Exhibit 10.12
AGREEMENT TO CANCEL SECURED PROMISSORY NOTE
AND PLEDGE AGREEMENT
AND
TO EXCHANGE SUCH SECURED PROMISSORY NOTE
AND CERTAIN DEBENTURES
FOR PREFERRED SHARES
THIS AGREEMENT, dated as of March 11, 2002, is entered into by and
between STRATUS SERVICES GROUP, INC., a Delaware corporation, with headquarters
located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Company") and Pinnacle Investment Partners, L.P., a New York limited
partnership, with headquarters c/o Hornblower & Weeks, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Pinnacle").
WITNESSETH:
WHEREAS, on January 2, 2002, the Company executed a Secured Promissory
Note (the "Note") in the amount of $400,000.00 in favor of Pinnacle; and
WHEREAS, as security for such Note, the Company also granted Pinnacle a
security interest in certain Pledged Collateral as defined in a certain Pledge
and Security Agreement dated as of even date thereof; and
WHEREAS, on that same date Pinnacle purchased from third parties
certain of the Company's 6% Convertible Debentures (the "Convertible
Debentures") in the aggregate principal amount of $643,501 and purchased from
the Company additional Convertible Debentures in the aggregate principal amount
of $456,499; and
WHEREAS, Pinnacle has converted a portion of the Convertible Debentures
(those purchased from third parties) of the Company into 1,736,979 shares of
common stock; and
WHEREAS, Pinnacle is desirous of exchanging the $400,000.00 Note and
the $456,499 remaining Convertible Debentures for a Series B preferred stock
equity interest in the Company, the terms of such preferred stock (the
"Preferred Stock") being substantially in the form of the Certificate of
Designation attached as Exhibit A hereto; and
WHEREAS, in further consideration for the exchange of the Note and the
Convertible Debentures
for Preferred Stock, Pinnacle has agreed to release the Company from the Pledge
and Security Agreement and to, in turn, release the Pledged Collateral
thereunder.
NOW, THEREFORE, in consideration for the foregoing, the parties hereto
agree as follows:
1. Pinnacle's Note in the principal amount of $400,000 will be exchanged on
March 11, 2002 for 80,000 shares of Preferred Stock, $.01 par value per
share and accrued interest thereon of $12,305 as of March 11, 2002 will be
paid to Pinnacle in cash;
2. Pinnacle's $456,499 remaining Convertible Debentures will be exchanged on
March 11, 2002 for 91,300 shares of Preferred Stock, $.01 par value per
share;
3. The Pledge and Security Agreement will be cancelled and the Pledged
Collateral released on March 11, 2002; and
4. If Preferred Stock is to be issued in the name of an entity other than
Pinnacle, Pinnacle will pay all transfer taxes payable with respect thereto.
No fee will be charged to Pinnacle for the exchange except for such transfer
taxes, if any.
5. PINNACLE'S REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION. Pinnacle represents and warrants to, and
covenants and agrees with, the Company as follows:
a. Pinnacle is exchanging the Note and Convertible Debentures for the
Preferred Stock for its own account for investment only and not with
a view towards the public sale or distribution thereof and not with
a view to or for sale in connection with any distribution thereof.
b. Pinnacle is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), and (ii) experienced in making investments
of the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of
its officers (if an entity) and professional advisors (who are not
affiliated with or compensated in any way by the Company or any of
its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of
its investment in the Preferred.
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c. Pinnacle understands that the Note and Convertible Debentures are
being exchanged for the Preferred Stock in reliance on specific
exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and Pinnacle's compliance with, the
representations, warranties, agreements, acknowledgements and
understandings of Pinnacle set forth herein in order to determine
the availability of such exemptions and the eligibility of Pinnacle
to acquire the Preferred Stock.
d. Pinnacle and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the
Company and materials relating to the conversion of the Note and
Convertible Debentures and the issuance of Preferred Stock which
have been requested by Pinnacle. Pinnacle and its advisors, if any,
have been afforded the opportunity to ask questions of the Company
and have received complete and satisfactory answers to any such
inquiries;
e. Pinnacle understands that no United States federal or state agency
or any other government or governmental agency has passed on or made
any recommendation or endorsement of the Preferred Shares.
f. This Agreement has been duly and validly authorized, executed and
delivered on behalf of Pinnacle and is a valid and binding agreement
of Pinnacle enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
6. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to
Pinnacle that:
a. CONCERNING THE COMMON STOCK. There are no preemptive rights of any
stockholder of the Company, as such, to acquire the Company's
Preferred Stock. The shares of Common Stock issuable upon conversion
of the Preferred Stock (the "Shares") within sixty (60) days of the
date of this Agreement will be registered for resale under a
currently effective registration statement filed under the
Securities Act of 1933, as amended (the "1933 Act').
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware, and has the requisite corporate power to own
its properties and to carry on its business as now being conducted.
The Company is duly
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qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary
other than those jurisdictions in which the failure to so qualify
would not have a material and adverse effect on the business,
operations, properties, prospects or condition (financial or
otherwise) of the Company. The Company has registered its Common
Stock pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the Common Stock is listed and
traded on the OTC Bulletin Board Market.
c. AUTHORIZED SHARES. The shares of Preferred Stock to be issued
pursuant to this Agreement and the Shares of Common Stock issuable
upon conversion of the Preferred Stock have been duly authorized
and, when issued to Pinnacle, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder.
d. CONVERSION AGREEMENT. This Agreement and the transactions
contemplated hereby, have been duly and validly authorized by the
Company. This Agreement has been duly executed and delivered by the
Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this Agreement by
the Company, the issuance of the Preferred Stock, and the
consummation by the Company of the other transactions contemplated
by this Agreement do not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or
constitute a default under (i) the articles of incorporation or
by-laws of the Company, (ii) any indenture, mortgage, deed of trust,
or other material agreement or instrument to which the Company is a
party or by which it or any of its properties or assets are bound,
(iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or (iv) to its
knowledge, order of any court, United States federal or state
regulatory body, administrative agency, or other governmental body
having
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jurisdiction over the Company or any of its properties or assets,
except such conflict, breach or default which would not have a
material adverse effect on the transactions contemplated herein. The
Company is not in violation of any material laws, governmental
orders, rules, regulations or ordinances to which its property,
real, personal, mixed, tangible or intangible, or its businesses
related to such properties, are subject.
f. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market is required to be obtained by the
Company for the issuance and sale of the Preferred Stock to Pinnacle
as contemplated by this Agreement, except such authorizations,
approvals and consents that have been obtained.
g. SEC DOCUMENTS, FINANCIAL STATEMENTS. The Company has filed all
reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant
to Section 13(a) or 15(d), in addition to one or more registration
statements and amendments thereto heretofore filed by the Company
with the SEC under the Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the
"SEC Documents"). The Company, through its agent, has delivered to
Pinnacle true and complete copies of the SEC Documents (except for
exhibits and incorporated documents). The Company has not provided
to Pinnacle any information which, according to applicable law, rule
or regulation, should have been disclosed publicly by the Company
but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement.
As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Act or the Exchange
Act as the case may be and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws,
rules and regulations applicable to such SEC Documents, and none of
the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC
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Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes
thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit adjustments).
h. ABSENCE OF CERTAIN CHANGES. Since September 30, 2001, there has been
no material adverse change and no material adverse development in
the business, properties, operations, financial condition, or
results of operations of the Company, other than the Nasdaq
delisting as of February 27, 2002 of the Company's Common Stock, and
other than as disclosed in the Company's Form 10-K/A filed with the
Securities and Exchange Commission on March 5, 2002 and in the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001.
i. FULL DISCLOSURE. Other than as set forth above, there is no fact
known to the Company (other than general economic conditions known
to the public generally) or as disclosed in the documents referred
to in Section 2(g), that has not been disclosed in writing to
Pinnacle that (i) would reasonably be expected to have a material
adverse effect on the business or financial condition of the Company
or (ii) would reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations
pursuant to this Agreement.
7. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the exchange of the Shares to Pinnacle
under any United States laws and regulations, or by any
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domestic securities exchange or trading market, and to provide a
copy thereof to Pinnacle promptly after such filing.
b. REPORTING STATUS. So long as Pinnacle beneficially owns any of the
Shares, the Company shall file all reports required to be filed with
the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the
Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination.
c. SHAREHOLDER APPROVAL. If applicable (i.e., if the Company is
reinstated for listing on the Nasdaq SmallCap Market), the Company
agrees to seek shareholder approval in accordance with Nasdaq's
corporate governance rules at a special meeting of its shareholders
or, if permitted by Nasdaq, to solicit written consents to issuance
of shares, upon conversion of all of the Company's Preferred Stock
in excess of 19.99% of its outstanding shares of Common Stock. The
Company will use its best efforts to cause its shareholders,
including but not limited to, its officers, directors and 5%
shareholders, to vote in favor of such proposal.
8. SECURITIES ACT REGISTRATION.
a. The Company shall use its best efforts to:
i. Prepare and file with the SEC a registration statement on
Form S-1 relating to the shares of Company common stock
issuable upon conversion of the Preferred Stock within
thirty (30) days of the date hereof naming Pinnacle as a
selling shareholder and keep such registration statement
effective for until Pinnacle can sell such shares without
restriction under Rule 144(k). In the event that the
registration statement is not declared effective within
sixty (60) days of the date hereof, the Company shall pay
Pinnacle within three (3) business days at the end of each
month a cash payment equal to two percent (2%) per month as
liquated damages and not as a penalty.
ii. Prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such registration
statement as may be necessary to comply with the provisions
of the 1933 Act with respect to the
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disposition of all securities covered by such registration
statement and notify the holders of the filing and
effectiveness of such Registration statement and any
amendments or supplements;
iii. Furnish to Pinnacle such numbers of copies of a current
prospectus, including a preliminary prospectus, conforming
with the requirements of the 1933 Act, copies of the
registration statement any amendment or supplement to any
thereof and any documents incorporated by reference
therein, and such other documents as Pinnacle may
reasonably require in order to facilitate the disposition
of the shares of Common Stock issuable under the Preferred
Stock;
iv. Use its best efforts to register and qualify the securities
covered by such registration statement under such other
securities or "Blue Sky" laws of such jurisdictions as
shall be reasonably requested by Pinnacle;
v. Notify Pinnacle immediately 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 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 use its best efforts to
promptly update and/or correct such prospectus.
b. Upon request of the Company, Pinnacle will furnish to the Company in
connection with any registration under this Section such information
regarding itself, the securities of the Company held by it, and the
intended method of disposition of such securities as shall be
reasonably required to affect the registration of the securities
held by Pinnacle.
c. i. To the fullest extent permitted by law, the Company shall
indemnify, defend and hold harmless Pinnacle and each of
its officers, directors, employees, agents, partners or
controlling persons (within the meaning of the ▇▇▇▇ ▇▇▇)
(each, an "indemnified party") from and against, and shall
reimburse such indemnified party with respect to, any and
all claims, suits, demands, causes of action, losses,
damages, liabilities, costs or expenses
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("Liabilities") to which such indemnified party may become
subject under the 1933 Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue
statement of any material fact contained in such
registration statement, any prospectus contained therein or
any amendment or supplement thereto, or (B) the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were
made, not misleading; PROVIDED, HOWEVER, that the Company
shall not be liable in any such case to the extent that any
such Liability arises out of or is based upon an untrue
statement or omission so made in strict conformity with
information furnished by such indemnified party in writing
specifically for use in the registration statement.
ii. Pinnacle agrees to indemnity, defend and hold harmless the
Company, and its officers, directors, employees, agents,
partners, or controlling persons (within the meaning of the
▇▇▇▇ ▇▇▇) (each, an "indemnified party") from and against,
and shall reimburse such indemnified party with respect to,
any and all Liabilities to which such indemnified party may
become subject under the 1933 Act or otherwise, arising
from or relating to (A) any untrue statement or alleged
untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or
any amendment or supplement thereto, or (B) the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were
made, not misleading; PROVIDED, THAT Pinnacle will be
liable in any such case to the extent and only to the
extent, that any such Liability arises out of or is based
upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration
statement, prospectus or amendment or supplement thereto in
reliance upon and in conformity with written information
furnished by Pinnacle specifically for use in the
preparation thereof, and such Liability may in no event
exceed the value of the registrable securities so
registered.
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iii. Promptly after receipt by any indemnified party of notice
of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against
another party (the "indemnifying party") hereunder, notify
such party in writing thereof, but the omission so to
notify such party shall not relieve such party from any
Liability which it may have to the indemnified party other
than under this Section and shall only relieve it from any
Liability which it may have to the indemnified party under
this Section if and to the extent an indemnifying party is
materially prejudiced by such omission. In case any such
action shall be brought against any indemnified party and
such indemnified party shall notify an indemnifying party
of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall
wish, to assume and undertake the defense thereof with
counsel reasonably satisfactory to such indemnified party,
and, after notice from the indemnifying party to the
indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall
not be liable to the indemnified party under this Section
for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof
other than reasonable costs of investigation and of liaison
with counsel so selected; PROVIDED, HOWEVER, that if the
defendants in any such action include both parties and the
indemnified party shall have reasonably concluded that
there may be reasonable defenses available to them which
are different from or additional to those available to the
indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in
the defense of such action, with the reasonable expenses
and fees of one such separate counsel and other reasonable
expenses related to such participation to be reimbursed by
the indemnifying party as incurred.
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d. With respect to the above-referenced registration statement, all
fees, costs and expenses of and incidental to such registration,
inclusion and public offering shall be borne by the Company, except
any underwriting discounts and commissions.
e. The rights to cause the Company to register all or any portion of
securities pursuant to this Section 8 may be assigned by Pinnacle to
a proper transferee or assignee as described herein. Within a
reasonable time after such transfer, Pinnacle shall notify the
Company of the name and address of such transferee or assignee, and
the securities with respect to which such registration rights are
being assigned. Such assignment shall be effective only if, (i)
Pinnacle agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such transfer or assignment
(subject to the purchase price of the shares being kept confidential
by Pinnacle and such transferee or assignee, (ii) the Company is,
within a reasonable time after such transfer or assignment,
furnished with written notice of (A) the name and address of such
transferee or assignee, (B) the securities with respect to which
such registration rights are being assigned, (iii) following such
transfer or assignment, the further disposition of the securities by
the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time that
the Company receives the written notice contemplated by clause (ii)
of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein,
(v) such transfer shall have been made in accordance with the
applicable requirements of the purchase agreement covering the
transaction and (vi) such transferee shall be an "accredited
investor", as that term is defined in Rule 501 of Regulation D,
promulgated under the 1933 Act.
9. GOVERNING LAW: MISCELLANEOUS. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York. A
facsimile transmission of this signed Agreement shall be legal and binding
on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of
this Agreement are for convenience of reference and shall not form part of,
or affect the interpretation of, this Agreement. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the
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validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction. This
Agreement may be amended only by an instrument in writing signed by the
party to be charged with enforcement. This Agreement, and the related
agreements referred to herein, contain the entire agreement of the parties
with respect to the subject matter hereto, superceding all prior agreements,
understandings or discussions.
10. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given, (i) on the date delivered, (a) by personal delivery, or (b) if
advance copy is given by fax, (ii) seven business days after deposit in the
United States Postal Service by regular or certified mail, or (iii) three
business days mailing by international express courier, with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at
the following addresses, or at such other addresses as a party may designate
by ten days advance written notice to each of the other parties hereto.
COMPANY: STRATUS SERVICES GROUP, INC.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopier No.: (▇▇▇)▇▇▇-▇▇▇▇
PINNACLE: PINNACLE INVESTMENT PARTNERS, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇.
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
permitted assigns.
IN WITNESS WHEREOF, the Company and Pinnacle have caused this Agreement to
be executed by their duly authorized representatives on the date as first
written above.
STRATUS SERVICES GROUP, INC. PINNACLE INVESTMENT PARTNERS, L.P.
By: PIP Management, Inc., General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------- --------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, CFO ▇▇▇▇▇ ▇▇▇▇▇▇, President
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