Document:

Exhibit 4.6

 

THIS
WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR BLUE
SKY LAW, AND MAY NOT BE SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT, OR AN EXEMPTION FROM REGISTRATION, THEREUNDER.

 

GENUTEC
BUSINESS SOLUTIONS, INC.

 

Common
Stock Purchase Warrant

 

GenuTec Business Solutions, Inc., a Montana
corporation (the “Company”), hereby certifies
that, for value received, TECHNOLOGY INVESTMENT CAPITAL CORP., a Maryland
corporation, or its registered assigns (the “Holder”),
is entitled, subject to the terms set forth below, to purchase from the
Company, at any time and from time to time during the period beginning on the
date hereof and ending on September 16, 2010 (the “Expiration
Date”), in whole or in part, an aggregate of Eight Hundred Seventy-Five
Thousand Two Hundred Fifty (875,250) fully paid and non-assessable shares of
the Class A Voting Common Stock, par value $.01 per share, of the Company
(“Common Stock”), subject to certain
adjustments pursuant to Section 3 hereof (the “Warrant
Shares”), at an initial exercise price of Two Dollars ($2.00)
per share, subject to certain adjustments pursuant to Section 3 hereof
(the “Exercise Price”).  This warrant is one of the warrants (collectively,
“Warrants” and each individually a “Warrant”) issued or to be issued
pursuant to the provisions of the Preferred Stock and Warrant Purchase
Agreement dated as of September 16, 2005 by and among the Company and the
Purchasers named therein (the “Stock Purchase Agreement”),
or the Note Purchase Agreement (as defined in the Stock Purchase Agreement).  Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the Stock
Purchase Agreement.

 

1.                                       EXERCISE OF
WARRANT.

 

1.1                                 Method
of Exercise.  The purchase rights
evidenced by this warrant (this “Warrant”)
shall be exercised by the Holder surrendering this Warrant, with the form of
subscription at the end hereof duly executed by the Holder, to the Company at its principal office at 6A Liberty
Street, Suite 200, Aliso Viejo, CA  92656, or such other office
or agency of the Company as the Company may hereafter designate for such
purposes by written notice to the Holder (the “Principal
Office”), accompanied by payment of an amount (the “Exercise Payment”) equal to the
Exercise Price multiplied by the number of shares being purchased pursuant to
such exercise, payable as follows:  (a) by payment to the Company in cash, by certified or official bank check, or
by wire transfer of the Exercise Payment, (b) by surrender to the Company
for cancellation of securities of the Company having a Market Price (as defined
below) on the date of exercise equal to the Exercise Payment; or (c) by a
combination of the methods described in clauses (a) and (b) above.  In lieu of exercising this Warrant in the
foregoing manner, the Holder may elect to receive upon such exercise (and
without payment to the Company of any Exercise Payment), a number of newly
issued shares of Common Stock having an aggregate Market Price per share as of
the date this Warrant is so exercised equal to

 

 

the product of (A) the number of Warrant Shares for which this
Warrant is then being exercised, multiplied by (B) the difference (not
less than zero) between (i) the Market Price per share of Common Stock as
of such date and (ii) the Exercise Price per share of Common Stock as of
such date (hereinafter referred to as a “Cashless Exercise”).

 

1.2                                 Market
Price.  As used in this Warrant,
the term “Market Price”
shall mean, as of any date of determination, with respect to the Common Stock
or any other securities, (A) if the Common Stock or such other securities (as
the case may be) are listed or admitted to trading on any national securities
exchange, the average of the last reported sale prices, regular way, per share
of Common Stock or other securities (as the case may be) for each of the 20
consecutive trading days preceding such day on the principal national
securities exchange on which the shares of Common Stock or other
securities (as the case may be) are listed or admitted to trading
(without taking into account any extended or after-hours trading session), or (B) if the Common Stock or such other securities (as
the case may be) are not listed or admitted to trading on any national
securities exchange but are listed on The Nasdaq Stock Market, Inc. (“Nasdaq”) or quoted in the Over-the-Counter
Bulletin Board (the “OTC Bulletin Board”)
of the National Association of Securities Dealers, Inc. (“NASD”), the average of the last
reported sale prices (or, if last-sale price quotations are not available, the
average of the last available bid and asked prices) per share of
Common Stock or other securities (as the case may be) for each of the days in
such 20 trading day period as reported on Nasdaq or the OTC Bulletin Board (without
taking into account any extended or after-hours trading session), or (C) if the Common Stock or such other securities (as
the case may be) are traded in the over-the-counter market but not quoted on the OTC Bulletin Board, the average of the last available
bid and asked prices per share of the Common Stock or other
securities (as the case may be) for each of the days in such 20 trading day
period as quoted in the Pink Sheets Electronic Quotation Service or, if not so
quoted, as furnished by any member of the NASD selected by the Company, or (D) if
the Common Stock or such other securities (as the case may be) are not publicly
traded, the Market Price for such day shall be the fair market value per share thereof
as determined jointly by the Company and the holders of Warrants
exercisable to purchase a majority of the shares of Common Stock which may be
purchased upon exercise of all of the outstanding Warrants (the “Majority Holders”); provided,
however, that if such parties are unable to reach agreement within a
period of 15 days, the Market Price shall be determined in good faith by an
independent investment banking firm selected jointly by the Company and the Majority
Holders, or, if that selection cannot be made within 15 days, by an independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules.  The fees and expenses of such independent investment banking firm shall be
borne 50% by the Company and 50% by the holders of Warrants (pro rata in
accordance with the respective numbers of shares of Common Stock for which such
Warrants are exercisable).  For
the purposes hereof, the determination of the “fair market value” of any shares
of Common Stock shall be based upon the market value of the Company determined
on a going concern basis, assuming that all of the outstanding shares of Common
Stock of the Company are being sold as between a willing buyer and a willing
seller in an arm’s length transaction for cash payable in full on completion,
and that all Indebtedness of the Company and its subsidiaries shall have been
paid and satisfied in full on the relevant date, and taking into account any
shares of any class which may be issuable under any then outstanding options,
warrants or other rights to subscribe for, or securities convertible into or
exchangeable for, shares of Common Stock, and taking into account all other
relevant factors determinative of value, provided that no discount shall
be imposed by reason of such shares of Common Stock

 

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constituting a minority ownership interest or by reason of the
illiquidity of such shares or any contractual or other restrictions on the sale
or transfer thereof.  Notwithstanding the
foregoing, if this Warrant is being exercised in connection with a public
offering of Common Stock, Market Price shall mean the initial public offering
price per share in such offering.

 

1.3                                 Partial
Exercise.  This Warrant may be
exercised for less than the full number of Warrant Shares, in which case the number of
shares receivable upon the exercise of this Warrant as a whole, and the sum
payable upon the exercise of this Warrant as a whole, shall be proportionately
reduced.  Upon any such partial exercise,
the Company at its expense will forthwith issue to the Holder a new Warrant or
Warrants of like tenor calling for the number of shares of Common Stock as to which rights have not been exercised, such Warrant or
Warrants to be issued in the name of the Holder hereof or his or its nominee
(upon payment by the Holder of any applicable transfer taxes).

 

2.                                       DELIVERY OF
STOCK CERTIFICATES ON EXERCISE.  As soon as practicable after the
exercise of this Warrant and payment of the Exercise Payment (or exercise
hereof pursuant to a Cashless Exercise), and in any event within ten (10) days thereafter, the Company, at its expense, will cause to be
issued in the name of and delivered to the Holder a certificate or certificates
for the number of fully paid and non-assessable shares of Common Stock or other
securities or property to which the Holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which the Holder would otherwise
be entitled, cash in an amount determined in accordance with Section 3.8
hereof.  The Company agrees that the
shares of Common Stock so purchased shall be deemed to be issued to the Holder
as the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such shares
as aforesaid.

 

3.                                       ADJUSTMENTS.  The number of Warrant Shares and the Exercise Price shall be subject to
adjustment from time to time in accordance with this Section 3.  Upon each adjustment of number of Warrant
Shares pursuant to this Section 3, the registered Holder of this Warrant
shall thereafter be entitled to acquire upon exercise, at the Exercise Price,
the adjusted number of Warrant Shares.

 

3.1                                 Adjustment
for Issue or Sale of Common Stock at Less than the Trigger Price.  Except as provided in Section 3.2 or 3.5
below, if and whenever on or after the date of issuance hereof the Company
shall issue or sell, or shall in accordance with subsections 3.1(1) to (9),
inclusive, be deemed to have issued or sold, any shares of Common Stock for a
consideration per share of less than the greater of (a) the Market Price
per share of Common Stock as of the date of such issuance or sale or (b) $2.00
per share (such amount being herein called the “Trigger
Price” and such transaction being called the “Triggering Transaction”), then
forthwith upon such Triggering Transaction, the number of Warrant Shares shall,
subject to subsections (1) to (9) of this Section 3.1, be
increased to the number of Warrant Shares (calculated to the nearest whole
share of Common Stock) determined as follows:

 

W’ = W
+ [N – (P x N  ̧ T)] x W  ̧ [O + (P x N  ̧ T)]

1 – {W  ̧ [O + (P x N  ̧ T)]}

 

As used in the foregoing formula:

 

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O =                             the
number of shares of Common Stock Outstanding on a Fully Diluted Basis immediately
prior to the Triggering Transaction.

 

T =                              the
Trigger Price.

 

W =                         the
number of Warrant Shares immediately prior to the Triggering Transaction.

 

N =                             the
number of new shares of Common Stock issued or deemed issued in connection with
the Triggering Transaction.

 

P =                               the
aggregate consideration and deemed consideration paid per share of Common Stock
issued or issuable as a result of the Triggering Transaction (the “Purchase Price”).

 

W’ =                     the adjusted
number of Warrant Shares pursuant to this Section 3.

 

By way of example, if (i) the Company
has 1,000,000 shares of Common Stock Outstanding on a Fully Diluted Basis,
immediately prior to the Triggering Transaction (O=1,000,000), (ii) the
number of Warrant Shares immediately prior to the Triggering Transaction is
20,000 (W=20,000), (iii) the Trigger Price is $12.00 (T=12.00), (iv) the
price per share paid for the newly issued shares of Common Stock is $9.00
(P=$9.00) and (v) the number of new shares to be issued or deemed issued
by the Company in connection with the Triggering Transaction is 100,000
(N=100,000), the adjusted number of Warrant Shares would be calculated as
follows:

 

W’ = 20,000 + [100,000 – (9.00 x 100,000  ̧
12.00)] x 20,000  ̧ [1,000,000 + (9.00
x 100,000  ̧ 12.00)] 
= 20,474

1 – {20,000  ̧
[1,000,000 + (9.00 x 100,000  ̧ 12.00)]}

 

For purposes hereof, “Outstanding on a Fully
Diluted Basis” means, as of any date of determination, with
respect to the shares of Common Stock, (a) all shares of Company Common
Stock that are issued and outstanding on such date of determination, and (b) all
shares of Common Stock that would be outstanding as of such date of
determination assuming (i) the exercise of all then outstanding Options
(as defined below, and including, without limitation, the Warrants), (ii) the
conversion or exchange of all then outstanding Convertible Securities (as
defined below) and (iii) the conversion or exchange of all Convertible Securities
that would be outstanding after giving effect to the exercise of the Options
referred to in the foregoing clause (i) (in each case whether or not such Options
are at the time so exercisable and whether or not such Convertible Securities
are at the time so convertible or exchangeable).

 

For purposes of determining the number of
Warrant Shares pursuant to this Section 3.1, the following subsections (1) to
(9), inclusive, shall be applicable:

 

(1)                                  In
case the Company at any time shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
other securities that are convertible into or exchangeable for Common Stock
(such rights or options being herein called “Options”
and such convertible or exchangeable stock or

 

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securities being herein called “Convertible Securities”), whether or
not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, (A) for purposes of this Section 3.1,
the shares of Common Stock issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities shall be deemed to be
issued upon the grant of such Options or the issuance of such Convertible
Securities, and (B) the Purchase Price with respect to such Options shall
be determined by dividing (x) the total amount, if any, received or receivable
by the Company as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Company
upon the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.

 

(2)                                  In
case the Company at any time shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, the Purchase Price of such Convertible Securities shall be
determined by dividing (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities.

 

(3)                                  If
the purchase price provided for in any Options referred to in subsection (1),
the additional consideration, if any, payable upon the conversion or exchange
of any Convertible Securities referred to in subsections (1) or (2), or
the rate at which any Convertible Securities referred to in subsection (1) or
(2) are convertible into or exchangeable for Common Stock shall change at
any time, including by reason of provisions with respect thereto designed to
protect against dilution, the number of Warrant Shares in effect at the time of
such change shall forthwith be adjusted to the number of Warrant Shares which
would have been in effect at such time had such Options or Convertible
Securities outstanding at the time of such adjustment provided for such changed
purchase price, additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold.

 

(4)                                  On
the expiration of any Option or the termination of any right to convert or
exchange any Convertible Securities, the number of Warrant Shares then in
effect hereunder shall forthwith be decreased to the number of Warrant Shares
which would have been in effect at the time of such expiration or termination
had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued.

 

(5)                                  In
case any Options shall be issued in connection with the issue or sale of other
securities of the Company, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options

 

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shall be deemed to have been
issued without consideration.

 

(6)                                  In
case any shares of Common Stock, Options or Convertible Securities shall be
issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by
the Company therefor.  In case any shares
of Common Stock, Options or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company.  In case any shares of Common Stock, Options
or Convertible Securities shall be issued in connection with any merger in
which the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net assets
and business of the non-surviving corporation as shall be attributed by the
Board of Directors of the Company in good faith to such Common Stock, Options
or Convertible Securities, as the case may be.

 

(7)                                  The
number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock for the purpose of this Section 3.1.

 

(8)                                  In
case the Company shall declare a dividend or make any other distribution upon
the stock of the Company payable in Options or Convertible Securities, then in
such case any Options or Convertible Securities, as the case may be, issuable
in payment of such dividend or distribution shall be deemed to have been issued
or sold without consideration.

 

(9)                                  For
purposes of this Section 3.1, in case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (x) to
receive a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (y) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right or subscription or
purchase, as the case may be.

 

3.2                                 Dividends
Not Paid Out of Earnings or Earned Surplus. 
In the event the Company shall declare and pay a dividend upon the Common Stock
(other than a dividend payable in Common Stock) payable otherwise
than out of earnings or earned surplus, determined in accordance with generally
accepted accounting principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries (herein referred to as “Liquidating Dividends”), then, as
soon as possible after the exercise of this Warrant, the Company shall pay to
the Person exercising
this Warrant an amount equal to the aggregate value at the time of such
exercise of all Liquidating Dividends that it would have received if it had
exercised this Warrant and owned the underlying Warrant Shares immediately
prior to the record date for payment of such Liquidating Dividends, or, if no
such record date is taken, the date of payment thereof (including but not
limited to the Common Stock which would have been issued at the time of

 

6

 

such
earlier exercise and all other securities which would have been issued with
respect to such Common Stock by reason of
stock splits, stock dividends, mergers or reorganizations, or for any other
reason).  For the purposes of this Section 3.2,
a dividend other than in cash shall be considered payable out of earnings or
earned surplus only to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as determined in
good faith by the Board of Directors of the Company.

 

3.3                                 Subdivisions
and Combinations.  In case the
Company shall at any time (i) subdivide the outstanding Common Stock
or (ii) issue a stock dividend on its outstanding Common Stock,
the number of Warrant Shares in effect immediately prior to such subdivision or
dividend shall be proportionately increased by the same ratio as the subdivision or dividend.  In case the Company shall at any time combine
its outstanding Common Stock, the number of Warrant Shares in effect immediately prior to such
combination shall be proportionately decreased by the same ratio as the
combination.

 

3.4                                 Reorganization,
Reclassification, Consolidation, Merger or Sale of Assets.  If any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with or into
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provision shall be made whereby the Holder shall have
the right to acquire and receive, upon exercise of this Warrant, in lieu of
Warrant Shares, such shares of stock, securities, cash or other property
issuable or payable (as part  of the
reorganization, reclassification, consolidation, merger or sale) with respect
to or in exchange for such number of outstanding shares of the Common Stock as would have
been received upon exercise of this Warrant at the Exercise Price.  The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument mailed or delivered to the Holder at the last address of
the Holder appearing on the books of the Company, the obligation to deliver to
the Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Holder may be entitled to receive.  If a purchase, tender or exchange offer is
made to and accepted by the holders of more than 50% of the outstanding shares
of Common Stock of the Company, the Company shall not effect any consolidation,
merger or sale with the Person having made such offer or with any Affiliate of
such Person, unless prior to the consummation of such consolidation, merger or
sale the Holder shall have been given a reasonable opportunity to then elect to
receive upon the exercise of this Warrant either the stock, securities or
assets then issuable with respect to the Common Stock or the stock,
securities or assets, or the equivalent, issued to previous holders of the Common Stock in accordance
with such offer.  For purposes hereof the
term “Affiliate” with respect to
any given Person shall mean any Person controlling, controlled by or under
common control with the given Person.

 

3.5                                 No
Adjustment for Exercise of Certain Options, 
Warrants, Etc.  The provisions
of this Section 3 shall not apply to any Common Stock issued, issuable or
deemed outstanding:

 

(1)                                  in
connection with any issuance of Warrants pursuant to the Stock

 

7

 

Purchase Agreement or the Note
Purchase Agreement or issuance of Common Stock pursuant to the exercise of Warrants;
or

 

(2)                                  with
respect to which the Holders shall have waived their rights to receive any such
adjustment.

 

3.6                                 Notices
of Record Date, Etc.  In the event
that:

 

(1)                                  the
Company shall declare any cash dividend upon its Common Stock,

 

(2)                                  the
Company shall declare any dividend upon its Common Stock payable in stock
or make any special dividend or other distribution to the holders of its Common Stock,

 

(3)                                  the
Company shall offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or other rights,

 

(4)                                  there
shall be any capital reorganization or reclassification of the capital stock of
the Company, including any subdivision or combination of its outstanding shares
of Common
Stock, or consolidation or merger of the Company with, or sale
of all or substantially all of its assets to, another corporation, or

 

(5)                                  there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company;

 

then, in connection with such event, the
Company shall give to the Holder:

 

(a)                                  at
least twenty (20) days’ prior written notice of the date on which the books of
the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up; and

 

(b)                                 in
the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, at least twenty (20) days’ prior
written notice of the date when the same shall take place.

 

Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common Stock
shall be entitled thereto, and such notice in accordance with the foregoing
clause (b) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification
consolidation, merger, sale, dissolution, liquidation or winding up, as the
case may be.  Each such written notice
shall be given by first class mail, postage prepaid, addressed to the Holder at
the address of the Holder as shown on the books of the Company.

 

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3.7                                 Grant,
Issue or Sale of Options, Convertible Securities, or Rights.  If at any time or from time to time on or
after the date of issuance hereof, the Company shall grant, issue or sell any
Options, Convertible Securities or rights to purchase shares of stock of the
Company of any class or series or other property (the “Purchase
Rights”) pro rata to the holders of any class of Common Stock or
any class or series of Options or Convertible Securities, and such grants,
issuances or sales do not result in an adjustment of the number of Warrant
Shares under Section 3.1 hereof, then the Holder shall be entitled to
acquire (within thirty (30) days after the later to occur of the initial
exercise date of such Purchase Rights or receipt by the Holder of the notice
concerning Purchase Rights to which the Holder shall be entitled under Section 3.6)
and upon the terms applicable to such Purchase Rights either:

 

(i)                                     the
aggregate Purchase Rights which the Holder could have acquired if it had held
the number of shares of Common Stock acquirable upon exercise of this Warrant
immediately before the grant, issuance or sale of such Purchase Rights; provided
that if any Purchase Rights were distributed to holders of Common Stock without
the payment of additional consideration by such holders, corresponding Purchase
Rights shall be distributed to the exercising Holder as soon as possible after
such exercise and it shall not be necessary for the Holder specifically to
request delivery of such rights; or

 

(ii)                                  in
the event that any such Purchase Rights shall have expired or shall expire
prior to the end of said thirty (30) day period, the number of shares of Common
Stock or the amount of property which the Holder could have acquired upon such
exercise at the time or times at which the Company granted, issued or sold such
expired Purchase Rights.

 

3.8                                 Fractional
Shares.  The Company shall not issue
fractions of shares of Common Stock upon exercise of this Warrant or scrip in
lieu thereof.  If any fraction of a share
of Common Stock
would, except for the provisions of this Section 3.8, be issuable upon exercise
of this Warrant, the Company shall in lieu thereof pay to the Person entitled
thereto an amount in cash equal to such fraction, calculated to the nearest one-hundredth
(1/100) of a share, multiplied by the Market Price for the Common Stock, determined
as of the date of exercise; provided, however, that if the Market
Price is to be determined by the Company and the Holder and the parties are
unable to reach agreement within 15 days after the date of such exercise, the
Market Price shall be promptly thereafter determined by the Company’s Board of
Directors in good faith rather than by an independent investment banking firm.

 

3.9                                 Adjustment
of Exercise Price.  Upon each
adjustment in the number of Warrant Shares purchasable under this Warrant
pursuant to any provision of this Section 3, the Exercise Price shall be
adjusted, to the nearest one hundredth of one cent, to the product obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
in the number of Warrant Shares by a fraction, the numerator of which shall be
the number of Warrant Shares purchasable under this Warrant immediately prior
to such adjustment and the denominator of which shall be the number of Warrant
Shares purchasable under this Warrant immediately after giving effect to such
adjustment.  If the Company shall be in
default under any provision contained in Section 4 of this Warrant so that
shares issued at the Exercise Price adjusted in accordance with this Section 3
would not be validly issued, the adjustment of number of shares provided for in
the foregoing sentence shall nonetheless be made and the Holder of this Warrant

 

9

 

shall be entitled to purchase such greater number of shares at the
lowest price at which such shares may then be validly issued under applicable law.  Such exercise shall not constitute a waiver
of any claim arising against the Company by reason of its default under Section 4
of this Warrant.

 

3.10                           Officers’
Statement as to Adjustments. 
Whenever the number of Warrant Shares and the Exercise Price shall be
adjusted as provided in Section 3 hereof, the Company shall forthwith prepare and
thereafter maintain at the Company’s office a statement signed by the Chairman
of the Board, the President, any Vice President or Treasurer of the Company,
showing in reasonable detail the facts requiring such adjustment, the method by
which such adjustment was calculated and the number of Warrant Shares and the
Exercise Price that will be effective after such adjustment.  The Company shall also cause a notice setting
forth any such adjustments to be sent by mail, first class, postage prepaid, to
the record Holder at his or its address appearing on the stock register.

 

4.                                       NO DILUTION
OR IMPAIRMENT.  The Company will not, by amendment of its
Certificate of Incorporation or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the Holder set forth herein.  Without limiting the generality of the
foregoing, the Company will not increase the par value of any shares of stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise, and at all times will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable stock upon the exercise of this Warrant.

 

5.                                       RESERVATION
OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS.  The
Company shall at all times reserve and keep available out of its
authorized but unissued stock, solely for the issuance and delivery upon the
exercise of this Warrant, such number of its duly authorized shares of Common Stock as from time to time shall be issuable upon the exercise of this
Warrant.

 

6.                                       REMEDIES.  The Company stipulates that the remedies at law of the Holder in the event of any
default by the Company in the performance of or compliance with any of the
terms of this Warrant are not and will not be adequate, and that the same may
be specifically enforced.

 

7.                                       TRANSFER, ETC.

 

7.1                                 Ownership
of Warrant.  The Company may deem and
treat the person in whose name this Warrant is registered as the holder and the
owner hereof, notwithstanding any notations of ownership or writing hereon made
by anyone other than the Company, for all purposes and shall not be affected by
any notice to the contrary, until presentation of this Warrant for registration
or transfer as provided in Section 7.2. 
The Company shall maintain, at the Principal Office, a register for the
Warrants, in which the Company shall record the name and address of the person
in whose name each Warrant has been issued, as well as the name and address of
each transferee and each prior owner of such Warrant.

 

10

 

7.2                                 Exchange,
Transfer and Replacement.  This Warrant
is exchangeable, upon the surrender hereof by the registered Holder to the
Company at its Principal Office, for new Warrants of like tenor, representing
in the aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares as shall be designated by said registered Holder at
the time of such surrender.  This Warrant
and all rights hereunder are transferable, in whole or in part, only upon the register
provided for in Section 7.1, by the registered Holder hereof in person or
by duly authorized attorney, and a new Warrant shall be made and delivered by
the Company, of the same tenor as this Warrant but registered in the name of
the transferee, upon surrender of this Warrant with the Assignment Form attached
hereto duly completed, at said office or agency of the Company.  Upon receipt by the Company at its Principal
Office of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it and upon
surrender there of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor in replacement of this Warrant.  This Warrant shall be promptly cancelled by
the Company upon the surrender hereof in connection with any exchange, transfer
or replacement.  The Company shall pay
all expenses and charges (other than securities transfer taxes) payable in
connection with the preparation, execution and delivery of Warrants pursuant to
this Section 7.2.

 

7.3                                 Rights
of Holder.  Prior to the exercise of
this Warrant, the Holder shall not be entitled to any rights of a shareholder
of the Company with respect to Warrant shares for which this Warrant shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and
shall not be entitled to receive any notice of any proceedings of the Company,
except as provided herein.

 

7.4                                 Transfer
Taxes.  The Company shall not be
required to pay any Federal or state transfer tax or charge that may be payable
in respect of any transfer involved in the transfer or delivery of this Warrant
or the issuance or conversion or delivery of certificates for Warrant Shares in
a name other than that of the registered Holder or to issue or deliver any
certificates for Warrant Shares upon the exercise of this Warrant until
any and all such taxes and charges shall have been paid by the Holder or until
it has been established to the Company’s satisfaction that no such tax or
charge is due.

 

8.                                       REDEMPTION OF
WARRANT.

 

8.1                                 Right
to Redeem.  If, on or before the
Expiration Date, (i) the Holder has not exercised this Warrant in whole
and (ii) the Company has not completed a Qualified IPO (as defined below),
then the Holder, upon the written consent of the Majority Holders, may elect to
require the Company to redeem this Warrant for an amount in cash equal to the
price determined pursuant to Section 8.2 below (the “Warrant
Redemption Price”). 
During the 10-day period prior to the Expiration Date, the Holder shall
deliver written notice to the Company of its election to exercise its rights
under this Section 8 (such notice to be accompanied by this Warrant, or if
this Warrant has been lost or stolen, an affidavit evidencing such loss).  For the purposes of this Section 8, a “Qualified IPO” shall mean the
Company’s initial underwritten public offering of Common Stock for cash
pursuant to an effective registration statement under the Securities Act in
which the aggregate net cash proceeds to the Company are not less than $10,000,000,
and which is effected by means of a firm commitment underwriting managed by

 

11

 

one or more managing underwriters that are nationally recognized
investment banking firms reasonably acceptable to the Majority Holders.

 

8.2                                 Redemption
Price.  The Warrant Redemption Price
shall be equal to the product of (i) the Market Price per share of Common
Stock as of the Expiration Date, less the Exercise Price per share, multiplied
by (ii) the number of Warrant Shares at the time in effect.

 

8.3                                 Payment
of Redemption Price.  Within five (5) Business
Days after the Expiration Date, or in the event of any dispute with respect to
determination of the Market Price of the Common Stock, within five (5) Business
Days after the resolution of such dispute as provided in the definition of “Market
Price” herein, the Company shall pay the Warrant Redemption Price via wire
transfer of immediately available funds to such account as the Holder shall
designate in writing.

 

9.                                       CALL RIGHTS OF COMPANY.  The rights of the Holder of this Warrant are
subject to the provisions of Section 2.7 of the Stock Purchase Agreement.

 

10.                                 MAILING OF
NOTICES, ETC.  All notices and other communications from the
Company to the Holder shall be mailed by first-class certified mail, postage
prepaid, to the address furnished to the Company in writing by the last Holder
of this Warrant who shall have furnished an address to the
Company in writing.

 

11.                                 HEADINGS,
ETC.  The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect the meaning hereof.

 

12.                                 CHANGE,
WAIVER, ETC.  Neither this Warrant nor any term hereof may
be changed, waived, discharged or terminated orally but only
by an instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought.

 

13.                               GOVERNING LAW.  THIS WARRANT
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

 

[Signature Page Follows]

 

12

 

IN WITNESS
WHEREOF, the Issuer has executed this Warrant by its officer thereunto duly
authorized.

 

	
   

  	
  GENUTEC
  BUSINESS SOLUTIONS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lee Danna

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Lee J. Danna

  
	
   

  	
   

  	
  Title:

  	
  President/C.E.O.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated: November 16, 2005

  	
   

  	
   

  
					

 

13

 

[To be
signed only upon exercise of Warrant]

 

EXERCISE NOTICE

 

GenuTec Business Solutions, Inc.

6A Liberty
Street, Suite 200

Aliso Viejo,
CA  92656

Attention:  

 

Pursuant to
the provisions of the Warrant to purchase shares of Class A Voting Common Stock,
par value $.01 per share, issued by GenuTec Business Solutions, Inc. and
held by the undersigned, the original of which is delivered herewith, the
undersigned hereby elects to purchase                 
such shares, and (check the applicable box):

 

o                                    Tenders
herewith payment of the Exercise Payment (as defined in the Warrant) in full in
the form of cash, certified check or official bank check in the amount of $                          
for                        
such securities.

 

 ̈                                    Confirms
that payment of the Exercise Payment in full by means of a wire transfer in the
amount of $                            
for                         
such securities has been made to the Company.

 

 ̈                                    Elects
to surrender to the Company for cancellation securities of the Company having a
Market Price (as defined in the Warrant) on the date hereof equal to the
Exercise Payment.

 

 ̈                                    Elects to exercise
the Warrant by Cashless Exercise (as defined in the Warrant).

 

The
undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.

 

The undersigned requests that the
certificates for such shares be issued in the name of, and be delivered to                                    ,
whose address is                                    .

 

	
  Dated:

  	
   

  	
  , 20

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform in all

  respects to name of Holder as

  specified on the face of the

  Warrant)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  

 

 

[To be
signed only upon transfer of Warrant]

 

ASSIGNMENT
FORM

 

FOR VALUE RECEIVED, the undersigned hereby
sells, assigns and transfers unto                                    
the right represented by the within Warrant to purchase                           
shares of the Class A Voting Common Stock, par value $.01
per share, of GenuTec
Business Solutions, Inc. to which the within Warrant relates, and
appoints                              
attorney to transfer said right on the books of GenuTec Business Solutions, Inc., with full power of
substitution in the premises.

 

	
  Dated:

  	
   

  	
  , 20

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform in all

  respects to name of Holder as

  specified on the face of the

  Warrant)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AddressExhibit 10.1

 

GENUTEC BUSINESS SOLUTIONS, INC. STOCK OPTION
PLAN- EMPLOYEE-CONSULTANT

 

 

A. Purpose and Scope

The purposes of this Plan are to encourage stock ownership by the Board
of Directors, employees, and business associates, whether direct or indirect of
the GENUTEC BUSINESS SOLUTIONS , Corporation (herein called the “Company”) and
its Subsidiaries, to provide an incentive for such Board members, employees,
and associates to expand and improve the profits and prosperity of the Company
and its Subsidiaries, and to assist the Company and its Subsidiaries in
attracting and retaining key personnel through the grant of  Options to purchase shares of the Company’s
common stock.

B. Definitions

Unless otherwise required by the context:

1. “Board” shall mean the Board of Directors of the Company.

2. “Committee” shall mean the Stock Option Plan Committee, which is
appointed by the Board, and which shall be composed of three members of the
Board.

3. “Company” shall mean the GENUTEC BUSINESS SOLUTIONS, INC., a Montana
corporation.

4. “Code” shall mean the Internal Revenue Code of 1954, as amended.

5. “Option” shall mean a right to purchase Stock, granted pursuant to
the Plan.

6. “Option Price” shall mean the purchase price for Stock under an
Option, as determined in Section F below.

7. “Participant” shall mean an employee of the Company, or of any
Subsidiary of the Company, to whom an Option is granted under the Plan.

8. “Plan” shall mean this GENUTEC BUSINESS SOLUTIONS, INC. Corporation
Stock Option Plan.

9. “Stock” shall mean the common stock of the Company, par value
$.01.

10. “Subsidiary” shall mean a subsidiary corporation of the Company, as
defined in Sections 425(f) and 425(g) of the Code.

C. Stock to be Optioned

Subject to the provisions of Section L of the Plan, the maximum number
of shares of Stock that may be optioned or sold under the Plan is 7,000,000
shares. Such shares may be treasury, or authorized, but unissued, shares of
Stock of the Company.

D. Administration

The Plan shall be administered by the Committee. Two members of the
Committee shall constitute a quorum for the transaction of business. The
Committee shall be responsible to the Board for the operation of the Plan, and
shall make recommendations to the Board with respect to participation in the Plan
by employees of the Company and its Subsidiaries, and with respect to the
extent of that participation. The interpretation and construction of any
provision of the Plan by the Committee shall be final, unless otherwise
determined by the Board. No member of the Board or the Committee shall be
liable for any action or determination made by him/her in good faith.

E. Eligibility

The Board, upon recommendation of the Committee, may grant Options to
any key management employee (including an employee who is a director or an
officer) of the Company or its Subsidiaries. Options may be awarded by the
Board at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and may include
or exclude previous Participants, as the Board, upon recommendation by the
Committee shall determine. Options granted at different times need not contain
similar provisions.

F. Option Price

The purchase price for Stock under each Option shall be 100 percent of
the fair market value of the Stock at the time the Option is granted, but in no
event less than the par value of the Stock.

G. Terms and Conditions of Options

Options granted pursuant to the Plan shall be authorized by the Board
and shall be evidenced by agreements in such form as the Board, upon
recommendation of the Committee, shall from time to time approve. Such
agreements shall comply with and be subject to the following terms and
conditions:

1. Employment Agreement.  The Board may, in its discretion, include in
any Option granted under the Plan a condition that the Participant shall agree
to remain in the employ of, and to render services to, the Company or any of
its Subsidiaries for a period of time (specified in the agreement) following
the date the Option is granted. No such agreement shall impose upon the Company
or any of its Subsidiaries, however, any obligation to employ the Participant
for any period of time.

2. Time and Method of Payment.  The Option Price shall be paid in full in
cash at the time an Option is exercised under the Plan.  Otherwise, an exercise of any Option granted
under the Plan shall be invalid and

 

 

 

of no effect. Promptly after the exercise of an Option
and the payment of the full Option Price, the Participant shall be entitled to
the issuance of a stock certificate evidencing his/her ownership of such of
Stock.  A Participant shall have none of
the rights of a shareholder until shares are issued to him/her, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.

3. Number of Shares. 
Each Option shall state the total number of shares of Stock to which it
pertains.

4. Option Period and Limitations on Exercise of
Options.  The Board may, in its discretion,
provide that an Option may not be exercised in whole or in part for any period
or periods of time specified in the Option agreement.  Except as provided in the Option agreement,
an Option may be exercised in whole in part at any time during its term.  No Option may be exercised in less than three
(3) years, or more than eight (8) years from the date it is granted.  No Option may be exercised for a fractional
share of Stock.

5.  Option
Exercise in Event of Company Sale.  In
the event of a sale or transfer of Company in whole, upon the execution of such
sale or transfer, and in accordance with the terms of the Plan and under
conditions set forth by the Board of Directors at that time, Optionee may
receive the equity of Options upon sale of Company, regardless of Option
Period.

H. Termination of Employment

Except as provided in Section J below, if a Participant ceases to be
employed by the Company or any of its Subsidiaries, his/her Options shall
terminate immediately; provided, however, that if a Participant’s cessation of
employment with the Company and its Subsidiaries is due to his/her retirement
with the consent of the Company or any of its Subsidiaries, the Participant
may, at any time within three months after such cessation of employment,
exercise his/her Options to the extent that he/she was entitled to exercise
them on the date of cessation of employment, but in no event shall any Option
be exercisable in less than three years, or more than eight years from the date
it was granted.  The Committee may cancel
an Option during the three month period referred to in this paragraph, if the
Participant engages in employment or activities contrary, in the opinion of the
Committee, to the best interests of the Company or any of its Subsidiaries. The
Committee shall determine in each case whether a termination of employment
shall be considered a retirement with the consent of the Company or a
Subsidiary, and, subject to applicable law, whether a leave of absence shall
constitute a termination of employment. Any such determination of the Committee
shall be final and conclusive, unless overruled by the Board.

I. Rights in Event of Death

If a Participant dies while employed by the Company or any of its
Subsidiaries, or within three months after having retired with the consent of
the Company or any of its Subsidiaries, and without having fully exercised
his/her Options, the executors or administrators, or legatees or heirs, of
his/her estate shall have the right to exercise such Options to the extent that
such deceased Participant was entitled to exercise the Options on the date of
his/her death; provided, however, that in no event shall the Options be
exercisable in less than three years, or more than eight years from the date
they were granted.

J. No Obligations to Exercise Option

The granting of an Option shall impose no obligation upon the
Participant to exercise such Option.

K. Nonassignability

Options shall not be transferable other than by will or by the law of
descent and distribution, and during a Participant’s lifetime shall be
exercisable only by such Participant.

L. Effect of Change in Stock Subject to the Plan

The aggregate number of shares of Stock available for Options under the
Plan, the shares subject to any Option, and the price per share, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of the Plan resulting from (1)
a subdivision or consolidation of shares or any other capital adjustment, (2)
the payment of a stock dividend, or (3) other increase or decrease in such
shares effected without receipt of consideration by the Company.  If the Company shall be the surviving
corporation in any merger or consolidation, any Option shall pertain, apply,
and relate to the securities to which a holder of the number of shares of Stock
subject to the Option would have been entitled after the merger or
consolidation. Upon dissolution or liquidation of the Company, or upon a merger
or consolidation in which the Company is not the surviving corporation, all
Options outstanding under the Plan shall terminate; provided, however, that
each Participant (and each other person entitled under Section J to exercise an
Option) shall have the right, immediately prior to such dissolution or
liquidation, or such merger or consolidation, to exercise such Participant’s
Options in whole or in part, but only to the extent that such Options are
otherwise exercisable under the terms of the Plan.

M. Amendment and Termination

The Board, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted.  Neither the Board nor the Committee may,
without the consent of the holder of an Option,

 

 

 

alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect
for a period of ten years from the date of the Plan’s adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.

N. Agreement and Representation of Employees

As a condition to the exercise of any portion of an Option, the Company
may require the person exercising such Option to represent and warrant at the
time of such exercise that any shares of Stock acquired at exercise are being
acquired only for investment and without any present intention to sell or
distribute such shares, if, in the opinion of counsel for the Company, such a
representation is required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency.

O. Reservation of Shares of Stock

The Company, during the term of this Plan, will at all times reserve
and keep available, and will seek or obtain from any regulatory body having
jurisdiction any requisite authority necessary to issue and to sell, the number
of shares of Stock that shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority deemed necessary by counsel for the Company for the
lawful issuance and sale of its Stock hereunder shall relieve the Company of
any liability in respect of the failure to issue or sell Stock as to which the
requisite authority has not been obtained.

P. Effective Date of Plan.

The Plan shall be effective from the date that the Plan is approved by
the Board.

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