Exhibit 10.4


    
      

    

    
      EXHIBIT
        10.4 - THIS OPTION AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
        NOT
        BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED
        FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
        TO AN
        EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN
        OPINION
        OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
        UNDER
        SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

      


      
        	 	
                BLUEGATE
                  CORPORATION

              	
                No.
                  E-06-06

              


      

      STOCK
        OPTION AGREEMENT

      


      
        	
                Date
                  of Grant:

              	
                August
                  1, 2006

              


      

      


      THIS
        GRANT, dated as of the date of grant first stated above (the "Date of Grant"),
        is delivered by Bluegate Corporation (the "Company") to Alex Bitoun (the
        “Grantee"), who is an employee, consultant or director of the Company or one
        of
        its subsidiaries (the Company is sometimes referred to herein as the
        "Employer").

      


      WHEREAS,
        the Board of Directors of the Company (the "Board) approved the Company’s grant
        to Grantee the right to purchase shares of the Common Stock of the Company,
        par
        value $0.001 per share (the "Stock"), in accordance with the terms and
        provisions hereof.

      


      NOW,
        THEREFORE, the parties hereto, intending to be legally bound hereby, agree
        as
        follows:

      


      
        	
                1.

              	
                Grant
                  of Option.

              


      

      


      Subject
        to the terms and conditions hereinafter set forth, the Company, with the
        approval and at the direction of the Board, hereby grants to the Grantee,
        as of
        the Date of Grant, an option to purchase up to 170,000 shares of Stock at
        a
        price of $0.60 per share. Such option is hereinafter referred to as the "Option"
        and the shares of stock purchasable upon exercise of the Option are hereinafter
        sometimes referred to as the "Option Shares." The Option Shares to be issued
        pursuant to this Stock Option Agreement shall be restricted
        securities.

      


      
        	
                2.

              	
                Vesting.

              


      

      


      This
        Option shall vest according to the schedule below:

      


      
        	
                Option
                  Shares

              	 	
                Vesting
                  Date

              
	
                50,000

              	 	
                August
                  1, 2006

              
	
                10,000

              	 	
                September
                  1, 2006

              
	
                10,000

              	 	
                October
                  1, 2006

              
	
                10,000

              	 	
                November
                  1, 2006

              
	
                10,000

              	 	
                December
                  1, 2006

              
	
                10,000

              	 	
                January
                  1, 2007

              
	
                10,000

              	 	
                February
                  1, 2007

              
	
                10,000

              	 	
                March
                  1, 2007

              
	
                10,000

              	 	
                April
                  1, 2007

              
	
                10,000

              	 	
                May
                  1, 2007

              
	
                10,000

              	 	
                June
                  1, 2007

              
	
                10,000

              	 	
                July
                  1, 2007

              
	
                10,000

              	 	
                August
                  1, 2007

              


      

       

      
        	
                3.

              	
                Termination
                  of Option.

              


      

      


      (a)   The
        Option and all rights hereunder with respect thereto, to the extent such
        Option
        has vested, shall terminate and become null and void after the expiration
        of
        five (5) years from the Date of Grant (the "Option Term"). To the extent
        that
        the Option has not vested in accordance with Section 2 above, then the
        non-vested portion of the Option shall terminate and become null and void
        upon
        the termination of the Grantee as an employee, officer or director of the
        Company. 

      


      (b)   In
        the
        event of the death of the Grantee, the Option may be exercised by the Grantee's
        legal representative(s), but only to the extent that the Option would otherwise
        have been exercisable by the Grantee.

       

      (c)   In
        the
        event the Board (or Committee, if any) finds by a majority vote after full
        consideration of the facts that Grantee, before or after termination of his
        employment with the Company or an Affiliate for any reason (i) committed
        or
        engaged in fraud, embezzlement, theft, commission of a felony, or proven
        dishonesty in the course of his employment by the Company or any subsidiary
        or
        affiliate of the Company, which conduct damaged the Company or subsidiary
        or
        affiliate, or disclosed trade secrets of the Company its subsidiary or its
        affiliate, or (ii) participated, engaged in or had a material, financial
        or
        other interest, whether as an employee, officer, director, consultant,
        contractor, shareholder, owner, or otherwise, in any commercial endeavor
        anywhere which is competitive with the business of the Company or a subsidiary
        or Affiliate without the written consent of the Company, the Grantee shall
        forfeit all outstanding Options. Clause (ii) shall not be deemed to have
        been
        violated solely by reason of the Grantee’s ownership of stock or securities of
        any publicly owned corporation, if that ownership does not result in effective
        control of the corporation.

      


      The
        decision of the Board (or Committee, if any) as to the cause of the Grantee’s
        discharge, the damage done to the Company or a subsidiary or an affiliate,
        and
        the extent of the Grantee’s competitive activity shall be final. No decision of
        the Board (or Committee, if any) however, shall affect the finality of the
        discharge of the Grantee by the Company. 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      
        	
                4.

              	
                Exercise
                  of Options.

              


      

      


      (a)   The
        Grantee may exercise the Option with respect to all or any part of the number
        of
        Option Shares then exercisable hereunder by giving the Secretary of the Company
        written notice of intent to exercise. The notice of exercise shall specify
        the
        number of Option Shares as to which the Option is to be exercised and the
        date
        of exercise thereof, which date shall be at least five days after the giving
        of
        such notice unless an earlier time shall have been mutually agreed upon.
        Notwithstanding the foregoing, an Option granted under this Agreement may
        be
        exercised in increments of not less than 10% of the full number of Shares
        as to
        which it can be exercised. A partial exercise of an Option will not affect
        the
        Grantee’s right to exercise the Option from time to time in accordance with this
        Agreement as to the remaining Shares subject to the Option.

       

      (b)   Full
        payment (in U.S. dollars) by the Grantee of the option price for the Option
        Shares purchased shall be made on or before the exercise date specified in
        the
        notice of exercise in cash, or certified or cashier's check or money order,
        or,
        with the prior written consent of the Board, in whole or in part through
        the
        surrender of previously acquired shares of Stock at their fair market value
        on
        the exercise date.

      


      On
        the
        exercise date specified in the Grantee's notice or as soon thereafter as
        is
        practicable, but not to exceed ten (10) business days, the Company shall
        cause
        to be delivered to the Grantee, a certificate or certificates for the Option
        Shares then being purchased (out of theretofore unissued Stock or reacquired
        Stock, as the Company may elect) upon full payment for such Option Shares.
        

       

      (c)   If
        the
        Grantee fails to pay for any of the Option Shares specified in such notice,
        the
        Grantee's right to purchase such Option Shares may be terminated by the Company.
        The date specified in the Grantee's notice as the date of exercise shall
        be
        deemed the date of exercise of the Option, provided that payment in full
        for the
        Option Shares to be purchased upon such exercise shall have been received
        by
        such date.

      


      (d)   Notwithstanding
        any of the other provisions hereof, Grantee agrees that he will not exercise
        this Option and that the Company will not be obligated to issue any Option
        Shares pursuant to this Stock Option Agreement, if the exercise of the Option
        or
        the issuance of such Option Shares would constitute a violation by the Grantee
        or by the Company of any provision of any law or regulation of any governmental
        authority or national securities exchanges. Upon the acquisition of any Option
        Shares pursuant to the exercise of the Option herein granted, Grantee will
        enter
        into such written representations, warranties and agreements as the Company
        may
        reasonably request in order to comply with applicable securities laws with
        this
        Stock Option Agreement.

      


      
        	
                5.

              	
                Piggyback
                  Registration Rights.

              


      

      


      If
        the
        Company at any time proposes to register any of its Common Stock under the
        Securities Act (other than a registration on Form S-8 or S-4 or any successor
        or
        similar forms) whether or not for sale for the Company's account, the Company
        shall use its best efforts to include in such registration (and any related
        qualifications under blue sky laws or other compliance) all the Option Shares
        specified in a written request or requests, made by the Grantee and received
        by
        the Company within 15 days after the Grantee’s receipt of written notice from
        the Company regarding the proposed registration, which written request may
        specify the inclusion of all or a part of Grantee’s Option Shares.

      


      
        	
                6.

              	
                Adjustment
                  of and Changes in Stock of the
                  Company.

              


      

      


      In
        the
        event of a reorganization, recapitalization, change of shares, stock split,
        spin-off, stock dividend, reclassification, subdivision or combination of
        shares, merger, consolidation, rights offering, or any other change in the
        corporate structure or shares of capital stock of the Company, the Board
        shall
        make such adjustment in the number and kind of shares of Stock subject to
        the
        Option and in the option price; provided, however, that no such adjustment
        shall
        give the Grantee any additional benefits under the Option. 

       

      
        	
                7.

              	
                Fair
                  Market Value.

              


      

      


      As
        used
        herein, the "fair market value" of a share of Stock shall be the closing
        price
        per share of Stock on the PINK SHEETS, OTCBB, NASDAQ, the NYSE, the Amex,
        the
        composite tape or other recognized market source, as determine by the Board,
        on
        the applicable date of reference hereunder, or if there is no sale on such
        date,
        then the closing price on the last previous day on which a sale is
        reported.

      


      
        	
                8.

              	
                No
                  Rights of Stockholders.

              


      

      


      Neither
        the Grantee nor any personal representative shall be, or shall have any of
        the
        rights and privileges of, a stockholder of the Company with respect to any
        shares of Stock purchasable or issuable upon the exercise of the Option,
        in
        whole or in part, prior to the date of exercise of the Option.

      


      
        	
                9.

              	
                Non-Transferability
                  of Option.

              


      

      


      During
        the Grantee's lifetime, the Option hereunder shall be exercisable only by
        the
        Grantee or any guardian or legal representative of the Grantee, and the Option
        shall not be transferable except, (i) in case of the death of the Grantee,
        by
        will or the laws of descent and distribution, and (ii) to a child, grandchild
        or
        stepchild of the Grantee or to a trust or partnership created by the Grantee,
        who, in each case, will be subject to all of the provisions hereof, nor shall
        the Option be subject to attachment, execution or other similar process.
        In the
        event of (a) any attempt by the Grantee to alienate, assign, pledge, hypothecate
        or otherwise dispose of the Option, except as provided for herein, or (b)
        the
        levy of any attachment, execution or similar process upon the rights or interest
        hereby conferred, the Company may terminate the Option by notice to the Grantee
        and it shall thereupon become null and void and of no value to any such
        party.


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      
        	
                10.

              	
                Disputes.

              


      

      


      As
        a
        condition of the granting of this Option, the Grantee and his heirs and
        successors agree that any dispute or disagreement which may arise hereunder
        shall be determined by the Board (or Committee, if any) in its sole discretion
        and judgment, and that any such determination and any interpretation by the
        Board (or Committee, if any) of the terms of this Option shall be final and
        shall be binding and conclusive, for all purposes upon the Company, the Grantee,
        his heirs and successors.

      


      
        	
                11.

              	
                Notice.

              


      

       

      Any
        notice to the Company provided for in this instrument shall be addressed
        to it
        in care of its Secretary at its executive offices at Bluegate Corporation,
        and
        any notice to the Grantee shall be addressed to the Grantee at the current
        address shown on the records of the Company. Any notice shall be deemed to
        be
        duly given if and when properly addressed and posted by registered or certified
        mail, postage prepaid.

      


      
        	
                12.

              	
                Governing
                  Law.

              


      

      


      The
        validity, construction, interpretation and effect of this instrument shall
        exclusively be governed by and determined in accordance with the law of the
        State of Texas, except to the extent preempted by federal law, which shall
        to
        the extent govern.

      


      IN
        WITNESS WHEREOF, the Company has caused its duly authorized officers to execute
        and attest to this Stock Option Agreement, and to apply the corporate seal
        hereto, and the Grantee has placed his or her signature hereon, effective
        as of
        the Date of Grant.

      


      Bluegate
        Corporation 

      


      


      
        	
                By:

              	 
	
                 

              	 
	
                Manfred
                  Sternberg, Chief Executive Officer

              	 
	 	 
	 	
                Grantee:

              
	 	 
	 	
                 

              
	 	
                Alex
                  Bitoun