Document:

turv_s1exh43.htm

 

EXHIBIT 4.3

Series B Convertible Participation Notes

 

THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS

SERIES B SECURED CONVERTIBLE PARTICIPATING PROMISSORY NOTE

	
 

$__________________

	
Denver, Colorado

	  	
[DATE]

Two Rivers Farms F-2, LLC, a Colorado limited liability company (“Borrower”), FOR VALUE RECEIVED, hereby promises to pay to the order of ________________________or registered assigns (the “Holder”), at the offices of the Borrower at 2000 S Colorado, Annex Ste 420, Denver CO  80222 the principal amount of ______________ ($xxxxx.00) in lawful money of the United States of America on June 30, 2014 (the “Maturity Date”).  The unpaid principal balance of this Note shall bear interest at the rate of six percent (6%) per annum.  Interest shall be payable in arrears on the fifteenth day of February of each year (an “Interest Payment Date”) beginning on February 15, 2012.  Such interest payment shall be for the period ending on the December 31, immediately preceding such Interest Payment Date.

Upon payment of all amounts due to Holder hereunder this Note shall be physically surrendered to Borrower for cancellation.

In addition to the interest payable hereunder, the Holder shall be entitled to receive, the amount, if any, of the 10% of the "Crop Net Revenues.”  Crop Net Revenues is defined as the gross selling price of the grains less “Basis.”  Basis is the difference between the futures price for a commodity and the local cash price offered by grain buyers. It reflects the cost of marketing grain from one point of sale to another point of sale.  Net Revenues for each of the two years ended December 31, 2012, and December 31, 2013, if any, shall be due and payable on or before the 15th day of March, following each such December 31st.

Any amount of principal or interest which is not paid when due shall bear interest at the rate of eight percent (8%) per annum from the due date thereof until the same is paid in full.

If this Note, or any payment hereunder, falls due on a Saturday, Sunday or a Colorado public holiday, payment shall be made on the next succeeding business day and such additional time shall be included in the computation of any interest payable hereunder.

The Borrower may not prepay any portion of this Note without the written consent of the Holder.

This Note shall be secured pursuant to the terms of that certain Security Agreement by and between the Borrower and the Holder that certain Guaranty of Farm, and that certain Deed of Trust, each dated as of ________, 2011.

This Note is one of a series of promissory notes of like tenor issued or to be issued by the Borrower (all such notes being hereinafter referred to individually as a “Series B Note” and collectively the “Series B Notes”), is referred to in, a Subscription Agreement by and between the Borrower and the Holder (the “Purchase Agreement”) and is secured by certain collateral as referred to in a Security Agreement and a Deed of Trust executed in connection therewith.  Capitalized terms not otherwise defined herein shall have the meaning ascribed thereto in the Purchase Agreement.

The following terms shall apply to this Note:

Section 1.                      Definitions.  For the purposes hereof, in addition to the terms defined elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, and (b) the following terms shall have the following meanings:

“Common Stock” means the common stock, par value $0.001 per share, of the Parent and stock of any other class into which such shares may hereafter have been reclassified or changed.

“Conversion Date” shall have the meaning set forth in Section 3(a) hereof.

“Conversion Price” shall have the meaning set forth in Section 3(b).

“Conversion Shares” means the shares of Common Stock issuable upon conversion of this Note, in accordance with the terms hereof.

“Event of Default” shall have the meaning set forth in Section 5.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Farming Income” means the annual amount payable by Farms to Borrower pursuant to the Farming Lease.

“Farming Lease” means the lease dated as of June 1, 2011 by and between Borrower and Two Rivers Farms, LLC, (“Farms”) a wholly owned subsidiary of Parent, a copy of which is annexed hereto as Exhibit A.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e)(iii) hereof.

“Parent” means Two Rivers Water Company, a Colorado corporation and the indirect owner of 100% of the equity interests in Borrower.

“Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Trading Day” means a day on which the Common Stock is traded on a Trading Market.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq Global Market, the American Stock Exchange, the New York Stock Exchange, or the Nasdaq Capital Market.

	
Section 2.

	
Transfers.  This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

Section 3.                      Conversion.

(a)           Voluntary Conversion.  At any time after the date here until this Note is no longer outstanding, the principal and accrued and unpaid interest of this Note shall be convertible into shares of Common Stock at the option of the Holder, in whole or in part at any time and from time to time.  The Holder shall effect conversions by delivering to the Borrower the form of Notice of Conversion attached hereto as Annex A (a “Notice of Conversion”), specifying therein the amount of this Note to be converted and the date on which such conversion is to be effected (a “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is provided hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire principal amount of this Note plus all accrued and unpaid interest thereon has been so converted, in which event the Holder shall physically surrender this Note to the Borrower. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the principal amount so converted. The Holder, the Borrower and the Parent shall maintain records showing the principal amount converted and the date of such conversions.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof. However, at the Borrower’s request, the Holder shall surrender this Note to the Borrower within five (5) days following such request so that a new Series B Note reflecting the correct principal amount may be issued to Holder.

(b)           Conversion Price.  The conversion price (subject to adjustment herein) shall be $2.50 per share of Common Stock.

(c)           Mechanics of Conversion.

i.           Conversion Shares Issuable Upon Conversion. The number of shares of Common Stock issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the amount of this Note (whether principal or accrued but unpaid interest) to be converted by (y) the Conversion Price.

ii.           Delivery of Certificate Upon Conversion.  Not later than fifteen Trading Days after any Conversion Date, the Borrower will deliver to the Holder a certificate or certificates representing the Conversion Shares representing the number of shares of Common Stock being acquired upon the conversion of this Note.

iii.           Fractional Shares.  Upon a conversion hereunder the Parent shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the market price of a share of Common Stock on the Conversion Date at such time. If the Parent elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

iv.           Transfer Taxes.  The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Parent shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note and the Parent shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Parent the amount of such tax or shall have established to the satisfaction of the Parent that such tax has been paid.

(d)           Mandatory Conversion.

i.           Conversion Conditions.  If at any time prior to the Maturity Date (x) the closing price of a share of Common Stock as quoted on the primary Trading Market for such Common Stock is at least 240% of the Conversion Price then in effect for twenty consecutive Trading Days (the “Measuring Period”) and (y) the average daily trading volume on such Trading Market is at least 250,000 shares per day during such Measuring Period (the “Conversion Conditions”), then and in such event, the entire outstanding principal and accrued and unpaid interest on this Note shall automatically and without further action by the Borrower, the Parent or the Holder be converted into shares of Common Stock as of the Trading Day following the day on which the Conversion Conditions have been met.

ii.           Notice.  The Borrower or the Parent shall notify the Holder in the manner for notices provided in the Purchase Agreement, that the Conversion Conditions have been met within five Trading Days of the occurrence thereof and that the Holder should surrender this Note in exchange for Conversion Shares.  Not later than fifteen Trading Days after the date on which this Note is so surrendered, Parent will deliver to the Holder a certificate or certificates representing the number of shares of Common Stock being acquired upon such conversion.

Section 4.                      Certain Adjustments.

(a)           Stock Dividends and Stock Splits.  If the Parent, at any time after the date hereof: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock in shares of Common Stock, (B) subdivide outstanding shares of Common Stock into a larger number of shares, or (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock  outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

(b)           Notice to Holder.

i.           Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any of this Section 4, the Parent shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.           Notice to Allow Conversion by Holder.  If (A) the Parent shall declare a dividend (or any other distribution) on its Common Stock; (B) the Parent shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (C) the approval of any stockholders of the Parent shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Parent is a party, any sale or transfer of all or substantially all of the assets of the Parent, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or the Parent shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Parent; then, in each case, the Parent shall cause to be mailed to the Holder at the last address as it shall appear upon the books and records of the Parent, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to convert this Notes during the 10-day period commencing the date of such notice to the effective date of the event triggering such notice.

iii.           Fundamental Transaction.  If, at any time while this Note is outstanding, (A) the Parent effects any merger or consolidation of the Parent with or into another Person, (B) the Parent effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Parent or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Parent effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Parent shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration, If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Parent or surviving entity in such Fundamental Transaction shall issue to the Holder a new note consistent with the foregoing provisions and evidencing the Holder’s right to convert such note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (b) and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

Section 5.                      Default.

UPON THE OCCURRENCE OF AN EVENT OF DEFAULT THEN, AND IN ANY SUCH EVENT, THE HOLDER, BY WRITTEN NOTICE TO THE BORROWER, MAY DECLARE THE ENTIRE BALANCE OF THE UNPAID PRINCIPAL AND ANY ACCRUED INTEREST ON THIS NOTE TO BE DUE, WHEREUPON THE SAME AND ANY OTHER AMOUNTS DUE HEREUNDER SHALL IMMEDIATELY BECOME DUE AND PAYABLE WITHOUT PRESENTATION, DEMAND, PROTEST OR OTHER NOTICE OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED BY THE BORROWER.

An “Event of Default” shall have occurred if:

 

(a) The Borrower fails to make any payment of principal or interest hereunder when due under this Note or any other Series B Note, which failure has not been cured within 60 days following such failure.

 

(b) The Borrower files a petition to take advantage of any insolvency act; makes an assignment for the benefit of its creditors; commences a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself of a whole or any substantial part of its property; files a petition or answer seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state.

 

(c) A court of competent jurisdiction enters an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of the Borrower or the Parent or of the whole or any substantial part of its properties, or approves a petition filed against the Borrower or the Parent seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state; or if, under the provisions of any other law for the relief or aid of the Borrower or the Parent, a court of competent jurisdiction assumes custody or control of the Borrower or the Parent or of the whole or any substantial part of its properties; or there is commenced against the Borrower or the Parent any proceeding for any of the foregoing relief and such proceeding or petition remains undismissed for a period of 30 days; or if the Borrower or the Parent by any act indicates its consent to or approval of any such proceeding or petition.

 

Section 6.                      Miscellaneous.

(a)           Waiver.

(i)           Holder shall not be deemed, by any act or omission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Holder and then only to the extent specifically set forth in such writing. A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event. No delay or omission of Holder to exercise any right, whether before or after a default hereunder, shall impair any such right or shall be construed to be a waiver of any right or default, and the acceptance at any time by Holder of any past-due amount shall not be deemed to be a waiver of the right to require prompt payment when due of any other amounts then or thereafter due and payable.

(ii)           Notwithstanding the foregoing, any provision of this Note may be waived or amended upon the written consent of the Borrower and the written consent of the Holders of Series B Notes representing at least 662/3% of the then outstanding aggregate principal amount of the Series B Notes; provided however, that any waiver of an Event of Default occurring on account of the Borrower’s failure to make any payment of principal or interest shall not be effective against any Holder who has not agreed to such waiver in writing.

(b)           Attorney’s Fees.                                It is expressly agreed that if this Note is referred to an attorney or if suit is brought to collect or interpret this Note or any part hereof or to enforce or protect any rights conferred upon Holder by this Note or any other document evidencing or securing this Note, then the Borrower promises and agrees to pay all costs, including reasonable attorneys’ fees, incurred by Holder.

(c)           Governing Law.                                This Note shall be governed by and enforced pursuant to the laws of the State of Colorado.  The parties to this Note hereby irrevocably submit to the exclusive jurisdiction of any federal or state court located within the State of Colorado, County of Denver, over any dispute relating to the terms of this Note and each party hereby irrevocably agrees that all claims in respect of such dispute or any suit, action or proceeding related thereto may be heard and determined in such courts.  The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection that they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute.  Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

TWO RIVERS FARMS F-2, LLC

By:           ____________________________

	
Two Rivers Water Company hereby agrees to be bound by the provisions of Sections 3 and 4 of the Note.

 

By:________________________________turv_s1exh44.htm

 

EXHIBIT  4.4

Series B Common Stock Purchase Warrant issued by Two Rivers Water Company

 

WARRANT

 

THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  EXCEPT AS OTHERWISE SET FORTH HEREIN NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

 

TWO RIVERS WATER COMPANY

 

COMMONSTOCK PURCHASE WARRANT

 

Certificate No.:  B-XXX                                                                                                           ________ Warrants

 

[DATE]

 

This Common Stock Purchase Warrant (this “Warrant”) certifies that, for value received,  ______________________________________ (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 PM Mountain Standard Time on December 31, 2012 (the “Expiration Date”) but not thereafter, to subscribe for and purchase from Two Rivers Water Company(the "Company"), a Colorado corporation, having its principal executive offices at 2000 Colorado Boulevard, Annex Suite 420, Denver, Colorado 80222, up to 400,000 shares (the “Shares”)of the Company's common stock, par value $.001 per share(the "Common Stock") at a price of $2.50 per Share, as adjusted in accordance with Section 2 below (the "Purchase Price").

Section 1.                      Definitions.

(a) Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated as of July 20, 2011, among the Company and the purchasers signatory thereto.

(b) “National Exchange” shall mean NASDAQ Global Market, NASDAQ Capital Market, American Stock Exchange or the New York Stock Exchange.

Section 2.                      Exercise.

(a)           Time and Manner of Exercise. This Warrant may be exercised, in whole or in part (but  not as to fractional shares), at any time or times on or after the Initial Exercise Date and on or before the Expiration Date by delivery to the Company at its principal executive offices as set forth above of a duly executed original, electronic of facsimile of the Notice of Exercise, a form of which is annexed hereto, together with aggregate Purchase Price for the Shares specified in the Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank.  Notwithstanding anything contained herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Shares and the Warrant has been exercised in full, in which case the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company.  Partial exercises of this Warrant resulting in purchases of a portion of the total number of Shares available hereunder shall have the effect of lowering the outstanding number of Shares purchasable hereunder in an amount equal to the applicable number of Shares purchased.  The Holder and the Company shall maintain records showing the number of Shares purchased and the date of such purchases.  The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such Notice.  The Holder, and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Shares hereunder, the number of Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

(b)           Mechanics of Exercise.

(i) Delivery of Certificates Upon Exercise.  Certificates for Shares purchased hereunder shall be transmitted by the transfer agent for the Common Stock (the “Transfer Agent”) to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and there is an effective registration statement permitting the issuance of the Shares to or resale of the Shares by the Holder, and otherwise by physical delivery of a certificate to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) surrender of this Warrant (if required) and (C) payment of the aggregate Purchase Price as set forth above (such date, the “Warrant Share Delivery Date”).  The Shares shall be deemed to have been issued, and the Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such Shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Purchase Price and all taxes required to be paid by the Holder, if any, pursuant to Section 1(b)(v) below, prior to the issuance of such Shares, having been paid.

(ii) Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the request of the Holder and upon surrender of this Warrant, at the time of delivery of the certificate or certificates representing Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

(iii) No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Purchase Price or round up to the next whole share.

(iv) Legends.  Until the earlier of (i) the date on which a registration statement filed by the Company under the Securities Act of 1933, as amended (the “Securities Act”) covering the issuance and sale or the resale of the Shares is declared effective by the U.S. Securities and Exchange Commission (the “SEC”) and (ii) subject to the requirements of Rule 144 promulgated under the Securities Act, the date that is one year after the date the Shares were issued, any certificates evidencing the Shares shall bear a legend substantially in the following form:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (“THE ACT”) AND ARE “RESTRICTED SECURITIES” AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.

(v) Charges, Taxes and Expenses.  Issuance of certificates for Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

Section 3.                      Certain Adjustments.

(a)           Stock Dividends and Stock Splits.  If the Company, at any time after the date hereof: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock in shares of Common Stock, (B) subdivide outstanding shares of Common Stock into a larger number of shares, or (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, then the Purchase Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock  outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification, and the number of shares issuable upon exercise of this Warrant, shall be proportionately adjusted such that the aggregate Purchase Price of this Warrant shall remain unchanged.

(b)          Notice to Holder.

i.           Adjustment to Purchase Price.  Whenever the Purchase Price is adjusted pursuant to any of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.           Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution) on its Common Stock; (B) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (C) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at the last address as it shall appear upon the books and records of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to convert this Warrant during the 10-day period commencing the date of such notice to the effective date of the event triggering such notice.

iii.           Fundamental Transaction.  If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each share of Common Stock that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Purchase Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Purchase Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration, If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant for the Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (b) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

Section 4.                      Call Provision.

The Company may, in its sole discretion, redeem any or all of the outstanding and unexercised Warrants upon giving twenty (20) days prior written notice to the Holder (the “Redemption Notice”) for $0.001 per Warrant; provided, however, no Redemption Notice may be delivered by the Company unless all of the following conditions have been satisfied:

(i) The Common Stock shall be traded on a National Exchange; and

(ii) the closing or last sale price of a share of Common Stock on the principal market or exchange on which the Common Stock is then traded is equal to or above $4.00 for 20 consecutive trading days and during such period the average daily trading volume of the Common Stock on the National Exchange on which the Common Stock is then traded exceeds 100,000 shares; and

(iii) the Company has filed a registration statement under the Securities Act, covering the issuance and sale or the resale of the Shares and such registration statement has been declared effective by the SEC.

The Holder may exercise all or a portion of this Warrant prior to the date set forth in the Redemption Notice as the redemption date.

Section 5.                     Transfer of Warrant.

(a) Transferability.  This Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Shares issuable pursuant thereto.

(c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

Section 6.                     Miscellaneous.

(a) No Rights as Stockholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof.

(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

(c) Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

(d) Authorized Shares.  The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.  The Company covenants that all Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

(e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

(f) Restrictions.  The Holder acknowledges that the Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

(g) Nonwaiver.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies.

(h) Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

(i) Limitation of Liability.  No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

(j) Remedies.  The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

(k) Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Shares.

(l) Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

(m) Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

(n) Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer and this Warrant to be dated as of the date first above written.

TWO RIVERS WATER COMPANY

By: ____________________________________

Wayne Harding, CFO

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