corporation, LPL Technical Service, Inc., a California corporation, and
Mainstream Engineering Co., Inc., a Delaware corporation (collectively, the
"Sellers"), certain of the assets held in connection with, necessary for, or
material to the business of the Sellers, for the purchase price and upon the
terms and subject to the conditions set forth in that certain Asset Purchase
Agreement among the Company and Sellers;
WHEREAS, the Company has agreed to sell and issue to Purchaser shares of
the Company's common stock (the "Common Stock") in consideration for Purchaser's
consenting to the sale referred to in the previous paragraph and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged;
WHEREAS, the Company and the Purchaser desire to set forth the terms upon
which the 200,000 shares of Common Stock, par value $.01 per share (the "Offered
Securities") are offered by and purchased from the Company by the Purchaser and
for the purpose of assuring compliance with the various securities laws;
WHEREAS, the Company desires to confirm certain representations and
warranties of the Purchaser.
NOW, THEREFORE, in consideration of the premises and the terms,
provisions, covenants and conditions hereinafter set forth, and for other
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the respective meanings set forth below. All capitalized terms used herein and
not defined in this Section 1 shall have the meanings ascribed to such terms
elsewhere in this Agreement.
<PAGE>
The term "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the federal
securities laws with respect to the registration and public offering of
securities of the Company.
The term "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, government entity or government or any group comprised
of one or more of the foregoing.
The term "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time and the rules, regulations, decisions and
interpretations promulgated thereunder or such other federal act, rules,
regulations, decisions and interpretations as may regulate and require the
registration of the public offering of securities of the Company.
2. The Purchaser, by acquiring the Offered Securities for the
consideration described in the Recitals, hereby covenants and agrees that:
(a) Except as herein provided, it will not directly or indirectly
offer for sale or sell (within the meaning of the Securities Act) any of the
Offered Securities to any Person unless pursuant to:
(i) an effective registration statement under the
Securities Act ("Registration Statement") filed by the
Company covering such offer and sale; or
(ii) an exemption from registration under the Securities
Act; provided that prior to any such proposed transfer,
the Purchaser shall give written notice to the Company
of the Purchaser's intentions to effect such transfer,
which notice shall be accompanied by such evidence as
may be reasonably satisfactory to the Company that the
proposed transfer may be effected without registration
under the Securities Act, or
(iii) the provisions of Rule 144 under the Securities Act, if
applicable or any successor rule thereto.
(b) Any offer or sale of the Offered Securities shall be made in
accordance with the federal and state securities laws (including the prospectus
delivery requirements of the Securities Act), of applicable jurisdictions and
any other applicable law.
(c) Each of the shares of the Offered Securities transferred as
above provided shall bear the appropriate restrictive legend unless in the
opinion of legal counsel for the Purchaser (which counsel and opinion (in form,
scope and substance) shall be satisfactory to the Company), such legend is not
required in order to establish compliance with any provisions of the Securities
Act.
3. The Purchaser hereby represents and agrees that:
2
<PAGE>
(a) If a corporation, the corporation has full power, authority and
capacity to execute this Agreement, to make the representations and agreements
contained in this Agreement and to purchase the Offered Securities and this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary actions on the part of the Purchaser and this Agreement is a
legal, valid and binding obligation of the Purchaser enforceable against it in
accordance with its terms; and
(b) The Purchaser understands each of the following representations
and agreements, and hereby represents and agrees to each of the following with
the understanding that the Company will rely upon these representations and
agreements in determining whether the Company may sell the Offered Securities to
the Purchaser under applicable securities laws:
(i) The purchase of the Offered Securities is a long-term
investment and involves a high degree of risk. There is
no present market for the Offered Securities and no
market is currently expected to develop. It is unlikely
that the Purchaser will be able to liquidate the
Purchaser's investment in the event of an emergency; in
the event of any disposition or liquidation of the
Offered Securities, the Purchaser could sustain a loss
of part or all of the Purchaser's investment. The
transferability of the Offered Securities is extremely
limited.
(ii) The Purchaser is an "accredited investor" as such term
is defined in Rule 501 of Regulation D promulgated
under the Securities Act. The Purchaser is able to bear
the economic risk of an investment in the Offered
Securities, including the loss of the entire
investment.
(iii) The Purchaser has prior substantial investment
experience, including investments in non-registered
securities, and the Purchaser recognizes the highly
speculative nature of an investment in the Offered
Securities.
(iv) The Purchaser has been afforded the opportunity to ask
questions of, and receive answers from, directors and
executive officers of the Company concerning the
Company , the terms and conditions of the offering of
the Offered Securities and any additional information
requested by the Purchaser. The Purchaser has been
furnished with all information and all documents which
the Purchaser has requested.
(v) Neither the offer nor the sale of the Offered
Securities is being registered under the Securities Act
or the
3
<PAGE>
securities laws of any state. The Offered Securities
are being offered and sold in reliance on exemptions
from registration under the Securities Act and the
various state securities laws for transactions not
involving any public offering. Accordingly, none of the
Offered Securities can be sold, pledged, hypothecated
or otherwise transferred (each individually a
"Transfer") by the Purchaser unless and until each is
registered under the Securities Act and the securities
laws of each applicable state or an exemption from
registration pursuant to the Securities Act and such
laws is available to the Purchaser.
(vi) The Company is relying on exemptions from the various
federal and state securities laws which depend, in
part, upon the Purchaser's investment intent and upon
the information the Purchaser has set forth in this
Agreement. This Agreement is delivered to the Company
by the Purchaser with the understanding and intent that
the Company will rely on the information contained in
this Agreement and with the Purchaser's consent to such
reliance.
(vii) The Offered Securities are being purchased by the
Purchaser for the Purchaser's own account for
investment and not for distribution or resale or
fractionalization thereof or reselling thereof or any
part thereof within the meaning of the Securities Act
other than in compliance therewith or in accordance
with an exemption therefrom. The Purchaser will not
transfer any of the Offered Securities unless they are
registered under the Securities Act and the securities
laws of each applicable state or unless an exemption
from each such registration is available for such
Transfer, and such Transfer will not violate the terms
of this Agreement or the Offered Securities. The
Purchaser has adequate means of providing for the
Purchaser's current needs and possible personal and
business contingencies and has no need for liquidity of
this investment in the Offered Securities.
(viii) The Purchaser specifically represents that it has not
received any advertisement, article, notice or other
communication published in a newspaper, magazine, or
similar media or broadcast over television or radio,
nor has the Purchaser attended any seminar or meeting
to
4
<PAGE>
which the Purchaser has been invited by any general
solicitation or general advertising.
(ix) The Purchaser understands that the Offering has not
been registered under the Securities Act, nor pursuant
to the provisions of the securities or other laws of
any other applicable jurisdictions, in reliance upon
the exemption for private offerings contained in
Section 4(2) of the Securities Act promulgated
thereunder and the laws of such jurisdictions. The
Purchaser is fully aware that the Offered Securities,
subscribed for by the Purchaser are being sold to the
Purchaser in reliance upon such exemptions based upon
the Purchaser's representations, warranties and
agreements. The Purchaser is fully aware of the
restrictions on sale, transferability and assignment of
the Offered Securities, and that the Purchaser must
bear the economic risk of an investment herein for an
indefinite period of time because the Offering has not
been registered under the Securities Act and,
therefore, the Offered Securities cannot be offered or
sold unless the Offering is subsequently registered
under the Securities Act or an exemption from such
registration is available.
(x) The Purchaser's execution and delivery of this
Agreement has been duly authorized by all necessary
action. The Purchaser will not pledge, transfer or
assign this Agreement, or the Offered Securities which
the Purchaser is acquiring pursuant to this Offering,
without complying with all applicable securities laws.
The Purchaser is making the investment hereunder for
the Purchaser's own account and not for the account of
others and for investment purposes only and not with a
view to or for the transfer, assignment, resale or
distribution thereof, in whole or in part. The
Purchaser has no present plans to enter into any such
contract, undertaking, agreement or arrangement.
(xi) The Purchaser agrees that the Purchaser shall not
cancel, terminate or revoke this Agreement or any other
agreement executed by the Purchaser with respect to the
purchase of the Offered Securities subject to the
qualification, however, that enforcement of the rights
and remedies created hereby is subject to bankruptcy,
insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws of general applicability
5
<PAGE>
relating to or affecting creditors rights and to
general equity principles and that, if the Purchaser is
an individual, this Agreement shall survive the
Purchaser's death or disability, except as pursuant to
the laws of the applicable jurisdiction.
(xii) The Purchaser is aware that the purchase of Offered
Securities is a speculative investment involving a
significant degree of risk and that there is no
guarantee that the Purchaser will realize any return of
or gain from the Purchaser's investment.
(xiii) The Purchaser acknowledges that the Company and its
officers and agents have made no representations or
warranties, whether orally or in writing, or express or
implied, as to the financial condition, assets,
operations, business, prospects or condition of the
Company.
(xiv) The Purchaser understands the meaning and legal
consequences of the foregoing representations and
warranties, which are true and correct as of the date
hereof and will be true and correct as of the date of
the Purchaser's purchase of the Offered Securities
subscribed for herein. Each such representation and
warranty shall survive such purchase.
4. The Company hereby represents and agrees that:
(a) Organization. The Company is a corporation duly organized,
validly existing and in good standing as a corporation under the laws of the
State of Delaware, with full corporate power and authority to own and operate
its business and properties and to carry on its business as presently conducted
by it.
(b) Authorization; Issuance of the Offered Securities. The Company
has the full corporate power and authority to enter into and perform this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement and of all documents and instruments required hereby and the
consummation of the transactions contemplated hereby by the Company have been
duly authorized by all necessary corporate action of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance of this Agreement on the part of the Company
or to consummate the transactions contemplated hereby. This Agreement and the
other documents and instruments to be delivered by the Company have been, or
will be, duly and validly executed and delivered by the Company and constitute,
or upon the execution and delivery thereof will constitute, the valid and
binding obligations of the Company, enforceable against it in accordance with
their respective terms, subject to the qualification, however, that enforcement
of the rights and remedies created hereby is subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws of general
applicability relating to or affecting
6
<PAGE>
creditors rights and to general equity principles. The Offered Securities when
issued as provided for in this Agreement will be duly issued, fully paid and
non-assessable.
(c) The Company agrees that the Purchaser shall not cancel,
terminate or revoke this Agreement or any other agreement executed by the
Company with respect to the purchase of the Offered Securities, subject to the
qualification, however, that enforcement of the rights and remedies created
hereby is subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws of general applicability relating
to or affecting creditors rights and to general equity principles.
(d) The Company understands the meaning and legal consequences of
the foregoing representations and warranties, which are true and correct as of
the date hereof and will be true and correct as of the date of the Purchaser's
purchase of the Offered Securities subscribed for herein.
6. Disclaimer of Warranties; No Recourse to the Company. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT: (i) THE COMPANY HEREBY
EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY AND ALL OF THE OFFERED SECURITIES; (ii) THE OFFERED SECURITIES
ARE BEING SOLD "AS IS" "WHERE IS"; AND (iii) THE PURCHASER SHALL HAVE NO
RECOURSE TO THE COMPANY WITH RESPECT TO ANY MATTER ARISING OUT OF OR RELATING TO
THE SALE OF OFFERED SECURITIES.
7. All notices, requests, claims, demands, waivers and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered by hand, if delivered personally or by
courier, or five business days after being deposited in the mail (registered or
certified mail, postage prepaid, return receipt requested) properly addressed as
set forth below. Any such notice or other communication shall be addressed (a)
if to the Purchaser, at the address set forth below or at such other address as
the Purchaser shall have furnished to the Company in writing, or (b) if to any
subsequent holder of any of the Offered Securities purchased by the Purchaser,
at such address as shown on the Security Register of the Company or (c) if to
the Company, to 200 Schulz Drive, Third Floor, Red Bank, New Jersey 07701 or to
such other address and/or to the attention of such other copied person as the
Company shall have furnished to the Purchaser and each such other holder in
writing.
8. Any modification, waiver, amendment or termination of this Agreement or
any provision hereof shall be effective only if in writing and signed by all
parties to this Agreement.
9. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. The
Purchaser shall not be permitted to assign any of the Purchaser's rights,
interests or obligations hereunder except as specifically permitted hereunder.
Nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
7
<PAGE>
10. In the event any provision of this Agreement shall be held invalid or
unenforceable by any court, such holding shall not invalidate or render
unenforceable any other provision of this Agreement.
11. This Agreement shall be interpreted and construed in accordance with
the laws of the State of Delaware. This Agreement and the terms of the Offered
Securities constitute the entire agreement among the parties with respect to the
matters set forth herein.
12. The preamble to this Agreement and all annexes, schedules and exhibits
annexed herein are incorporated herein by this reference as if set forth herein
in their entirety.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
STRATUS SERVICES GROUP, INC.
By: /s/ Michael J. Rutkin
----------------------------------------
Name:
Title: President
AGR FINANCIAL, L.L.C.
By: /s/ G. Allen Geyer
----------------------------------------
Name:
Title: Managing Diector
Address: 100 Metroplex Drive
Edison, New Jersey 08817
9
STRATUS SERVICES GROUP, INC.
1999 EQUITY INCENTIVE PLAN
1. PURPOSE.
The purpose of this Stratus Services Group, Inc. 1999 Equity Incentive
Plan (the "Plan") is to advance the interests of Stratus Services Group,
Inc. (the "Company") and its subsidiaries by enhancing the ability of the
Company to (i) attract and retain employees and other persons or entities
who are in a position to make significant contributions to the success of
the Company and its subsidiaries; (ii) reward such persons for such
contributions; and (iii) encourage such persons or entities to take into
account the long-term interest of the Company through ownership of shares
of the Company's common stock, $.01 par value per share (the "Common
Stock").
The Plan is intended to accomplish these objectives by enabling the
Company to grant awards ("Awards") in the form of incentive stock options
("ISOs"), nonqualified stock options ("Nonqualified Options") (ISOs and
Nonqualified Options shall be collectively referred to herein as
"Options"), stock appreciation rights ("SARs"), restricted stock
("Restricted Stock"), deferred stock ("Deferred Stock"), or other stock
based awards ("Other Stock Based Awards"), all as more fully described
below.
2. ADMINISTRATION.
The Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee may be constituted to permit the Plan to comply with the
"disinterested administration" requirement of Rule 16b-3(c) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor rules, and to comply with the "outside director"
requirement of Section 162(m)(4)(c)(i) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations promulgated thereunder,
or any successor rules. The Committee will determine the recipients of
Awards, the times at which Awards will be made, the size and type or types
of Awards to be made to each recipient, and will set forth in each such
Award the terms, conditions and limitations applicable to the Award
granted. Awards may be made singly, in combination or in tandem. The
Committee will have full and exclusive power to interpret the Plan, to
adopt rules, regulations and guidelines relating to the Plan, to grant
waivers of Plan restrictions and to make all of the determinations
necessary for its administration. Such determinations and actions of the
Committee, and all other determinations and actions of the Committee made
or taken under authority granted by any provision of the Plan, will be
conclusive and binding on all parties.
3. EFFECTIVE DATE AND TERM OF PLAN.
The Plan will become effective on __________ ___, 1999. Awards under the
Plan may be made prior to that date, subject to the stockholders' approval
of the Plan.
<PAGE>
The Plan will terminate on __________ ___, 2009, subject to earlier
termination of the Plan by the Board pursuant to Section 18 herein. No
Award may be granted under the Plan after the termination date of the
Plan, but Awards previously granted may extend beyond that date pursuant
to the terms of such Awards.
4. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 16 herein, the aggregate
number of shares of Common Stock reserved for issuance pursuant to Awards
granted under the Plan shall be ____________. The maximum number of shares
of Common Stock which may be issued to the Chief Executive Officer ("CEO")
of the Company pursuant to all Awards granted the CEO under the Plan shall
not exceed thirty-five percent (35%) of the number of shares of the
Company's Common Stock reserved for issuance hereunder. The maximum number
of shares of the Company's Common Stock awarded to any other "Participant"
(as defined in Section 5 below) pursuant to all Awards granted to such
Participant under the Plan shall not exceed twenty percent (20%) of the
number of shares of the Company's Common Stock reserved for issuance
hereunder.
The shares of Common Stock delivered under the Plan may be either
authorized but unissued shares of Common Stock or shares of the Company's
Common Stock held by the Company as treasury shares, including shares of
Common Stock acquired by the Company in open market and private
transactions. No fractional shares of Common Stock will be delivered
pursuant to Awards granted under the Plan and the Committee shall
determine the manner in which fractional share value will be treated.
If any Award requiring exercise by a Participant for delivery of shares of
Common Stock is cancelled or terminates without having been exercised in
full, or if any Award payable in shares of Common Stock or cash is
satisfied in cash rather than Common Stock, the number of shares of Common
Stock as to which such Award was not exercised or for which cash was
substituted will be available for future Awards of Common Stock; provided,
however, that Common Stock subject to an Option cancelled upon the
exercise of an SAR shall not again be available for Awards under the Plan
unless, and to the extent that, the SAR is settled in cash. Shares of
Restricted Stock and Deferred Stock forfeited to the Company in accordance
with the Plan and the terms of the particular Award shall be available
again for Awards under the Plan unless the Committee determines otherwise.
5. ELIGIBILITY AND PARTICIPATION.
Those eligible to receive Awards under the Plan (each, a "Participant" and
collectively, the "Participants") will be persons in the employ of the
Company or any of its subsidiaries designated by the Committee
("Employees") and other persons or entities who, in the opinion of the
Committee, are in a position to make a significant contribution to the
success of the Company or its subsidiaries, including, without limitation,
consultants and agents of the Company or any subsidiary; provided, that
such consultants and agents have been actively engaged in the conduct of
the business of the Company or any subsidiary. A "subsidiary" for purposes
of the Plan will be a present or future
2
<PAGE>
corporation of which the Company owns or controls, or will own or control,
more than 50% of the total combined voting power of all classes of stock
or other equity interests.
6. OPTIONS.
(a) Nature of Options. An Option is an Award entitling the Participant
to purchase a specified number of shares of Common Stock at a
specified exercise price. Both ISOs, as defined in Section 422 of
the Code, and Nonqualified Options may be granted under the Plan;
provided however, that ISOs may be awarded only to Employees.
(b) Exercise Price. The exercise price of each Option shall be equal to
the "Fair Market Value" (as defined below) of the Common Stock on
the date the Award is granted to the Participant; provided, however,
that (i) in the Committee's discretion, the exercise price of a
Nonqualified Option may be less than the Fair Market Value of the
Common Stock on the date of grant; (ii) with respect to a
Participant who owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, the
option price of an ISO granted to such Participant shall not be less
than one hundred and ten percent (110%) of the Fair Market Value of
the Common Stock on the date the Award is granted; and (iii) with
respect to any Option repriced by the Committee, the exercise price
shall be equal to the Fair Market Value of the Common Stock on the
date such Option is repriced unless otherwise determined by the
Committee. For purposes of this Plan, Fair Market Value shall mean
the average of the closing bid and asked prices of the Common Stock
as reported on the Nasdaq Smallcap Market on a particular date, or
if not quoted on the Nasdaq Smallcap Market, the average the closing
bid and asked prices as furnished by a professional market maker
making a market in the Common Stock as selected by the Committee. If
the Common Stock is not publicly traded, Fair Market Value shall be
determined in good faith by the Board of Directors.
(c) Duration of Options. The term of each Option granted to a
Participant pursuant to an Award shall be determined by the
Committee; provided, however, that in no case shall an Option be
exercisable more than ten (10) years (five (5) years in the case of
an ISO granted to a ten-percent stockholder as defined in (b) above)
from the date of the Award.
(d) Exercise of Options and Conditions. Except as otherwise provided in
Sections 16 and 17 herein, and except as otherwise provided below
with respect to ISOs, Options granted pursuant to an Award will
become exercisable at such time or times, and on and subject to such
conditions, as the Committee may specify at the time of the Award.
The Options may be subject to such restrictions, conditions and
forfeiture provisions as the Committee may determine, including, but
not limited to, restrictions on transfer, continuous service with
the Company or any of its subsidiaries, achievement of business
objectives, and individual, division and Company performance. To the
extent exercisable, an Option may be exercised either in whole at
any time or in part from time to time. With respect to an ISO
3
<PAGE>
granted to a Participant, the Fair Market Value of the shares of
Common Stock on the date of grant which are exercisable for the
first time by a Participant during any calendar year shall not
exceed $100,000.
(e) Payment for and Delivery of Stock. Full payment for shares of Common
Stock purchased will be made at the time of the exercise of the
Option, in whole or in part. Payment of the purchase price will be
made in cash or in such other form as the Committee may permit,
including, without limitation, delivery of shares of Common Stock.
7. STOCK APPRECIATION RIGHTS.
(a) Nature of Stock Appreciation Rights. A SAR is an Award entitling the
recipient to receive payment, in cash and/or shares of Common Stock,
determined in whole or in part by reference to appreciation in the
value of a share of Common Stock. A SAR entitles the recipient to
receive in cash and/or shares of Common Stock, with respect to each
SAR exercised, the excess of the Fair Market Value of a share of
Common Stock on the date of exercise over the Fair Market Value of a
share of Common Stock on the date the SAR was granted.
(b) Grant of SARs. SARs may be subject to Awards in tandem with, or
independently of, Options granted under the Plan. A SAR granted in
tandem with an Option which is not an ISO may be granted either at
or after the time the Option is granted. A SAR granted in tandem
with an ISO may be granted only at the time the ISO is granted and
may expire no later than the expiration of the underlying ISO.
(c) Exercise of SARs. A SAR not granted in tandem with an Option will
become exercisable at such time or times, and on such conditions, as
the Committee may specify. A SAR granted in tandem with an Option
will be exercisable only at such times, and to the extent, that the
related option is exercisable. A SAR granted in tandem with an ISO
may be exercised only when the market price of the shares of Common
Stock subject to the ISO exceeds the exercise price of the ISO, and
the SAR may be for no more than one hundred percent (100%) of the
difference between the exercise price of the underlying ISO and the
Fair Market Value of the Common Stock subject to the underlying ISO
at the time the SAR is exercised. At the option of the Committee,
upon exercise, an SAR may be settled in cash, Common Stock or a
combination of both.
8. RESTRICTED STOCK.
A Restricted Stock Award entitles the recipient to acquire shares of
Common Stock, subject to certain restrictions or conditions, for no cash
consideration, if permitted by applicable law, or for such other
consideration as may be determined by the Committee. The Award may be
subject to such restrictions, conditions and forfeiture provisions as the
Committee may determine, including, but not limited to, restrictions on
transfer, continuous service with the Company or any of its subsidiaries,
achievement of business
4
<PAGE>
objectives, and individual, division and Company performance. Subject to
such restrictions, conditions and forfeiture provisions as may be
established by the Committee, any Participant receiving an Award of
Restricted Stock will have all the rights of a stockholder of the Company
with respect to the shares of Restricted Stock, including the right to
vote the shares and the right to receive any dividends thereon.
9. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of Common
Stock to be delivered in the future. Delivery of the shares of Common
Stock will take place at such time or times, and on such conditions, as
the Committee may specify. At the time any Deferred Stock Award is
granted, the Committee may provide that the Participant will receive an
instrument evidencing the Participant's right to future delivery of
Deferred Stock.
10. OTHER STOCK BASED AWARDS.
The Committee shall have the right to grant Other Stock Based Awards under
the Plan to Employees which may include, without limitation, the grant of
shares of Common Stock as bonus compensation and the issuance of shares of
Common Stock in lieu of an Employee's cash compensation.
11. AWARD AGREEMENTS.
The grant of any Award under the Plan may be evidenced by an agreement
which shall describe the specific Award granted and the terms and
conditions of the Award. Any Award shall be subject to the terms and
conditions of any such agreement required by the Committee.
12. TRANSFERS.
No Award (other than an outright Award in the form of Common Stock without
any restrictions) may be assigned, pledged or transferred other than by
will or by the laws of descent and distribution and, during a
Participant's lifetime, will be exercisable only by the Participant or, in
the event of a Participant's incapacity, by the Participant's guardian or
legal representative.
13. RIGHTS OF A STOCKHOLDER.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder of the Company. The
Participant will obtain such rights, subject to any limitations imposed by
the Plan, or the instrument evidencing the Award, upon actual receipt of
shares of Common Stock.
14. CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Common Stock
pursuant to the Plan or to remove any restrictions or legends from shares
of Common Stock
5
<PAGE>
previously delivered under the Plan until, (a) in the opinion of the
Company's counsel, all applicable federal and state laws and regulations
have been complied with, (b) until the shares of Common Stock to be
delivered have been listed or authorized to be listed on the Nasdaq
Smallcap Market, and (c) until all other legal matters in connection with
the issuance and delivery of such shares of Common Stock have been
approved by the Company's counsel. If the sale of shares of Common Stock
has not been registered under the Securities Act of 1933, as amended (the
"Act"), and qualified under the appropriate "blue sky" laws, the Company
may require, as a condition to exercise of the Award, such representations
and agreements as counsel for the Company may consider appropriate to
avoid violation of such Act and laws and may require that the certificates
evidencing such shares of Common Stock bear an appropriate legend
restricting transfer.
If an Award is exercised by a Participant's legal representative, the
Company will be under no obligation to deliver shares of Common Stock
pursuant to such exercise until the Company is satisfied as to the
authority of such representative.
15. TAX WITHHOLDING.
The Company will have the right to deduct from any cash payment under the
Plan taxes that are required to be withheld and to condition the
obligation to deliver or vest shares of Common Stock under this Plan upon
the
Participant's paying the Company such amount as the Company may request to
satisfy any liability for applicable withholding taxes. The Committee may
in its discretion permit Participants to satisfy all or part of their
withholding liability either by delivery of shares of Common Stock held by
the Participant or by withholding shares of Common Stock to be delivered
to a Participant upon the grant or exercise of an Award.
16. ADJUSTMENT OF AWARD.
(a) In the event that a dividend shall be declared upon the Common Stock
payable in shares of Common Stock, the number of shares of the
Common Stock then subject to any Award and the number of shares of
the Common Stock which may be issued under the Plan but not yet
covered by an Award shall be adjusted by adding to each share the
number of shares which would be distributable thereon if such shares
had been outstanding on the date fixed for determining the
stockholders entitled to receive such stock dividend. In the event
that the outstanding shares of the Common Stock shall be changed
into or exchanged for a different number or kind of shares of Common
Stock or other securities of the Company or of another corporation
or for cash, whether through reorganization, recapitalization, stock
split, combination of shares, sale of assets, merger or
consolidation in which the Company is the surviving corporation,
then, there shall be substituted for each share of the Common Stock
then subject to any Award, the number and kind of shares of stock or
other securities or the amount of cash into which each outstanding
share of the Common Stock shall be so changed or for which each such
share shall be exchanged.
6
<PAGE>
(b) In the event of a proposal, which is approved by the Board, of any
merger or consolidation involving the Company where the Company is
not the surviving entity, any sale of substantially all of the
Company's assets or any other transaction or series of related
transactions as a result of which a single person or several persons
acting in concert own a majority of the Company's then outstanding
Common Stock (such merger, consolidation, sale of assets, or other
transaction being hereinafter referred to as a "Transaction"), all
outstanding options and SARs shall become exercisable immediately
before or contemporaneously with the consummation of such
Transaction and each outstanding share of Restricted Stock and each
outstanding Deferred Stock Award shall immediately become free of
all restrictions and conditions upon consummation of such
Transaction. Immediately following the consummation of the
Transaction, all outstanding Options and SARs shall terminate and
cease to be exercisable.
In lieu of the foregoing, if the Company will not be the surviving
corporation or entity, the Committee may arrange to have such
acquiring or surviving corporation or entity, or an "Affiliate,, (as
defined below) thereof, grant replacement Awards which shall be
immediately exercisable to Participants holding outstanding Awards.
The term "Affiliate," with respect to any Person, shall mean any
other Person who is, or would be deemed to be an "affiliate" or an
"associate" of such Person within the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act. The term "Person" shall mean a corporation,
association, partnership, joint venture, trust, organization,
business, individual or government or any governmental agency or
political subdivision thereof.
(c) In the event of the dissolution or liquidation of the Company
(except a dissolution or liquidation relating to a sale of assets or
other reorganization of the Company referred to in the preceding
sections), the outstanding options and SARs shall terminate as of a
date fixed by the Committee; provided, however, that not less than
thirty (30) days written notice of the date so fixed shall be given
to each Participant who shall have the right during such period to
exercise the Participant's Options or SARs as to all or any part of
the shares of Common Stock covered thereby. Further, in the event of
the dissolution or liquidation of the Company, each outstanding
share of Restricted Stock and each outstanding Deferred Stock Award
shall immediately become free of all restrictions and conditions.
17. TERMINATION OF SERVICE.
Upon a Participant's termination of service with the Company or a
subsidiary (if an employee only of a subsidiary), any outstanding Award
shall be subject to the terms and conditions set forth below, unless
otherwise determined by the Committee:
7
<PAGE>
(a) In the event a Participant leaves the employ or service of the
Company or a subsidiary of the Company, prior to the Participant's
65th birthday, whether voluntarily or otherwise but other than by
reason of the Participant's death or "disability" (as such term is
defined in Section 22(e)(3) of the Code), each Option and SAR
granted to the Participant shall terminate upon the earlier to occur
of (i) the expiration of the period three (3) months after the date
of such termination and (ii) the date specified in the Option or
SAR; provided, that, prior to the termination of such Option or SAR,
the Participant shall be able to exercise any part of the Option or
SAR which is exercisable as of the date of termination. Further,
each outstanding share of Restricted Stock and each outstanding
Deferred Stock Award which remains subject to any restrictions or
conditions of the Award shall be forfeited to the Company upon such
date of termination.
(b) In the event a Participant's employment with or service to the
Company or its subsidiaries terminates by reason of the
Participant's death or "disability" (as such term is defined in
Section 22(e)(3) of the Code), each Option and SAR granted to the
Participant shall become immediately exercisable in full and shall
terminate upon the earlier to occur of (i) the expiration of the
period six (6) months after the date of such termination and (ii)
the date specified in the option or SAR. Further, each outstanding
share of Restricted Stock and each outstanding Deferred Stock Award
shall immediately become free of all restrictions and conditions
upon the date of such termination.
(c) In the event a Participant voluntarily leaves the employ or service
of the Company or a subsidiary of the Company, after the
Participant's 65th birthday, each Option and SAR granted to the
Participant shall become immediately exercisable in full and shall
terminate upon the earlier to occur of (i) the expiration of three
(3) months after the date of such termination and (ii) the date
specified in the Option or SAR. Further, each outstanding share of
Restricted Stock and each outstanding Deferred Stock Award shall
immediately become free of all restrictions and conditions upon the
date of such termination unless otherwise provided in the Award. If
the Participant involuntarily leaves the employ or service of the
Company or a subsidiary after the Participant's 65th birthday, each
Option and SAR granted to the Participant shall terminate upon the
earlier to occur of (i) the expiration of three (3) months after the
date of such termination and (ii) the date specified in the Option
or SAR; provided, that, prior to the termination of such Option or
SAR, the Participant shall be able to exercise any part of the
Option or SAR which is exercisable as of the date of termination.
Further, each outstanding share of Restricted Stock and each
outstanding Deferred Stock Award which remains subject to any
restrictions or conditions of the Award shall be forfeited to the
Company upon such date of termination.
18. AMENDMENTS AND TERMINATION.
The Committee will have the authority to make such amendments to any terms
and conditions applicable to outstanding Awards as are consistent with
this Plan; provided, that, except for adjustments under Section 16 hereof,
no such action will modify such
8
<PAGE>
Award in a manner adverse to the Participant without the Participant's
consent except as such modification is provided for or contemplated in the
terms of the Award.
The Board may amend, suspend or terminate the Plan, except (i) no such
action may be taken, without stockholder approval, which would effectuate
any change for which stockholder approval is required pursuant to Section
16 of the Exchange Act or Section 162(m) of the Code, and (ii) no action
may, without the consent of a Participant, alter or impair any Award
previously granted to the Participant under the Plan.
19. SUCCESSORS AND ASSIGNS.
The provisions of this Plan shall be binding upon all successors and
assigns of any such Participant including, without limitation, the estate
of any such Participant and the executors, administrators, or trustees of
such estate, and any receiver, trustee in bankruptcy or representative of
the creditors of any such Participant.
20. MISCELLANEOUS.
(a) This Plan shall be governed by and construed in accordance with the
laws of the State of New Jersey.
(b) Any and all funds received by the Company under the Plan may be used
for any corporate purpose.
(c) Nothing contained in the Plan or any Award granted under the Plan
shall confer upon a Participant any right to be continued in the
employment of the Company or any subsidiary, or interfere in any way
with the right of the Company, or its subsidiaries, to terminate the
employment relationship at any time.
9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form SB-2 Registration No. 333-83255) and related
Prospectus of Stratus Services Group, Inc. for the registration of 1,500,000
shares of its Common Stock and to the use in this Registration Statement (Form
SB-2) of our reports dated July 16, 1999, with respect to the financial
statements of Stratus Services Group, Inc. and Royalpar Industries, Inc. and
Subsidiaries for the periods ended September 30, 1998 and 1997 and August 11,
1997 and March 31, 1997 and our report dated August 20, 1999 for B & R
Employment, Inc. for the years ended December 31, 1998 and 1997.
/s/ AMPER, POLITZINER & MATTIA P.A
AMPER, POLITZINER & MATTIA P.A
August 30, 1999
Edison, New Jersey
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Consolidated Balance Sheets as of September 30, 1998 and June 30,
1999 and the Registrant's Statement of Operations for the fiscal year ended
September 30, 1998 and the nine months ended June 30, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 41,441
<SECURITIES> 0
<RECEIVABLES> 1,403,559
<ALLOWANCES> 696,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,243,941
<PP&E> 362,139
<DEPRECIATION> 93,309
<TOTAL-ASSETS> 4,070,363
<CURRENT-LIABILITIES> 5,569,675
<BONDS> 0
0
0
<COMMON> 40,809
<OTHER-SE> (2,306,565)
<TOTAL-LIABILITY-AND-EQUITY> 4,070,363
<SALES> 21,263,817
<TOTAL-REVENUES> 21,263,817
<CGS> 16,843,326
<TOTAL-COSTS> 16,843,326
<OTHER-EXPENSES> 5,294,617
<LOSS-PROVISION> 595,000
<INTEREST-EXPENSE> 209,679
<INCOME-PRETAX> (1,678,805)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,678,805)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,678,805)
<EPS-BASIC> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's Consolidated Balance Sheets as of September 30, 1998 and June 30,
1999 and the Registrant's Statement of Operations for the fiscal year ended
September 30, 1998 and the nine months ended June 30, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 249,987
<SECURITIES> 0
<RECEIVABLES> 407,466
<ALLOWANCES> 37,000
<INVENTORY> 0
<CURRENT-ASSETS> 847,874
<PP&E> 137,878
<DEPRECIATION> 42,316
<TOTAL-ASSETS> 1,094,649
<CURRENT-LIABILITIES> 2,832,899
<BONDS> 0
0
0
<COMMON> 37,198
<OTHER-SE> (1,775,448)
<TOTAL-LIABILITY-AND-EQUITY> 1,094,649
<SALES> 24,919,639
<TOTAL-REVENUES> 24,919,639
<CGS> 20,329,718
<TOTAL-COSTS> 20,329,718
<OTHER-EXPENSES> 6,351,101
<LOSS-PROVISION> 670,445
<INTEREST-EXPENSE> 48,170
<INCOME-PRETAX> (2,479,795)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,479,795)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,479,795)
<EPS-BASIC> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
