Exhibit 10.3

 

SECOND AMENDMENT TO
SENIOR FIRST PRIORITY SECURED PROMISSORY NOTE

 

This SECOND AMENDMENT TO SENIOR FIRST PRIORITY SECURED PROMISSORY NOTE (this
“Second Amendment”) is made as of June 26, 2013, by and between Prospect Global
Resources, Inc., a Delaware corporation (“Maker”), and The Karlsson Group, Inc.,
an Arizona corporation (“Holder”), with respect to the following facts.

 

RECITALS

 

WHEREAS, Maker issued to Holder that certain Senior First Priority Secured
Promissory Note dated August 1, 2012 (the “Original Note”), whereby the Maker
promised to pay to Holder the principal sum of One Hundred Twenty-Five Million
Dollars ($125,000,000);

 

WHEREAS, American West Potash, LLC, a Delaware limited liability company,
Prospect Global Resources, Inc., a Nevada corporation (“Prospect Nevada”),
Apache County Land & Ranch, LLC, a Nevada limited liability company (“Apache”),
Maker and Holder entered into that certain Extension Agreement (the “Extension
Agreement”) dated as of April 15, 2013;

 

WHEREAS, Maker and Holder entered into an Amendment to Senior First Priority
Secured Promissory Note dated April 15, 2013 (“First Amendment” and the Original
Note as amended thereby and as otherwise amended, restated or modified from time
to time, the “Note”);

 

WHEREAS, American West Potash, LLC, a Delaware limited liability company,
Prospect Nevada, Apache, Maker and Holder entered into that certain Second
Extension Agreement (the “Second Extension Agreement”) dated as of June 26,
2013; and

 

WHEREAS, it is a condition to the effectiveness of the Second Extension
Agreement that Maker and Holder modify the Note.

 

NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Maker and Holder hereby agree as follows:

 

AGREEMENT

 

1.                                      Defined Terms.  All capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to them
in the Note.

 

2.                                      Amendments.

 

(a)                                 Deleted Definitions:  The definitions of
“DFS Completion Date,” and “First Pre-Quantified Payment Date” are hereby
deleted.

 

(b)                                 Amended Definitions.

 

(i)                                     The definition of Permitted Prospect
Nevada Debt is amended to read in its entirety as follows:

 

--------------------------------------------------------------------------------

 

“Permitted Prospect Nevada Debt” means:  (i) any Approved Subordinated Debt
incurred by Prospect Nevada; and (ii) up to One Million Dollars ($1,000,000) in
additional aggregate Debt incurred by Prospect Nevada.

 

(ii)                                  The definition of Maturity Date is amended
to read in its entirety as follows:

 

“Maturity Date.  The entire outstanding principal amount of this Note, together
with any accrued but unpaid interest (the “Final Payment”), shall be due and
payable, subject to Section 3.2 and Section 3.3, on July 1, 2015 (the “Maturity
Date”).  In addition, Maker shall pay to Holder on such date the Principal
Payment Tax Gross-Up Amount due or amount due under Section 3.5 with respect to
the Final Payment and the Ordinary Income Gross-Up Amount.”

 

(c)                                  Amendments to Section 3.2. 
Section 3.2(b) is amended to read in its entirety as follows:  “[Intentionally
Deleted]”.  Section 3.2(c) is amended by deleting the final sentence thereof,
which begins with the words “Maker acknowledges….”

 

(d)                                 Amendment to Section 5.4:  Section 5.4 is
amended to read in its entirety as follows:

 

“Failure of Parent to Meet Performance Milestones.  Prospect Nevada shall have
failed, for any reason, to meet the following performance milestones by the
dates specified herein:

 

(i)                                     No later than November 1, 2013: complete
total depth on at least eight (8) wells which includes potash core recovery, if
any, for purposes of moving “inferred” resources to “indicated and measured”
resources;

 

(ii)                                  No later than February 1, 2014: deliver a
completed and updated 43-101 final resource report for purposes of the
Definitive Feasibility Study;

 

(iii)                               No later than June 1, 2014: deliver
completed metallurgical and rock mechanic test work results that will be used to
complete the mine and processing plant designs for the Definitive Feasibility
Study; and

 

(iv)                              No later than December 31, 2014: deliver a
completed and published Definitive Feasibility Study.”

 

(e)                                  Amendment to Section 5.6.  Section 5.6 is
hereby amended to read in its entirety as follows:

 

5.6                               Failure of Parent to Fund Escrow.  Prospect
Nevada shall fail, for any reason, to deposit into the escrow account
established pursuant to the Escrow Agreement (the “Escrow Account”): 
(A) $2,000,000 from the Roth Offering (as defined in the Second Extension
Agreement) within two

 

2

--------------------------------------------------------------------------------

 

(2) business days of receipt of funds from the Roth Offering; or (B) from the
proceeds of any Qualified Financing (other than the Roth Offering), within one
(1) business day of receipt of the funds raised in such Qualified Financing,
fifty percent (50%) of the proceeds of any Qualified Financing net of third
party payments in satisfaction of transaction expenses or fees/commissions in
connection with such Qualified Financing in an amount not to exceed the Funding
Expense Cap (as defined in that certain Second Extension Agreement dated as of
June 26, 2013 among Maker, Holder, and the other parties thereto (the “Second
Extension Agreement”)) until such time as deposits aggregating $12,000,000 have
been made into the Escrow Account on or after June 26, 2013.

 

(f)                                   New Sections 5.10 and 5.11.  The following
new Sections 5.10 and 5.11 are added after Section 5.9 of the Note:

 

5.10                        Failure to Increase Authorized Common Stock. 
Prospect Nevada shall fail, on or before October 1, 2013, to (i) reserve
7,500,000 shares of common stock for issuance pursuant to exercise of the
3,000,000-share warrant dated on or about June 26, 2013 issued to Maker
(including pursuant to any anti-dilution provisions thereof) and (ii) obtain
stockholder approval (x) of either an amendment to Prospect Nevada’s articles of
incorporation increasing the number of authorized shares of common stock in
amount sufficient for the foregoing or a reverse stock split resulting in an
amount of shares of common stock sufficient for the foregoing and (y) as
necessary to allow issuance of such shares in compliance with Nasdaq rules.

 

5.11                        Deeds of Trust.  Maker, Apache, Prospect Nevada or
Company shall not have executed in favor of Holder a first priority deed of
trust with respect to any real property held by any of them no later than the
thirtieth (30th) day after such Person’s acquisition of an ownership interest
therein.

 

(g)                                  Amendment to Section 8.7.  Section 8.7 of
the Note is hereby amended to read in its entirety as follows:

 

8.7                               Successors and Assigns.  This Note shall be
binding upon and shall inure to the benefit of the Parties and their respective
successors and permitted assigns.  Maker may not assign its rights or
obligations hereunder without the prior written consent of Holder.  Holder may,
without the consent of any Person, assign the Note and/or the Loan Documents, in
whole or in part, to any Person notwithstanding anything to the contrary in the
Loan Documents, the Membership Purchase Agreement dated as of May 30, 2012, or
any Covenant Not to Compete executed by any Person in connection therewith,
including, without limitation, the confidentiality and covenant not to compete
undertakings contained therein, and Holder (or any shareholder, director, agent,
employee or officer of Holder) may actively solicit purchasers of the Note, as
more

 

3

--------------------------------------------------------------------------------

 

fully set forth in Section 22 of the Second Extension Agreement.  Maker agrees
that, for purposes of this Agreement, an “assignment” shall be deemed to
include, but not be limited to, a sale, a contribution to a new or existing
entity (including but not limited to a joint venture of which Holder or any
affiliate of Holder is a member) or an exchange with any such entity, or any
other transfer for any medium of value, including, without limitation, equity
securities, royalty interests, property rights or any form of contingent
consideration and notwithstanding whether such assignment is effected in a
private sale or under judicial supervision.  Notwithstanding the generality of
the foregoing, it shall be a condition precedent to any assignment of this Note
as a result of which there will be multiple simultaneous holders of the Note
and/or the related rights under the Loan Documents that such holders shall have
put in place, between or among themselves, a written agreement (an “Agency
Agreement”), which includes agency provisions pursuant to the terms of which a
single administrative agent (the “Administrative Agent”) is appointed, with
which Maker and its affiliates will solely interface with respect to all rights
and obligations under the Note and the Loan Documents, and to which Maker and
its affiliates will remit all payments hereunder, and which Agency Agreement
will provide for the Administrative Agent to provide Maker with a copy of the
Agency Agreement, and any amendments thereto, upon execution of the same.

 

3.                                      Miscellaneous.

 

a.                                      No Other Amendment.  Except as expressly
amended in this Second Amendment, all provisions of the Note shall remain in
full force and effect, and the parties thereto and hereto shall continue to have
all their rights and remedies under the Note.  In the event of a conflict
between the terms and provisions of this Amendment and the terms and provisions
of the Note, the provisions of this Amendment shall govern.

 

b.                                      Relation to Note.  This Amendment
constitutes an integral part of the Note.  Upon the effectiveness of this
Amendment, each reference in the Note to “this Promissory Note,” “hereunder,”
“hereof,” or words of like import referring to the Note, shall mean and be a
reference to the Note as amended hereby.

 

c.                                       Successors and Assigns.  This Amendment
shall be binding on and shall inure to the benefit of the parties hereto and
their respective successors and assigns except as otherwise provided herein.

 

d.                                      Counterparts.  This Amendment may be
executed by the parties hereto on any number of separate counterparts, any of
which may be executed and transmitted by facsimile, and each of which shall be
deemed an original and all of which, taken together, shall be deemed to
constitute one and the same instrument.

 

4

--------------------------------------------------------------------------------

 

e.                                       Governing Law.  This Amendment shall be
governed by, and construed in accordance with, the laws of the State of Arizona,
without regard to its principles of conflicts of law.

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
and delivered as of the date first above written.

 

 

MAKER:

 

 

 

PROSPECT GLOBAL RESOURCES, INC.,

 

a Delaware corporation

 

 

 

By:

/s/ Damon Barber

 

Name. Damon Barber

 

Title: President, CEO and Secretary

 

ACKNOWLEDGED AND AGREED TO

EFFECTIVE AS OF JUNE 26, 2013:

 

THE KARLSSON GROUP, INC.,

an Arizona corporation

 

 

By:

/s/ Anders Karlsson

 

Name: Anders Karlsson

 

Title: President

 

 

5

--------------------------------------------------------------------------------