INSTAPAY SYSTEMS, INC.
SEPTEMBER 30, 2003
Exhibit 2.1 -- Acquisition Agreement
STOCK-FOR-STOCK AGREEMENT
REORGANIZATION AGREEMENT between InstaPay Systems, Inc, a Utah
corporation (hereinafter referred to as "InstaPay"), and shareholders of
Kryptosima, Inc. a Georgia LLC (herein after referred to as "Krypto").
For the Acquisition by InstaPay of all the outstanding Membership Units
(stock) of Krypto, in exchange for restricted stock of InstaPay.
AGREEMENT, dated as of this 12th day of January 2003, between InstaPay
and all of the members (shareholders) of Krypto hereinafter collectively
referred to as the "Krypto Shareholders".
WHEREAS, the Krypto Shareholders own 5,199,649 Membership Units of
Krypto, and which constitutes all of the outstanding Membership Units of Krypto.
WHEREAS, the Krypto Shareholders own and have the right to sell,
transfer and exchange all of the Membership Units for the purchase of Krypto.
InstaPay hereby offers one million (1,000,000) shares of its restricted common
stock to the Krypto Shareholders for all of the outstanding Membership Units of
Krypto. The Krypto Shareholders wish to make said exchange.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth, the parties hereto have agreed and by these
present do hereby agree as follows:
1. Exchange of Securities. Subject to the terms and conditions
hereinafter set forth, at the time of the closing referred to in Section 6
hereof (the "Closing Date"), InstaPay will issue and deliver, or cause to be
issued and delivered to the Krypto Shareholders, in exchange for all of the
issued and outstanding shares (Membership Units) of Krypto, 1,000,000 shares of
its restricted common stock (the "InstaPay Shares") to be issued immediately,
and options for 500,000 shares of common restricted stock exercisable at $1.50
to be issued upon Kryptosima's system going live with any ATM network. . The
InstaPay Shares and options will be allocated as set forth in Schedule I,
attached hereto.
The 1,000,000 shares of InstaPay to be issued to Krypto Shareholders shall not
be for resale, loaned, hypothecated or used for collateral for a period of one
year, except for resale as part of any buyout offer received and accepted by
Instapay. The 500,000 options shall expire 18 months from the date of issuance.
Upon InstaPay's receipt and acceptance of any buyout offer, the options shall be
issued immediately if they have not yet been issued. Upon Instapay's receipt and
acceptance of any buyout offer for less than $2.50 per share, the exercise price
of any unexercised options shall be reduced to $1.00 per share less than the
buyout offer, or $0.01, whichever is less. Upon Instapay's receipt of any buyout
offer for less than $1.00 per share, the number of options shall be increased so
that the number of options multiplied by the buyout share price = $500,000. Upon
the filing by Instapay of any registration statement registering a % of shares
held by any investor or group of investors, a similar % of shares held by the
former Kryptosima members shall be included in such registration, provided it
follows the guidelines as so stipulated under SEC Rule 144 as amended.
2. Representations and Warranties by Krypto and Krypto Shareholders.
Krypto and Krypto Shareholders each represent and warrant to InstaPay, all of
which representations and warranties shall be true at the time of closing, and
shall survive the closing for a period of six (6) months from the date of
closing, except as to the warranties and representations set forth in subsection
(i) herein, which shall survive for a period of three (3) years from the date of
closing, and those set forth in subsection (l) herein, which shall survive for a
period of six (6) months from the date of closing, or from the date when the
accounts receivable may become due and payable, whichever shall occur later,
that:
(a) Krypto is an LLC duly organized and validly existing and in good
standing under the laws of the State of Georgia and has the corporate
powers to own its property and carry on its business as and where it is
now being conducted. Copies of the Certificate of Incorporation and the
By-Laws of Krypto, which have heretofore been furnished by Krypto
Shareholders to InstaPay, are true and correct copies of said
Certificate of Incorporation and By-Laws including all amendments to
the date hereof.
(b) There are 5,199,649 Membership Units of Krypto, which have been
validly issued and are now outstanding.
(c) Krypto Shareholders have full power to exchange the Membership Units to
purchase the capital stock of InstaPay on behalf of themselves upon the
terms provided for in this Agreement, and said Membership Units have
been duly and validly issued and are free and clear of any lien or
other encumbrance.
(d) From the date hereof, and until the date of closing, no dividends or
distributions of capital, surplus, or profits shall be paid or declared
by Krypto in redemption of their outstanding Membership Units or
otherwise, and except as described herein no additional Membership
Units shall be issued by said corporation.
(e) Since the date hereof, Krypto has not engaged in any transaction other
than transactions in the normal course of the operations of their
business, except as specifically authorized by InstaPay in writing.
(f) Krypto is not involved in any pending or threatened litigation, which
would materially affect its financial condition except as disclosed to
InstaPay in writing.
(g) Krypto has and will have on the Closing Date, good and marketable title
to all of its property and assets shown on Schedule II, attached
hereto, free and clear of any and all liens or encumbrances or
restrictions, except for taxes and assessments due and payable after
the Closing Date and easements or minor restrictions with respect to
its property which do not materially affect the present use of such
property.
(h) (1) The inventories of Krypto as reflected in Schedule II, furnished by
Krypto Shareholders to InstaPay prior to the execution hereof, are
valued at book value.
(2) The inventory of Krypto listed on the schedule
referred to in (i)(1) above is hereinafter collectively referred to as
the "Inventory." The Inventory is in good and usable condition.
(i) As of the date hereof, there are no accounts receivable of Krypto of a
material nature, except for those accounts receivable set forth in
Schedule II, attached hereto.
(j) Krypto does not now have, nor will it have on the Closing Date, any
long-term contracts ("long-term" being defined as more than one year)
except those set forth in Schedule II attached hereto.
(k) Krypto does not now have, nor will it have on the Closing Date any
pension plan, profit-sharing plan, or stock purchase plan for any of
its employees except those set forth in Schedule II, attached hereto
and certain options to proposed executive officers.
(l) Krypto does not now have, nor will it have on the Closing Date, any
known liabilities or contingent liabilities other than those disclosed
in their financial statements dated December 31, 2002 attached hereto
as Schedule III except in the ordinary course of business or in
connection with its proposed private offering.
3. Representations and Warranties by InstaPay. InstaPay represents and
warrants to the Krypto Shareholders, all of which representations and
warranties shall be true at the time of closing, and shall survive the
closing for a period of six (6) months from the date of closing, as
follows:
(a) InstaPay is a corporation duly organized and validly existing and in
good standing under the laws of the State of Utah and has the corporate
power to own its properties and carry on its business as now being
conducted and has authorized capital stock consisting of 200,000,000
shares of common stock, $.001 par value per share, of which there are
29,633,812 shares presently outstanding. InstaPay anticipates that it
can raise needed operating capital for the next 6 months without
increasing this figure by more than 3,000,000 shares. An increase
greater than this shall trigger issuance of additional shares to the
former Kryptosima members in the same %.
(b) InstaPay has the corporate power to execute and perform this Agreement,
and to deliver the stock required to be delivered to Krypto
Shareholders hereunder.
(c) The execution and delivery of this Agreement, and the issuance of the
stock required to be delivered hereunder have been duly authorized by
all necessary corporate actions, and neither the execution nor delivery
of this Agreement, nor the issuance of the stock, nor the performance,
observance or compliance with the terms and provisions of this
Agreement will violate any provisions of law, any order of any court or
other governmental agency, the Certificate of Incorporation or By-Laws
of InstaPay or any indenture, agreement or other instrument to which
InstaPay is a party, or by which InstaPay is bound, or by which any of
its property is bound.
(d) The shares of Common Stock of InstaPay deliverable pursuant hereto will
on delivery in accordance with the terms hereof, be duly authorized,
validly issued, and fully paid, and non-assessable.
(e) Subsequent to acquiring Kryptosima, Instapay shall allow Kryptosima to
operate as a wholly owned subsidiary, thereby enabling it to maintain
its legal existence and existing contractual relationships with vendors
and business partners and make contracts with parties such as ATM
networks as needed; and shall provide reasonable amounts of operating
capital monthly as outlined in addendum A to enable Kryptosima to
operate its payment gateway as contemplated when entering this
agreement.
(f) If Instapay does not provide working capital as set forth in paragraph
(e) above, or is unable to raise sufficient working capital to meet the
requirements of paragraph (e) above for at least 6 (six) months after
acquiring Kryptosima, then it is unlikely that Kryptosima's former
members shall receive adequate value for their Instapay shares and
Instapay shall offer Kryptosima's former members the opportunity to
unwind this transaction. In the case of any such unwinding, Instapay
shall be entitled to become a member of the unwound Kryptosima with
Instapay owning one membership unit (share) of Kryptosima for each $1
of operating capital provided to Kryptosima. If some but not all of
Kryptosima's former members wish to participate in such an unwinding,
the parties shall negotiate in good faith to determine a mutually
agreeable resolution. Provided however that this shall not be construed
as requiring Instapay to make any financially unreasonable resolution
in order to satisfy a minority in ownership of the former members.
(g) If Instapay decides to abandon the payment industry business or pursue
other interests, it shall offer Kryptosima's former members the
opportunity to unwind this transaction as set forth above.
(h) Instapay is not currently in possession of a proposal or contract from
a potential customer for Krypto's services or a proposal or contract
from a potential acquirer of Instapay that it has failed to disclose to
Kryptosima.
(i) The right to unwind this acquisition held by Kryptosima's former
members will expire immediately upon InstaPay receiving and accepting a
buyout offer, provided however that such right shall be reinstated if
said buyout is subsequently not consummated.
4. Conditions to the Obligations of InstaPay. The obligations of InstaPay
hereunder shall be subject to the conditions that:
(a) InstaPay shall not have discovered any material error or misstatement
in any of the representations and warranties by the Krypto Shareholders
herein, and all the terms and conditions of this Agreement to be
performed and complied with shall have been performed and complied
with.
(b) There shall have been no substantial adverse changes in the conditions,
financial, business or otherwise of Krypto from the date of this
Agreement, and until the date of closing, except for changes resulting
from those operations in the usual and ordinary course of business, and
between such dates the business and assets of Krypto shall not have
been materially adversely affected as the result of any fire,
explosion, earthquake, flood, accident, strike, lockout, combination of
workmen, taking over of any such assets by any governmental
authorities, riot, activities of armed forces, or acts of God or of the
public enemies.
(c) InstaPay shall upon request and at the time of closing, receive an
opinion of counsel to the effect that: (1) Krypto is duly organized and
validly existing under the laws of the State of Georgia and has the
power and authority to own its properties and to carry on its
respective business wherever the same shall be located and operated as
of the Closing Date; and, (2) this Agreement has been duly executed and
delivered by Krypto on behalf of its Shareholders and constitutes a
legal, valid and binding obligation of the Krypto Shareholders
enforceable in accordance with its terms.
(d) Krypto does not now have, nor will it have on the date of closing, any
known or unknown liabilities or contingent liabilities, except as
specifically set forth on Schedule II, attached hereto.
5. Conditions to the Obligations of Krypto. The obligations of the Krypto
Shareholders hereunder are subject to the conditions that:
(a) Krypto Shareholders shall not have discovered any material error or
misstatement in any of the representations and warranties made by
InstaPay herein and all the terms and conditions of this Agreement to
be performed and complied with by InstaPay shall have been performed
and complied with.
(b) The Krypto Shareholders shall upon request, at the time of closing,
receive an opinion of counsel to the effect that: (1) InstaPay is a
corporation duly organized and validly existing under the laws of the
State of Utah, and has the power to own and operate its properties
wherever the same shall be located as of the Closing Date; (2) the
execution, delivery and performance of this Agreement by InstaPay has
been duly authorized by all necessary corporate action and constitutes
a legal, valid and binding obligation of InstaPay, enforceable in
accordance with its terms; (3) the securities to be delivered to Krypto
pursuant to the terms of this Agreement will be validly issued, fully
paid and non-assessable; (4) the exchange of the securities herein
contemplated does not require the registration of the InstaPay
securities pursuant to any Federal law dealing with the issuance, sale,
transfer, and/or exchange of corporate securities; (5) that InstaPay is
not under investigation by the SEC, the NASD or any state securities
commission; (6) that there are no known securities violations; (7) all
shares issued by InstaPay have been validly issued in accordance with
State or Federal law, are fully paid and non-assessable; and (8) there
are no outstanding options, rights, warrants, conversion privileges or
other agreements which would require issuance of additional shares
other than those disclosed in Section 3(a) hereof.
6. Closing Date. The closing shall take place on or before January 20,
2003, or as soon thereafter as is practicable, at the Law Offices of
Xxxxxx J, Xxxxxxx, 00000 Xxxx Xxxxxxx - Xxxxx 000, Xxx Xxxxxxx, XX
00000 or at such other time and place as the parties hereto shall agree
upon.
7. Actions at the Closing. At the closing, InstaPay and Krypto
Shareholders will each deliver, or cause to be delivered to the other,
the securities to be exchanged in accordance with Section I of this
Agreement and each party shall pay any and all Federal and State taxes
required to be paid in connection with the issuance and the delivery of
their own securities. All stock certificates shall be in the name of
the party to which the same are deliverable.
8. Conduct of Business, Board of Directors, etc. Between the date hereof
and the Closing Date, Krypto will conduct its business in the same
manner in which it has heretofore been conducted and the Krypto
Shareholders will not permit Krypto to: (1) enter into any contract,
etc., other than in the ordinary course of business; or (2) declare or
make any distribution of any kind to the stockholders (Membership Unit
holders) of Krypto, without first obtaining the written consent of
InstaPay.
Krypto's current board members are Xxxxx Xxxxxxx, Xxxxxx Xxxxxxx, and
Xxxxx Xxxxxxxxxxx. The current officers are Pres/Treas Xxxxx Xxxxxxx, VP/Secy
Xxxxxx Xxxxxxx.
Upon closing, the old officers and members of the board of directors of
Krypto will continue to hold office until the rights set forth in section 3
(e)(f)(g) have expired, i.e. for 6 months from the closing of this agreement. In
addition, R Xxxxx Xxxxxx and Aubrye A Xxxxxx shall be added to Kryptosima's
board effective upon closing. Upon the first day of the 7th month following the
execution of this agreement, the current officers and board members shall tender
their resignations and the shareholders of InstaPay will elect a new Board of
Directors for Kryptosima. Upon election of the new Board of Directors, and
subject to the authority of the Board of Directors as provided by law and the
Operating Agreement of Krypto, the board shall elect new officers for Krypto.
9. Access to the Properties and Books of Krypto. The Krypto Shareholders
hereby grant to InstaPay, through their duly authorized representatives
and during normal business hours between the date hereof and the
Closing Date, the right of full and complete access to the properties
of Krypto and full opportunity to examine their books and records.
10. Existing Agreements. Upon signing this Agreement, the "Marketing and
Services Agreement for Secure Internet Transaction Delivery" Agreement
between Filmagic Entertainment Inc. (name changed to InstaPay Systems,
Inc.) and Bentley Communications Corp., dated November 22, 2002, shall
be null and void. The fifty thousand (50,000) dollars paid to Bentley
by Filmagic Entertainment/InstaPay Systems, Inc. is nonrefundable and
will be retained by Bentley Communications Corp. Any and all stock of
InstaPay issued to Bentley, of which five hundred thousand (500,000)
shares have been mailed to Bentley Communications shall be returned to
InstaPay for cancellation.
11. Miscellaneous.
(a) This Agreement shall be controlled, construed and enforced in
accordance with the laws of the State of California.
(b) Each of the Constituent Corporations shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the
consummation of this Agreement, including, without limiting the
generality of the foregoing, fees and expenses of financial
consultants, accountants and counsel and the cost of any documentary
stamps, sales and excise taxes which may be imposed upon or be payable
in respect to the transaction.
(c) At any time before or after the approval and adoption by the respective
stockholders of the Constituent Corporations, if required, this
Reorganization Agreement may be amended or supplemented by additional
written agreements, as may be determined in the judgment of the
respective Boards of Directors of the Constituent corporations to be
necessary, desirable or expedient to further the purpose of this
Reorganization Agreement, to clarify the intention of the parties, to
add to or to modify the covenants, terms or conditions contained
herein, or otherwise to effectuate or facilitate the consummation of
the transaction contemplated hereby. Any written agreement referred to
in this paragraph shall be validly and sufficiently authorized for the
purposes of this Reorganization Agreement if signed on behalf of
InstaPay or Krypto, as the case may be, by its Chairman of the Board,
or its President.
(d) This Reorganization Agreement may be executed in any number of
counterparts and each counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall
constitute but one Reorganization Agreement.
(e) This Agreement shall be binding upon and shall inure to the benefit of
the heirs, executors, administrators and assigns of the Krypto
Shareholders and upon the successors and assigns of InstaPay.
(f) All notices, requests, instructions, or other documents to be given
hereunder shall be in writing and sent by registered mail:
If to Krypto Shareholders, then: Xxxxx Xxxxxxx
00 Xxxxxxxxx Xxx
Xxxxxxx, XX 00000
If to InstaPay, then: Xxxxxx Xxxxx
0000 Xxxxxx Xxxxxx Xx. #000-000
Xxx Xxxxx, XX 00000
(g) The attached Addendum A is hereby incorporated in this agreement.
The foregoing Reorganization Agreement, having been duly approved or
adopted by the Board of Directors, and duly approved or adopted by the
stockholders of the constituent corporation, as required, in the manner provided
by the laws of the State of Utah, the Chairman of the Board, the President and
the Secretary of said corporations, and the Board of Krypto, do now execute this
Reorganization Agreement under the respective seals of said corporation by the
authority of the directors and stockholders of each, as required, as the act,
deed and agreement of each of said corporations. This Stock-For-Stock Agreement
may be signed in two or more counterparts.
Kryptosima LLC
By: ________________________________
Xxxxx Xxxxxxx- President-CEO
Kryptosima LLC
InstaPay Systems, Inc.
By: ________________________________
Xxxxxx Xxxxx- President-CEO
Addendum A
1) InstaPay agrees that this agreement will be revised as needed to make
the transaction a non-taxable event for Kryptosima's members. This will
require that InstaPay form a wholly owned subsidiary in Georgia;
capitalize that subsidiary with the number of InstaPay shares set forth
above; merge that subsidiary with and into Kryptosima, with Kryptosima
as the surviving entity; and then distribute the InstaPay shares to the
former Kryptosima members. It is intended for federal tax purposes that
the merger shall constitute a reorganization within the meaning of
Section 368(a)2(D) of the code.
2) InstaPay also understands that:
Once the system goes into production with several clients, it may be
necessary to add a 2nd full-time programmer. The 2nd programmer (Xxx)
is required to do part-time work now, an estimate of the monthly cost
for this is included in the monthly budget discussed.
If a pilot is launched with Maestro, additional encryption hardware
($12k?) may be required to support Maestro's network connection
requirements
If Kryptosima's patents are granted in the US or Europe, there will be
fees totaling $15~20k required to file the patents in each country,
otherwise they will not be valid or enforceable. (Per-country costs
faxed to Xxx Xxxxx Jan 12. Total cost to file in ALL European countries
that participate in their common patent system would be $45k; however
it seems un-necessary to file in all of the smaller countries, we will
mutually agree on some subset of countries that costs less than this).
Terms of Xxxxxxx long-term employment agreement and any options per the
bullet points emailed to Xxxxxxx by Xxx Xxxxx Jan 12.
Xxxxxxx will become an InstaPay Board member.
Xxxxxxx will help to negotiate debt reduction agreements where
possible.
Monthly operating expenses for Kryptosima are currently approximately
$20k for current (new) expenses (including payroll), plus approx. $10K
per month for debt service until debts to lawyers, eFunds, etc are
relieved (4~5 months). Monthly opex will rise as the business grows
and/or as certain requirements occur as outlined above.
These figures do not include travel expense.
Schedule I
SHAREHOLDERS (MEMBERSHIP UNIT HOLDERS) OF KRYPTOSIMA LLC
Conversion Rate => 1,000,000 / 5,199,649 = 0.192320674
# Krypto # IPYS # IPYS
Member Units % Shares Options
Xxxxx Xxxxxxx 1,000,000 19.2% 192,321 96,160
Xxxxx Xxx 1,000,000 19.2% 192,321 96,160
Xxx Xxxxxxx 1,000,000 19.2% 192,321 96,160
Xxxx Xxxxxxx 200,000 3.8% 38,464 19,232
Xxxx X. Xxxxxxxx 12,500 0.2% 2,404 1,202
Xxxx X. Xxxxxxxx 12,500 0.2% 2,404 1,202
Xxxxx X. Xxxxxxxx 15,000 0.3% 2,885 1,442
Xxxxxxx X. Xxxxxxxx 18,000 0.3% 3,462 1,731
Xxxxxxxxx X. Xxxxxxxx 15,000 0.3% 2,885 1,442
Xxxxx Xxxxxxxx 5,000 0.1% 962 481
Xxxxxx Xxxxxxx 5,000 0.1% 962 481
Xxxxx X. Xxxxxxxx 2,000 0.0% 385 192
Xxxxxxx Xxxxxxx & Xxxxxxx Harwo50,000 1.0% 9,616 4,808
Xxx Xxxxxxxxx 35,000 0.7% 6,731 3,366
Xxxxx Xxxxxxxx 155,000 3.0% 29,810 14,905
Xxxxxxxxxxx Xxxxxx 35,000 0.7% 6,731 3,366
Xxxxxx Xxxxxxxx 30,000 0.6% 5,770 2,885
Amir Furdis 25,000 0.5% 4,808 2,404
Xxxxxxx Xxx 25,000 0.5% 4,808 2,404
Xxxxxxxxx Xxx 25,000 0.5% 4,808 2,404
Xxxxxxx Xxxxxx 25,000 0.5% 4,808 2,404
Xxxxxxx X. Xxxxxxx 25,000 0.5% 4,808 2,404
Xxxxxx X. Xxxxxx 25,000 0.5% 4,808 2,404
Xxxxxxx Xxxxxxxxx 10,000 0.2% 1,923 962
Xxx Xxxxx 10,000 0.2% 1,923 962
Xxxxxx Xxx 10,000 0.2% 1,923 962
Infinia 1,187,154 22.8% 228,314 114,157
Xxxxx Xxxxxxx 1,500 0.0% 288 144
Xxx Xxxxxxxx 12,368 0.2% 2,379 1,189
Xxx Xxx 11,927 0.2% 2,294 1,147
Xxx Xxxxxxxx 4,500 0.1% 865 433
XxXxxx Inc 5,000 0.1% 962 481
Ed and Xxxx Xxxxx 7,200 0.1% 1,385 692
Xxx Xxxxx 100,000 1.9% 19,232 9,616
Xxxx Xxxxxxxxx 100,000 1.9% 19,232 9,616
--------------------------------------------------------
Totals 5,199,649 100% 1,000,000 500,000
========================================================
Schedule II
Assets: Two servers and one security module (encryption module), value as shown
on financial statements
Inventory: Approximately 200 PIN pads.
Patent Pending Payment Transaction Technology.
Liabilities: Approx. $550k in accounts payable as shown on financial statements
(NOTE: Adjustments to reflect approximately $110k liabilities to be reviewed by
InstaPay Board of Directors Prior to acceptance.)
Long-term liabilities/contracts: We are in year 2 of a 5-year processing
agreement with eFunds. Monthly minimum of $2,000.
Schedule III
Stock Option
InstaPay further agrees that once, through Kryptosima's efforts, Kryptosima
provides a ATM network, such as STAR, Pulse, NYCE, AFFN, Co-Op, Interlink and/or
Maestro, InstaPay to enable "live" (live means that InstaPay will be able to
market and sell the service to merchants as to generate revenues) transactions,
InstaPay will grant to the Kryptosima Shareholders, a collective option to
purchase 500,000 shares of restricted InstaPay common stock. By collective, it
is understood that the options will be distributed in accordance with the number
of membership units a holder has. (i.e. Krypto holder owns 20% of the Krypto
membership units, that holder will receive an option to purchase 100,000 shares
of InstaPay restricted common stock.) The exercise price (purchase price) of the
stock will be $1.50 per share and the expiration date shall be twelve months
from the issuance of the option.
The above paragraph refers to the 500,000 options described (with additional
terms) in section 1.
