EXHIBIT 10.3
PROMISSORY NOTE
U.S. $1,800,000 July 27, 2001
Manalapan, NJ
FOR VALUE RECEIVED, STRATUS SERVICES GROUP, INC., a Delaware corporation
(hereinafter referred to as the "Maker") promises to pay to the order of SOURCE
ONE PERSONNEL, INC., a New Jersey corporation (hereinafter referred to as the
"Lender") at 4 Princess Road, Suite 201, Lawrenceville, New Jersey 08648, or at
such address as Lender may designate from time to time, the principal sum of One
Million, Eight Hundred and 00/100 Dollars ($1,800,000.00), together with
interest thereon at the rate of seven percent (7%), amortized payable over a
four-year period in equal quarterly payments, commencing one hundred twenty
(120) days after the Closing Date.
This Note is made pursuant to the provisions of that certain asset
purchase agreement, dated as of July 27, 2001, by and between the Maker and
Lender (the "Asset Purchase Agreement"). The capitalized terms herein not
otherwise defined, shall have the meaning given to such terms in the Asset
Purchase Agreement.
In the event that the Maker sells or otherwise disposes of the Assets
other than in the ordinary course of business or sells the Acquired Businesses,
as those terms are defined in the Asset Purchase Agreement, then, in such event,
said sale or disposition shall cause this Note to become immediately due and
payable.
Payments of the amounts due hereunder shall be made in lawful money of the
United States which shall be legal tender in payment of all debts, public and
private, at the time of payment.
Maker hereby acknowledges that it is pursuing Financing (as defined herein
after). In the event that Maker consummates Financings aggregating from the date
hereof a gross amount of at least Five Million and 00/100 Dollars
($5,000,000.00), Maker shall:
A. pay to Lender an amount that shall affect a prepayment of
principal in the amount of One Hundred Thousand Dollars ($100,000.00) on
the later of the date that is six (6) months after the Closing Date or the
date that is ten (10) days after the date of the Financing that triggers
the prepayment under this paragraph. Such payment shall be applied first
against any accrued and outstanding interest and penalties, if any, and
then against the principal amount then outstanding and shall not postpone
the due date of any subsequent installment payments or change the amount
of such installments; and
B. the Maturity Date of this Note shall be accelerated to the date
that is three (3) years after the Closing Date, and commencing on the
first quarterly payment date after the date of the Financing that triggers
the prepayment under this paragraph, and continuing on the same day of
every quarter thereafter, Maker shall make equal quarterly payments of
principal and interest, based upon the outstanding principal balance and
the remaining period based on the accelerated Maturity Date. All
outstanding principal, plus all accrued and unpaid interest, shall be due
and payable on or before the accelerated Maturity Date.
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As used herein, the term "Financing" shall include the sale by Maker of
securities consisting of equity securities, mezzanine debt, subordinated debt,
senior debt (including loan guarantees and credit enhancements) or a combination
thereof.
Maker will be in default under this Note if it fails to make payment of
any installment within ten (10) days of the applicable due date. Upon the
Maker's default, the late installment shall be subject to a five percent (5%)
late charge.
Upon any default under this Note with such default continuing for a period
of thirty (30) days after written notice to the Maker of such default or a upon
a breach of any other condition, representation or warranty under the Asset
Purchase Agreement, or any other event of default under any other note from
Maker to Lender, the unpaid principal shall, at the option of the Lender, become
immediately due and payable and interest will accrue, commencing at the end of
such thirty (30) day period, at an annual rate equal to the lesser of eighteen
percent (18%) or the maximum rate of interest permitted by applicable law.
Failure to exercise this right to accelerate the Maturity Date, shall not
constitute a waiver of Lender's right to exercise the same in the event of any
subsequent default. Any property of the Maker or of any endorser held by the
Lender hereof may be applied by the Lender to any sums due and unpaid pursuant
to this Note.
As to this Note and any other instruments securing the indebtedness, the
Maker waives all notice of acceleration, presentment, protest and demand,
dishonor and non-payment of this Note, and expressly agree that the maturity of
this Note, or any payment hereunder, may be extended from time to time without
in any way affecting the liability of the Maker and all guarantors and
endorsers.
Should it become necessary to collect this Note through an attorney, the
Maker and any surety, endorser or guarantor of this Note hereby agree to pay all
costs and expenses of collection, including reasonable attorneys' fees and any
attorneys' fees incurred in appellate, bankruptcy or post-judgment proceedings.
This Note shall be governed by and construed in accordance with the laws
of the State of New Jersey. The Maker agrees to submit to the jurisdiction of
any court which Lender may select in Monmouth County, New Jersey to enforce the
terms of this Note.
The Maker acknowledges and agrees that this Note has been signed and
delivered in exchange for valuable consideration.
This Note may be prepaid in whole or in part at any time prior to the
Maturity Date without penalty.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
The term "Maker" as used herein in every instance shall include the heirs,
executors, administrators, successors, legal representatives and assigns of
Maker.
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This Note is subject to the terms of a certain Subordination Agreement
with Capital TempFunds, Inc. dated as of July 27, 2001.
STRATUS SERVICES GROUP, INC.
Attest:
/s/ Jeffrey J. Raymond By: /s/ Joseph J. Raymond
- ---------------------------- ------------------------------------
Joseph J. Raymond, President and CEO
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is entered into as of
July 27, 2001 by and between SOURCE ONE PERSONNEL, INC. a New Jersey
corporation, with its principal office at a New Jersey corporation (hereinafter
referred to as the "Lender") at 4 Princess Road, Suite 201, Lawrenceville, New
Jersey 08648 ("Source One"), and STRATUS SERVICES GROUP, INC., a Delaware
corporation, with its principal office at 500 Craig Road, Suite 201, Manalapan,
NJ 07726 (the "Debtor").
BACKGROUND INFORMATION
A. Debtor has executed on this date a promissory note in the principal amount of
One Million, Eight Hundred Thousand and 00/100 Dollars ($1,800,000.00) (the
"$1.8M Note"). The $1.8M Note was made pursuant to the provisions of that
certain asset purchase agreement, dated as of July 27, 2001, by and between
Source One and Debtor (the "Asset Purchase Agreement"). The capitalized terms
herein not otherwise defined, shall have the meaning given to such terms in the
Asset Purchase Agreement.
B. In consideration for the loan evidenced by the $1.8M Note, the Debtor desires
to grant to Source One a security interest in the Collateral (as hereinafter
defined) in accordance with the terms of this Security Agreement.
PROVISIONS
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, it is agreed as follows:
1. GRANT OF SECURITY INTEREST. Debtor hereby grants, pledges and assigns
to Source One a first lien on and security interest in the Assets, including all
customer lists, goodwill, inventory, furnishings, fixtures, equipment and all
other forms of personal property of the Debtor in the Acquired Business,
wherever same may be located, whether now owned or existing or hereafter arising
or acquired by Debtor, together with all substitutions, replacements, additions
and accessions therefor or thereto, all negotiable documents relating thereto
and all cash and non-cash proceeds thereof including, but not limited to, notes,
drafts, checks, instruments, insurance proceeds, indemnity proceeds, warranty
and guaranty proceeds except that no present or future accounts (as defined in
the Uniform Commercial Code of New Jersey) or proceeds of such accounts shall be
subject to such security interest (all of the foregoing hereinafter referred to
as the "Collateral").
The security interest hereby granted is to secure the prompt and full
payment and complete performance of all obligations of Debtor to Source One
under the $1.8M Note and this Security Agreement. Notwithstanding anything
contained in this Agreement to the contrary, and provided that Debtor is not in
default under the $1.8M Note or this
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Security Agreement, Debtor may dispose of in any manner any portion of the
Collateral and have and retain the proceeds from any such disposition to
Debtor's exclusive use and benefit, so long as such disposition will not
materially and adversely affect the operation of Acquired Business.
2. GENERAL COVENANTS. Debtor represents, warrants and covenants to and for
the benefit of Source One as follows:
(a) Except for the security interest granted hereby and the rights and
interests of any current or future holder of Debtor's Senior Debt (i) Debtor is
the sole owner of the Collateral free from any and all liens, security
interests, encumbrances, claims and other adverse interests; and (ii) no
security agreement, financing statement, equivalent security or lien instrument
or continuation statement covering any of the Collateral has been executed by
Debtor, or is on file or of record in any public office, except for the lien of
Source One's senior lenders and the lien of the equipment lessor as to the
leased Assets.
(b) Debtor shall not create, permit or suffer to exist, and shall take
such action as is necessary to remove, any claim to or interest in or lien or
encumbrance upon the Collateral, other than the security interest granted hereby
and the prior liens heretofore granted and the rights and interests of any
current or future holder of Debtor's Senior Debt. Debtor shall defend the right,
title and interest of Source One in, to and under the Collateral against all
claims and demands of all persons and entities at any time claiming the same or
any interest therein.
(c) Subject to any limitation stated therein or in connection therewith,
all information furnished by Debtor concerning the Collateral, is or shall be at
the time the same is furnished, accurate, correct and complete in all material
respects.
3. ADDITIONAL ASSURANCES. Debtor shall perform, do, make, execute and
deliver all such additional and further acts, things, deeds, assurances and
instruments as Source One may require to more completely vest in and assure to
Source One its rights hereunder and in, to or under the Collateral.
4. PRESERVATION AND DISPOSITION OF COLLATERAL.
(a) Except for the security interest granted hereby and the prior
liens heretofore granted, Debtor shall keep the Collateral free from any and all
liens, security interests, encumbrances, claims and interests. Debtor shall
advise Source One promptly, in writing and in reasonable detail, (i) of any
material encumbrance upon or claim asserted against any of the Collateral; (ii)
of any material change in the composition of the Collateral; and (iii) of the
occurrence of any other event that would have a material effect upon the
aggregate value of the Collateral or upon the security interest of Source One.
(b) Debtor shall not sell or otherwise dispose of the Collateral.
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(c) Debtor shall not use the Collateral in violation of any statute,
ordinance, regulation, rule, decree or order. Debtor shall pay and/or satisfy
any charges or levies upon the Collateral or in respect to the income or profits
therefrom, except that no such charge need be paid if (i) the validity thereof
is being contested in good faith by appropriate proceedings; and (ii) such
proceedings do not involve any danger of sale, forfeiture or loss of any
Collateral or any interest therein.
(d) Unless Debtor pays the same within ten (10) business days after
written demand for such payment by Source One, Source One may, at its option,
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral and may pay for the maintenance and
preservation of the Collateral. Debtor agrees to reimburse Source One upon
demand for any payment made or any expense incurred (including reasonable
attorneys' fees) by Source One pursuant to the foregoing authorization Should
Debtor fail to pay said sum to Source One upon demand, interest shall accrue
thereon, from the date of demand until paid in full, at the highest rate set
forth in the $1.8M Note.
5. EXTENSIONS AND COMPROMISES. With respect to any Collateral held by
Source One as security for the $1.8M Note, Debtor assents to all extensions or
postponements of the time of payment thereof or any other indulgence in
connection therewith, to each substitution, exchange or release of the
Collateral, to the addition or release of any party primarily or secondarily
liable therefor, to the acceptance of partial payments thereof and to the
settlement, compromise or adjustment thereof, all in such manner and at such
time or times as Source One may deem advisable. Source One shall have no duty as
to the collection or protection of the Collateral or any income therefrom, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any right pertaining thereto, beyond the safe custody of the
Collateral in the possession of Source One, provided, however, nothing contained
in this paragraph 5 shall exculpate Source One from any liability which would
otherwise arise as a result of any action (as distinguished from an omission)
constituting gross negligence or willful misconduct of Source One.
6. FINANCING STATEMENTS. At the request of Source One, Debtor shall join
with Source One in executing one or more financing statements in form
satisfactory to Source One and shall pay the cost of filing the same in all
public offices wherever filing is deemed by Source One to be necessary or
desirable. Debtor hereby agrees that a carbon, photographic or other
reproduction of this Security Agreement or of a financing statement shall be
sufficient as a financing statement.
7. DEFAULT. If Debtor shall fail to make any payment of principal of or
interest on the $1.8M Note when due:
(a) Source One may, pursuant to the terms of the $1.8M Note, declare
the unpaid balance of the $1.8M Note immediately due and payable and this
Security Agreement in default.
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8. REMEDIES.
(a) Source One shall have the rights and remedies of a secured party
under this Security Agreement, under any other instrument or agreement securing
the $1.8M Note and under the laws of the State of New Jersey.
(b) Whenever Debtor shall be in default as aforesaid, Source One
may, at its option, exercise from time to time any or all rights and remedies
available to it under UCC or otherwise available to it, including the right to
collect, receipt for, settle, compromise, adjust, sue for, foreclose or
otherwise realize upon ay of the Collateral and to dispose of any of the
Collateral at public or private sale(s) or other proceedings, in conforming with
the requirements of the UCC.
(c) The Proceeds of any Collateral received by Source One at any
time before or after default, whether from the sale of Collateral or otherwise,
shall be applied to the payment of the Obligations.
(d) Debtor agrees that upon default and upon demand by Source One,
Debtor shall peaceably and without further demand by Source One, deliver to
Source One all the collateral, together with such executed documents of transfer
as Source One may reasonably request.
9. MISCELLANEOUS PROVISIONS.
(a) All of Source One's rights and remedies, whether at law or in
equity and whether evidenced hereby or by any other agreement, instrument or
paper, shall be cumulative and may be exercised singularly or concurrently. The
exercise of one or more rights or remedies shall not prejudice or impair the
concurrent or subsequent exercise of other rights or remedies.
(b) Any demand upon or notice to Debtor shall be in writing
delivered in person (which delivery shall be acknowledged by written receipt),
by facsimile transmission, or by depositing the same in the U.S. mails, postage
prepaid, addressed to Debtor at the address set forth at the beginning of this
Security Agreement. Such demand or notice shall be effective upon receipt or
upon the refusal by any employee, agent or representative of Debtor to accept
delivery thereof.
(c) Source One shall not be deemed to have waived any of its rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such waiver be in writing and signed by Source One.
(d) This Security Agreement and all rights and obligations
hereunder, including matters of construction, validity and performance, shall be
governed by the laws of the State of New Jersey. The parties hereto agree that
any action concerning, relating to or involving this Security Agreement must be
venued in Monmouth County,
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New Jersey, and the parties hereby consent to the jurisdiction of the courts in
Monmouth County, New Jersey.
(e) The provisions hereof shall, as the case may require, bind or
inure to the benefit of the respective successors and assigns of Debtor and
Source One.
(f) Any provision of this Security Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
IN WITNESS WHEREOF, Debtor and Source One have signed this Security
Agreement this 27th day of July, 2001.
SOURCE ONE PERSONNEL, INC.
By: /s/ James S. Raadvany
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Name: James S. Radvany
Its: President
STRATUS SERVICES GROUP, INC.
By: /s/ Joseph J. Raymond
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Name: Joseph J. Raymond
Its: President and CEO