ASSET SALE AND PURCHASE AGREEMENT
THIS ASSET SALE AND PURCHASE AGREEMENT ("Agreement") is made and entered
into effective as of the 15th day of September, 2005 by and between (a)
Trilliant Corporation, a Texas corporation ("Seller"), and William Koehler
("Shareholder," who shall not be construed as representing any of the other
shareholders of Seller), each such person being a shareholder in Seller, on the
one hand, and (b) Bluegate Corporation, a Nevada corporation ("Bluegate"), and
Trilliant Technology Group, Inc. ("Purchaser"), a Nevada corporation and a
subsidiary of Bluegate, on the other hand.
RECITALS:
WHEREAS, for the purchase price provided for herein and subject to the
terms, provisions and conditions set forth herein, Purchaser desires to acquire
from Seller full right, title and interest in and to all of the personal
property of every kind or nature used in the business of Seller (the "Assets"),
including, without limitation, the personal property that is more fully
described in ARTICLE ONE below but not including the "Excluded Assets" as
defined hereinafter, free and clear of any security interest, lien, mortgage,
encumbrance, claim, or limitation or restriction on the transfer thereof
(collectively, "Encumbrances"), except as set forth on Schedule 2.7 attached
hereto; and
WHEREAS, for the purchase price provided for herein and subject to the
terms, provisions and conditions set forth herein, Seller desires to sell the
Assets to Purchaser;
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises, covenants,
agreements, representations and warranties set forth hereinafter, $10.00 and
other good and valuable consideration (the receipt, adequacy and sufficiency of
which each of Seller, Shareholder, Bluegate and Purchaser hereby acknowledges)
and subject to the terms, provisions and conditions hereof, each of Seller,
Shareholder, Bluegate and Purchaser hereby agrees as follows:
ARTICLE ONE
SALE AND PURCHASE OF ASSETS
1.1 Sale and Purchase of Assets. In consideration of the issuance of
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the Bluegate Common Stock to Seller pursuant to Section 1.3 below, Seller does
hereby assign, transfer and convey to Purchaser (without any further act or deed
except as otherwise indicated herein), full right, title and interest in and to
all of the Assets, and Purchaser does hereby acquire and receive full right,
title and interest in and to the Assets, wherever located and regardless of
whether or not reflected on Seller's books and records, free and clear of any
Encumbrances. Without any limitation on anything stated above, the Assets
consist of all of the following:
(a) All machinery, equipment, computer equipment, appliances,
motor vehicles, fixtures, furniture, furnishings and other tangible
personal property, of every kind and description, owned by Seller,
including, without limitation, those items listed on Schedule 1.1(a) hereto
(in connection with the transfer of any motor vehicles that are Assets,
Seller has endorsed and delivered to Purchaser certificates of title
respecting the same);
(b) All inventories of raw materials, work-in--process, finished
products, supplies, tools, spare parts, and shipping containers and
materials, held for use in Seller's business, including, without
limitation, those items listed on Schedule 1.1(b) hereto;
(c) All rights of Seller in, to and under any and all contracts,
agreements, commitments, leases, licenses, and franchises (including,
without limitation, those pertaining to suppliers, customers, employees,
equipment and motor vehicles), to which Seller is a party or the Assets are
subject, including, without limitation, those items listed on Schedule
1.1(c) hereto;
(d) All cash, cash equivalents, deposits in transit and interests
in bank accounts of Seller, all accounts receivable owed to Seller (the
"Accounts Receivable"), and all bills, notes, and securities of Seller, as
of the date of the completion of the sale and purchase of the Assets
provided for hereby, including, without limitation, those items listed on
Schedule 1.1(d) hereto;
(e) All of Seller's computer programs and software, including,
without limitation, those items listed on Schedule 1.1(e) hereto;
(f) All telephone and facsimile numbers (local and toll free), all
internet domain sites, all e-mail, internet and website addresses, and all
mailboxes and lockboxes used by Seller, including, without limitation,
those items listed on Schedule 1.1(f) hereto;
(g) To the extent that they may be lawfully transferred, all of
Seller's licenses, permits, certificates of authority, variances,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any governmental authority (including applications for
any of the preceding) denoted as transferable on Schedule 1.1(g) hereto;
(h) All records of Seller's business in whatever form (copies of
which Seller may retain at its cost), including accounting records, tax
records, property records, personnel records, and credit records, and all
of Seller's customer lists, supplier lists, catalogs, and brochures; and
(i) All of Seller's Intellectual Property (as defined in Section
2.10), and any and all other intangible property or rights whatsoever owned
by Seller and the goodwill of Seller's business symbolized by such
Intellectual Property (in connection with the transfer of the preceding,
Seller executed all additional transfer documents requested by Purchaser)
including, without limitation, those items listed on Schedule 1.1(i)
hereto.
1.2 Excluded Assets. Seller is not selling to Purchaser, and Purchaser
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is not acquiring, any of the items listed on Schedule 1.2 hereto, which items
shall not constitute "Assets" for any
purpose hereof.
1.3 Purchase Price, and Payment, Adjustment and Allocation Thereof.
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(a) The aggregate purchase price for the Assets (the "Purchase
Price") shall be composed of (i) an initial stock payment consisting of
151,065 shares of Bluegate's common stock ("Bluegate Common Stock"), (ii)
the contingent issuance of additional shares of Bluegate Common Stock
pursuant to Section 1.3(b) immediately below, (iii) a promissory note in
the form of Exhibit 1.3(a) hereto in the original principal amount of
$136,033.49 (the "Acquisition Promissory Note"), all the proceeds to be
received by Seller on the payment thereof to be used by Seller to satisfy
outstanding indebtedness so that Seller will have no outstanding
indebtedness after the use of the proceeds as aforesaid, and (iv) the
royalty payments provided for in Section 1.3(c) immediately below.
(b) (i) For purposes of this Section 1.3(b) relating to the
Contingent Stock Issuance, the following terms shall have the meanings
respectively assigned to them immediately below:
"Contingent Stock Issuance" shall mean one of the two contingent
stock issuances provided for by this Section 1.3(b) consisting of
shares of Bluegate Common Stock.
"First Yearly Period" shall mean the year commencing on October
1, 2005 and ending on September 30, 2006.
"Second Yearly Period" shall mean the year commencing on October
1, 2006 and ending on September 30, 2007.
"Revenues" shall mean all revenues of Purchaser for the relevant
period of time (other than revenues derived from the Stipulated
Software as defined in Section 1.3 (c) below), as reflected on
the financial statements of Purchaser prepared in the ordinary
course of business in accordance with generally accepted
accounting principles.
"Alternative Percentage" shall mean the percentage obtained by
dividing the Revenues for either the First Yearly Period or the
Second Yearly Period (as the case may be) by $1.3 million.
(ii) If Revenues for the First Yearly Period equal or exceed
$1.3 million, then Seller shall be entitled to a Contingent Stock
Issuance consisting of 407,407 shares of Bluegate Common Stock. If
Revenues for the First Yearly Period are less than $1.3 million, then
Seller shall be entitled to a Contingent Stock Issuance consisting of
a number of shares of Bluegate Common Stock equal to the product
obtained by multiplying 407,407 times
the Alternative Percentage computed for the First Yearly Period. A
stock certificate representing the Contingent Stock Issuance provided
for by this Section 1.3(b)(ii) shall be delivered to Seller within 45
days after the end of the First Yearly Period.
(iii) If Revenues for the Second Yearly Period equal or
exceed $1.3 million, then Seller shall be entitled to a Contingent
Stock Issuance consisting of 419,753 shares of Bluegate Common Stock.
If Revenues for the Second Yearly Period are less than $1.3 million,
then Seller shall be entitled to a Contingent Stock Issuance
consisting of a number of shares of Bluegate Common Stock equal to the
product obtained by multiplying 419,753 times the Alternative
Percentage computed for the Second Yearly Period. A stock certificate
representing the Contingent Stock Issuance provided for by this
Section 1.3(b)(iiii) shall be delivered to Seller within 45 days after
the end of the Second Yearly Period.
(iv) During the First Yearly Period and the Second Yearly
Period, (A) Purchaser shall be maintained as a separate subsidiary of
Bluegate, and Bluegate shall deal, and shall cause its other
subsidiaries to deal, with Purchaser on terms no less favorable than
it makes available to unrelated third parties, (B) the Board of
Directors of Purchaser shall be composed of three persons who shall
include William E. Koehler, Larry Walker and a Bluegate nominee, or
such other persons nominated by a majority of the Seller's
shareholders (based on their stock ownership in Seller), and such
Board of Directors shall be entitled to manage the business of
Purchaser, (C) books and records covering all of Purchaser's
operations shall be maintained in accordance with generally accepted
accounting principles, and each of Bluegate, Seller and their
respective independent accountants shall have the right, upon
reasonable request, to review these books and records during regular
business hours, (D) neither Bluegate nor any of its other subsidiaries
shall directly or indirectly engage in any business previously
conducted by Seller immediately prior to the date hereof, and (E)
Bluegate shall pay to Purchaser, for services rendered by Purchaser to
Bluegate, the same charges that Purchaser customarily makes available
to its best customers.
(v) In the event of a "Change in Control" (as hereinafter
defined), Seller shall be entitled to (A) the maximum number of shares
of Bluegate Common Stock that may be issued pursuant to Section
1.3(b)(ii) and Section 1.3(b)(iii), if the Change in Control occurs
during the First Yearly Period, or (B) the maximum number of shares of
Bluegate Common Stock that may be issued pursuant to Section
1.3(b)(iii), if the Change in Control occurs during the Second Yearly
Period. For purposes of this Agreement, a "Change in Control" shall
mean the occurrence of any of the following events: (I) Manfred
Sternberg's failure to serve as Chairman of Bluegate's Board of
Directors for any reason at any time
prior to March 14, 2006, the date marking the end of six months after
the date of this Agreement, or the individuals constituting the Board
of Directors of Bluegate as of the date of this Agreement (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that if the election, or
nomination for election by Bluegate's stockholders, of any new
director was approved by a vote of at least a majority of the
Incumbent Board, such new director shall be considered a member of the
Incumbent Board; (II) an acquisition of any voting securities of
Bluegate (the "Voting Securities") by any "person" (as the term
"person" is used for purposes of Section 13(d) or Section 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"))
immediately after which such person has "beneficial ownership" (within
the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20% or
more of the combined voting power of Bluegate's then outstanding
Voting Securities unless such acquisition was approved by a vote of at
least a majority of the Incumbent Board; or (III) approval by the
stockholders of Bluegate of: (x) a merger, consolidation, share
exchange or reorganization involving Bluegate, unless the stockholders
of Bluegate, immediately before such merger, consolidation, share
exchange or reorganization, own, directly or indirectly immediately
following such merger, consolidation, share exchange or
reorganization, at least 80% of the combined voting power of the
outstanding Voting Securities of the corporation that is the successor
in such merger, consolidation, share exchange or reorganization in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation, share
exchange or reorganization; (y) a complete liquidation or dissolution
of Bluegate; or (z) an agreement for the sale or other disposition of
all or substantially all of the assets of Bluegate. The shares that
become vested pursuant to this Section 1.3(b)(v) or such consideration
that is received or to be received with respect to such shares shall
be held by Bluegate in escrow pursuant to the other terms hereof and
shall be delivered only at the time that the shares that become vested
pursuant to this Section 1.3(b)(v) would have been delivered if a
Change in Control had not occurred but only then if an event for
indemnification under Section 6.2 hereof has not then arisen.
(vi) [INTENTIONALLY OMITTED]
(vii) If the outstanding shares of the Bluegate Common Stock
shall be subdivided into a greater number of shares or a dividend in
Bluegate Common Stock shall be paid in respect of Bluegate Common
Stock or if the outstanding shares of Bluegate Common Stock shall be
combined into a smaller number of shares, the number of shares of
Bluegate Common Stock otherwise to be issued pursuant to Section
1.3(b)(ii) or Section 1.3(b)(iii), including in cases in which a
Change of Control has occurred, shall be adjusted by multiplying the
number of shares otherwise to be issued by a fraction, the numerator
of which shall be the number of shares of the
Bluegate Common Stock outstanding immediately after the split-up,
stock dividend or combination (on an undiluted basis), and the
denominator of which shall be the number of shares of the Bluegate
Common Stock outstanding immediately prior to the split-up, stock
dividend or combination (on an undiluted basis).
(c) (i) For purposes of this Section 1.3(c) relating to the
Royalty, the following terms shall have the meanings respectively
assigned to them immediately below:
"Stipulated Software" shall mean the following three software
products heretofore owned by Seller: eCast, LTMS, and Electronic
Patient Medical Record Application.
"Stipulated Software Revenues" shall mean all revenues of
Purchaser derived from the Stipulated Software during either the
First Yearly Period or the Second Yearly Period, as reflected on
the financial statements of Purchaser prepared in the ordinary
course of business in accordance with generally accepted
accounting principles.
"Royalty" shall mean the royalty provided for by this Section
1.3(c).
(ii) Once Stipulated Software Revenues totaling $1.0 million
dollars have been realized on or before the end of the Second Yearly
Period, Seller shall be entitled to a royalty (the "Royalty") equal to
10% of all Stipulated Software Revenues realized before the end of the
Second Yearly Period exceeding $1.0 million dollars. Whenever the
Royalty is earned with respect to a particular month, the Royalty with
respect to such month shall be paid within 30 days after the end of
such month.
(d) The Purchase Price shall be allocated among the items or
classes of the Assets for all tax purposes in accordance with the
allocation schedule attached hereto as Schedule 1.3(d). Seller and
Purchaser agree that they shall prepare and file their respective federal
and any state or local income tax returns, and any sales tax returns or
other filings, based on such allocation of the Purchase Price, and shall
not take a position in any tax proceeding, tax audit or otherwise
inconsistent with such allocation.
1.4 Assumed Liabilities. Purchaser hereby agrees to assume and be
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obligated to pay, perform or discharge only those liabilities that are expressly
set forth on Schedule 1.4 hereto, if any (referred to hereinafter as the
"Assumed Liabilities"). Purchaser assumes no obligations, liabilities and debts
other than the Assumed Liabilities. Seller agrees to pay or perform timely any
and all obligations, liabilities and debts of Seller other than for the Assumed
Liabilities.
1.5 Consents. Seller shall use its best efforts to obtain any third
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party consents necessary to sell the Assets to Purchaser. To the extent that
any of the Assets are not assignable without the consent of another party and
such consent has not been obtained on or prior to the date hereof, such Assets
shall not be assigned or attempted to be assigned if such assignment or
attempted assignment would constitute a breach thereof. While Seller is trying
to procure all necessary consents, Seller and Purchaser shall cooperate in any
reasonable arrangements designed to provide to Purchaser the benefits of any
such Assets, including enforcement at the cost and for the account of Purchaser
of any and all rights of Seller against the other party thereto arising out of a
cancellation or breach by such other party or otherwise. If any consent
necessary to sell the Assets to Purchaser is obtained after the date of this
Agreement, then the related Asset not previously assigned pursuant to this
Section 1.5 shall be immediately assigned upon procurement of such consent
without any further act or deed.
1.6 Seller's Deliveries. Prior to or on the date hereof, Seller and
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the Shareholder (as the case may be) delivered:
(a) Such deeds, bills of sale, covenants of warranty, assignments,
endorsements, consents and other good and sufficient instruments and
documents of conveyance and transfer in a form satisfactory to Seller and
Purchaser, and necessary documents of title, as shall be necessary and
effective to convey, transfer and assign to, and vest in, Purchaser all of
Seller's right, title and interest in and to the Assets;
(b) Evidence satisfactory to Purchaser that any and all security
interests and liens on the Assets (other than those being assumed) have
been released;
(c) Copies of all required third party consents to the sale of the
Assets that are required and have been obtained;
(d) All of the agreements, contracts, commitments, leases, plans,
bids, quotations, proposals, licenses, permits, authorizations,
instruments, computer programs and software, manuals and guidebooks, price
books and price lists, customer lists, supplier lists, sales records,
files, correspondence, and other documents, books, records, papers, files
and data belonging to Seller which are part of the Assets;
(e) Covenants Not to Compete in the form of Exhibit 1.6(e) hereto,
one executed by each of Seller and each of the persons whose names appear
on Schedule 1.6(e) hereto;
(f) Employment Agreements in the form of Exhibit 1.6(f) hereto,
one executed in favor of each person whose name appears on Schedule 1.6(f)
hereto and each one providing for employment with Purchaser or Bluegate as
indicated therein of the person who is the employee thereunder, for the
salary and period of time indicated on Schedule 1.6(f) hereto with respect
to such person (such Employment
Agreements are referred to hereinafter as the "Employment Agreements");
(g) A copy of Seller's Certificate of Incorporation and all
amendments thereto as in effect as of the date hereof (certified by the
appropriate state official) and a copy of Seller's Bylaws as amended as of
the date hereof (certified by an appropriate officer of Seller);
(h) A copy of all of the resolutions adopted by Seller's directors
and shareholders relating to the transactions contemplated by this
Agreement, certified on the date hereof to be complete and correct by an
appropriate officer of Seller; and
(i) Actual possession and operating control of the Assets.
1.7 Purchaser's Deliveries. Prior to or on the date hereof, Purchaser
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and Bluegate (as the case may be) delivered:
(a) A stock certificate representing the initial stock issuance of
shares of Bluegate Common Stock pursuant to Section 1.3(a)(i) above;
provided, however that this stock certificate was delivered into escrow
with Bluegate to be held as security for the indemnification obligations
provided for in Section 6.2 hereof and (to secure such obligations) Seller
hereby grants to Purchaser and Bluegate a security interest in and a
general lien upon the shares represented by such stock certificate as well
as all other shares of Bluegate Common Stock to be issued pursuant hereto.
Bluegate shall hold such stock certificate for one year after the date of
this Agreement and shall release such stock certificate to Seller promptly
thereafter provided that no event for indemnification under Section 6.2
hereof has then arisen, but if an event for indemnification under Section
6.2 hereof has arisen prior to the end of one year after the date of this
Agreement, Bluegate shall continue to hold such stock certificate until the
matter giving rise to indemnification under Section 6.2 hereof has been
full resolved and (if necessary) adjudicated;
(b) The Employment Agreements as contemplated by Section 1.6(f);
(c) A Registration Rights Agreement in the form of Exhibit 1.7(d)
hereto pursuant to which Bluegate grants to Seller "piggy back"
registration rights with respect to the shares of Bluegate Common Stock
being issued pursuant to this Agreement;
(d) A copy of Purchaser's and Bluegate's charter documents and all
amendments thereto as in effect as of the date hereof (certified by the
appropriate state official) and a copy of Purchaser's and Bluegate's other
governing documents as amended as of the date hereof (certified by an
appropriate officer of Purchaser and Bluegate); and
(e) Copies of all of the resolutions adopted by Purchaser's and
Bluegate's boards of directors and, if necessary, stockholders relating to
the transactions
contemplated by this Agreement, certified on the date hereof to be complete
and correct by appropriate officers of Purchaser and Bluegate; and
(f) The Acquisition Promissory Note.
ARTICLE TWO
REPRESENTATIONS, WARRANTIES
AND AGREEMENTS OF SELLER AND SHAREHOLDER
Each of Seller and Shareholder, jointly and severally (except with respect
to the representations and warranties contained in Section 2.20, which are being
made only by Seller), hereby represents, warrants and agrees to and with
Purchaser and Bluegate that:
2.1 Organization and Standing of Seller. Seller is a corporation duly
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organized, validly existing, and in good standing under the laws of the state of
Texas. Seller has full requisite corporate power and authority to carry on its
business as it is now being con-ducted, and to own, operate, and lease the
properties now owned, operated, or leased by it. Except as set forth on
Schedule 2.1 hereto, Seller is duly authorized and qualified to carry on its
business in the manner as now conducted in all states in which authorization and
qualification is required. Schedule 2.1 sets forth a true, correct and complete
list of all of the jurisdictions in which Seller is qualified to do business as
a foreign corporation. Seller has made available to Purchaser as requested
true, correct and complete copies of the contents of Seller's minute book and
other corporate records, which are accurate in all material respects and set
forth fully and fairly all of Seller's material corporate transactions.
2.2 Capacity to Enter into Agreement. Seller and Shareholder has full
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right, power and authority to execute and deliver this Agreement and all other
agreements, documents and instruments to be executed in connection herewith and
perform its, his or her obligations hereunder and thereunder. The execution and
delivery by Seller and Shareholder that is an entity of this Agreement and all
other agreements, documents and instruments to be executed by Seller and such a
Shareholder in connection herewith have been authorized by all necessary entity
action by Seller and such Shareholder. When this Agreement and all other
agreements, documents and instruments to be executed by Seller and a Shareholder
in connection herewith are executed by Seller and such Shareholder and delivered
to Purchaser, this Agreement and such other agreements, documents and
instruments will constitute the valid and binding agreements of Seller and such
Shareholder enforceable against Seller and such Shareholder in accordance with
their respective terms, except as such enforceability may be limited by or
subject to (a) any bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and (b) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
2.3 Conflicts. The execution, delivery, and consummation of the
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transactions contemplated by this Agreement will not (a) violate, conflict with
or result in the breach or termination of, or otherwise give any other
contracting party the right to terminate, or constitute a default (by way of
substitution, novation or otherwise) under the terms of, any contract to which
Seller or any Shareholder is a party or by which Seller or any Shareholder is
bound or by which any of the assets of Seller or any Shareholder is bound or
affected, (b) violate any judgment against, or
binding upon, Seller or any Shareholder or upon the assets of Seller or any
Shareholder, (c) result in the creation of any lien, charge or encumbrance upon
any assets of Seller or any Shareholder pursuant to the terms of any such
contract, or (d) violate any provision in the charter documents, bylaws or any
other agreement affecting the governance and control of Seller or any
Shareholder that is an entity.
2.4 Consents. No consent, approval or authorization of, or
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declaration, filing or registration with, any governmental or regulatory
authority or any court or other tribunal, and no consent or waiver of any party
to any material contract to which Seller or any Shareholder is a party or is
bound is required to be obtained by Seller or any Shareholder in connection with
the execution, delivery and performance of this Agreement by Seller or any
Shareholder, such that the failure to obtain or make any such consent, approval,
authorization, declaration, filing or registration would materially adversely
affect the consummation of the transactions contemplated by this Agreement.
2.5 Financial Statements. Seller has delivered to Purchaser copies of
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the following financial statements (hereinafter collectively referred to as the
"Financial Statements"): an unaudited balance sheet of Seller as of July 31,
2005 (the "Balance Sheet"), an unaudited profit and loss statement of Seller for
the seven-month period ended July 31, 2005, and unaudited balance sheets and
unaudited statements of income of Seller as of and for the years ended December
31, 2004 and December 31, 2003. Except as set forth on Schedule 2.5 hereto,
(a) The Financial Statements present fairly the financial condition of
Seller as at the respective dates thereof, and the results of
operations for the respective periods covered thereby, and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis;
(b) There is no basis for the assertion of any debts, liabilities or
obligations (whether absolute, accrued, contingent, fixed or
otherwise, and whether due or to become due) which might adversely
affect Purchaser's ownership of the Assets, or the value, use,
operation or enjoyment of the Assets by Purchaser which is not
expressly set forth on the Balance Sheet; and
(c) Seller is not a party to or bound either absolutely or on a contingent
basis by any agreement of guarantee, surety, indemnification,
assumption or endorsement or any like commitment of the obligations,
liabilities or indebtedness of any other person (whether absolute,
accrued, contingent, fixed or otherwise, and whether due or to become
due), which is not expressly set forth on the Balance Sheet.
2.6 Absence of Certain Changes and Events. Except as set forth on
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Schedule 2.6 hereto, since the date of the Balance Sheet, there has not been:
(a) Financial Change. Any material adverse change in the
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financial condition, operations, business prospects, employee relations,
customer relations, assets, liabilities (whether absolute, accrued, contingent,
fixed or otherwise, and whether due or to become due) or income of
Seller, or the business of Seller, from that shown on the Financial Statements;
(b) Distributions. Any declaration, setting aside, or payment of
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any distribution in respect of the equity interests in Seller, or any direct or
indirect redemption, purchase, or any other acquisition of any such interests;
(c) Incurrence of Debt. Any borrowing of, or agreement to borrow
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any funds or any debt, obligation, or liability (whether absolute, accrued,
contingent, fixed or otherwise, and whether due or to become due) incurred by
Seller (whether or not presently outstanding) except current liabilities
incurred, and obligations under agreements entered into in the ordinary course
of business consistent with past practice;
(d) Creation of Liens. Any Encumbrance created on or in any of
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Seller's properties or assets, except liens for current taxes not yet due and
payable;
(e) Assets. Any sale, assignment, or transfer of Seller's assets,
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except in the ordinary course of business consistent with past practice, any
cancellation of any debts or claims owed to Seller, any capital expenditures or
commitments therefor exceeding in the aggregate $5,000, any damage, destruction
or casualty loss exceeding in the aggregate $5,000 (whether or not covered by
insurance), or any charitable contributions or pledges;
(f) Material Contracts. Any amendment, modification or
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Termination of any contract, agreement, license, or arrangement to which Seller
is or was a party or to which any Assets are or were subject, which amendment or
termination has had, or may be reasonably expected to have, an adverse effect on
the financial condition, properties, assets, liabilities (whether absolute,
accrued, contingent, fixed or otherwise, and whether due or to become due),
income or business of Seller; or
(g) Other Material Changes. Any other material transaction by
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Seller or any other event or condition pertaining to, and materially adversely
affecting the operations, assets, liabilities (whether absolute, accrued,
contingent, fixed or otherwise, and whether due or to become due), income or
business of Seller.
2.7 Assets. Each of the schedules referenced in Section 1.1 is true,
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correct and complete in all material respects as of the date hereof (or if
different, as of the date set forth thereon). Except as set forth on Schedule
2.7 hereto,
(a) Seller has, and upon the sale of the Assets to Purchaser, Purchaser
will receive, good and indefeasible title to all of the Assets, free
and clear of all Encumbrances, except liens for current taxes not yet
due and payable;
(b) All Assets constituting tangible personal property are in a good state
of repair and operating condition, ordinary wear and tear excepted;
(c) All of the inventories of Seller reflected on Schedule 1.1(b) hereto
or acquired thereafter (including, without limitation, raw materials,
spare parts
and supplies, work-in-process, finished goods) consist of items of a
quality, condition and quantity useable and saleable in the normal
course of business; and
(d) All of the Accounts Receivable reflected Schedule 1.1(d) hereto or
created thereafter are valid, subsisting, and genuine, arose out of
bona fide transactions and are current and collectible, subject to a
$20,000 reserve for Accounts Receivable created by this Section
2.7(d).
2.8 Contracts. Schedule 1.1(c) contains a true, correct and complete
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list of Seller's contracts, agreements, commitments and leases, whether or not
made in the ordinary course of business, that either (a) involve or may involve
aggregate payments by or to Seller exceeding $5,000 per year; (b) are not by
their terms terminable by Seller without premium or penalty within 60 or fewer
days notice, or (c) otherwise materially adversely affect or, to Seller's and
Shareholder's best knowledge, might materially adversely affect the financial
condition, property, assets, liabilities (whether absolute, accrued, contingent,
fixed or otherwise, and whether due or to become due), income or business of
Seller. Except as set forth on Schedule 2.8 hereto,
(a) All leases, contracts, agreements, arrangement or commitments to which
Seller is a party or the Assets are subject are in good standing,
valid, and effective; and
(b) There is not, under any such lease, contract, agreement, arrangement
or commitment, any existing or prospective default or event of default
by Seller or event which with notice or lapse of time, or both would
constitute a default; and, to Seller's and Shareholder's best
knowledge, no other party to any such lease, contract, agreement,
arrangement or commitment, is in default or breach thereof nor has any
event occurred which with notice or lapse of time would constitute a
breach or default of any of such lease, contract, agreement,
arrangement or commitment.
2.9 Permits. Schedule 1.1(g) contains a true, correct and complete
-------
list of Seller's licenses, permits and authorizations. Except as set forth on
Schedule 2.9 hereto,
(a) Seller holds all licenses, permits and authorizations required to
carry on its business, and all such licenses, permits and
authorizations are in good standing;
(b) Seller is in full compliance with and not in default or violation with
respect to any term or provision of any of its licenses, permits and
authorizations;
(c) Seller has received no notice of pending, threatened, or possible
violation or investigation in connection with, or loss of, any
license, permit, or authorization of Seller;
(d) To Seller's and Shareholder's best knowledge, no issuance of such a
notice is
being considered, and no facts or circumstances exist which could form
the basis for the issuance of such a notice; and
(e) No license, permit, or authorization of Seller is affected by the
transactions provided for herein or contemplated hereby.
2.10 Intellectual Property. Schedule 1.1(i) contains a listing and
----------------------
summary description of all of Seller's patents, trademarks, service marks, trade
names, trade dress, logos, business names, copyrights, and registered designs,
and registrations and applications thereof, trade secrets and confidential
know-how, business information and other intellectual property, including, but
not limited to, computer software, databases, source code and documentation;
product formulations; drawings; technical specifications; manufacturing data;
and test and development data (the foregoing intellectual property is
collectively referred to hereinafter as the "Intellectual Property"). Except as
set forth on Schedule 2.10 hereto,
(a) Seller possesses all intellectual property necessary to the conduct of
its businesses;
(b) The loss or expiration of any Intellectual Property or group of
Intellectual Property would not have an adverse effect on the conduct
of its businesses;
(c) No such loss or expiration is pending or reasonably foreseeable or to
Seller's and Shareholder's best knowledge, threatened;
(d) Seller owns all right, title, and interest in and to all of the
Intellectual Property;
(e) There have been no claims made against Seller for the assertion of the
invalidity, abuse, misuse, or unenforceability of any Intellectual
Property, and there are no grounds for the same;
(f) Seller has not received a notice of conflict with the asserted rights
of others; and
(g) The conduct of Seller's business has not infringed on any rights of
others and, to Seller's and Shareholder's best knowledge, no other
person has infringed the Intellectual Property.
2.11 Employees. Schedule 2.11 sets forth a true, correct and complete
---------
list of all of the employees of Seller, their respective dates of hire, lengths
of service, positions and their respective salaries, wage rates and bonus
schedules, as applicable. Except as set forth on Schedule 2.11 hereto,
(a) Seller is not a party as an employer to any employment contract,
agreement or understanding which is not terminable at will without any
penalty, liquidated damages or other required payment;
(b) Seller has satisfied (or has made adequate provision for) all
salaries, wages, unemployment insurance premiums, worker compensation
payments, income tax, FICA and other deductions and any like payments
required by law through and with respect to periods prior to the date
hereof;
(c) Seller's employees are not unionized, and to Seller's and
Shareholder's best knowledge, there have not been attempts to unionize
them; and
(d) There have not been any unfair labor practices complaints, labor
difficulties or work stoppages, or threats thereof, relating to or
affecting any of Seller's activities.
2.12 Employee Benefit Plans. Neither Seller, nor any other person
------------------------
that, together with Seller as of the relevant measuring date under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), was or is required
to be treated as a single employer under Section 414 of the Internal Revenue
Code, has ever sponsored or contributed to any employee benefit plan, as defined
in Section 3(3) of ERISA, covering employees or former employees of Seller.
2.13 Litigation. Except as set forth on Schedule 2.13 hereto,
----------
(a) Seller and the Assets are not subject to any pending, or to Seller's
and Shareholder's best knowledge, threatened litigation, proceeding or
administrative investigation of any kind or nature (including, without
limitation, any matter (including audits) involving the Internal
Revenue Service, or other federal or state taxing authorities);
(b) Seller is not in default with respect to any judgment, order, writ,
injunction, decree, or award applicable to it or the Assets of any
court or other govern-mental instrumentality or arbitrator; and
(c) Neither Seller nor any Shareholder has been served with any now
pending suit, action, or legal, administrative, arbitration, or other
proceeding or govern-mental investigation in which an unfavorable
decision, ruling, or finding would render unlawful or otherwise
materially adversely affect the consummation of the transactions
contemplated by this Agreement, and the Seller's and Shareholder's
best knowledge, no such suit, action, or legal, administrative,
arbitration, or other proceeding or govern-mental investigation has
been instituted or is threatened.
2.14 Compliance with Law. Except as set forth on Schedule 2.14 hereto,
-------------------
(a) Seller is not in violation of, or in default with respect to, or in
alleged violation of or alleged default with respect to, any
applicable law, rule,
regulation, permit, or any writ or decree of any court or any
governmental commission, board, bureau, agency, or instrumentality,
including without limitation, any laws, ordinances, rules,
regulations, permits, or orders relating to the business of Seller, or
the business operations and practices, health and safety, and
employment practices of Seller;
(b) Seller is not delinquent with respect to any report, filing or
submission required to be filed with any govern-mental commission,
board, bureau, agency, or instrumentality, or with any trade
association or certification organization that has in the past
certified or endorsed the business of Seller; and
(c) Seller- is not delinquent with respect to any reports, filings or
submissions required by private covenants or agreements to which it
is a party.
2.15 Taxes. Seller has filed, when due, with all appropriate
-----
governmental agencies, all tax returns, estimates, reports, and statements to be
filed by it (collectively, the "Returns"). Except as set forth on Schedule 2.15
hereto,
(a) Each of the Returns is true, complete, proper and accurate in all
respects;
(b) Seller has paid, when due and payable, all requisite income taxes,
sales, use, property and transfer taxes, levies, duties, licenses and
registration fees and charges of any nature whatsoever and workers'
compensation and unemployment taxes, including interest and penalties
thereon. Seller has withheld all tax required to be withheld under
applicable tax laws and regulations, and such withholdings have either
been paid to the respective governmental agencies or set aside in
accounts for such purpose;
(c) The tax provision and accruals reflected in the Balance Sheet are
adequate to cover the liability at the date thereof for all taxes not
yet due and payable, including, without limitation, all taxes based on
income, sales, business, or assets, as well as any other taxes;
(d) Seller has not given or been requested to give, or executed, any
extension of time or waiver of any statute of limitations with respect
to federal, state, or other political subdivision income or other tax
for any period;
(e) Seller has not received any notice of deficiency or assessment issued
or proposed deficiency or assessment by the Internal Revenue Service
or any other taxing authority;
(f) There is no pending audit or inquiry of Seller, nor has Seller
received any oral or written notice of any proposed audit or inquiry
by any taxing authority or jurisdiction; and
(g) Seller has delivered to Purchaser as requested true, correct and
complete copies of all Returns.
2.16 Insurance. Schedule 2.16 contains a true, correct and complete
---------
list of all insurance policies either maintained by Seller or maintained by any
other person which relates to Seller or the Assets in any manner as of the date
hereof (collectively, the "Insurance Policies"). Seller has heretofore
delivered to Purchaser as requested true, correct and complete copies of all
Insurance Policies requested. Except as set forth on Schedule 2.16 hereto,
(a) All Insurance Policies are still in full force and effect, and all
premiums due thereon have been paid;
(b) Seller has complied in all material respects with the provisions of
all Insurance Policies;
(c) No claim is pending under any of the Insurance Policies, except in the
ordinary course of business and in an amount less than $10,000;
(d) Seller has not asserted any claims in excess of $10,000 per occurrence
under any of the Insurance Policies during the three-year period
immediately preceding the date hereof;
(e) There are no outstanding requirements or recommendations by any
insurance company that issued any of the Insurance Policies or by any
Board of Fire Underwriters or other similar body exercising similar
functions or by any governmental authority exercising similar
functions which requires or recommends any changes in the conduct of
the business of, or any repairs or other work to be done on or with
respect to any of the properties or assets of, Seller; and
(f) Seller has not received any notice or other communication from any
such insurance company within the three (3) years preceding the date
hereof canceling or materially amending or materially increasing the
annual or other premiums payable under any of the Insurance Policies,
and (to Seller's and Shareholder's best knowledge) no such
cancellation, amendment or increase of premiums is threatened.
2.17 Environmental Matters. Except as set forth on Schedule 2.17
----------------------
hereto,
(a) Seller is in compliance with all applicable federal, state and local
laws and regulations relating to pollution control and environmental
contamination including, but not limited to, all laws and regulations
governing the generation, use, collection, treatment, storage,
transportation, recovery, removal, discharge or disposal of Hazardous
Materials (as defined below) and all laws and regulations with regard
to record keeping, notification and reporting requirements respecting
Hazardous Materials;
(b) Seller has not received any notice from any governmental agency with
respect to any alleged violation by it of any applicable federal,
state or local environmental or health and safety statutes and
regulations in connection with Seller's operations, nor does Seller
know of any basis for any investigation or proceeding against it by
any federal, state or local environmental or health and safety
enforcement agency in connection with the operation of the business;
(c) Seller has not received notice of its violation of, or has been
subject to any administrative or judicial proceeding pursuant to, such
laws and regulations, either now or at any time during the past five
years, and to Seller's and Shareholder's best knowledge, there are no
such threatened or proposed violations with respect to such laws and
regulations;
(d) There are no permits, licenses, consents, filings or other approvals
necessary or required to be obtained or made by laws and regulations
relating to Hazardous Material, pollution controls and environmental
contamination in connection with Seller's business;
(e) Seller is not a party to any contract or other agreement relating to
the storage, transportation, treatment or disposal of Hazardous
Materials;
(f) There are no claims or facts or circumstances that reasonably could
form the basis for the assertion of any claim relating to
environmental matters involving Seller, including, but not limited to,
any claim arising from any act or omission of Seller or past or
present practices of the business of Seller, or with respect to
properties now or previously owned or leased by Seller, which could be
asserted under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S. 9601-9657 and any amendments
thereto ("CERLA"), or the Resource Conservation and Recovery Act, 42
U.S 6901-6987 and any amendments thereto ("RCRA"), or any other
federal, state or local environmental statute governing the
generation, use, treatment, disposal, discharge, ownership, operation,
transportation or storage of Hazardous Materials;
(g) Seller is not subject to any remedial obligation under applicable law
or administrative order or decree pertaining to environmental, health
or safety statutes or regulations, including, without limitation,
CERLA, RCRA or any similar state statute;
(h) To the best of Seller's and Shareholder's knowledge, no Hazardous
Material or other substances known or suspected to pose a threat to
health or the environment have been disposed of or otherwise released
on or near any real property or improvements of Seller;
(i) There are no off-site locations where Hazardous Materials associated
in any way with Seller have been generated, used, collected, treated,
stored, transported, recycled, discharged or disposed of; and
(j) To the best of Seller's and Shareholder's knowledge and belief, after
diligent investigation and inquiry, no real property is owned or
leased by Seller that is on any federal or state "Superfund" list or
subject to any environmentally related liens, and no claim has been
made or, to Seller's and Shareholder's best knowledge, threatened,
alleging damages arising from any Hazardous Materials or other
substances known or suspected to pose a threat to health or the
environment.
The term "Hazardous Materials" shall mean materials, substances, waste or
by-products defined as "hazardous substances", "hazardous wastes" or "solid
wastes" in CERLA, RCRA or any other federal, state or local environmental
statute or regulation. For the purposes of this representation and warranty,
the term "claim" shall mean any and all claims, demands, causes of action,
suits, proceedings, administrative proceedings, losses, judgments, decrees,
debts, damages, liabilities, costs, and attorneys' fees and other expenses
regarding or against Seller or the Assets.
2.18 Finder's Fees. None of Seller, any Shareholder or anyone acting
--------------
on their behalf has employed any financial advisor, broker or finder or incurred
any liability for any financial advisory, brokerage or finder's fee or
commission in connection with this Agreement or the transactions contemplated
hereby.
2.19 Transactions with Affiliated Parties. Except as set forth on
---------------------------------------
Schedule 2.19 hereto,
(a) There are no transactions currently engaged in between Seller and any
of its Affiliates (as defined below) (other than arrangements
governing remuneration for services provided as officers, directors,
or employees). For purposes of this Agreement, "Affiliate" means, with
respect to any Person (as defined below), any other Person or Persons
that controls, is controlled by or is under common control with such
first Person, together with such other Person's or Persons' respective
members, managers, partners, venturers, directors, officers,
shareholders, agents, employees, spouses and legal representatives. A
Person shall be presumed to have control of another Person when it
possesses the power, directly or indirectly, to direct, or cause the
direction of, the management or policies of such other Person, whether
through ownership of voting securities, by contract, or otherwise.
"Person" means an individual, partnership, limited liability company,
association, corporation or other entity;
(b) Except for the ownership of non-controlling interests in securities of
corporations the shares of which are publicly traded, neither Seller
nor any Affiliate of Seller has any investment or ownership interest,
directly, indirectly, or beneficially, in any competitor or potential
competitor, major supplier, or customer of Seller; and
(c) There are no agreements to which Seller is a party under which the
transactions contemplated by this Agreement (i) will require payment
by Seller or Purchaser to, or any consent or waiver from, any
Affiliate of Seller or Purchaser, or (ii) will impose any other
liability, duty, obligation or responsibility to any Affiliate of
Seller under any such agreement.
2.20 Securities Representations. Seller believes that it is familiar
---------------------------
with the business and financial condition, properties, operations and prospects
of Bluegate, has been given full access to all material information concerning
the condition, properties, operations and prospects of Bluegate (including,
without limitation, all of Bluegate's filings with the U.S. Securities and
Exchange Commission), and it has had an opportunity to ask such questions of,
and to receive such information from, Bluegate as it has desired and to obtain
any additional information necessary to verify the accuracy of the information
and data received; it has such knowledge, skill and experience in business,
financial and investment matters so that it is capable of evaluating the merits
and risks of an acquisition of the Bluegate Common Stock; it has reviewed its
financial condition and commitments and that, based on such review, it is
satisfied that it (a) has adequate means of providing for contingencies, (b) has
no present or contemplated future need to dispose of all or any of the Bluegate
Common Stock to satisfy existing or contemplated under-takings, needs or
indebtedness, (c) is capable of bearing the economic risk of the ownership of
the Bluegate Common Stock for the indefinite future, and (d) has assets or
sources of income which, taken together, are more than sufficient so that it
could bear the loss of the entire value of the Bluegate Common Stock; it is
acquiring the Bluegate Common Stock solely for its own beneficial account, for
investment purposes, and not with a view to, or for resale in connection with,
any distribution or public offering of the Bluegate Common Stock within the
meaning of the Securities Act, and applicable state securities laws; it
understands that the Bluegate Common Stock has not been registered under the
Securities Act of 1933 or any state securities laws and therefore the Bluegate
Common Stock is "restricted" under such laws; and it has not offered or sold any
portion of the Bluegate Common Stock.
2.21 Untrue Statements. This Agreement, the schedules and exhibits
------------------
hereto, and all other documents and information furnished by Seller or its
representatives pursuant hereto or in connection herewith do not include any
untrue statement of a material fact or omit to state any material fact that is
necessary to make the statements made herein and therein not misleading.
ARTICLE THREE
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS
OF PURCHASER
Purchaser hereby represents, warrants, and agrees to and with Seller and
Shareholder that:
3.1 Organization and Standing of Purchaser. Purchaser is a corporation
--------------------------------------
duly organized, validly existing and in good standing under the laws of the
state of Nevada. Purchaser has full requisite power and authority to carry on
its business as it is now being con-ducted, and to own, operate, and lease the
properties now owned, operated, or leased by it. Purchaser is duly authorized
and qualified to carry on its business in the manner as now conducted in each
state in which
authorization and qualification is required.
3.2 Capacity to Enter into Agreement. Purchaser has full right, power
---------------------------------
and authority to execute and deliver this Agreement and all other agreements,
documents and instruments to be executed in connection herewith and perform its
obligations hereunder and thereunder. The execution and delivery by Purchaser
of this Agreement and all other agreements, documents and instruments to be
executed by Purchaser in connection herewith have been authorized by all
necessary action by Purchaser. When this Agreement and all other agreements,
documents and instruments to be executed by Purchaser in connection herewith are
executed by Purchaser and delivered to Seller, this Agreement and such other
agreements, documents and instruments will constitute the valid and binding
agreements of Purchaser or enforceable against Purchaser in accordance with
their respective terms, except as such enforceability may be limited by or
subject to (a) any bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and (b) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
3.3 Conflicts. The execution, delivery, and consummation of the
---------
transactions contemplated by this Agreement will not (a) violate, conflict with
or result in the breach or termination of, or otherwise give any other
contracting party the right to terminate, or constitute a default (by way of
substitution, novation or otherwise) under the terms of, any contract to which
Purchaser is a party or by which Purchaser is bound or by which any of the
assets of Purchaser is bound or affected, (b) violate any judgment against, or
binding upon, Purchaser or upon the assets of Purchaser, (c) result in the
creation of any lien, charge or encumbrance upon any assets of Purchaser
pursuant to the terms of any such contract, or (d) violate any provision in any
charter document of Purchaser, or any other agreement affecting the governance
and control of Purchaser, such that any such violation, conflict, breach,
termination or creation would materially adversely affect the consummation of
the transactions contemplated by this Agreement.
3.4 Consents. No consent, approval or authorization of, or
--------
declaration, filing or registration with, any governmental or regulatory
authority or any court or other tribunal, and no consent or waiver of any party
to any material contract to which Purchaser is a party or is bound is required
to be obtained by Purchaser in connection with the execution, delivery and
performance of this Agreement by Purchaser, such that the failure to obtain or
make any such consent, approval, authorization, declaration, filing or
registration would materially adversely affect the consummation of the
transactions contemplated by this Agreement.
3.5 Litigation. Purchaser has not been served with any now pending
----------
suit, action, or legal, administrative, arbitration, or other proceeding or
govern-mental investigation in which an unfavorable decision, ruling, or finding
would render unlawful or otherwise materially adversely affect the consummation
of the transactions contemplated by this Agreement, and the best of Purchaser's
knowledge, no such suit, action, or legal, administrative, arbitration, or other
proceeding or govern-mental investigation has been instituted or is threatened.
3.6 Finder's Fees. Neither Purchaser nor any one acting on its behalf
--------------
has employed any financial advisor, broker or finder or incurred any liability
for any financial advisory, brokerage or finder's fee or commission in
connection with this Agreement or the transactions contemplated
hereby.
ARTICLE FOUR
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS
OF BLUEGATE
Bluegate hereby represents, warrants, and agrees to and with Seller and
Shareholder that:
4.1 Organization and Standing of Bluegate. Bluegate is a corporation
---------------------------------------
duly organized, validly existing and in good standing under the laws of the
state of Nevada. Bluegate has full requisite power and authority to carry on
its business as it is now being con-ducted, and to own, operate, and lease the
properties now owned, operated, or leased by it. Bluegate is duly authorized
and qualified to carry on its business in the manner as now conducted in each
state in which authorization and qualification is required.
4.2 Capacity to Enter into Agreement. Bluegate has full right, power
----------------------------------
and authority to execute and deliver this Agreement and all other agreements,
documents and instruments to be executed in connection herewith and perform its
obligations hereunder and thereunder. The execution and delivery by Bluegate of
this Agreement and all other agreements, documents and instruments to be
executed by Bluegate in connection herewith have been authorized by all
necessary action by Bluegate. When this Agreement and all other agreements,
documents and instruments to be executed by Bluegate in connection herewith are
executed by Bluegate and delivered to Seller, this Agreement and such other
agreements, documents and instruments will constitute the valid and binding
agreements of Bluegate or enforceable against Bluegate in accordance with their
respective terms, except as such enforceability may be limited by or subject to
(a) any bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally and (b) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Conflicts. The execution, delivery, and consummation of the
---------
transactions contemplated by this Agreement will not (a) violate, conflict with
or result in the breach or termination of, or otherwise give any other
contracting party the right to terminate, or constitute a default (by way of
substitution, novation or otherwise) under the terms of, any contract to which
Bluegate is a party or by which Bluegate is bound or by which any of the assets
of Bluegate is bound or affected, (b) violate any judgment against, or binding
upon, Bluegate or upon the assets of Bluegate, (c) result in the creation of any
lien, charge or encumbrance upon any assets of Bluegate pursuant to the terms of
any such contract, or (d) violate any provision in any charter document of
Bluegate, or any other agreement affecting the governance and control of
Bluegate, such that any such violation, conflict, breach, termination or
creation would materially adversely affect the consummation of the transactions
contemplated by this Agreement.
4.4 Consents. No consent, approval or authorization of, or
--------
declaration, filing or registration with, any governmental or regulatory
authority or any court or other tribunal, and no consent or waiver of any party
to any material contract to which Bluegate is a party or is bound is required to
be obtained by Bluegate in connection with the execution, delivery and
performance of this Agreement by Bluegate, such that the failure to obtain or
make any such consent, approval,
authorization, declaration, filing or registration would materially adversely
affect the consummation of the transactions contemplated by this Agreement.
4.5 Litigation. Bluegate has not been served with any now pending
----------
suit, action, or legal, administrative, arbitration, or other proceeding or
govern-mental investigation in which an unfavorable decision, ruling, or finding
would render unlawful or otherwise materially adversely affect the consummation
of the transactions contemplated by this Agreement, and the best of Bluegate's
knowledge, no such suit, action, or legal, administrative, arbitration, or other
proceeding or govern-mental investigation has been instituted or is threatened.
4.6 Finder's Fees. Neither Bluegate nor any one acting on its behalf
--------------
has employed any financial advisor, broker or finder or incurred any liability
for any financial advisory, brokerage or finder's fee or commission in
connection with this Agreement or the transactions contemplated hereby.
4.7 Valid Issuance. Each share of Bluegate Common Stock to be issued
---------------
to Seller in connection herewith shall (when issued in accordance with this
Agreement) be duly and validly authorized and issued, fully paid and
non-assessable.
4.8 SEC Filings. Since January 1, 2005, Bluegate has filed all forms,
------------
reports, statements and other documents required to be filed with the U.S.
Securities and Exchange Commission, including, without limitation, all Annual
Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, all proxy statements
relating to meetings of shareholders (whether annual or special), and all
Reports on Form 8-K (all such filings being referred to hereinafter as the "SEC
Reports"). The SEC Reports (i) were prepared in all material respects in
accordance with the requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder applicable to such SEC Reports
and (ii) did not at the time they were filed and (with respect to registration
statements) as of their effective dates, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Since the date of the
Company's Quarterly Reports on Form 10-QSB for the quarter ended June 30, 2005
(the "Quarterly Report"), no material adverse change has occurred in the
financial condition or results of operations of the Company from that reflected
in the Quarterly Report.
ARTICLE FIVE
CERTAIN AGREEMENTS
5.1 Further Assurances. Following the date hereof, each party shall
-------------------
execute and deliver such other documents, and take such other actions, as may be
reasonably requested by the other party to vest in Purchaser full right title
and interest in and to the Assets, to complete the transactions contemplated by
this Agreement and to allow each party fully to enjoy and exercise the rights
accorded to and acquired by it under this Agreement or any other agreement
entered into pursuant hereto.
5.2 Accounts Receivable. Upon the request and at the expense of
--------------------
Purchaser, Seller shall use reasonable and its best efforts to assist Purchaser
in collecting the Accounts Receivable.
In the event that Seller shall receive any payment on the Accounts Receivable,
Seller shall hold the amount received in trust for the benefit of Purchaser and
shall immediately remit to Purchaser the amount received in its entirety.
Seller shall not settle, compromise or release (in whole or in part) any
Accounts Receivable, or take any action or omit to take any action that would
adversely affect the Accounts Receivable, without the prior written consent of
Purchaser.
5.3 Employees.
---------
(a) Seller shall pay to its employees all compensation, including
salaries, commissions, bonuses, deferred compensation, severance,
insurance, pensions, profit sharing, vacation pay, sick pay and other
compensation or benefits to which they are entitled for periods prior to
the date hereof. Seller shall be responsible for maintenance and
distribution of benefits accrued under any employee benefit plan (as
defined in ERISA) maintained by Seller pursuant to the provisions of such
plans. Purchaser shall assume neither any liability for any such accrued
benefits nor any fiduciary or administrative responsibility to account for
or dispose of any such accrued benefits under any employee benefit plans
maintained by Seller.
(b) On the date hereof, Seller terminated the employment relationship
with such of its employees as Purchaser has expressed an interest in
hiring, and Seller paid to each such employee any and all amounts due to
them prior to or as a result of such termination that were not expressly
assumed by Purchaser. Purchaser is hereby expressly permitted by Seller to
enter into an employment relationship with each of these former employees.
Purchaser may, in its sole discretion, offer employment to any or all of
the former employees of Seller. All such persons so employed by Purchaser
are referred to hereinafter as a "Hired Employee."
(c) All claims and obligations under, pursuant to or in connection
with any welfare, medical, insurance, disability or other employee benefit
plans of Seller or arising under any legal requirement applicable to Seller
affecting employees of Seller incurred on or before the date hereof or
resulting or arising from events or occurrences occurring or commencing on
or prior to the date hereof shall remain the responsibility of Seller,
whether or not such employees are hired by Purchaser after the date hereof.
Purchaser shall have and assume no obligation or liability under or in
connection with any such plan and, shall assume no obligation with respect
to any pre-existing condition of any employee of Seller who is hired as an
employee of Purchaser.
(d) Purchaser shall: (i) credit each Hired Employee with the amount
of vacation time permitted to be accrued by employees of Seller in
accordance with Purchaser's standard practices accrued by him or her
through and including the date of this Agreement; (ii) give each Hired
Employee credit for such employee's past service with Seller as of the date
of this Agreement for purposes of eligibility to participate in Purchaser's
employee welfare benefit plans to the same extent as similarly situated
employees of Purchaser; (iii) give each Hired Employee credit for such
employee's past service with Seller as of the date of this Agreement for
purposes of eligibility and vesting under any 401(k) plan of Purchaser to
the same extent as similarly situated employees of Purchaser; (iv) give
each Hired Employee credit for such employee's past service with Seller as
of the date of this Agreement for any waiting periods under Purchaser's
employee welfare benefit plans, including any group health and disability
plans to the same extent as similarly situated employees of Purchaser,
except to the extent such employees were subject to such limitations under
the employee benefit plans of Seller and not subject any Hired Employees to
any limitations on benefits for any preexisting conditions; and (v) credit
each Hired Employee under any group health plan for any deductible amount
previously met by such Hired Employee as of the date of this Agreement
under any of the group health plans of Seller for the plan year in which
the transfer of employment occurs.
5.4 Publicity. The parties hereto shall jointly prepare any press
---------
release or other public announcement relating to this Agreement, except that the
foregoing shall not prevent any party hereto or any affiliate thereof from
issuing any press release required by applicable law.
5.5 Loan.
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(a) On the date hereof, Bluegate entered into a credit arrangement with
Purchaser (the "Loan"), whereby Purchaser may borrow up to $150,000
from Bluegate; provided, however, that Bluegate shall not at any time
be required to make advances pursuant to the Loan to the extent that
the total amount outstanding under the Loan would exceed 80% of
Purchaser's Eligible Accounts as defined in Section 5.5(b) immediately
below. In this connection, as soon as possible but within five days
after the end of each month during which amounts are outstanding under
the Loan, Purchaser shall deliver to Bluegate, under the cover of a
signed Borrowing Base Certificate in the form of Exhibit 5.5-1 hereto,
a list of Purchaser's accounts receivable as of the end of such month
and an aging schedule relating thereto. To represent the Loan,
Purchaser executed and delivered to Bluegate a promissory note in the
form attached hereto as Exhibit 5.5-2. To secure the Loan, Purchaser
executed and delivered to Bluegate a security agreement in the form of
Exhibit 5.5-3 hereto (the "Security Agreement") and, to perfect the
security interest created thereby, a Form UCC-1 Financing Statement in
the form of Exhibit 5.5-4 hereto. Whenever the Loan has been paid in
full and no party has any further obligations with respect thereto,
Bluegate shall file with the appropriate governmental agencies a
release respecting the aforementioned Form UCC-1 Financing Statement.
(b) For purposes hereof "Eligible Accounts" shall mean those accounts
receivables of Purchaser that arise in the ordinary course of
Purchaser's business, that are bona fide existing obligations, with
respect to which the service or property giving rise to such accounts
receivables has been performed or delivered to the account debtor or
to the account debtor's agent for immediate shipment to and
unconditional acceptance by the account debtor, and with respect to
which purchaser has not received notice of actual or imminent
insolvency proceeding; provided, however, that Eligible
Accounts shall not include the following:
(i) Accounts receivables of Purchaser that the related account debtor
has failed to pay within 90 days of invoice date;
(ii) Accounts receivables of Purchaser with respect to an account
debtor, 50% of whose accounts receivables owed to Purchaser the
account debtor has failed to pay within 90 days of invoice date;
(iii) Accounts receivables of Purchaser with respect to an account
debtor, including affiliates, whose total obligations to
Purchaser exceed 25% of all accounts receivables of Purchaser, to
the extent such obligations exceed the aforementioned percentage,
except as approved in writing by Bluegate;
(iv) Accounts receivables of Purchaser with respect to which the
related account debtor does not have its principal place of
business in the United States;
(v) Accounts receivables of Purchaser with respect to which the
related account debtor is a federal, state, or local governmental
entity or any department, agency, or instrumentality thereof;
(vi) Accounts receivables of Purchaser with respect to which Purchaser
is liable to the account debtor, but only to the extent of any
amounts owing to the account debtor (sometimes referred to as
"contra" accounts, e.g. accounts payable, customer deposits,
credit accounts etc.);
(vii) Accounts receivables of Purchaser generated by demonstration or
promotional equipment, or with respect to which goods are placed
on consignment, guaranteed sale, sale or return, sale on
approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;
(viii) Accounts receivables of Purchaser with respect to which the
related account debtor is an affiliate, officer, employee, or
agent of Purchaser;
(ix) Accounts receivables of Purchaser with respect to which the
related account debtor disputes liability or makes any claim with
respect thereto as to which Bluegate believes, in its sole
discretion, that there may be a basis for dispute (but only to
the extent of the amount subject to such dispute or claim), or is
subject to any insolvency proceeding, or becomes insolvent, or
goes out of business;
(x) Accounts receivables of Purchaser subject to any lien;
(xi) Accounts receivables of Purchaser which are in whole or in part
the direct or indirect proceeds of any property, rights or
licenses to the extent the granting
of a security interest therein to Bluegate (i) would be contrary
to applicable law or (ii) is prohibited by or would constitute a
default under any agreement or document governing such property,
rights or licenses (but only to the extent such prohibition is
enforceable as against the Bluegate under applicable law); and
(xii) Accounts receivables of Purchaser the collection of which
Bluegate reasonably determines after reasonable inquiry and
consultation with Purchaser to be doubtful.
5.6 Insurance. Seller agrees that, for two years after the date of
---------
this Agreement, it shall (procure if necessary and) maintain in full force and
effect, with financially sound and reputable insurers, all forms of insurance of
the type maintained at any time by Seller within six months prior to the date of
this Agreement in amounts historically maintained by Seller. All policies
evidencing all such insurance shall contain a standard endorsement providing for
payment of any loss to Bluegate and shall provide for a minimum of ten (10)
days' prior written notice to Bluegate of any cancellation. Seller shall
furnish Bluegate with certificates or other evidence of compliance with the
foregoing insurance provisions. If any such insurance policy expires or is
canceled within two years after the date of this Agreement, at Bluegate's
option, Bluegate may obtain replacement insurance which may, but need not, be
single interest insurance in favor of Bluegate and Bluegate may pay the premiums
thereunder, and all payments by Bluegate in connection therewith shall be
indemnifiable amount covered by Section 6.2 hereof. Bluegate may act as
attorney for Seller and Seller hereby irrevocably appoints Bluegate as Seller's
true and lawful attorney and agent-in-fact, with full power of substitution, in
Bluegate's name or Seller's name or otherwise, but at Seller's cost and expense
and without notice to Seller, to undertake the action described in the preceding
sentence.
ARTICLE SIX
SURVIVAL AND INDEMNITY
6.1 Survival of Representations and Warranties. All of the
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representations and warranties made by the parties hereto in this Agreement or
pursuant hereto, shall be continuing and shall survive the closing hereof and
the consummation of the transactions contemplated hereby, notwithstanding any
investigation at any time made by or on behalf of any party hereto, for a period
of two years after the date of this Agreement.
6.2 Indemnification by Seller and Shareholder. Each of Seller and
---------------------------------------------
Shareholder shall, jointly and severally, protect, indemnify and hold harmless
Purchaser and Bluegate, and Purchaser's and Bluegate's shareholders, directors,
officers, employees, agents, affiliates, successors and assigns, from any and
all demands, claims, actions, causes of actions, lawsuits, proceedings,
judgments, losses, damages, injuries, liabilities, obligations, expenses and
costs (including costs of litigation and attorneys' fees), arising from any
breach of any agreement, representation or warranty made by any of them in this
Agreement. Seller and Shareholder agree that Purchaser and Bluegate shall have
the right to offset any indemnifiable amount arising under this Section 6.2
against the Royalty to be paid pursuant to this Agreement or any stock issued
into escrow or to be issued pursuant to this Agreement or such consideration
that is received or to be received with respect to
such stock in connection with a Change in Control. To the extent that Seller
and Shareholder are found to be liable to the Purchaser and Bluegate under this
Section 6.2, Seller and Shareholder shall be entitled to elect to satisfy such
liability by means of Bluegate Common Stock by giving written notice of such
election to Bluegate and by remitting to Bluegate a number of shares of Bluegate
Common Stock having an aggregate market value, as of the close of the date
preceding the notice required by this Section 6.2, equalling the amount of the
liability. The liability of Seller and Shareholder to Bluegate and Purchaser
hereunder shall be limited to the amount of the Royalty to be paid pursuant to
this Agreement after the date that the liability arose and the shares of
Bluegate Common Stock issued pursuant to this Agreement. Seller and Shareholder
shall have no liability to Bluegate and Purchaser under this Section 6.2 until
the amount of claims for which Bluegate or Purchaser or both are entitled to
indemnification from Seller and Shareholder hereunder exceeds $20,000.
6.3 Indemnification by Purchaser. Purchaser shall protect, indemnify
------------------------------
and hold harmless Seller, and Seller's shareholders, directors, officers,
members, managers, and Seller's employees, agents, affiliates, successors and
assigns, from any and all demands, claims, actions, causes of actions, lawsuits,
proceedings, judgments, losses, damages, injuries, liabilities, obligations,
expenses and costs (including costs of litigation and attorneys' fees), arising
from any breach of any agreement, representation or warranty made by it in this
Agreement.
6.4 Indemnification by Bluegate. Bluegate shall protect, indemnify and
---------------------------
hold harmless Seller, and Seller's shareholders, directors, officers, members,
managers, and Seller's employees, agents, affiliates, successors and assigns,
from any and all demands, claims, actions, causes of actions, lawsuits,
proceedings, judgments, losses, damages, injuries, liabilities, obligations,
expenses and costs (including costs of litigation and attorneys' fees), arising
from any breach of any agreement, representation or warranty made by it in this
Agreement.
6.5 Special Indemnification by Seller. Seller shall, protect,
---------------------------
indemnify and hold harmless Purchaser and Bluegate, and Purchaser's and
Bluegate's shareholders, directors, officers, employees, agents, affiliates,
successors and assigns, from any and all demands, claims, actions, causes of
actions, lawsuits, proceedings, judgments, losses, damages, injuries,
liabilities, obligations, expenses and costs (including costs of litigation and
attorneys' fees), arising from any claim asserted by Enron or any affiliate of
Enron relating to any preferential payment (as such concept is understood in the
bankruptcy context) made or allegedly made by the claimant to Seller (the
"Claim"). Seller agrees that Purchaser and Bluegate shall have the right to
offset any indemnifiable amount arising under this Section 6.5 against the
Royalty to be paid pursuant to this Agreement or any stock issued into escrow or
to be issued pursuant to this Agreement or such consideration that is received
or to be received with respect to such stock in connection with a Change in
Control. Bluegate agrees to advance to Seller from time to time hereafter up to
$10,000 for legal expenses hereafter incurred by Seller in connection with the
defense of the Claim; provided, however, that any and all amounts so advanced
shall constitute an indemnifiable amount arising under this Section 6.5, and
Bluegate shall have the right to offset provided for in this Section 6.5 with
respect to any and all amounts so advanced.
ARTICLE SEVEN
MISCELLANEOUS
7.1 Notices. Any notices, requests, demands, or other communications
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herein required or permitted to be given shall be in writing and may be
personally served, sent by United States mail, sent by an overnight courier who
keeps proper records regarding its deliveries, faxed or e-mailed. Notice shall
be deemed to have been given if personally served, when served, or if mailed, on
the third business day after deposit in the United States mail with postage
pre-paid by certified or registered mail and properly addressed, or if sent by
overnight courier as aforesaid with charges being billed to the sender, when
received by the party being notified, or if faxed, when the person giving the
notice receives a confirmation statement with all relevant details indicating
that the fax was properly received, or if e-mailed, when the person giving the
notice receives a confirmation statement with all relevant details indicating
that the e-mail was properly received. As used in this Agreement, the term
"business day" means days other than Saturdays, Sundays, and holidays recognized
by Federal banks. For purposes of this Agreement, the physical addresses, fax
numbers and e-mail addresses of the parties hereto shall be the physical
addresses, fax numbers and e-mail addresses as set forth on the signature pages
of this Agreement. Any party to be notified hereunder may change its physical
address, fax number and e-mail address by notifying each other party hereto in
writing as to the new physical address, fax number and e-mail address for
sending notices.
7.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one and the
same instrument.
7.3 Amendments and Waivers. This Agreement may be amended, modified,
------------------------
or superseded only by written instrument executed by all parties hereto. Any
waiver of the terms, provisions, agreements, covenants, representations,
warranties, or conditions hereof shall be made only by a written instrument
executed and delivered by the party waiving compliance. The failure of any party
at any time or times to require performance of any provision hereof shall in no
manner affect the right to enforce the same. No waiver by any party of any
condition, or of the breach of any term, provision, agreements, covenant,
representation, or warranty contained in this Agreement in one or more instances
shall be deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or the breach of any
other term, provision, agreements, covenant, representation, or warranty.
7.4 Time of Essence. Time is of the essence in the performance of
-----------------
this Agreement.
7.5 Captions. The captions contained in this Agreement are solely for
--------
convenient reference and shall not be deemed to affect the meaning or
interpretation of any Article, Section, or paragraph hereof.
7.6 Entire Agreement. This Agreement (including the schedules and
-----------------
exhibits hereto, the Financial Statements, and all supporting agreements
referred to herein, all of which are by this reference fully incorporated into
this agreement) sets forth the entire agreement and understanding of the
parties with respect to the transactions contemplated hereby, and supersedes
all prior agreements, arrangements, and understandings relating to the subject
matter hereof.
7.7 Assignment, and Successors and Assigns. No party hereto may assign
--------------------------------------
any of its
rights, interests or obligations under this Agreement without the prior written
consent of the other parties. Notwithstanding the preceding, Purchaser may
assign all or part of this Agreement and its rights hereunder to a wholly-owned
subsidiary or to a person who acquires substantially all of the assets of
Purchaser and who assumes all of the obligations of Purchaser hereunder,
provided in each such case that no such assignment shall release Purchaser from
its duties and obligations hereunder. All of the terms, provisions, agreements,
covenants, representations, warranties, and conditions of this Agreement shall
be binding upon and shall inure to the benefit of and be enforceable by the
parties hereto and their respective heirs, legal representatives, permitted
assigns, and successors.
7.8 Knowledge, Gender, and Certain References. Whenever a
---------------------------------------------
representation or warranty made herein is made to the best of any entity's
knowledge, such representation or warranty is based only on the actual knowledge
or belief of the entity's management without any independent investigation on
the part of such management or any other person although such management has no
reason to believe that the representation or warranty made was not true as of
the date which it speaks. Whenever from the context it appears appropriate,
each term stated in either the singular or the plural shall include both the
singular and the plural, and pronouns stated in the masculine or the neuter
gender shall include the masculine, the feminine and the neuter gender. The
terms "hereof," "herein," or "here-under" shall refer to this Agreement as a
whole and not to any particular Article, Section, or paragraph hereof.
7.9 Applicable Law, Mandatory Venue, and Draftsmanship. This Agreement
--------------------------------------------------
has been executed in Harris County, Texas. THIS AGREEMENT SHALL BE GOVERNED
EXCLUSIVELY BY ITS TERMS AND BY THE LOCAL, INTERNAL LAWS OF THE STATE OF TEXAS.
The parties hereto stipulate and agree that the courts of the State of Texas
shall have in personam jurisdiction for any claim, lawsuit or proceeding
regarding this Agreement, and that mandatory venue for any such claim, lawsuit
or proceeding shall be in any state or federal court having competent
jurisdiction located in Harris County, Texas. Each party hereto hereby
acknowledges and agrees that it has consulted legal counsel in connection with
the negotiation of this Agreement and that it has bargaining power equal to that
of the other parties hereto in connection with the negotiation and execution of
this Agreement. Accordingly, the parties hereto agree that the rule of contract
construction that an agreement shall be construed against the draftsman shall
have no application in the construction or interpretation of this Agreement.
7.10 Severability. If any term, provision, agreements, covenant, or
------------
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void, or unenforceable, the remainder of the terms, provisions,
agreements, covenants and restrictions shall remain in full force and effect
and shall in no way be affected, impaired, or invalidated.
7.11 Costs, Expenses and Fees. Each party hereto agrees hereby to pay
-------------------------
all costs, expenses, and fees incurred by it in connection with the transactions
contemplated hereby, including, without limitation, all attorneys' and
accountants' fees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"SELLER" "SHAREHOLDER"
TRILLIANT CORPORATION
By:__________________________________ ___________________________________
Name:______________________________ Name: William Koehler
Its:_________________________________
Address: ________________________ Address: ________________________
________________________ ________________________
Fax no: ________________________ Fax no: ________________________
E-mail E-mail
Address: ________________________ Address: ________________________
"BLUEGATE" "PURCHASER"
BLUEGATE CORPORATION TRILLIANT TECHNOLOGY GROUP, INC.
By:_________________________________ By:________________________________
Manfred Sternberg,
Chief Executive Officer
Name:______________________________
Its:_______________________________
Address: 701 N. Post Oak Blvd., Address: 701 N. Post Oak Blvd.,
Suite 630 Suite 630
Houston, Texas 77024 Houston, Texas 77024
Fax no: _______________________ Fax no: ______________________
E-mail E-mail
Address: _______________________ Address: ______________________
SCHEDULE 1.2
EXCLUDED ASSETS
---------------
1. All components of the aggregate purchase price for the Assets including,
without limitation, (i) the initial stock payment consisting of 138,714
shares of Bluegate Common Stock, (ii) the additional shares of Bluegate
Common Stock that may become issuable with respect to the Contingent Stock
Issuance, (iii) the payments of principal of or interest on the Acquisition
Promissory Note, and (iv) the amounts that may become payable with respect
to the Royalty.
2. All rights and claims of Seller under any of Seller's insurance policies,
except as otherwise provided in Section 5.6 hereof;
3. All assets of any of Seller's employee benefit plans;
4. All claims, rights and interest in and to any prepayment or refunds of
federal, provincial, state or local franchise, income or other taxes or
fees of any nature whatsoever which relate solely to the period up to and
including the date of this Agreement;
5. All rights of Seller under any contract, license, authorization, agreement
or commitment other than those creating or evidencing Assumed Liabilities;
6. All rights that would accrue or will accrue to Seller under this Agreement;
and
7. All of Seller's minute books and other books and records relating to
internal corporate matters, and all other books and records not related to
the business conducted with the Assets.
8. 385 Shares of Texas Petrochemical Stock (estimated worth $5,000) - Has
never been represented on the QuickBooks balance sheet. It is reflected on
the Balance Sheet in Schedule 1.1 (d) as a company owned asset.