CONVERSION AGREEMENT
Two Rivers Water & Farming Company
December 31, 2012 - 10K Filing and Annual Report
Exhibit 4.7
This Conversion Agreement (the βAgreementβ) is made effective as of December 31, 2012, by and among Two Rivers Farms F-2, LLC, a Colorado limited liability company (the βCompanyβ), Two Rivers Water & Farming Company, a Colorado corporation (βTwo Riversβ or βParentβ) and [______________] (βInvestorβ and/or βShareholderβ), who resides at ______________________________.
Whereas, Investor entered into that Series B Secured Convertible Participating Promissory Note for _____________, (the βNoteβ), which as of December 31, 2012 has accrued ____________ in interest, bringing the total debt obligation to _____________ (βDebtβ); and
Whereas, the Investor indicated its interest in converting the Debt in a letter sent on December 26, 2012 (βConversion Letterβ); and
Whereas, among other things, Investor has agreed to convert the Note into ___________ shares of Series F-2-B Convertible Preferred Stock, it is hereby agreed as follows:
SECTION 1
1.1 Conversion of Debt and Issuance of Preferred Shares. Subject to the terms and conditions of this Agreement, the Investor agrees to convert the Debt for ____________ Series F-2-B Convertible Preferred Shares (the βPreferred Sharesβ), which shall be issued by the Company. In addition, the Two Rivers Water & Farming Company (the βParentβ) will issue to Investor __________ warrants to purchase the common stock of the Parent (the βCommon Stockβ) at $3.00.
1.5 Entity Conversion. After the 30 day period of rescission has expired, the Two Rivers Farms F-2, LLC will: (1) convert the entity from a Colorado limited liability company to a Colorado corporation; (2) create and authorize the Preferred Shares as described in this Agreement and in the Certificate of Designation; and (3) issue and deliver the Preferred Shares and Warrants to the Investor.
SECTION 2
SECTION 3
The Preferred Shares have the following rights, privileges, and obligations in addition to rights, privileges, and obligations of the Preferred Shares contained in the Certificate of Designation:
3.1 Cumulative 8% Preferred Dividend. Holders of the Preferred Shares ("Shareholders") will be entitled to receive an annual dividend, when and if declared by the Companyβs Board of Directors, at the rate of 8% per annum. The 8% dividend will be declared, if any, on March 31, and paid annually on May 15. The initial 8% dividend payment, when and if declared, will accrue from December 31, 2012 through December 31, 2013, be declared on March 31, 2014 and first payable on May 15, 2014. Thereafter, the annual 8% dividend will accrue from January 1 to December 31. In the event that a 8% dividend is not paid when due, the amount of such unpaid 8% dividend will accumulate and compound at 8% per annum until paid.
3.2. 25% Net Profit Participation Dividend. Shareholders will be entitled to receive an annual cumulative dividend, when and if declared, on a pro rata basis, equal to 25%, on a fully converted basis, of the Annual Net Profit (the βProfit Participationβ). Annual Net Profit is defined as the Companyβs earnings (as defined by U.S. GAAP) less interest payments and the 8% dividend set forth above and estimated income taxes owed. The Profit Participation will be determined annually after the Companyβs financial results are audited and, when and if declared, will be announced on March 31 and paid on May 15. The Profit Participation will first be determined and paid for the 2013 fiscal year, and, therefore, will first be payable on May 15, 2014. The Profit Participation payable to the holder of each Preferred Share outstanding on the respective payment date is determined by multiplying the Annual Net Profit by .25 and dividing that product by 5,467,420.
SECTION 4
(i) Two Rivers shall, no later than the close of business on the fifteenth (15th) Business Day following the later of the date on which the Parent receives a Conversion Notice from a Shareholder by facsimile or electronic transmission, and the date on which the Parent receives the related Preferred Shares certificate (such fifteenth Business Day, the βDelivery Dateβ), issue and deliver or cause to be delivered to such Shareholder the proper number of Conversion Shares determined pursuant to paragraph 4.6(c) above. The Parent shall deliver, or cause to be delivered, to the converting Shareholder a certificate or certificates representing the Conversion Shares which, on or after the date the registration statement (described in Section 4.7 below) becomes effective, will be without restrictive legend and will represent the number of Conversion Shares being acquired upon the conversion of the Preferred Shares; and the Company shall deliver a bank check in the amount of accrued and unpaid dividends through the date of conversion.
(ii) The Parentβs obligation to issue and deliver the Conversion Shares upon conversion of Preferred Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Shareholder, or any breach or alleged breach by Shareholder of any obligation to the Company or Parent or any violation or alleged violation of law by Shareholder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Parent to such Shareholder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Parent or Company of any such action that they may have against such Shareholder. If the Parent fails to deliver to a Shareholder such certificate or certificates pursuant to Section 4.6(d)(i) on the Delivery Date applicable to such conversion, the Parent shall pay to such Shareholder, in cash, as liquidated damages and not as a penalty, for each $10,000 of Preferred Shares being converted, $100 per trading day (increasing to $200 per trading day on the second (2nd) trading day after such damages begin to accrue) for each trading day after the Delivery Date until such certificates (which must be without restrictive legend if the Conversion Shares are registered for resale pursuant to an effective registration statement or pursuant to Rule 144 and be delivered without legend), are delivered. Nothing herein shall limit a Shareholderβs right to pursue actual damages for the Parentβs failure to deliver Conversion Shares within the period specified herein and such Shareholder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Shareholder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
(f) The Parent shall at all times reserve and keep available for issuance upon the conversion of the Preferred Shares the maximum number of each of its authorized but unissued shares of Common Stock of the Parent as is reasonably anticipated to be sufficient to permit the conversion of all outstanding Preferred Shares, and shall take all action required to increase the authorized number of shares of Common Stock of Parent, or any other actions necessary or desirable, if at any time there shall be insufficient authorized but unissued shares of Common Stock of Parent to permit such reservation or to permit the conversion of all outstanding Preferred Shares.
SECTION 5
The Company represents and warrants to the Buyer that as of the execution of this Agreement:
5.1 Organization and Qualification. The Company and the Parent are entities duly organized and validly existing in good standing under the laws of the jurisdiction in Colorado, and have the requisite corporate power and authority to own their properties and to carry on their business as now being conducted. The Company has no subsidiaries. Each of the Parent and Company is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Material Adverse Effect. As used in this Agreement, βMaterial Adverse Effectβ means any material adverse effect on the business, properties, assets, operations, results of operations, condition (financial or otherwise) or prospects of the Company or Parent or on the transactions contemplated hereby or on the other Transaction Documents or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company or Parent to perform their obligations hereunder. βTransaction Documentsβ means this Agreement (including the exhibits).
The Company commits to deliver to the Investor a true and correct copy of a unanimous written consent creating and authorizing the issuance of the Preferred Stock pursuant to this Agreement. No other approvals or consents of the Companyβs or Parentβs Boards of Directors and/or Shareholders is necessary under applicable laws and the Companyβs or Parentβs Articles of Incorporation and/or Bylaws to authorize the execution and delivery of this Agreement or any of the transactions contemplated hereby, including, but not limited to, the issuance of the Preferred Shares, Warrants, Warrant Shares and the Conversion Shares.
5.7 Absence of Certain Changes. Since September 30, 2012, there has been no material adverse change in the business, properties, operations, financial condition or results of operations of the Company or the Parent.
5.8 Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or the Parent, threatened against or affecting the Company or Parent, which could reasonably be expected to have a Material Adverse Effect.
5.11 Neither the Company nor Parent is in violation of any term of or in default under any of their respective Articles of Incorporation or Association, Bylaws, or Operating Agreement. Neither the Company nor Parent is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or Parent, and neither the Company nor Parent will conduct its business in violation of any of the foregoing, except for possible violations which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.12 The Parent is in compliance with any and all applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof.
5.13 Except as disclosed in the SEC Filings, neither the Company nor Parent (i) has any outstanding indebtedness, (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument would reasonably be expected to result in a Material Adverse Effect, (iii) is in violation of any material term of or in default under any contract, agreement or instrument relating to any indebtedness or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Parentβs officers, has or is expected to have a Material Adverse Effect.
5.14 The Company and Parent each believe that their relations with their employees are good. No executive officer of the Company or Parent, to the knowledge of the Company or Parent, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or Parent to any liability with respect to any of the foregoing matters. The Company and Parent are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
5.15 Each of the Company and Parent (i) has made or filed all foreign, U.S. federal, state and local income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, whether or not shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no material liens with respect to taxes upon the assets or properties of either the Company or Parent, other than with respect to taxes not yet due and payable. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
5.16 The Company and Parent maintain a system of internal accounting controls and procedures sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. The Parent maintains disclosure controls and procedures (as such term is defined in Rule 13a-15 under the 0000 Xxx) that are effective in ensuring that information required to be disclosed by the Parent in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Parent in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Parent's management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure.
SECTION 6
Investor hereby, severally and not jointly, represents and warrants to the Company as follows:
6.5 Access to Data. Investor has had an opportunity to ask questions of, and receive answers from, the officers of the Company and Parent concerning the Agreement, the exhibits and schedules attached hereto and thereto and the transactions contemplated by the Agreements, as well as the Companyβs and Parentβs business, management and financial affairs, which questions were answered to its satisfaction. Investor believes that it has received all the information such Investor considers necessary or appropriate for deciding whether to converts their Note to Preferred Shares. Investor understands that such discussions, as well as any information issued by the Company or Parent, were intended to describe certain aspects of the Companyβs and Parentβs business and prospects, but were not necessarily a thorough or exhaustive description. Investor acknowledges that any business plans prepared by the Company or Parent have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. Investor also acknowledges that it is not relying on any statements or representations of the Company or Parent or its agents for legal advice with respect to this investment or the transactions contemplated by the Agreements.
6.6 Accredited Investor. The Investor is an βaccredited investorβ within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act and shall submit to the Company such further assurances of such status as may be reasonably requested by the Company.
(a) Investor has all requisite power and authority to execute and deliver this Agreement, to exchange the Note for the Preferred Shares and Warrants hereunder and to carry out and perform its obligations under the terms of the Agreement. All action on the part of the Investor necessary for the authorization, execution, delivery and performance of the Agreement, and the performance of all of the Investorβs obligations under the Agreement, has been taken or will be taken prior to execution of this Agreement.
(b) The Agreement, when executed and delivered by the Investor, will constitute valid and legally binding obligations of the Investor, enforceable in accordance with their terms except: (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditorsβ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies or by general principles of equity.
(c) No consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to be obtained by the Investor in connection with the execution and delivery of the Purchase Agreement by the Investor or the performance of the Investorβs obligations hereunder or thereunder.
βTHE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND/OR APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.β
6.14 Debt to Equity. Investor represents that Investor understands that Investor is converting debt of the Company to equity in the Company. In the event of a liquidation, debt-holders would have a liquidation preference ahead of equity-holders.
SECTION 7
(a) if to Investor, at the Investorβs address, facsimile number or electronic mail address as shown in the Companyβs records, as may be updated in accordance with the provisions hereof;
(b) if to any other Shareholder of any Preferred Shares or Conversion Shares, at such address, facsimile number or electronic mail address as shown in the Companyβs records, or, until any such Shareholder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address of the last Shareholder of such Shares or Conversion Shares for which the Company has contact information in its records; or
(c) if to the Company, one copy should be sent to
Two Rivers Farms F-2, Inc.
Attn: Chief Financial Officer
0000 X. Xxxxxxxx Xxxx.
Xxxxx Xxx, Xxxxx 0000
Xxxxxx XX 00000
Fax: (000) 000-0000
Email: XXxxxxxx@0XxxxxxXxxxx.xxx
If to Two Rivers, one copy should be sent to
Two Rivers Water and Farming Company
Attn: Chief Financial Officer
0000 X. Xxxxxxxx Xxxx.
Xxxxx Xxx, Xxxxx 0000
Xxxxxx XX 00000
Fax: (000) 000-0000
Email: XXxxxxxx@0XxxxxxXxxxx.xxx
or to such other address as these companies may have furnished to the Investor.
With respect to any notice given by the Company under any provision of the Colorado Business Corporation Act or the Companyβs charter or bylaws, Investor agrees that such notice may be given by overnight mail, facsimile or by electronic mail.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the electronic mail address set forth above.
7.3 Governing Law; Jurisdiction. This Agreement shall be governed in all respects by the internal laws of the State of Colorado. Each Party agrees to submit to the personal jurisdiction of the State of Colorado.
TWO RIVERS FARMS F-2, LLC
By: _____________________________
Name: ___________________________
Title: ____________________________
|
(INVESTOR)
(Name of Investor)
(Signature)
(Title of signatory, if applicable)
|
TWO RIVERS WATER & FARMING COMPANY, a Colorado Corporation
By: ______________________________
Name: ____________________________
Title: _____________________________
|
ANNEX I
CONVERSION NOTICE
The undersigned hereby elects to convert shares of Series F-2-B Convertible Preferred Stock (the βPreferred Sharesβ) of Two Rivers Farms F-2, Inc., represented by stock certificate No(s). ________ , into shares of common stock (βCommon Stockβ) of Two Rivers Water Company (the βParentβ) according to the terms and conditions of the Certificate of Designation relating to the Preferred Stock (the βCertificate of Designationβ), as of the date written below. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Certificate of Designation.
Conversion Date: ____________________
Number of Shares of Preferred Stock to be Converted: ____________________
Applicable Conversion Price: ____________________
Number of Shares of Common Stock to be Issued: ____________________
Name of Shareholder: __________________________
Address: ____________________________________________________________________
Signature:______________________
Name: ____________________________
Title (if applicable): ___________________________
Shareholder Requests Delivery to be made: (check one)
By Delivery of Physical Certificates to the Above Address: __
Through Depository Trust Corporation: __ (Account No: ________________)
Other:
CERTIFICATE OF DESIGNATION
OF
PREFERRED STOCK
OF
TWO RIVERS FARMS F-2, INC.
To Be Designated
Series F-2-B Convertible Preferred Stock
The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the βBoard of Directorsβ) of Two Rivers Farms F-2, Inc., a Colorado corporation (the βCompanyβ), at a meeting duly convened and held, at which a quorum was present and acting throughout:
RESOLVED, that pursuant to the authority conferred on the Board of Directors by the Companyβs Article of Incorporation, the issuance of a series of preferred stock, par value $0.001 per share, of the Company which shall consist of 6,000,000 shares of convertible preferred stock be, and the same hereby is, authorized; and the Chief Executive Officer of the Company be, and he hereby is, authorized and directed to execute and file with the Secretary of State of the State of Colorado a Certificate of Designation of Preferred Stock of the Company fixing the designations, powers, preferences and rights of the shares of such series, and the qualifications, limitations or restrictions thereof (in addition to the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, set forth in the Certificate of Incorporation which may be applicable to the Companyβs preferred stock), as follows:
1. Number of Shares; Designation. A total of 6,000,000 shares of preferred stock of the Company are hereby designated as Series F-2-B Convertible Preferred Stock (the βSeriesβ). Shares of the Series (βPreferred Sharesβ) will be authorized pursuant to a Conversion Agreement (the βConversion Agreementβ) by and among the Company and the holders of the Companyβs Series B Secured Convertible Participating Promissory Note debt (the βHolderβ), a copy of which will be provided to any shareholder of the Company upon request therefor. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Conversion Agreement.
2. Rank. The Series shall, with respect to rights (including to redemption payments) upon liquidation, dissolution or winding-up of the affairs of the Company, rank senior and prior to the common stock, par value $0.001 per share, of the Company (the βCompany Common Stockβ), and any additional series of preferred stock which may in the future be issued by the Company and are designated in the amendment to the Articles of Incorporation or the certificate of designation establishing such additional preferred stock as ranking junior to the Preferred Shares. Any shares of the Companyβs stock which are junior to the Preferred Shares with respect to rights (including to redemption payments) upon liquidation, dissolution or winding-up of the affairs of the Company are hereinafter referred to as βJunior Liquidation Shares.β
3. Dividends.
(a) Cumulative 8% Preferred Dividend. Holders of the Preferred Shares ("Shareholders") will be entitled to receive an annual dividend when and if declared by the Companyβs Board of Directors, at the rate of 8% per annum. The 8% dividend will be declared, if any, on March 31, and paid annually on May 15. The initial 8% dividend payment, if declared, will accrue from December 31, 2012 through December 31, 2013, be declared on March 31, 2014 and first payable on May 15, 2014. Thereafter, the annual 8% dividend will accrue from January 1 to December 31. In the event that an 8% dividend is not paid when due, the amount of such unpaid 8% dividend will accumulate and compound at 8% per annum until paid.
(b) Cumulative 25% Net Profits Participation Dividend Shareholders will be entitled to receive an annual cumulative dividend, when and if declared, on a pro rata basis, equal to 25%, on a fully subscribed basis, of the Annual Net Profit (βProfit Participationβ). Annual Net Profit is defined as the Companyβs earnings (as defined by U.S. GAAP) less interest payments and dividend payments and estimated income taxes owed. The Profit Participation will be determined annually after the Companyβs financial results are audited and, when and if declared, will be announced on March 31 and paid on May 15. The Profit Participation will first be determined and paid for the 2013 fiscal year, and, therefore, will first be payable on May 15, 2014. The Profit Participation payable to the holder of each Preferred Share outstanding on the respective payment date is determined by multiplying the Annual Net Profit by .25 and dividing that product by 5,467,420.
4. Liquidation. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Preferred Shares shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the Company Common Stock or any Junior Liquidation Shares by reason of their ownership of such stock, an amount per share for each Preferred Shares held by them equal to $1.00 (subject to adjustments) plus any accrued and unpaid dividends through the date of the liquidation, dissolution or winding up (the βLiquidation Preferenceβ). If upon the liquidation, dissolution or winding up of the Company, the assets of the Company legally available for distribution to the holders of the Preferred Shares are insufficient to permit the payment to such holders of the entire Liquidation Preference then the entire assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Preferred Shares in proportion to the full amounts they would otherwise be entitled to receive.
5. Conversion.
(a) Right to Convert. Each Shareholder shall have the right to convert, at any time and from time to time, all or any part of, one Preferred Share held by such Shareholder, in multiples of at least ten thousand shares, for one (1) share of Common Stock of the Two Rivers Water & Farming Company, a Colorado corporation (the βParentβ) as is determined in accordance with the terms of the Preferred Shares (a βConversionβ). A Conversion shall be subject to customary anti-dilution adjustments as defined herein. Any Common Stock of the Parent received under a conversion of the Preferred Shares are βConversion Shares.β
(b) Conversion Notice. In order to convert Preferred Shares, a Shareholder shall send to the Parent by electronic or facsimile transmission, at any time prior to 3:00 p.m., Mountain Time, on the Business Day (as used herein, the term βBusiness Dayβ shall mean any day except a Saturday, Sunday or federal bank holiday) on which such Shareholder wishes to effect such Conversion (the βConversion Dateβ), a notice of conversion in substantially the form attached as Annex I to the Memorandum (a βConversion Noticeβ), and stating the number of Preferred Shares to be converted., The Shareholder shall promptly thereafter send the Conversion Notice and the certificate or certificates being converted to the Parent. The Company shall provide a calculation of the number of shares of Common Stock issuable upon such Conversion in accordance with the formula set forth in βAdjustmentsβ below setting forth the basis for each component thereof, including the details relating to any adjustments. The Company shall issue a new certificate for Preferred Shares to the Shareholder in the event that less than all of the Preferred Shares represented by a certificate are converted; provided, however, that the failure of the Company to deliver such new certificate shall not affect the right of the Shareholder to submit a further Conversion Notice with respect to such Preferred Shares and, in any such case, the Shareholder shall be deemed to have submitted the original of such new certificate at the time that it submits such further Conversion Notice. Except as otherwise provided herein, upon delivery of a Conversion Notice by a Shareholder in accordance with the terms hereof, such Shareholder shall, as of the applicable Conversion Date, be deemed for all purposes to be the record owner of the Common Stock to which such Conversion Notice relates.
(c) Number of Conversion Shares. The number of Conversion Shares to be delivered by the Parent to a Shareholder for each Preferred Share pursuant to a Conversion shall be determined by multiplying the number of Preferred Shares offered for Conversion by one; provided, however, that the number of Conversion Shares issued shall never, when combined with all other then outstanding shares of common stock of the Parent (the βParent Common Stockβ) and shares of the Parent Common Stock which have been subscribed for or otherwise committed to be issued, exceed the number of shares of the Parent Common Stock then authorized to be delivered by the Parent, and in the event that there are insufficient shares of the Parent Common Stock authorized to permit the full Conversion contemplated by any Conversion Notice, the Parent will promptly take all such actions necessary so as to permit the full Conversion contemplated by such Conversion Notice as soon as practicable after receipt by the Company of such Conversion Notice.
(d) Delivery of Conversion Shares. The Parent shall, no later than the close of business on the third (3rd) Business Day following the later of the date on which the Parent receives a Conversion Notice from a Shareholder by facsimile or electronic transmission, and the date on which the Parent receives the related Preferred Shares certificate (such third Business Day, the βDelivery Dateβ), issue and deliver or cause to be delivered to such Shareholder the proper number of Conversion Shares determined pursuant to paragraph 5(c) above.
(e) Adjustments. The Conversion Rate shall be subject to adjustment from time to time as follows:
(f) The Parent shall at all times reserve and keep available for issuance upon the conversion of the Preferred Shares the maximum number of each of its authorized but unissued shares of the Parent Common Stock as is reasonably anticipated to be sufficient to permit the conversion of all outstanding Preferred Shares, and shall take all action required to increase the authorized number of shares of the Parent Common Stock, or any other actions necessary or desirable, if at any time there shall be insufficient authorized but unissued shares of the Parent Common Stock to permit such reservation or to permit the conversion of all outstanding Preferred Shares.
6. Preferred Shareholder Supplemental Rights Upon an Event Of Default. Upon the occurrence of an Event of Default, as defined below, the Shareholders may call a special meeting at which Shareholders representing a majority of the outstanding Preferred Shares may cause a replacement of a Parent-designated director of the Company with a Preferred Shareholder-designated director (giving the Preferred Shareholders the right to fill two of the Companyβs three Board seats). Any holder of Preferred Shares will have the right to nominate a candidate for the position of Replacement Director (each of them a βNomineeβ). Only Nominees who express a willingness to serve as Replacement Director will be eligible for election (the βReplacement Candidateβ). The Replacement Candidate receiving the votes representing a plurality of the outstanding Preferred Shares will become the Replacement Director upon election. The Replacement Director will serve until replaced by a plurality vote of the outstanding Preferred Shares at a meeting where a quorum (a majority of Preferred Shares) is present. Any future dispositive action of this newly-constituted Board of Directors (including liquidation, sale, or merger of the Company and the sale or transfer of substantial assets of the Company) will become effective only upon the affirmative vote of a majority in interest of the outstanding Preferred Shares.
(b) Major Covenants. While any Preferred Shares are outstanding, the Company covenants, that unless it has the affirmative vote of Shareholders owning, in aggregate, not less than two-thirds (2/3) of the outstanding Preferred Shares:: (1) not to incur any debt except for regular trade payables arising in day-to-day operations of the Company, unless the incurrence of additional debt is agreed upon by an affirmative vote of Shareholders owning; and (2) not to transfer or sell assets (including to an affiliate or related person or entity); Each of these covenants is referred to as a βMajor Covenant.β
7. Status of Shares. All Preferred Shares that are at any time converted pursuant to paragraph 5 above, and all Preferred Shares that are otherwise reacquired by the Company and subsequently canceled by the Board of Directors, shall be retired and shall not be subject to reissuance.
8. Voting Rights. The Series F-2-B Convertible Preferred Stock does not carry any voting rights except as provided herein as a remedy under Preferred Shareholder Supplemental Rights Upon an Event of Default in the Purchase Agreement. However, as long as any Preferred Shares are outstanding, the Company shall not, without the affirmative vote of two-thirds of the Shareholders holding Preferred Shares, (a) alter or change adversely the powers, preferences or rights given to the Preferred Shares or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the Preferred Shares, (c) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Shareholders, (d) increase the number of authorized Preferred Shares, or (e) enter into any agreement with respect to any of the foregoing.
9. Redemption. The Preferred Shares may be redeemed at any time by the Company provided the Company gives notice of redemption of all but not less than all of the outstanding Preferred Shares and the Company has on hand funds sufficient to redeem the Preferred Shares. The redemption price will be $1.00 per share plus accrued dividends, if any. Subject to the Shareholdersβ prior conversion of Preferred Shares, the Company will redeem all Preferred Shares which remain outstanding, for cash, on a specified business day which is at least thirty (30) days following the date of the notice of redemption. The Company has no obligation to redeem the Preferred Shares. The Company agrees that it will not redeem any Preferred Shares that would result in any Shareholder having a beneficial common share ownership of the Company in excess of 9.9% (nine point nine percent).
11. Registrar. The Parent will act as the Registrar for the Preferred Shares which will be transferable (i) only to other qualified investors, (ii) subject to any restrictions imposed by state and federal securities regulations, and (iii) solely through entry by the Parent in a registration book maintained for that purpose.
TWO RIVERS FARMS F-2, LLC
By:
Name: Xxxxx Xxxxxxx
Title: Chief Financial Officer
As to provisions concerning Parent:
TWO RIVERS WATER & FARMING COMPANY
By:
Name: Xxxx XxXxxxx
Title: Chairman, Chief Executive Officer
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 & FARMING COMPANY
COMMON STOCK PURCHASE WARRANT
Certificate No.: F-2-______ ________ Warrants
[______(date)]
This Common Stock Purchase Warrant (this βWarrantβ) certifies that, for value received, ______________________________________ (the βHolderβ) 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 βInitial Exercise Dateβ) and on or prior to 5:00 PM Mountain Standard Time on December 31, 2017 (the βExpiration Dateβ) but not thereafter, to subscribe for and purchase from Two Rivers Water & Farming Company (the "Company"), a Colorado corporation, having its principal executive offices at 0000 Xxxxxxxx Xxxxxxxxx, Tower One Suite 3100, Xxxxxx, Xxxxxxxx 00000, up to __________ shares (the βSharesβ)of the Company's common stock, par value $.001 per share(the "Common Stock") at a price of $3.00 per Share, as adjusted in accordance with Section 2 below (the "Purchase Price").
(a) βNational Exchangeβ shall mean NASDAQ Global Market, NASDAQ Capital Market, NYSE MKT or the New York Stock Exchange, or equivalent.
(i) Delivery of Certificates Upon Exercise. Certificates for Shares purchased hereunder shall be transmitted by the transfer agent for the Common Stock (the βTransfer Agentβ) to the Holder by crediting the account of the Holderβs prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (βDWACβ) 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 or if the Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 of the Securities Act, 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 fifteen (15) 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 βWarrant Share Delivery Dateβ). 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 βSecurities Actβ) covering the issuance and sale or the resale of the Shares is declared effective by the U.S. Securities and Exchange Commission (the βSECβ) 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 (βTHE ACTβ) AND ARE βRESTRICTED SECURITIESβ 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.
(vi) Registration Rights. On or before July 1, 2013, the Company shall file a registration statement with the SEC for the purpose of registering for resale the common stock underlying the Warrants.
(vii) Failure to Deliver Certificates. If, in the case of any Notice of Exercise, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Warrant Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Notice of Exercise, in which event the Company shall promptly return to the Holder any Warrant certificate delivered to the Corporation and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Notice of Exercise.
(viii) Obligation Absolute; Partial Liquidated Damages. The Companyβs obligation to issue and deliver the Shares upon conversion of this Warrant in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder, or any breach or alleged breach by Holder or any other person of any obligation to the Company or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to such Holder in connection with the issuance of such Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action that the Company may have against such Holder. In the event a Holder shall elect to convert this Warrant into all or any portion of the Shares, the Company may not refuse exercise based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining exercise of all or part of this Warrant of such Holder shall have been sought and obtained, and the Company posts a surety bond for the benefit of such Holder in the amount of 100% of the payment to be provided by the Holder to the Company pursuant to such Notice of Exercise or if Shares are issued by means of a cashless exercise, as if payment would have be made by the Holder, to purchase the Shares, which bond shall remain in effect until the completion of arbitration/litigation (including, but not limited to, through any and all appeals process), of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue the Shares and, if applicable, cash, upon a properly noticed exercise. If the Company fails to deliver to a Holder such certificate or certificates pursuant to this Section 2 on the Warrant Share Delivery Date applicable to such exercise, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $10,000 provided or to be provided by the Holder, or if Shares are issued by means of a cashless exercise, as if payment would have be made by the Holder to purchase Shares, $100 per trading day (increasing to $200 per trading day on the second (2nd) trading day after such damages begin to accrue) for each trading day after the Warrant Share Delivery Date until such certificates (which must be without restrictive legend if the Shares are registered for resale pursuant to an effective registration statement or pursuant to Rule 144), are delivered or Holder rescinds such exercise. Nothing herein shall limit a Holder's right to pursue actual damages hereof for the Companyβs failure to deliver Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other section hereof or under applicable law.
The Company may, in its sole discretion, redeem any or all of the outstanding and unexercised Warrants upon giving thirty (30) days prior written notice to the Holder (the βRedemption Noticeβ) 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 and remains effective during the 20 consecutive trading day period referenced in (ii) above and through the date of redemption.
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.
(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, or assigns, shall maintain the name of the record Holder hereof from time to time (the βWarrant Registerβ). 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.
(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 National Exchange 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 non-assessable 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) Non-waiver. 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 Holderβs rights, powers or remedies. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
(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.
TWO RIVERS WATER & FARMING COMPANY
By: ____________________________________
Xxxxx Xxxxxxx, CFO
EXHIBIT W-A
NOTICE OF WARRANT EXERCISE
TO: TWO RIVERS WATER & FARMING COMPANY
(1) The undersigned hereby elects to purchase ________ Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] wire transfer in lawful money of the United States; or
[ ] cashierβs check drawn on a U.S. bank; or
[ ] [if permitted] the cancellation of such number of Shares as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of Shares purchasable pursuant to the cashless exercise procedure set forth in the Warrant.
(3) Please issue a certificate or certificates representing said Shares in the name of the undersigned or in such other name as is specified below:
Accredited Investor. The undersigned is an βaccredited investorβ as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
[SIGNATURE OF HOLDER]
Name of Investing Entity: _______________________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________________________
Name of Authorized Signatory: ___________________________________________________________
Title of Authorized Signatory: ____________________________________________________________
Date: _______________________________________________________________________________