EXHIBIT 10.1
CONSULTING/EMPLOYMENT AGREEMENT
This agreement is made as of August 25, 2003, by and between Instapay Systems, a
Utah Corporation (Instapay), and Xxxxx Xxxxxxx ("Xxxxxxx"), an individual
residing in Hampton, GA.
Whereas, Instapay is acquiring Kryptosima LLC ("Kryptosima"), a Georgia limited
liability company, and will operate it as a wholly owned subsidiary; and,
Whereas, Xxxxxxx founded Kryptosima and has been its President since its
inception, and has extensive knowledge & experience in the payment processing
industry InstaPay and Kryptosima are now focused on, Instapay's board feels that
it is in InstaPay's best interests to retain Xxxxxxx as President and CEO of
InstaPay and Kryptosima, and a Director of InstaPay; and,
Whereas, InstaPay named Xxxxxxx as a director, President and CEO in March 2003
in anticipation of finalizing the Kryptosima acquisition, and the parties now
wish to put in place this written employment agreement to replace any previous
understandings verbal or written;
Therefore, the parties agree as follows:
Position; scope & authority:
Xxxxxxx is hereby retained as President and CEO of InstaPay and its Kryptosima
subsidiary, both referred to below as "the company" for brevity. As President of
the company, Xxxxxxx shall have full authority to conduct and manage the
company's business, including but not limited to the authority to make contracts
with customers and vendors, open and operate bank accounts, hire and fire
employees, etc. Xxxxxxx shall operate the company in such a way as to continue
to pursue the business strategy Kryptosima has followed to date, to develop a
payment processing business focused on new payment methods for Internet
merchants.
Xxxxxxx shall operate the company in a manner consistent with the budgets
presented to the board from time to time, and shall seek board approval for any
unbudgeted item exceeding $2,000, and any individual expense item that exceeds
budgeted amounts by more than 10%. All back data for unbudgeted items, shall be
provided to the company's accountant, Xx. Xxxxxx Xxxxx on a weekly basis along
with standard weekly expenditures. It is understood that certain vendors (e.g.
patent attorneys) are budgeted based on an "average" basis but the actual flow
of invoices is irregular, and approval will not be needed to pay such invoices
as long as the moving average stays in-line with the long-term (quarterly or
semi-annual) expense projections for that vendor. It is also understood that 1)
Xxxxxxx has presented an "ideal" budget that would fully fund the company for
rapid growth, 2) at no time in the past 8 months has sufficient capital been
available to spend at this level, 3) it is impossible to be certain of the
timing and amount of future capital infusions, and 4) the company has in effect
operated for many months with almost zero cash on hand, i.e. no margin for error
or surprises; as a result of these factors, Xxxxxxx has been and will continue
to be forced to make spending decisions on a month-by-month basis balancing
needs, wants, and cash available. Xxxxxxx shall report to the board quarterly on
cash flow for the past quarter, revenue and expense projections for the upcoming
quarter, etc. In between such quarterly reports, Xxxxxxx shall stay in close
communication with the chairman R. Xxxxx Xxxxxx, and shall notify Xxxxxx and the
entire board if an unexpected shortfall in capital raising or an unexpected
expense have a material negative effect on operations.
The budget presented includes capital expenditures of $55,000 during the first
12 months of full operations.
The recent hardware failure also emphasized the fact that, in order to have a
highly reliable system to provide the payENKRYPT service to customers 24X365
with minimal interruption (a very firm customer requirement), and in order to do
development without interrupting operations, redundant servers are needed. We
currently do not have redundant servers. Adding redundant servers would involve
an additional expenditure of approx. $13,000 plus tax and freight. If capital
can continue to be raised at the current rate (approx. $60k/month), it is
believed that the expense to acquire these servers, again via lease, can and
must be incurred in September. It is understood that any reasonable action by
Xxxxxxx regarding this is approved, with the appropriate documentation provided
to the Board and Xx. Xxxxx the internal accounting control for the Board of
Directors.
The budget and business plan presented also make it clear that an inventory of
PIN pads is required, otherwise no revenue can be generated. With the boards
knowledge and approval Xxxxxxx has placed an order for 2,000 units for delivery
in November/December. If the company is successful in signing customers over the
next few months, even more units than this will be needed quickly, and the
lead-time from PO to delivery is 2-3 months. Both parties acknowledge that there
is currently insufficient capital on-hand to pay for the 2,000 PIN pads that
have been ordered, so this is a difficult and crucial situation that Xxxxxxx
will manage closely on a month-to-month basis and keep the board informed.
Tax Status:
Xxxxxxx shall initially provide his services on a consulting basis (1099).
Payments for Xxxxxxx' services shall be made to Xxxxxxx' consulting firm,
"Tradewinds Technologies LLC". At such time as the company may establish a
regular payroll, Xxxxxxx shall have the option of converting his tax status from
consultant (1099) to employee (W2).
Compensation:
Xxxxxxx monthly compensation shall initially be $10,000 per month, to be paid on
the 1st of each month in cash.
In addition to his monthly compensation, Beginning in 2004 Xxxxxxx shall be paid
a quarterly bonus within 15 days of the end of each quarter. The bonus amount
will be based upon the company's transaction processing revenues for that
quarter (i.e. equipment sales not included), according to the formula set forth
below.
1/4% of total revenue, plus 1% of any transaction processing revenue exceeding
the "bonus goal" for that quarter. Goals for 2004 will be; Q1 $80k, Q2 $150k, Q3
$270k, Q4 $400k. Goals for future years will be negotiated between the parties
and approved by InstaPay's board in advance of each year.
Signing Bonus:
As a performance incentive and an incentive to sign this agreement, Xxxxxxx is
hereby awarded options to acquire 200,000 shares of Instapay stock (IPYS) at
$1.50 per share. These options shall be fully vested immediately upon the
execution of this agreement, may be exercised all at once or partially from time
to time, shall not expire as a result of any expiration or termination of this
agreement, but shall expire if not exercised within three (3) years of the
signing of this agreement.
Term and Termination:
This agreement shall have an initial term of one year, and thereafter
automatically renew for one-year periods, unless either party gives the other 60
days written notice of intent not to renew. The company shall have no right to
terminate this agreement for any reason, unless it pays Xxxxxxx an up-front cash
severance equal to compensation for 6 months. "Up-front" shall be defined as
payment in advance of, or on the effective day of, any termination. This
severance payment shall include Xxxxxxx then-current base compensation for 6
months (initially $60,000) plus a good faith estimate of the bonus compensation
that would have been earned during the next 6 months, including any partial
quarter. InstaPay may elect to pay up to 1/2 of this severance in IPYS stock,
also to be paid up-front. In the case that InstaPay elects to pay some portion
of the severance in stock, the amount of stock required to substitute for cash
shall be calculated based upon issuing stock equal to 105% of the cash
equivalent with the stock valuation based on 15 days average bid price if
free-trading stock, or 160% if 1-year restricted stock.
Provided however that Xxxxxxx and InstaPay (for this paragraph only, "InstaPay"
taken to mean any and all other InstaPay offices and directors) both agree to
conform to reasonable standards of conduct and ethics, and not intentionally or
knowingly act in any way that would harm the other's reputation. In the case
that either party has reason to believe that the other has acted contrary to
this, it shall notify the other party in writing asking that it explain and/or
amend its behavior. Upon continuing actions that are unexplained after 15 days
and appear egregiously contrary to reasonable standards of conduct or ethics,
then the aggrieved party shall have the right to terminate this agreement by 10
days written notice. Regardless of which party terminates this agreement, upon
notice of termination all compensation due to Xxxxxxx to-date shall immediately
become due and payable, and Xxxxxxx shall have a right to take such compensation
and/or obtain any needed court order(s) or judgement(s) without objection from
InstaPay to take such compensation from InstaPay and/or any subsidiary or
affiliate company. If Xxxxxxx shall have reason to believe that such termination
was unreasonable, he shall not be barred from pursuing in court a claim for
severance pay as set forth in the previous paragraph. In the case of judgement
in Xxxxxxx favor, InstaPay shall not have the right to substitute stock for cash
as outline in the previous paragraph to settle the amount due.
Right to Acquire:
Should Instapay decide to discontinue or abandon the Kryptosima business unit,
Instapay shall offer Xxxxxxx the opportunity to purchase that business unit back
from InstaPay for a reasonable amount that the parties shall negotiate in good
faith.
Indemnification:
InstaPay shall indemnify Xxxxxxx to the fullest extent permitted by law if he is
or becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
whether civil, criminal, administrative, investigative or other (hereinafter a
"CLAIM") by reason of (or arising in part out of) any event or occurrence
related to the fact that Xxxxxxx is or was a director, officer, employee, agent
or fiduciary of InstaPay or Kryptosima, against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts paid
in settlement of such Claim and any federal, state, local or foreign taxes
imposed on Xxxxxxx (collectively, hereinafter "EXPENSES"), including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be made by the company
as soon as practicable but in any event no later than twenty days after written
demand by Xxxxxxx is presented to the company. This indemnification shall
survive any expiration or termination of this agreement.
Xxxxxxx shall indemnify InstaPay from losses that occur as a result of losing
any lawsuit brought against the company solely as a result of any illegal action
taken by Xxxxxxx that was knowingly and intentionally illegal, and taken without
the board's knowledge. The board shall be deemed to have had knowledge of any
action that any or all members were notified of via email. At the time that any
such lawsuit is brought, Hargen's total liability as a result of any such
indemnification shall be limited to the amount of cash compensation received
from the company subsequent to the alleged illegal action, or received from the
company during the past 12 months, whichever is less. At such time as the
company obtains Directors and Officers insurance, this paragraph shall become
null and void. This indemnification shall be in effect only if the company
vigorously defends against any lawsuit brought, using company funds, and Xxxxxxx
is allowed to take a key role in directing such defense with Board approval.
Xxxxxxx shall not be required to indemnify the company or be held liable for any
amount regarding any lawsuit that is brought if 1) Xxxxxxx declares in writing
to the company that he believes the lawsuit without merit, and 2) judgement
against the company is entered because the company had insufficient funds to
mount an adequate defense. This indemnification shall expire upon expiration or
termination of this agreement.
Miscellaneous:
In the event of a dispute regarding this agreement, the parties submit to the
jurisdiction of, and this Agreement shall be governed by the State and Federal
laws applicable in the State of California, USA. Venue for any action arising
out of this agreement shall be in a state court of competent jurisdiction
governing Caifornia, USA. The prevailing party in any such action shall be
entitled to the recovery of its reasonable attorney's fees, costs, and expenses.
Neither party shall, by the mere lapse of time, without giving notice or taking
other action, be deemed to have waived any of their rights under this Agreement.
No waiver of a breach of this Agreement shall constitute a waiver of any prior
or subsequent breach of this Agreement.
This agreement constitutes the parties' entire understanding re the subject
matter of this agreement, superceding all prior agreements and understandings in
their entirety.
This agreement shall be construed equally against the parties regardless of who
is more responsible for its preparation.
If there is a conflict between any part of this agreement and any present or
future law, this agreement shall be curtailed only to the extent necessary to
bring it within the requirements of that law.
This Agreement may only be modified by a written agreement signed by each party.
All notices given in connection with this Agreement shall be in writing and
deemed received forty-eight (48) hours after deposit in the first class United
States mail, postage prepaid, return receipt requested; or if given by other
means, upon actual receipt. Notices shall be delivered to the appropriate party
at its address set forth in this Agreement.
If to Xxxxxxx:
Kryptosima
Attn: Xxxxx Xxxxxxx
00 Xxxxxxxxx Xxx
Xxxxxxx, XX 00000
If to InstaPay:
InstaPay Board of Directors
Attn: R. Xxxxx Xxxxxx, Chairman
000 Xxxx Xxxxxx
Xxxxxxxxxx Xxxxx, XX 00000
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Xxxxx Xxxxxx - Chairman, Instapay Systems
For the Company and the Board
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Xxxxx Xxxxxxx
For himself
