-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lxq5hlgEDZtWXZNH2q4vFcMQIpU+aXQnC/Kre/gcaR8IsPKGivV7tZTr+3HXoikE tcdwShICdBEE8+mjcGVAvg== 0001140361-05-007787.txt : 20050930 0001140361-05-007787.hdr.sgml : 20050930 20050930141538 ACCESSION NUMBER: 0001140361-05-007787 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050926 ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050930 DATE AS OF CHANGE: 20050930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUEGATE CORP CENTRAL INDEX KEY: 0000768216 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870565948 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22711 FILM NUMBER: 051113707 BUSINESS ADDRESS: STREET 1: 701 NORTH POST OAK ROAD STREET 2: SUITE 630 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7136827400 MAIL ADDRESS: STREET 1: 701 NORTH POST OAK ROAD STREET 2: SUITE 630 CITY: HOUSTON STATE: TX ZIP: 77024 FORMER COMPANY: FORMER CONFORMED NAME: CRESCENT COMMUNICATIONS INC DATE OF NAME CHANGE: 20010921 FORMER COMPANY: FORMER CONFORMED NAME: BERENS INDUSTRIES INC DATE OF NAME CHANGE: 19990823 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL AIR CORP DATE OF NAME CHANGE: 19970521 8-K 1 body.txt BLUEGATE 8-K 9-26-2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): SEPTEMBER 26, 2005 BLUEGATE CORPORATION Exact name of registrant as specified in its Charter) Nevada 000-22711 76-0640970 (State or other (Commission File (IRS Employer jurisdiction of Incorporation) Number) Identification Number) 701 North Post Oak, Road, Suite 630, Houston, Texas 77024 (Address of principal executive offices) (Zip Code) Registrant's telephone number, Including Area Code: (713) 686-1100 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT. On September 26, 2005, we borrowed $500,000 by issuing 10% Convertible Promissory Notes with Detachable Warrants. The Note is senior to all other indebtedness of the Company, with the exception of up to $150,000 in principal amount of senior debt secured by accounts receivable issued by the Company. Interest is ten (10) percent annually and will be accrued and added to the then outstanding principal amount of the Notes daily. Repayment will be within five (5) days of receipt of funds by the Company of any subsequent offering, raising gross proceeds to the Company of at least $1,000,000 or the date which is one hundred and eighty (180) days after the date of the Note. The Holder has the right to convert the Note into shares of common stock at a conversion price of $0.75 per share. The Company may extend the repayment date for two successive periods of ninety (90) days each by providing written notice to the Holder and then delivering to the Holder of the Note an "Extension Warrant" for shares of Common Stock of the Company equal to 50% of the of the number of shares underlying the Note at the time of each extension, exercisable at $0.75 per share. These Extension Warrants have a term of five years beginning as of the date of issue. See, Item 3.02 below. ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES. On September 26, 2005, we received the gross amount of $500,000 through the sale of unit securities to 14 investors. These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act and Regulation D thereunder. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. Westminster Securities Corporation, a member of the New York Stock Exchange, acted as the placement agent and received a sales commission of 12%. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities. Each unit consisted of the face amount of $30,000 of a 10% Convertible Promissory Notes with Detachable Warrants. The Notes are convertible at a conversion price of $0.75 per share of common stock. Each unit included a warrant for the purchase of 40,000 shares of common stock at an exercise price of $1.00 per share expiring five years from the issue date. Other material terms of the 10% Convertible Promissory Notes are as follows: The Note is senior to all other indebtedness of the Company, with the exception of up to $150,000 in principal amount of senior debt secured by accounts receivable issued by the Company. Interest is ten (10) percent annually and will be accrued and added to the then outstanding principal amount of the Notes daily. Repayment will be within five (5) days of receipt of funds by the Company of any subsequent offering, raising gross proceeds to the Company of at least $1,000,000 or the date which is one hundred and eighty (180) days after the date of the Note. The Holder has the right to convert the Note into shares of common stock at a conversion price of $0.75 per share. The Company may extend the repayment date for two successive periods of ninety (90) days each by providing written notice to the Holder and then delivering to the Holder of the Note an "Extension Warrant" for shares of Common Stock of the Company equal to 50% of the of the number of shares underlying the Note at the time of each extension, exercisable at $0.75 per share. These Extension Warrants have a term of five years beginning as of the date of issue. ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS. Effective September 30, 2005, Greg Micek resigned as CFO. Mr. Micek did not provide us with a written letter of resignation nor did Mr. Micek voice any concerns to us. Mr. Micek will continue working with us in a consulting capacity in the role of Director of Corporate Strategies. Effective October 1, 2005, Steven M. Plumb became our new CFO. Mr. Plumb, age 46, is a CPA licensed to practice in Texas. Mr. Plumb is a financial manager and senior executive experienced in operations, finance and marketing. He has Big 4 CPA experience, a background in IT, biotech, Fortune 500 firms, medical and utility companies, distribution, real estate, construction, governmental entities, and non-profit organizations. During 1981-1982, Mr. Plumb was a staff accountant at PriceWaterhouseCoopers. During 1982-1984, Mr. Plumb was a staff accountant at Kalman Phillips & Leon, P.C. During 1984-1987, Mr. Plumb was a supervising senior accountant at KPMG. During 1987-1990, Mr. Plumb was the controller of Memorial Hermann Rehabilitation Hospital. During 1990-1992, Mr. Plumb was the CFO of DePelchin Children's Center. During 1992-present, Mr. Plumb was the President of Steven M. Plumb, P.C. During 1997-2001, Mr. Plumb was the President of Orchard Consulting Group, Inc. During 2002-2004, Mr. Plumb was the CFO of ADVENTRX Pharmaceuticals, Inc. During 2003-present, Mr. Plumb was the President of Clear Financial Solutions, Inc. Mr. Plumb is a member of: American Institute of Certified Public Accountants; Texas Society of Certified Public Accountants; Houston Chapter of Texas Society of Certified Public Accountants; Houston Technology Center; and Association for Corporate Growth. Mr. Plumb is active in BioHouston and the Rice Alliance. Mr. Plumb has a Bachelor of Business Administration degree from the , University of Texas at Austin, Austin, Texas, 1981. There is no family relationship between Mr. Plumb and any of our officers or directors. We have a contract with Clear Financial Solutions, Inc., a company owned by Mr. Plumb, which has agreed to provide us with a so called "contract" CFO, namely Mr. Plumb. We will pay a fee directly to Clear Financial Solutions, Inc. in the estimated amount of approximately $6,600 to $9,900 per month for Mr. Plumb's services as our CFO and some additional services provided to us by Clear Financial Solutions, Inc. In addition we will also grant to Mr. Plumb an option to purchase 350,000 shares of our common stock at an exercise price of $1.00 per share. The option will vest on a pro rate basis monthly over a period not to exceed 24 months and expire at the end of no less than 5 years. The option will be issued under our 2005 Stock and Stock Option Plan and the shares underlying the option were previously registered on Form S-8. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (d) Exhibits 4.1 Form of 10% Convertible Promissory Note 4.2 Form of Detachable Warrant 10.1 Steven Plumb employment agreement SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BLUEGATE CORPORATION Date: September 27, 2005 /s/ Manfred Sternberg Manfred Sternberg Chief Executive Officer EX-4.1 2 ex4_1.txt EXHIBIT 4.1 Exhibit 4.1 THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH NOTE MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED WITHOUT EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS. Bluegate Corporation 10% Convertible Promissory Note DATED: August __, 2005 PRINCIPAL AMOUNT (US$): $ _________ FOR VALUE RECEIVED, Bluegate Corporation, a Nevada corporation (the "Company"), hereby promises to pay to ________________________, residing at ______________________________ or registered assigns (the "Payee" or "Holder") upon due presentation and surrender of this promissory note (the "Note") on the Repayment Date (as hereinafter defined) the principal amount of _________________________________ ($___________), and accrued interest thereon as hereinafter provided. 1. PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT. 1.1 Payment. Payment of the principal and accrued interest on this ------- Note shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. Interest (computed for the actual number of days elapsed on the basis of a year consisting of 365 days) on the unpaid portion of said principal amount from time to time outstanding shall be paid by the Company at the rate of ten percent (10%) per annum (the "Stated Interest Rate"). The Interest will accrue and be added to the then outstanding principal amount of the Notes, daily. The principal shall be due and payable on the Repayment Date, which payment shall be made only upon presentation and surrender of this Note to the Company at its address set forth herein. The Company will pay or cause to be paid all principal and interest becoming due hereon by check sent to the Holder's above address or to such other address as the Holder may designate for such purpose from time to time by written notice to the Company. 1.2 Repayment Date. --------------- (a) For purposes hereof, unless sooner repaid by the Company, the "Repayment Date" shall mean the earlier of the following dates: (i) the date which is within five (5) days of receipt of funds by the Company of any offering, raising gross proceeds to the Company of at least $1,000,000 or (ii) the date which is one hundred and eighty (180) days after the above-stated issuance date of this Note (the "Initial Six Month Term"). (b) The Company may, by written notice to the Holder within ten (10) days prior to the end of the Initial Six-Month Term and the delivery to the Holder of the Notes a number of warrants equal to 50% of the number of shares underlying the Note (as provided in Section 2.1), extend the Repayment Date for an additional ninety (90) days (the "First Extension Period"); provided, however, that the Company may, by written notice to the Holder within ten (10) days prior to the end of the First Extension Period and the delivery to the Holder of the Note an additional number of warrants equal to 50% of the number of shares underlying the Note (as provided in Section 2.1), extend the Repayment Date for a second ninety (90) day period (the "Second Extension Period"), in which case all principal and any accrued and unpaid interest thereon shall be due and payable on the last day of the Second Extension Period. 2. CONVERSION AT THE ELECTION OF THE HOLDER. 2.1 This Note may be converted at the option of the Holder at any time, including without limitation, after Holder receives notice from the Company of its intent to prepay this Note. Conversion by the Holder shall require written notice to the Company duly executed and delivered by the Holder, together with the original of this Note. Upon delivery of such conversion notice to the Company, the Company shall convert the unpaid principal balance of this Note and all interest accrued thereon into such number of shares of Common Stock of the Company, equal to the unpaid principal plus accrued interest thereon divided by $0.75 per share (subject to adjustment, as provided in Section 8.6, the "Conversion Price"). 2.2 Upon issuance of the Note, the Company will deliver to the Holder warrants equal to 100% of the number of shares of Common Stock of the Company, equal to the unpaid principal plus accrued interest thereon divided by $0.75 per share (subject to adjustment, as provided in Section 8.6), within five (5) business days of receipt of conversion notice. 3. RANKING OF NOTE. 3.1 Senior to all Debt. The Company, for itself, its successors and --------------------- assigns, covenants and agrees, and the Payee and each successive Holder by acceptance of this Note, likewise covenants and agrees that the payment of the principal of and interest on this Note is senior to all other Indebtedness except for up to $150,000 in principal amount of senior debt secured by accounts receivable issued by the Company. The Company covenants and agrees that it will not incur any additional pari passu debt unless the Notes have been converted. 3.2 Indebtedness. "Indebtedness" means: ------------ (a) any liability of the Company (i) for borrowed money, or (ii) evidenced by a note, debenture, bond or other instrument of indebtedness (including, without limitation, a purchase money obligation), given in connection with the acquisition of property, assets or services, (iii) for the payment of rent or other amounts relating to capitalized lease obligations, or (iv) trade accounts payable and trade credit; (b) any liability of others described in the preceding clause (a) which the Company has guaranteed or which is otherwise its legal liability; and (c) any modification, renewal, extension, replacement or refunding of any such liability described in the preceding clauses (a) and (b) except that Indebtedness. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Holder that the Company: (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada; (b) has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted, the failure of which would not have a material adverse effect on the business, operations, properties, liabilities or condition (financial or otherwise) of the Company; and (c) has adequate authority, power and legal right to enter into, execute and deliver the Note. On execution and delivery, the Note will be a legal, valid and binding obligation of the Company enforceable in accordance with its terms. 5. EVENTS OF DEFAULT. It shall be an "Event of Default" with respect to this Note upon the occurrence and continuation uncured of any of the following events: 5.1 Default in Payment, Etc. ------------------------ (a) A default in the payment of any interest or principal payments on this Note that continues uncured for fifteen (15) days after due date and notice is received from Holder; or (b) default in the performance, or breach, of any other covenant of the Company in this Note and continuance of such default or breach uncured for a period of three (3) days after receipt of notice as to such breach or after the Company knew or should have known of such breach. 5.2 Bankruptcy. The entry of a decree or order by a court having ---------- jurisdiction adjudging the Company bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company, under Federal bankruptcy law, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) days; or the commencement by the Company of a voluntary case under Federal bankruptcy law, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency, or other similar law, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under Federal bankruptcy law or any other applicable Federal or state law, or the consent by it to the filing of such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action. 6. REMEDIES UPON DEFAULT. 6.1 Acceleration. Upon an Event of Default and at any time during the ------------ continuation thereof, the Holder, by notice in writing given to the Company, may declare the entire principal and any accrued interest of this Note then outstanding to be due and payable immediately, and upon any such declaration the same shall become and be due and payable immediately, anything herein contained to the contrary notwithstanding. 6.2 Proceedings and Actions. During the continuation of any Event of ------------------------- Default, the Holder may institute such actions or proceedings in law or equity as it shall deem expedient for the protection of its rights and may prosecute and enforce its claims against all assets of the Company, and in connection with any such action or proceeding shall be entitled to receive from the Company payment of the principal amount of this Note plus accrued interest to the date of payment plus reasonable expenses of collection including, without limitation, attorney's fees and expenses. 7. RESTRICTIONS ON TRANSFER. The Holder acknowledges that he has been advised by the Company that this Note have not been registered under the Act, that they are being issued on the basis of the statutory exemption provided by section 4(2) of the Act and/or Regulation D promulgated thereunder relating to transactions by an issuer not involving any public offering, and that the Company's reliance thereon is based in part upon the representations made by the Holder in the Subscription Agreement. The Holder acknowledges that he has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Act and the rules and regulations thereunder on the transfer of securities. In particular, the Holder agrees that no sale, assignment or transfer of the Note shall be valid or effective, and the Company shall not be required to give any effect to any such sale, assignment or transfer, unless (i) the sale, assignment or transfer is registered under the Act, it being understood that the Note is not currently registered for sale and that the Company has no obligation or intention to so register them, or (ii) the Note is sold, assigned or transferred in accordance with all the requirements and limitations of Rule 144 under the Act, it being understood that Rule 144 is not available at the present time for the sale of the Note and that there can be no assurance that Rule 144 sales will be available at any time in the future, or (iii) such sale, assignment, or transfer is otherwise exempt from registration under the Act. The Holder of the Note and each transferee thereof further agrees that if any distribution of this Note is proposed to be made by them otherwise than by delivery of a prospectus meeting the requirements of Section 10 of the Act, such action shall be taken only after submission to the Company of an opinion of counsel, reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed distribution will not be in violation of the Act or of applicable state law. 8. MISCELLANEOUS. 8.1. No Recourse. No recourse whatsoever, either directly or through ------------ the Company or any trustee, receiver or assignee, shall be had in any event or in any manner against any past, present or future stockholder, director or officer of the Company for the payment of the principal of, or interest on, this Note or for any claim based thereon or otherwise in connection with this Note, this Note being a corporate obligation only. 8.2. Notices. All communications provided hereunder shall be in -------- writing and, if to the Company, delivered, mailed by registered or certified mail, or shipped for overnight delivery by a nationally recognized overnight delivery service addressed to Bluegate Corporation, 701 North Post Oak Road, Suite 630, Houston, Texas, 77024 or, if to the Holder, at________________________________________. 8.3. Lost, Stolen or Mutilated Note. In case this Note shall be ---------------------------------- mutilated, lost, stolen destroyed, the Company shall issue and deliver in exchange and substitution for and upon cancellation of the mutilated Note, or in lieu of and substitution for the Note, lost, stolen or destroyed, a new Note of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction and an indemnity, if requested, also satisfactory to it. 8.4. Waiver of Presentment. Except as provided herein, the Company ----------------------- hereby waives presentment, diligence in the collection or protection, protest, notice of protest and default, and notice of dishonor. No delay by Holder in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Holder of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. 8.5. Note Holder not deemed a Stockholder. Nothing contained in this --------------------------------------- Note or in any of the Notes which may be issued from time to time in substitution for this Note shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder in respect of the meetings of stockholders for any purpose, or any other rights whatsoever, as a stockholder of the Company. 8.6. Interest; Fractional Shares. The Company shall pay all interest ----------------------------- on this Note or the portion thereof surrendered for conversion accrued to the date upon which the conversion shall have been effected, to the extent such interest is not to be converted. In case this Note is not converted, the Company shall pay to the holder the remaining principal balance of this Note at the Repayment Date, together with interest thereon in accordance with the terms of this Note. No fractional share shall be issued upon conversion of this Note, but if the conversion results in a fraction, an amount equal to such fraction multiplied by the Conversion Price shall be paid in cash to the holder of this Note. 8.7. Anti-dilution Adjustments. -------------------------- (a) Stock Dividends and Stock Splits. The number and kind of ------------------------------------ securities purchasable upon the conversion of this Note and the conversion price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of shares received upon conversion of this Note immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of shares or other securities of the Company which it would have owned or have been entitled to receive had such Note been converted in advance thereof. Upon each such adjustment of the kind and number of shares or other securities of the Company which are received hereunder, the Holder shall thereafter be entitled to receive the number of shares or other securities resulting from such adjustment at a conversion price per share or other security obtained by multiplying the conversion price in effect immediately prior to such adjustment by the number of shares convertible pursuant hereto immediately prior to such adjustment and dividing by the number of shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Subsequent Equity Sales. If the Company or any of its ------------------------- subsidiaries thereof, as applicable, at any time while this Note is outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or any securities of the Company or the subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock ("Common Stock Equivalents"), at an ------------------------ effective price per share less than the then Conversion Price ("Dilutive Issuance"), as adjusted hereunder (if the ------------------ holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price), then the Conversion Price shall be reduced by multiplying the Exercise Price by a fraction, the numerator of which is the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock which the offering price for such Dilutive Issuance would purchase at the then Exercise Price, and the denominator of which shall be the sum of the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock so issued or issuable in connection with the Dilutive Issuance, the number of shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment and the number of shares of Common Stock issuable hereunder shall be increased such that the aggregate exercise price payable hereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the business day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable conversion Price, exchange price, conversion price and other pricing terms. Notwithstanding the foregoing, no adjustments, Alternate Consideration nor notices shall be made, paid or issued under this sub-section in respect of an issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise of or conversion of any securities issued hereunder, and (c) securities issued pursuant to acquisitions or strategic transactions, provided any such issuance shall only be to a person or entity which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities. (c) Pro Rata Distributions. If the Company, at any time while ------------------------ Notes are outstanding, shall distribute to all holders of Common Stock (and not to Holders) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be determined by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the closing bid price determined as of the record date mentioned above, and of which the numerator shall be such closing bid price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. (d) Reorganization, Reclassification, Merger, Consolidation or ------------------------------------------------------------ Disposition of Assets. In case the Company shall reorganize ---------------------- its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received -------------- by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive upon conversion of this Note, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Note to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares for which this Note is convertible which shall be as nearly equivalent as practicable to the adjustments provided for in this Section. For purposes of this Section, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 8.8. Reservation of Shares, etc. The Company shall at all times keep ---------------------------- reserved out of its authorized and unissued shares and/or shares held in its treasury a number of shares of Common Stock sufficient to provide for the conversion of all outstanding Notes, including this Note. 8.9. Amendments. This Note may be amended only by a written instrument ----------- executed by the Company and the Holder hereof. Any amendment shall be endorsed upon this Note, and all future holders shall be bound thereby. 8.10. Governing Law. This Note shall be construed in accordance with and -------------- governed by the laws of the State of Nevada, without giving effect to conflict of laws principles. DATED the date first written above. BLUEGATE CORPORATION By: ------------------------------- Manfred Sternberg, President and CEO (SEAL) Attest: - ------------------------- , Secretary - ------------------------- EX-4.2 3 ex4_2.txt EXHIBIT 4.2 Exhibit 4.2 THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SUCH ACT OR, AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO COUNSEL TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ________________________________________ BLUEGATE CORPORATION SUITE 630 701 NORTH POST OAK ROAD HOUSTON, TEXAS 77027 STOCK PURCHASE WARRANT Warrant No.: ____ Right to Purchase: _______ Date: THIS CERTIFIES THAT, for value received, ______________ (the "HOLDER"), is entitled to purchase from BLUEGATE CORPORATION, A NEVADA corporation (the "COMPANY"), at any time from __________ until 5:00 p.m. (EST) on ___________ [5 years] ______________ [number] fully paid and nonassessable shares of the Company's common stock, par value $0.001 per share ("COMMON STOCK"), at an exercise price of $1.00 per share, as adjusted. 1. The Company is issuing this Warrant to the Holder pursuant to a Subscription Agreement under a confidential private placement. This Warrant constitutes part of a unit subscribed to by the Holder in the Subscription Agreement. 2. (a) To exercise this Warrant or any part of this Warrant, the Holder must deliver to the Company (collectively, the "EXERCISE DOCUMENTATION"): (i) a completed exercise agreement a form of which is attached; (ii) this Warrant; and (iii) a check payable to the Company in an amount equal to the product of the exercise price and the number of shares the Holder desires to purchase. The Company will, without charge, issue certificates for shares of Common Stock purchased upon exercise of this Warrant within five days after receipt of the Exercise Documentation. Unless this Warrant has expired, or all of the purchase rights represented by this Warrant have been exercised, the Company will also prepare a new Warrant, substantially identical to this Warrant, representing the rights formerly represented by this Warrant which have not expired or been exercised. 1 (B) IF, BUT ONLY IF, AT ANY TIME AFTER ONE YEAR FROM THE DATE OF ISSUANCE OF THIS WARRANT THERE IS NO EFFECTIVE REGISTRATION STATEMENT REGISTERING THE RESALE OF THE COMMON STOCK UNDERLYING THIS WARRANT BY THE HOLDER, THIS WARRANT MAY ALSO BE EXERCISED, IN WHOLE OR IN PART, AT SUCH TIME BY MEANS OF A "CASHLESS EXERCISE" IN WHICH THE HOLDER SHALL BE ENTITLED TO RECEIVE A CERTIFICATE FOR THE NUMBER OF SHARES OF COMMON STOCK EQUAL TO THE QUOTIENT OBTAINED BY DIVIDING [(A-B) (X)] BY (A), WHERE: (A) = the closing bid price on the trading day preceding the date of such election; (B) = the Exercise Price of the Warrants, as adjusted; and (X) = the number of shares of Common Stock issuable upon exercise of the Warrants in accordance with the terms of this Warrant. 3. The Company will at all times reserve and keep available for issuance upon the exercise of this Warrant such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of this Warrant, and upon such issuance such shares of Common Stock will be validly issued, fully paid and nonassessable. 4. This Warrant does not and will not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 2 5. CERTAIN ADJUSTMENTS. -------------------- 2.1 2.2 (a) Stock Splits, etc. The number and kind of securities -------------------- purchasable upon the exercise of this Warrant and the exercise price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of shares or other securities resulting from such adjustment at an exercise price per share or other security obtained by multiplying the exercise price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Subsequent Equity Sales. If the Company or any subsidiary ------------------------- thereof, as applicable, at any time while this Warrant is outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or any securities of the Company or the subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock ("Common Stock Equivalents") at an ------------------------ effective price per share less than the then exercise price of this Warrant (such lower price, the "Base Share Price" and such issuances collectively, ---------------- a "Dilutive Issuance"), as adjusted hereunder (if the holder of the Common ----------------- Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the exercise price of this Warrant, such issuance shall be deemed to have occurred for less than the exercise price), then, the Exercise Price shall be reduced by multiplying the Exercise Price by a fraction, the numerator of which is the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock which the offering price for such Dilutive Issuance would purchase at the then Exercise Price, and the denominator of which shall be the sum of the number of shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common Stock so issued or issuable in connection with the Dilutive Issuance, the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment and the number of shares of Common Stock issuable hereunder shall be increased such that the aggregate exercise price payable hereunder, after taking into account the decrease in the exercise price, shall be equal to the aggregate exercise price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the business day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms (such notice the "Dilutive -------- Issuance Notice"). Notwithstanding the foregoing, no adjustments, Alternate --------------- Consideration nor notices shall be made, paid or issued under this Section __ in respect of an issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise of or conversion of any securities issued hereunder, and (c) securities issued pursuant to acquisitions or strategic transactions, provided any such issuance shall only be to a person or entity which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities. (c) Pro Rata Distributions. If the Company, at any time prior to ----------------------- the termination date of this Warrant, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to the above section), then in each such case the exercise price of this Warrant shall be adjusted by multiplying the exercise price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the closing bid price determined as of the record date mentioned above, and of which the numerator shall be such closing bid price on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. (d) Reorganization, Reclassification, Merger, Consolidation or -------------------------------------------------------------- Disposition of Assets. In case the Company shall reorganize its capital, ----------------------- reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), -------------- are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section. For purposes of this Section, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. Whenever the number of shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the exercise price is adjusted, as herein provided, the Company shall give notice thereof to the Holder, which notice shall state the number of shares (and other securities or property) purchasable upon the exercise of this Warrant and the exercise price of such shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. 3 6. WHENEVER THE NUMBER OF SHARES OR NUMBER OR KIND OF SECURITIES OR OTHER PROPERTY PURCHASABLE UPON THE EXERCISE OF THIS WARRANT OR THE EXERCISE PRICE IS ADJUSTED, AS HEREIN PROVIDED, THE COMPANY SHALL GIVE NOTICE THEREOF TO THE HOLDER, WHICH NOTICE SHALL STATE THE NUMBER OF SHARES (AND OTHER SECURITIES OR PROPERTY) PURCHASABLE UPON THE EXERCISE OF THIS WARRANT AND THE EXERCISE PRICE OF SUCH SHARES (AND OTHER SECURITIES OR PROPERTY) AFTER SUCH ADJUSTMENT, SETTING FORTH A BRIEF STATEMENT OF THE FACTS REQUIRING SUCH ADJUSTMENT AND SETTING FORTH THE COMPUTATION BY WHICH SUCH ADJUSTMENT WAS MADE. 4 7. NOTICE OF CORPORATE ACTION. IF AT ANY TIME: ----------------------------- (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 7. 8. The construction, validity and interpretation of this Warrant will be governed by the laws of the State of Nevada. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly authorized officers under its corporate seal. BLUEGATE CORPORATION ATTEST: By: ----------------------------- ----------------------------- Name: Manfred Sternberg Secretary Title: President and CEO EXERCISE AGREEMENT To: Bluegate Corporation (1) The undersigned hereby elects to purchase ________ shares of Bluegate Corporation. pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Payment shall take the form of (check applicable box): [ ] in lawful money of the United States; or [ ] the cancellation of such number of shares as is necessary, in accordance with the formula set forth in subsection 2(b), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(b). (3) Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: ------------------------------- The shares shall be delivered to the following: -------------------------------- ------------------------------- ------------------------------- [HOLDER] By: ------------------------------ Name: Title: Dated: -------------------------- EX-10.1 4 ex10_1.txt EXHIBIT 10.1 Exhibit 10.1 Steven Plumb employment agreement September 26, 2005 Manfred Sternberg Chief Executive Officer BlueGate Corporation 701 North Post Oak Blvd., Suite 630 Houston, TX 77024 Houston, Texas Dear Manfred: Thank you for the opportunity to submit a proposal for contract CFO services. The following is a list of additional services available from Clear Financial Solutions, Inc. (Firm). We hope to exceed your expectations of service from our firm by clearly identifying the services to be provided, their frequency, and the objectives and limitations of such services. We have prepared this proposal for services based our meetings with the management of Bluegate Corporation (Client). None of the services provided can be relied upon to detect errors, irregularities, or illegal acts that may exist. However, we will inform the appropriate level of management of any material errors that come to our attention or any irregularities or illegal acts that come to our attention, unless they are clearly inconsequential. We provide the following services for our clients: [ ] Contract CFO Services [ ] Strategic Planning [ ] SEC Reporting Services [ ] Business Process Re-engineering [ ] Performance Measurement and Improvement [ ] Procedures and Controls [ ] Financial Analysis [ ] Outsourced Accounting Services You have requested that we perform Contract CFO Services for your company. We anticipate that these services will be performed by Steven M. Plumb, CPA (Consultant). Mr. Plumb may also utilize other staff members of the Firm. The standard billing rates for our partners and staff are as follows: Partner Level $165 per hour Manager Level $125 per hour Staff Level $75 per hour Bookkeeper $50 per hour In the course of performing these services we will do the following: [ ] Review monthly financial statements; [ ] Oversee internal controls; Helping You Do More of What You Do Well! 5300 N. Braeswood, #370 Phone 713 780 0806 Houston, TX 77096-3317 Fax 800 861 1175 www.clearfinancials.com E mail steven@clearfinancials.com Page 2 September 26, 2005 [ ] Page 2 [ ] Provide advice on the application of Generally Accepted Accounting Principles; [ ] Assist in the preparation of SEC filings; [ ] Assist in the preparation of materials for the Client's auditors; [ ] Provide advice on the structure of financing transactions and contracts; and [ ] Other projects as requested by management Consultant reports to the Chief Executive Officer and to the Audit Committee of the Board of Directors. If an Audit Committee is not in place then the Consultant reports to the Board of Directors. Consultant has the responsibility, authority and freedom to report to the Audit Committee independent of management. Compensation We estimate that 40 to 60 hours per month will be necessary to meet the needs of Client at a cost of $6,600 to $9,900 per month. Should the amount of time required to complete this project change, we will inform you promptly. Services will be billed as incurred at the standard hourly rate of $165.00 per hour. Time incurred in excess of the range of hours noted above will be billed at our standard rate. If a payment is ever received more than 3 business days late, then Client is obligated to remit a retainer of $7,500. The retainer will be held until the end of the contract. Payment will be due on the 1st of each month. Interest of 1.5% per month will be charged on all outstanding balances. The payment due upon execution of this contract is $6,600, which consists of a an estimated first month's fee of $6,600. If Client becomes 30 days or more in arrears on payments to the Firm, the Firm has the right to stop performing services under this contract. Consultant will also be issued an option (the Option) to purchase 350,000 shares of Client's common stock at an exercise price of $1.00 per share. The Option will vest on a pro rate basis monthly over a period not to exceed 24 months and expire at the end of no less than 5 years. The Option will be issued under Client's 2005 Stock and Stock Option Plan. Other The Firm has not been engaged to provide, nor will it provide, any attestation services, such as auditing, review or compilation services under this contract. Client will reimburse Firm for reasonable expenses such as mileage, photocopies, long distance, postage and supplies. The effective date of this contract is October 1, 2005 and is for a period of one year. If the Client cancels the contract or fails to perform for any reason, then it shall pay the Firm damages equal to the balance that it would have paid had the contract been fully performed. Unless canceled by either party with written notice sixty (60) days prior to the end of the contract, the contract will automatically renew for another twelve (12) month period with a 5% fee increase. The contract will roll over automatically until canceled in writing by either party within sixty (60) days notice prior to the end of the contract. The retainers will be applied to the last months billing. Should the contract be renewed, the applicable retainer shall be rolled forward and will apply to the last billing of the renewed contract. If the firm is unable to perform due to circumstances beyond its control, then the Firm is released from this contract and the Firm has no liability under this agreement. Client may cancel this contract with 60 days written notice. Page 3 September 26, 2005 [ ] Page 3 Guarantee Consultant represents and warrants to Company that all services, work and deliverables to be performed hereunder shall be performed in a professional and workmanlike manner to the highest industry standards. If any work does not meet this standard, a fee accommodation can be arranged. Consultant makes no guarantees or representations regarding any particular result or outcome based on services provided. Other Matters Based upon the terms and conditions contained in this agreement, you are engaging Consultant to perform business and management consulting services at such places and times as may be reasonably agreed to by Consultant. It is expressly understood and agreed that no provisions of this agreement, nor any act of the parties, shall be interpreted to create any relationship between Consultant and the Company other than that of independent contractor. Each party agrees to keep confidential the proprietary information of the other party that may be learned during the course of providing or receiving services under this Agreement. Consultant agrees he will not disclose any proprietary or confidential information acquired from the Company under this agreement, including trade secrets, business plans and confidential or other information which may be proprietary to the Company. This Agreement shall commence on October 1, 2005 and shall continue indefinitely until such time as either Consultant or the Company terminates the agreement as provided below. The parties agree that either the Company or Consultant, through written notice, may terminate Consultant's engagement under this Agreement at any time for any reason or for no reason. The Company shall process payments to Consultant bi-weekly for all undisputed invoices presented by Consultant under this Agreement but in no case shall Consultant be paid later than thirty (30) days after the receipt of such undisputed invoices. In the case of a dispute, such representative as the Company may designate will discuss the controversial items with Consultant and attempt to resolve the dispute. The parties will attempt to resolve any controversy or claim arising out of this Agreement by mediation prior to commencing any legal action. The maximum recovery for any damages attributable to work performed, regardless of the cause of action, will be limited to the return of unearned fees paid to Consultant. All agreements between the parties are contained in this document. There are no oral agreements between the parties. This agreement is governed exclusively by Texas substantive law without reference to Texas choice of law rules. The parties agree that all disputes arising out of or related to this agreement must be litigated in the state district courts of Harris County, Texas, which the parties agree shall be the exclusive forum for any and all litigation between them. The Client expressly agrees that it is subject to personal jurisdiction in Texas for any and all disputes between the parties. The Client further agrees that subject matter jurisdiction for any and all disputes between the parties lies exclusively in the Texas state courts. Page 4 September 26, 2005 [ ] Page 4 Please indicate your acceptance of the above understanding by signing below. A copy is enclosed for your records. If your needs change during the year, the nature of our services can be adjusted appropriately. Likewise, if you have special projects with which we can assist, please let us know. We look forward to a long-term and mutually-beneficial relationship with Bluegate Corporation. Sincerely, Clear Financial Solutions, Inc. by Steven Plumb, CPA SMP Reviewed and accepted: Date - ---------------------------------- ---------------- President/Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----