Exhibit 10.1

 

This instrument and the rights and obligations evidenced hereby are subordinate
in the manner and to the extent set forth in that certain Subordination and
Intercreditor Agreement (the “Subordination Agreement”) dated as of May 2, 2013,
among Very Hungry LLC, a Colorado limited liability company, Scott Reiman 1991
Trust,  Prospect Global Resources, Inc., a Nevada corporation (the “Borrower”)
and The Karlsson Group, Inc., an Arizona corporation (“Senior Lender”), to the
indebtedness (including interest) owed by the Borrower to Senior Lender pursuant
to the Borrower’s Guaranty, and to indebtedness refinancing such indebtedness as
contemplated by the Subordination Agreement; and each holder of this instrument,
by its acceptance hereof, irrevocably agrees to be bound by the provisions of
the Subordination Agreement.

 

For the purposes of Sections 1272, 1273 and 1275 of the Internal Revenue Code of
1986, as amended, this Note is being issued with original issue discount.  You
may contact the Borrower at 1407 17th Street, Suite 1550, Denver, CO 80202,
attention Chief Financial Officer, and the Borrower  will provide you with the
issue price, the amount of original issue discount, the issue date and the yield
to maturity of this Note.

 

THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED   (THE “Securities Act”).  NO SALE OR DISPOSITION MAY BE
EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SUCH ACT OR AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR LENDER,
SATISFACTORY TO BORROWER, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT
OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

 

PROSPECT GLOBAL RESOURCES INC.

 

SUBORDINATED PROMISSORY NOTE

 

$4,436,017.30

 

May 2, 2013

 

For Value Received, The Borrower hereby unconditionally promises to pay to the
order of Very Hungry LLC, a Colorado limited liability company (“Lender”), in
lawful money of the United States of America and in immediately available funds,
the principal sum of FOUR MILLION, FOUR HUNDRED THIRTY-SIX THOUSAND SEVENTEEN
DOLLARS AND THIRTY CENTS ($4,436,017.30), due and payable on the dates and in
the manner set forth below (the “Note”).  The Note shall not bear interest.  The
Borrower acknowledges receipt of $4,032,743.00 of cash proceeds from the
issuance of the Note.

 

1.                                      Repayment and Conversion.

 

(a)                                 Repayment Upon Maturity; Prepayment.  Unless
the Note has been (i) converted in accordance with the terms of this
Section 1(a) or (ii) repaid, the outstanding

 

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principal balance of the Note and all accrued and unpaid interest thereon shall
become due and payable on September 9, 2013 (the “Maturity Date”), and at any
time on or after the Maturity Date, Lender, at its sole discretion, may demand
payment of the entire outstanding principal balance of the Note (the “Payment
Demand”).  Borrower may prepay the Note or any portion thereof at anytime
without penalty.

 

(b)                             Conversion upon a Rights Offering.  If  Borrower
consummates a rights offering (the “Rights Offering”) of its Common Stock,
$0.001 par value (“Common Stock”), to its stockholders while this Note is
outstanding for aggregate consideration of not less than $12,000,000 and this
Note has not been paid in full, then the outstanding principal balance of the
Note thereon shall, upon closing of the Rights Offering, convert into a number
of shares of Common Stock equal to (i) the outstanding principal balance of the
Note, divided by (ii) the price per share paid by the investors to purchase the
shares issued pursuant to the Rights Offering and otherwise upon the terms and
conditions of such Rights Offering; provided, however that such conversion is
conditioned on the Company having received shareholder approval of such
conversion. If such conversion occurs and the Rights Offering also includes
warrants or other rights to acquire securities of Borrower in the future,
Borrower shall issue to Lender upon the closing of the Rights Offering, a
warrant or warrants and rights exercisable for or carrying the right to purchase
securities of Borrower (together, “Warrants”) on the same terms and conditions
as given to the other investors in the Rights Offering; provided, however, that
Borrower shall not be obligated to issue such Warrants unless the Note is either
delivered to Borrower or its transfer agent as provided below, or Lender
notifies Borrower or its transfer agent in writing that the Note has been lost,
stolen or destroyed and executes an agreement satisfactory to Borrower to
indemnify Borrower from any loss incurred by it in connection with such Note.

 

(c) Cash Payment Upon a Liquidity Event.  In the event of a Liquidity Event (as
defined below) prior to the Maturity Date and prior to the Note having been paid
in full or converted as provided above, then Borrower shall, in full
satisfaction of all obligations under this Note, make a cash payment to Lender
equal to 120% of the outstanding principal balance of the Note as of immediately
prior to the closing of the Liquidity Event.  “Liquidity Event” means (x) a
consolidation or merger of Borrower with or into any other corporation or other
entity or person, or any other corporate reorganization or transaction, in which
the stockholders of Borrower immediately prior to such consolidation, merger or
reorganization, own less than 50% of the voting power of the surviving entity
immediately after such consolidation, merger or reorganization (except for
transactions principally for bona fide equity financing purposes in which cash
is received by Borrower or indebtedness of Borrower is cancelled or converted or
a combination thereof), or (y) a sale, lease, sublease or license by Borrower of
all or substantially all of its assets.

 

2.                                      Mechanics of Conversion.  In the event
of conversion pursuant to Section 2(b), the Note shall be converted
automatically without any further action by Lender and whether or not the Note
is surrendered to Borrower or its transfer agent; provided, however, that
Borrower shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the Note is either delivered
to Borrower or its transfer agent as provided below, or Lender notifies Borrower
or its transfer agent in writing that the Note has been lost, stolen or
destroyed and executes an agreement satisfactory to Borrower to indemnify
Borrower from any loss incurred by it in connection with such Note.  Upon the
occurrence of such

 

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conversion, Lender shall surrender the Note at the office of Borrower or any
transfer agent for the shares of Common Stock issuable upon conversion. 
Thereupon, there shall be issued and delivered to Lender, at such office and in
its name as shown on such surrendered Note, a certificate for the number of
shares of Common Stock into which the Note was convertible on the date on which
such conversion occurred

 

3.                                      Fractional Shares.  No fractional share
shall be issued upon the conversion of the Note. Borrower shall, in lieu of
issuing any fractional share, pay Lender a sum in cash equal to the fair market
value of such fraction on the date of conversion (as determined in good faith by
the board of directors of Borrower).

 

4.                                      Payments.  All payments of principal
shall be in lawful money of the United States of America and shall be payable at
the primary address of Lender unless another place of payment shall be specified
in writing by Lender.  Payment on the Note shall be applied to the outstanding
principal balance hereof.  If any payments on the Note become due on a Saturday,
Sunday, or a public holiday under the laws of the state of Colorado, such
payment shall be made on the next succeeding business day.

 

5.                                      Default.  Each of the following events
shall be an “Event of Default” hereunder:

 

Borrower fails to pay timely any of the principal amount or other amounts due
under this Note when due, whether by acceleration or otherwise;

 

any breach of any representation, warranty or covenant made by the Borrower in
the Note;

 

Borrower engages in any liquidation, dissolution, winding up of Borrower;

 

Borrower files any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law or any other law for the relief of,
or relating to, debtors, now or hereafter in effect, or makes any assignment for
the benefit of creditors or takes any corporate action in furtherance of any of
the foregoing;

 

An involuntary petition is filed against Borrower under any bankruptcy statute
now or hereafter in effect, and such petition is not  dismissed or discharged
within 60 days, or a custodian, receiver, trustee, assignee for the benefit of
creditors (or other similar official) is appointed to take possession, custody
or control of any property of Borrower; and

 

the Note shall cease to be in full force and effect and enforceable against the
Borrower in accordance with its terms (other than by reason of any action taken
(or the failure to take any action) by the Lender).

 

6.                                      Remedies.  Upon the occurrence and
during the continuance of any Event of Default, the outstanding principal
balance of the Note shall, all at the option of Lender, upon notice to Borrower
(except that no such election by Lender and notice to Borrower shall be required
in the case of an Event of Default of the type specified in Sections 5(d) or
5(e)), automatically be immediately due, payable and collectible by Lender
pursuant to applicable law.

 

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7.                                      Cumulative Remedies.  Lenders’ rights
and remedies under the Note shall be cumulative.  Lender shall have all other
rights and remedies not inconsistent herewith as provided under the Uniform
Commercial Code, by law or in equity.  No exercise by Lender of one right or
remedy shall be deemed an election, and no waiver by Lender of any Event of
Default shall be deemed a continuing waiver.

 

8.                                      Creditor’s Rights.  Borrower waives
presentment and demand for payment, notice of dishonor, protest and notice of
protest of the Note.  Borrower hereby acknowledges that Lender shall be entitled
to recover, and the undersigned agrees to pay when incurred, all reasonable
costs and expenses of collection of the Note, including without limitation,
reasonable attorneys’ fees.  The right to plead any and all statutes of
limitations as a defense to any demands hereunder is hereby waived to the full
extent permitted by law. Borrower and Lender consent irrevocably to personal
jurisdiction in the state and federal courts located in Denver, Colorado for the
resolution of any disputes arising hereunder or relating hereto.

 

9.                                      Representations and Warranties of
Lender.  Lender hereby represents and warrants to Borrower as follows:

 

Acquisition for Own Account.  Lender is acquiring the Note and all securities
referred to herein (the “Investor Securities”) for its own account and for
investment purposes only, and not with a view to, or for the resale in
connection with, any “distribution” thereof for purposes of the Securities Act. 
Lender understands that the Investor Securities have not been registered under
the Securities Act or any applicable state securities laws by reason of a
specific exemption therefrom that depends upon, among other things, the bona
fide nature of the investment intent as expressed herein.

 

Speculative Investment; Accredited Investor Status.  Lender realizes that the
purchase of the Investor Securities will be a highly speculative investment. 
Lender is able, without impairing Lender’s financial condition, to hold the
Investor Securities for an indefinite period of time and to suffer a complete
loss of Lender’s investment.  By virtue of Lender’s experience in evaluating and
investing in private placement transactions of securities in companies similar
to Borrower, Lender is capable of evaluating the merits and risks of Lender’s
investment in Borrower and has the capacity to protect Lender’s own interests. 
Lender is an “accredited investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act or, if Lender is not an accredited
investor, Lender possesses such expertise, knowledge and sophistication in
financial and business matters generally, and familiarity with this investment,
that together with its or their investment advisors is capable of evaluating the
merits and economic risks of acquiring the Investor Securities.

 

Limitation on Transfer.  Lender understands that no public market now exists,
and that a public market may never exist, for any of the securities of
Borrower.  Lender understands that the Investor Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available.  Moreover, Lender
understands that Borrower is under no obligation to register the Investor
Securities.  Lender is aware of Rule 144 promulgated under the Act that permits
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, but that Borrower has made no commitment to
satisfy such conditions.  Lender understands that the

 

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Investor Securities will be imprinted with a legend which prohibits the transfer
of the Investor Securities unless they are registered or such registration is
not required in the opinion of counsel reasonably satisfactory to Borrower.

 

10.                               Representations and Warranties of Borrower. 
The Borrower hereby represents and warrants to Lender as follows:

 

(a)                                 Organization of the Borrower.  The Borrower
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada.  The Borrower has full corporate power and
authority to own, use, lease and license its assets and its properties and to
carry on its business as it is now being conducted.

 

(b)                                 Capitalization. Borrower’s authorized
capital stock consists of 300,000,000 shares of Common Stock and 100,000,000
shares of Preferred stock,  of which 72,670,718 shares of Common Stock are
issued and outstanding.  Borrower has no other authorized or outstanding shares
of capital stock.  Each outstanding share of Borrower’s Common Stock has been,
and any shares of Common Stock into which this Note is convertible, will be,
duly authorized and validly issued, fully paid and nonassessable, and not have
been  issued in violation of the preemptive rights of any shareholder.

 

(c)                                  Power and Authority.  Borrower has full
power and authority to enter into this Note and  to consummate the transactions
contemplated hereby. Borrower has duly and validly executed and delivered the
Note.  The Note constitutes the  legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar laws in effect which affect the
enforcement of creditors’ rights generally and by equitable limitations on the
availability of specific remedies.

 

(d)                                 No Conflict.  The execution and delivery by 
Borrower of the Note and the consummation of the transactions contemplated
hereby will not conflict with or result in any violation of or default under
(with or without notice or lapse of time, or both) or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (i) any provision of the Articles of Incorporation of
the Borrower, as amended, or Bylaws of the Borrower, (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise or license to which the Borrower or any of its properties or assets is
subject, or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Borrower or its properties or assets.

 

(e)                                  Approvals.  Except as may be required by
any state “blue sky” laws, no authorization, consent, approval, license,
qualification or formal exemption from, nor any filing, declaration or
registration with, any court, governmental agency, regulatory authority or
political subdivision thereof, any securities exchange or any other person is
required in connection with the execution, delivery or performance by Borrower
of the Note.

 

(f)                                   Related Party Transactions.  The issuance
of this Note has been, and the issuance of any Common Stock on conversion of
this Note will be, duly approved by Borrower’s board of directors in compliance
with Borrower’s relevant corporate documents, Nasdaq

 

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regulations and applicable law, and has been or will be timely disclosed in
compliance with applicable law, regulations and stock exchange rules.

 

(g)                                 Affirmative Covenants of Borrower.  Borrower
covenants and agrees that, between the date hereof and the date of repayment the
outstanding principal balance of the Note Borrower shall:

 

(a)                                 Corporate Existence.  At all times cause to
be done all things reasonably necessary to maintain, preserve and renew its
corporate existence and all material licenses, authorizations and permits
necessary to the conduct of its businesses.

 

(b)                                 Compliance with Laws.  Comply with all
applicable laws, rules and regulations of all governmental authorities, the
violation of which could reasonably be expected to have a material adverse
effect on its business or properties.

 

(c)                                  Books and Records.  Maintain proper books
of record and account which present fairly in all material respects its
financial condition and results of operations and make provisions on its
financial statements for all such proper reserves as in each case are required
in accordance with generally accepted accounting principles, consistently
applied.

 

11.                               Negative Covenants of Borrower.  Borrower
covenants and agrees that, between the date hereof and the repayment of the
outstanding principal balance of the Note,  Borrower shall not:

 

(a)                                 Debt Incurrence.  Create, incur, assume or
suffer to exist any indebtedness that is senior in right of payment to the Note.

 

(b)                                 Material Transaction.  Enter into any
material joint venture or strategic partnership, or make any acquisition of or
investment in any Person, other than such a transaction in which the Obligations
will be paid in full at the closing of such transaction.

 

(c)                                  Change in Business.  Make any change or
modification to Borrower’s current business.

 

12.                               Governing Law.  The Note shall be governed by,
and construed and enforced in accordance with, the laws of the state of
Colorado, excluding conflict of laws principles that would cause the application
of laws of any other jurisdiction.

 

13.                               Amendment and Waiver.  Any provision of this
Note may be amended or waived in a writing signed by both Borrower and Lender.
No failure or delay on the part of the Lender to exercise any right, remedy,
power or privilege under this Note shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, remedy, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.

 

14.                               Successors and Assigns.  The provisions of
this Note shall inure to the benefit of and be binding on any successor to
Borrower.

 

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15.                               Transfers. The Note is not transferable
without the written consent of the Company (which consent shall not be
unreasonably withheld) except to an Affiliate (as defined in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act, as amended) of the
Holder.  This Note may be transferred only upon its surrender to Borrower for
registration of transfer, duly endorsed, or accompanied by a duly executed
written instrument of transfer in form satisfactory to Borrower.  Thereupon,
this Note shall be reissued to, and registered in the name of, the transferee,
or a new Note for like principal amount shall be issued to, and registered in
the name of, the transferee.  Principal shall be paid solely to the registered
holder of this Note.  Such payment shall constitute full discharge of Borrower’s
obligation to pay such principal.

 

16.                               Notice.  Notice permitted or required to be
given hereunder shall be deemed sufficient if given in writing by reputable
overnight delivery service or by registered or certified mail, postage prepaid,
return receipt requested, addressed to the respective addresses of the parties
set forth below or at such other address as the respective parties may designate
by like notice from time to time.  Notices so given shall be deemed effective
upon the earlier of (i) receipt by the party to which notice is given; (ii) on
the fifth business day following the date such notice was deposited in the mail;
or (iii) on the second business day following the date such notice was delivered
to a reputable overnight delivery service.

 

[Signature page follows.]

 

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In Witness Whereof, the parties have executed the Note as of the date first
above written.

 

 

 

BORROWER:

 

 

 

PROSPECT GLOBAL RESOURCES INC.

 

 

 

By:

/s/ Damon G. Barber

 

Name:

Damon G, Barber

 

Title:

President and Chief Executive Officer

 

Address:

 

 

 

 

 

 

LENDER:

 

 

 

VERY HUNGRY LLC

 

 

 

By:

/s/ Brian Fleishmann

 

Name:

Brian Fleishmann

 

Title:

Manager

 

Address

 

 

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