Document:

Exhibit 10.1

 

FIFTH EXTENSION AGREEMENT

 

THIS FIFTH EXTENSION AGREEMENT (this “Agreement”), executed as of the 12th day of March, 2014 (the “Effective Date”), by and among The Karlsson Group, Inc., an Arizona corporation (“Karlsson”), on the one hand, and Prospect Global Resources, Inc., a Delaware corporation (“Prospect DE”), Prospect Global Resources, Inc., a Nevada corporation (“Parent”), Apache County Land & Ranch, LLC, a Nevada limited liability (“Apache”) and American West Potash, LLC, a Delaware limited liability company (“AWP” and collectively with Prospect DE, Parent and Apache the “Prospect Parties” and each a “Prospect Party”) on the other hand, is made with reference to the following facts:

 

A.                                    Prospect DE has entered into and delivered to the order of Karlsson that certain Senior First Priority Secured Promissory Note, dated as of August 1, 2012 (such Note, as so amended and as the same may hereafter be amended, modified, extended and/or restated, being hereinafter referred to as the “Note”).  Capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Note.

 

B.                                    Pursuant to the Note, Karlsson has made certain extensions of credit (the “Loan”) to Prospect DE.

 

C.                                    The Loan is secured by, among other instruments, (i) that certain Deed of Trust, Security Agreement, Assignment of Production and Proceeds, Fixture Filing and Financing Statement dated as of August 1, 2012, executed by AWP, as trustor, in favor of and for the benefit of Karlsson, as beneficiary, and recorded August 1, 2012, as Instrument No. 2012-004076 in the Official Records of Apache County, Arizona (the “Official Records”) and filed in the records of the Arizona State Land Department (the “ASLD”) (the “AWP Deed of Trust”) with respect to the land and other property interests described therein (the “AWP Property Interests”), (ii) that certain Security Agreement, dated as of August 1, 2012, executed by Prospect DE and AWP in favor of and for the benefit of Karlsson (the “Security Agreement”), (iii) that certain Membership Interest Pledge Agreement between Prospect DE and Karlsson, dated as of May 30, 2012 (the “AWP Pledge Agreement”); (iv) that certain Membership Interest Pledge Agreement between AWP and Karlsson, dated as of January 28, 2013 (the “Apache Pledge Agreement”); and (v) each of the Collateral Assignment of Mineral Leases, the Collateral Assignment of Mining Permits, and the Collateral Assignments of Royalty Agreements, each between AWP and Karlsson and each dated as of August 1, 2012 (collectively, the “Collateral Assignments”).  The Loan and all of Prospect DE’s other obligations under the Loan Documents (as defined below) are guaranteed by that certain Unconditional Guaranty dated as of August 1, 2012 executed by AWP in favor of and for the benefit of Karlsson (the “Guaranty”; by that certain Unconditional Guaranty dated as of April 15, 2013 executed by Parent in favor of and for the benefit of Karlsson (the “Parent Guarantee”); by that certain Pledge Agreement dated as of April 15, 2013 between Parent and Karlsson (the “Parent Pledge”); and by that certain Unconditional Guaranty dated as of May 30, 2013 by Apache (the “Apache Guaranty”) together with the Deed of Trust, Assignment of Leases and Rents, Security Agreement, Fixture Filing and Financing Statement made effective as of May 30, 2013 by Apache for the benefit of Karlsson and recorded in the Official Records as instrument number 2013-002676, with respect to the real property described therein (the “Apache Lands”) as

 

 

amended by the First Amendment to the Apache Deed of Trust dated October 24, 2013 and recorded as instrument number 2013-005721 of the Official Records (collectively, the “Apache Deed of Trust”).  The Parent Guaranty, the Parent Pledge, the Apache Guaranty, the Apache Deed of Trust, the AWP Guaranty, the AWP Deed of Trust, the Security Agreement, the AWP Pledge Agreement, the Apache Pledge Agreement and the Collateral Assignments and all financing statements, fixture filings, patent, trademark and copyright filings and other documents and agreements relating to the collateral for the Loan and made or delivered pursuant to the Note or any other Loan Document are collectively referred to as the “Collateral Documents”).  The Note, the Collateral Documents and all other documents, agreements and instruments delivered to Karlsson under or in connection with the Note are collectively referred to herein as the “Loan Documents.”

 

D.                                    Apache is a wholly-owned subsidiary of AWP, AWP is a wholly-owned subsidiary of Prospect DE and Prospect DE is a wholly-owned subsidiary of Parent, which has a financial interest in the success of Prospect DE.  As a result, Parent, AWP and Apache are willing to enter into this Agreement and the documents and instruments contemplated hereby and expect to benefit therefrom.

 

E.                                     Pursuant to the terms of Section 2.2 of the Note, Prospect DE was required to make the First Installment Payment consisting of (i) a principal payment plus (ii) the interest accrued through March 30, 2013 on said principal payment plus (iii) the Tax Gross-Up Amount in the amount as set forth in the Note.  The aggregate amount due for the First Installment totaled in excess of $50 million.  Prospect DE did not make the First Installment Payment on March 30, 2013 and did not subsequently make such payment.

 

F.                                      The Prospect Parties requested that Karlsson extend the payment dates under the Note and forbear from exercising its rights (i) to demand immediate repayment in full of the Loan and all other outstanding obligations of Prospect DE under the Loan Documents, (ii) to foreclose or otherwise realize on Karlsson’s liens and security interests under the AWP Deed of Trust, the Security Agreement and any other Collateral Documents and (iii) to demand repayment in full of the Loan under the Guaranty.  Karlsson agreed to enter into the Extension Agreement with the Prospect Parties dated as of April 15, 2013 (the “Extension Agreement”).

 

G.                                    In connection with the Extension Agreement, Prospect DE and Karlsson executed that certain Amendment to First Priority Senior Secured Promissory Note dated as of April 15, 2013 (the “First Note Amendment”).  The Note, as amended by the First Note Amendment, required the achievement of certain Funding Raises (as defined in the First Note Amendment) by certain deadlines.  Prospect did not timely achieve the Second Funding Raise required under the Note.

 

H.                                   The Prospect Parties requested that Karlsson amend certain provisions of the Note to substitute certain performance milestones in lieu of the Funding Raises and forbear from exercising its rights (i) to demand immediate repayment in full of the Loan and all other outstanding obligations of Prospect DE under the Loan Documents, (ii) to foreclose or otherwise realize on Karlsson’s liens and security interests under the AWP Deed of Trust, the Security Agreement and any other Collateral Documents and (iii) to demand repayment in full of the Loan under the Guaranty.  Karlsson agreed to enter into the Second Extension Agreement with

 

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the Prospect Parties dated as of June 26, 2013 (the “Second Extension Agreement”).  In connection with the Second Extension Agreement, Prospect DE and Karlsson executed that certain Second Amendment to Senior First Priority Secured Promissory Note dated as of June 26, 2013 (the “Second Note Amendment”).

 

I.                                        The Prospect Parties requested that Karlsson amend the Note to extend the due date with respect to the payment of the 2012 453A Amount (as defined in the Note) until September 13, 2012.  Prospect DE and Karlsson executed that certain Third Amendment to Senior First Priority Secured Promissory Note dated as of September 9, 2013 (the “Third Note Amendment”), and the Prospect Parties executed that certain Reaffirmation of Loan Documents as of the same date (the “September Reaffirmation”).

 

J.                                        Pursuant to the terms of clause (i) of Section 2.2 of the Note, Prospect DE was required to make a payment equal to the 2012 453A Amount on or before September 13, 2013.  Prospect DE notified Karlsson that it would not be able to make payment of the 2012 453A Amount to Karlsson on or before the date payment was required to be made pursuant to the terms of the Note.

 

K.                                   The Prospect Parties requested that Karlsson further modify and amend the Note and forbear from exercising its rights (i) to demand immediate repayment in full of the Loan and all other outstanding obligations of Prospect DE under the Loan Documents, (ii) to foreclose or otherwise realize on Karlsson’s liens and security interests under the AWP Deed of Trust, the Security Agreement and any other Collateral Documents and (iii) to demand repayment in full of the Loan under the Guaranty.  Karlsson agreed to enter into the Third Extension Agreement with the Prospect Parties dated as of September 13, 2013 (the “Third Extension Agreement”).  In connection with the Third Extension Agreement, Prospect DE and Karlsson executed that certain Fourth Amendment to Senior First Priority Secured Promissory Note dated as of June 26, 2013 (the “Fourth Note Amendment”).

 

L.                                     The Prospect Parties requested that Karlsson amend the Note to extend the due date with respect to the payment of the 2012 453A Amount further, until December 4, 2013.  Prospect DE and Karlsson executed that certain Fifth Amendment to Senior First Priority Secured Promissory Note dated as of November 13, 2013 (the “Fifth Note Amendment”), and the Prospect Parties executed that certain Reaffirmation of Loan Documents (the “November Reaffirmation”) as of the same date.

 

M.                                 The Prospect Parties requested that Karlsson amend the Note to extend yet further the due date with respect to the payment of the 2012 453A Amount, until December 10, 2013.  Prospect DE and Karlsson executed that certain Sixth Amendment to Senior First Priority Secured Promissory Note dated as of December 3, 2013 (the “Sixth Note Amendment”), and the Prospect Parties executed that certain Reaffirmation of Loan Documents (the “December Reaffirmation”) as of the same date.

 

N.                                    The Prospect Parties requested that Karlsson further modify and amend the Note to, among other things, extend the deadline for making the required payment of the 2013 Section 453A Amount (as defined in the Note) and to provide, subject to certain conditions, for a prepayment discount in the Note if discounted payoff were effected by March 10, 2014.

 

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Karlsson agreed to enter into the Fourth Extension Agreement with the Prospect Parties dated as of December 10, 2013 (the “Fourth Extension Agreement”).  In connection with the Fourth Extension Agreement, Prospect DE and Karlsson executed that certain Seventh Amendment to Senior First Priority Secured Promissory Note dated as of December 10, 2013 (the “Seventh Note Amendment”).

 

O.                                    The Prospect Parties requested that Karlsson amend the Note to extend the due date with respect to the delivery of the 43-101 final resource report until March 10, 2014.  Prospect DE and Karlsson executed that certain Eighth Amendment to Senior First Priority Secured Promissory Note dated as of January 31, 2014 (the “Eighth Note Amendment”), and the Prospect Parties executed that certain Reaffirmation of Loan Documents (the “January Reaffirmation”) as of the same date.

 

P.                                      The Prospect Parties requested that Karlsson amend the Note to extend the deadline for discounted payoff of the Note until March 13, 2014 and to make certain conforming changes to extend certain deadlines under the Note from March 10, 2014 until March 13, 2014.  Prospect DE and Karlsson executed that certain Ninth Amendment to Senior First Priority Secured Promissory Note dated as of March 7, 2014 (the “Ninth Note Amendment”), and the Prospect Parties executed that certain Reaffirmation of Loan Documents (the “March Reaffirmation” and, collectively with the September Reaffirmation, the November Reaffirmation, the December Reaffirmation and the January Reaffirmation, the “Reaffirmations”) as of the same date.

 

Q.                                    The Prospect Parties now wish to make certain amendments to the Note and certain other Loan Documents and enter into agreements hereinafter set forth.

 

NOW, THEREFORE, in consideration of the mutual promises and agreements hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.                                      Acknowledgements.

 

(a)                                 The parties acknowledge that each of the foregoing factual recitals is truthful, accurate and valid.

 

(b)                                 The parties acknowledge that as of the date of this Agreement, the outstanding principal balance of the Note is $122,829,335 and the accrued but unpaid interest due and payable on the Note through March 12, 2014 is $9,790,219.

 

(c)                                  The parties acknowledge that immediately prior to the effectiveness of this Agreement, the Loan Documents and the Additional Consideration Agreement were valid and enforceable according to their terms.

 

(d)                                 Karlsson waives any rights and remedies it may have with respect to any breach hereof (including any breach of a representation and warranty contained in any Loan Document) which breach occurred prior to the Effective Date and of which breach Karlsson had actual prior knowledge prior to the Effective Date.

 

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(e)                                  The parties agree that each of the Extension Agreement, the Second Extension Agreement, the Third Extension Agreement and the Fourth Extension Agreement, in each case except as explicitly amended by the Second Extension Agreement, the Third Extension Agreement, the Fourth Extension Agreement or hereby, remains in full force and effect.

 

2.                                      No Further Disbursements.  The Prospect Parties acknowledge that Karlsson has no obligation to advance any loan proceeds under any of the Loan Documents, whether now or in the future.

 

3.                                      Closing Deliveries; Conditions Precedent.  Concurrently with the execution of this Agreement, and as a condition to the effectiveness of this Agreement, the Prospect Parties and Karlsson, as applicable, will execute and deliver, or cause to be executed and delivered, the following:

 

(a)                                 An amendment to the Note in the form attached hereto as Exhibit A;

 

(b)                                 An Amendment No. 3 to May 30, 2012 Warrant (such warrant, as amended from time to time, the “May 2012 Warrant”) in the form attached hereto as Exhibit B (the “May 2012 Warrant Amendment”);

 

(c)                                  An Amendment No. 2 to June 26, 2013 Warrant (such warrant, as amended from time to time, the “June 2013 Warrant”) in the form attached hereto as Exhibit D (the “June 2013 Warrant Amendment”);

 

(d)                                 Karlsson shall have received a true and correct copy of the most recent version of the Mineral Development Report submitted to, and the version currently under review by, the ASLD.

 

(e)                                  Karlsson shall have received a certificate of the Secretary or Assistant Secretary of each Prospect Party, dated as of the Closing Date (as defined below), certifying (i) the resolutions of the Boards of Directors or Managers, as applicable, of each Prospect Party authorizing the execution, delivery and performance of this Agreement and the other documents contemplated hereby by such Prospect Party, and (ii) the incumbency, authority and signatures of each executive officer who will act as such in connection herewith; and

 

(f)                                   Karlsson shall have received an Officer’s Certificate (the “Officer’s Certificate”) of the Chief Executive Officer or the Chief Financial Officer of Prospect DE and Parent dated as of the Effective Date, certifying the accuracy of the representations and warranties set forth in Sections 4(e) and 4(f) of this Agreement.

 

4.                                      Representations, Warranties and Covenants.  As of the Effective Date and upon the effectiveness of this Agreement, the Prospect Parties hereby represent and warrant to Karlsson as follows:

 

(a)                                 None of the Prospect Parties or any Affiliate of any Prospect Party owns any land nor any leasehold interest or license or permit for the use of such lands except AWP and Apache, and their respective real property interests shall all be described in Exhibit A to their respective Royalty Agreements.  “Affiliate” of a person or entity means for purposes of this

 

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Section 4(a) any other person or entity that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such person or entity.  The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise.

 

(b)                                 Each representation and warranty made by Prospect DE in Section 5 of the AWP Pledge Agreement and each representation and warranty made by any Prospect Party in each other Loan Document is true and correct in all material respects on and as of the Effective Date, except to the extent such representation and warranty relates solely to an earlier date.

 

(c)                                  This Agreement has been duly authorized and constitutes the legal, valid and binding obligation of the Prospect Parties enforceable against each of the Prospect Parties in accordance with its terms.

 

(d)                                 Neither the execution by the Prospect Parties nor the effectuation by Karlsson of any of its rights and remedies hereunder, whether upon default or otherwise, will result in a breach of or constitute a default under any charter provision or by-law of any Prospect Party or any other agreement or instrument to which any Prospect Party is a party, nor violate any law or any rule or regulation of any administrative agency or any order, writ, injunction or decree or any court or administrative agency, nor does any of the foregoing require the consent of any Person or any notice or filing with any governmental or regulatory body.

 

(e)                                  The Prospect Parties are in compliance in all material respects with all material requirements of applicable law.

 

(f)                                   There are no Events of Default under any Loan Document.

 

(g)                                  Each payment that any Prospect Party was required to make, on or before the date hereof, to the ASLD, including, but not limited to, with respect to the AWP Property Interests, was made in full to such agency on or before the due date applicable to such payment.

 

5.                                      Amendments to Fourth Extension Agreement.

 

(a)                                 The words “March 10, 2014” in Section 5(a) of the Fourth Extension Agreement shall be replaced with the words “April 10, 2014.”

 

(b)                                 The Fourth Extension Agreement is hereby amended by substituting the form of Warrant attached to this Agreement as Exhibit C in lieu of the form of Exhibit C attached to this Fourth Extension Agreement.

 

6.                                      Closing Date.  As used in this Agreement, the Closing Date shall mean the Effective Date, unless otherwise agreed to in writing by all the parties hereto.

 

7.                                      Karlsson’s Costs.  No later than the earliest of (i) April 10, 2014, (ii) two (2) business days after the date on which Discounted Payoff (as defined in the Fourth Extension Agreement) occurs, and (iii) the date of occurrence of the first Event of Default to occur under

 

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the Note on or after the Effective Date (provided such Event of Default shall have occurred and be continuing), the Prospect Parties shall reimburse Karlsson for all Karlsson Legal Expenses not previously reimbursed by them.  “Karlsson Legal Expenses” shall mean all unreimbursed out-of-pocket legal costs and expenses incurred by Karlsson in connection with this Agreement and/or the Note and all negotiations conducted and documents prepared and executed in connection therewith.

 

8.                                      Confirmation of Obligations.  As of the Closing Date and subject to the terms of this Agreement, each Prospect Party confirms, ratifies and restates all of its respective obligations under the Loan Documents and Prospect DE agrees to pay all of the indebtedness evidenced by the Loan Documents according to their terms and provisions as amended to date.  Prospect DE confirms, ratifies and restates that Karlsson has first lien priority interests in all of the Collateral described in the Security Agreement and the other Loan Documents.  Subject to the terms of this Agreement, all of the terms, covenants and provisions of the Note, the Collateral Documents and the other Loan Documents shall remain in full force and effect.  Without limiting the generality of the foregoing, each Prospect Party hereby expressly acknowledges and agrees that, as of the Closing Date, it has no offsets, claims, counterclaims or defenses whatsoever against any of its obligations under the Note, the Collateral Documents or any other Loan Document, including those which would in any way reduce the amount of the indebtedness owed to Karlsson under the Loan Documents or affect the validity of any foreclosure sale of any of the Collateral, and if any of the same now exists, each Prospect Party irrevocably waives, and agrees not to assert, any such existing offset, claim, counterclaim, defense or other cause of action against Karlsson.

 

9.                                      Deficiency; Waivers.  To the fullest extent permitted by applicable law, Prospect DE and Parent unconditionally and irrevocably waives any rights or benefits arising under A.R.S. §§ 12-1566, 12-1641 through and including 12-1644, 33-814, 33-725, 33-727 and 44142, and Ariz. R. Civ. P. 17(f) or such statutes, rules or similar provisions as may be enacted or adopted hereafter.

 

10.                               General Release.  To the maximum extent permitted by law, each Prospect Party hereby waives, releases and discharges Karlsson and its directors, shareholders, officers, employees and counsel from any and all suits, causes of action, legal or administrative proceedings, liabilities, claims, damages, losses, costs or expenses of any kind (collectively, “Claims”), known or unknown, which such Prospect Party may have, arising out of acts, omissions, or events occurring at any time prior to and including the Effective Date.  Each Prospect Party hereby agrees and represents that the matters released herein are not limited to the matters which are known, disclosed or foreseeable.  The Prospect Parties intend to waive all Claims, including Claims which they do not know or suspect to exist in their favor to no less extent than a waiver of such Claims under California law will be effected by a waiver by the Prospect Parties under California law of any and all rights and benefits which they now have or in the future may have by virtue of the provisions of Section 1542 of the California Civil Code which provides:

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING

 

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THE RELEASE WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

 

The Prospect Parties hereby agree, represent and warrant that they are familiar with and have read and understand and have consulted legal counsel of their choosing with respect to California Civil Code Section 1542, and the Prospect Parties realize and acknowledge that factual matters now unknown to them may have given or may hereafter give rise to actions, legal or administrative proceedings, claims, demands, debts, controversies, damages, costs or losses, liabilities and expenses which are presently unknown, unanticipated and unsuspected.

 

	
INITIALS:
    	
 
    	
Prospect   DE
    
	
 
    	
 
    	
Parent
    
	
 
    	
 
    	
AWP
    
	
 
    	
 
    	
Apache
    

 

11.                               Indemnification.  The Prospect Parties, jointly and severally, shall indemnify Karlsson, any affiliate thereof, and each of their respective directors, shareholders, officers, employees, agents, counsel and other advisors (each an “Indemnified Person”), against and hold each of them harmless for, from and against any and all liabilities, obligations, losses, claims, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever, including the reasonable fees and disbursements of counsel to an Indemnified Person (including allocated costs of internal counsel), which may be imposed on, incurred by, or asserted against any Indemnified Person in connection with (a) any investigation, litigation or other proceeding, irrespective of whether the Indemnified Person shall be designated a party thereto, in any way relating to or arising out of this Agreement or any other Loan Document, (b) the use or intended use of the proceeds of the Loan, (c) any actual or asserted violation of any environmental law with respect to the AWP Property Interests or the Apache Lands and/or any foreclosure proceeding affecting the AWP Property Interests or the Apache Lands or any other collateral; and (d) the transactions contemplated hereby or thereby (the “Indemnified Liabilities”); provided, however, that neither Prospect DE nor Parent shall be liable for any portion of such Indemnified Liabilities resulting from an Indemnified Person’s gross negligence or willful misconduct or breach of this Agreement or the Loan Documents.  Each Indemnified Party is authorized to employ counsel of its own choosing in enforcing its rights hereunder and in defending against any claim, demand, action or cause of action covered by this Section 11.  All of the Prospect Parties’ obligations or liabilities to any Indemnified Party under this Section 11 shall be and hereby are covered and secured by the Loan Documents, and shall survive the expiration or termination of this Agreement.  If and to the extent that the foregoing indemnification is for any reason held unenforceable, the Prospect Parties agree to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

 

12.                               Further Assurances.  The Prospect Parties shall, at Karlsson’s request, execute (either alone or with Karlsson, as Karlsson may require) deliver to Karlsson, any and all additional instruments and documents, and Prospect DE and Parent will, and will cause each

 

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other Prospect Party to, perform all actions, which from time to time may be necessary to maintain a perfected lien and security interest in the security described in the Extension Agreement, the Second Extension Agreement, the Third Extension Agreement, the Fourth Extension Agreement, this Agreement, the Security Agreement, the AWP Deed of Trust, the Apache Deed of Trust or any other Collateral Document or any other Loan Document, including but not limited to procuring additional policies of title insurance, or endorsements with respect to existing policies of title insurance, with regard to the properties of Apache or AWP or similar acts reasonably required in connection with the foregoing provided, however, such further assurances do not increase the liability or obligations or decrease the rights of Karlsson or the Prospect Parties from those provided for herein or in the Loan Documents.

 

13.                               No Novation; Loan Document.  This Agreement is a revision to the Note and the other Loan Documents only, and not a novation.  This Agreement is a Loan Document.  Each of the Reaffirmations is a Loan Document.

 

14.                               Waivers.

 

(a)                                 In order to hold the Prospect Parties liable under the Loan Documents, there shall be no obligation on the part of Karlsson, at any time, to resort to payment from Prospect DE or to anyone else, or to any collateral, security, property, liens or other rights and remedies whatsoever, all of which are hereby expressly waived by the Prospect Parties.

 

(b)                                 Each Prospect Party hereby expressly waives diligence in collection or protection, presentment, demand or protest or in giving notice (except as provided in the Loan Documents) to anyone of the protest, dishonor, default, or nonpayment or of the creation or existence of any of the obligations or of any security or collateral therefor or of the acceptance of this Agreement.

 

(c)                                  Each Prospect Party waives any and all defenses, claims and discharges of Prospect DE, or any other obligor, pertaining to the Secured Obligations, in each case, only to the extent permitted under applicable law.  Without limiting the generality of the foregoing, but only to the extent permitted under applicable law, no Prospect Party will assert, plead or enforce against Karlsson any defense of waiver, release, discharge in bankruptcy, statute of limitations, res judicata, statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality or unenforceability which may be available to Prospect DE or any other person liable in respect of any of the Secured Obligations, or any setoff available against Karlsson to Prospect DE or any such other person, whether or not on account of a related transaction.  Each Prospect Party expressly agrees that, subject to applicable law, it shall be and remain liable for any deficiency remaining after foreclosure of any security interest securing the Secured Obligations, whether or not the liability of Prospect DE is discharged pursuant to statute or judicial decision.  For the avoidance of doubt, but only to the extent permitted under applicable law, each Prospect Party waives any relief available under valuation and appraisement laws and any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of: (i) any “one action” or “anti-deficiency” law or any other law which may prevent Karlsson from bringing any action, including a claim for deficiency, against such Prospect Party, before or after Karlsson’s commencement or completion of any foreclosure action, either judicially or if permitted by applicable law by exercise of a power of sale

 

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including, but not limited to, any right to a fair market value hearing, any right to offset the amount owed by any amount other than the amount paid at the trustee’s sale, any right to a statute of limitations shorter than six (6) years, and the provisions of A.R.S. §§ 121566, 33-814, 33-725, and 33-727; (ii) any election of remedies by Karlsson which destroys or otherwise adversely affects such Prospect Party’s subrogation rights or rights to proceed against Karlsson for reimbursement, including without limitation, any loss of rights such Prospect Party may suffer by reason of any law limiting, qualifying, or discharging any indebtedness; (iii) any disability or other defense of Prospect DE, of any other guarantor, or of any other person, or by reason of the cessation of Prospect DE’s liability from any cause whatsoever, other than payment in full in legal tender, of the Secured Obligations; (iv) any right to claim discharge of the Secured Obligations on the basis of unjustified impairment of any collateral for the Secured Obligations; (v) any statute of limitations, if at any time any action or suit brought by Karlsson against such Prospect Party is commenced, there are outstanding Secured Obligations which are not barred by any applicable statute of limitations; or (vi) any defenses given to guarantors at law or in equity other than actual payment and performance of the Secured Obligations.  If payment is made by Prospect DE, whether voluntarily or otherwise, or by any third party, on the Secured Obligations and thereafter Karlsson is forced to remit the amount of that payment to Prospect DE’s trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Secured Obligations shall be considered unpaid for the purpose of the enforcement of this Agreement or any other obligor for such deficiency is discharged pursuant to statute or judicial decision.

 

(d)                                 TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PROSPECT PARTY UNCONDITIONALLY AND IRREVOCABLY WAIVES ALL RIGHTS AND BENEFITS UNDER A.R.S. § 44-142, § 12-1641, ET SEQ. AND RULE 17(F) OF THE ARIZONA RULES OF CIVIL PROCEDURE AND ANY SIMILAR STATUTES OR RULES OF PROCEDURE.  EACH PROSPECT PARTY WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF, WHICH SUCH PROSPECT PARTY MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY KARLSSON IN ENFORCING THIS AGREEMENT.  ANY AND ALL DEBTS AND LIABILITIES NOW OR HEREAFTER ARISING AND OWING TO ANY PROSPECT PARTY BY PROSPECT DE, OR TO ANY OTHER PARTY LIABLE TO KARLSSON FOR THE SECURED OBLIGATIONS, ARE HEREBY SUBORDINATED TO KARLSSON’S CLAIMS AND ARE HEREBY ASSIGNED TO KARLSSON.  EACH PROSPECT PARTY HEREBY AGREES THAT SUCH PROSPECT PARTY MAY BE JOINED AS A PARTY DEFENDANT IN ANY LEGAL PROCEEDING (INCLUDING, BUT NOT LIMITED TO, A FORECLOSURE PROCEEDING) INSTITUTED BY KARLSSON AGAINST PROSPECT DE.  EACH PROSPECT PARTY AND KARLSSON, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY SUCH LEGAL PROCEEDING IN WHICH ANY PROSPECT PARTY AND KARLSSON ARE ADVERSE PARTIES.  THIS PROVISION IS A MATERIAL INDUCEMENT TO KARLSSON GRANTING ANY FINANCIAL ACCOMMODATION TO PROSPECT DE AND ACCEPTING THIS AGREEMENT

 

15.                               Notices.  Notwithstanding anything to the contrary contained in the Loan Documents, all notices, demands, requests and other communications of any kind which any

 

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party hereto may be required to or may desire to serve upon any other party (“Notice”) shall be in writing and shall be deemed to have been properly given or served for all purposes (i) if sent by Federal Express or other nationally recognized overnight carrier for next business day delivery, on the first business day following deposit of such Notice with such carrier, or (ii) if personally delivered, on the actual date of delivery, or (iii) if sent by certified mail, return receipt requested postage prepaid, on the third (3rd) business day following the date of mailing, or (iv) if sent by facsimile, then on the actual date of delivery (as evidenced by a facsimile confirmation) addressed as follows:

 

If to Karlsson:                                                                                                                 The Karlsson Group, Inc.
 18 Ozone Avenue
 Venice, California 90291
 Attention: Michael Stone
 Fax: (310) 933-0262

 

With a copy to:                                                                                                            Richard C. Weisberg
 Law Offices
 33 Derwen Road
 Bala Cynwyd, Pennsylvania 19004
 Fax: (215) 689 1504

 

Loeb & Loeb LLP
 10100 Santa Monica Boulevard, Suite 2200
 Los Angeles, California 90067
 Attention: Lance N. Jurich, Esq.
 Fax: (310) 282-2211

 

If to the Prospect Parties:                                                        Prospect Global Resources, Inc.
 1401 17th Street, Suite 1550
 Denver, Colorado 80202
 Attention: Mr. Damon Barber, Chief Executive Officer
 Fax: (303) 990-8440

 

With a copy to:                                                                                                            Eisner Jaffe Gorry Chapman & Ross, PC
 9601 Wilshire Boulevard, Suite 700
 Beverly Hills, California 90210
 Attention: Mr. Michael Eisner
 Fax: (310) 855-3201

 

Any party may change its address by giving the other party written notice of its new address as herein provided.

 

16.                               Headings.  The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.

 

17.                               Representation by Counsel.  The Prospect Parties (a) have retained counsel to represent them in the transactions contemplated herein; (b) have read and understand this Agreement; (c) have been advised by their counsel with respect to its rights and obligations

 

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under this Agreement; and (d) agree that the principle of construction against draftsmen shall have no application in the interpretation of this Agreement.

 

18.                               Entire Agreement.  This Agreement and the Exhibits attached hereto contains the entire understanding between the parties with respect to the subject matter hereof.  The Loan Documents shall remain in full force and effect and shall not be further amended except by a writing signed by Karlsson and all of the parties to this Agreement, including any consenting parties hereto.

 

19.                               Successors and Assigns; Assignment.  This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.  Without limiting Karlsson’s rights under the Loan Documents, Karlsson may, without the consent of any Person, assign this Agreement and its rights hereunder and under any other Loan Document to any Person at any time; provided, however, that, it shall be a condition precedent to any assignment hereunder 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 Prospect DE and its affiliates will solely interface with respect to all rights and obligations under the Note and the Loan Documents, and to which Prospect DE and its affiliates will remit all payments hereunder, and which Agency Agreement will provide for the Administrative Agent to provide Prospect DE with a copy of the Agency Agreement, and any amendments thereto, upon execution of the same; and provided further that the assignee agrees to be bound by the provisions of Sections 5(b)(3)-(5) the Fourth Extension Agreement.  The Prospect Parties agree 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, 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 anything to the contrary in any Loan Document or in the Purchase Agreement, but subject to the provisions of this Section 19, Karlsson (or any shareholder, director, agent, employee or officer of Karlsson) may actively solicit any Person to be a purchaser, or to be a counterparty to an assignment, of the Note (whether such potential purchaser, or counterparty to an assignment, of the Note wishes to purchase, or receive the assignment of, the Note and the Loan Documents in a free-standing transaction or contemplates such purchase, or receipt of an assignment, of the Note as a part of a larger transaction or series of transactions involving any Prospect Party or any of its assets).  Karlsson or any director, shareholder, employee, Affiliate or Representative (each as defined in the Purchase Agreement) or agent of Karlsson (each, a “Karlsson Party”) may, in connection with (A) Karlsson’s efforts to sell, assign or otherwise dispose of the Note; (B) any restructuring of the indebtedness represented by the Note and the Loan Documents; or (C) any “assignment” (as defined in the Note), disclose any information related to Parent or any of its subsidiaries as such Karlsson Party shall deem appropriate in its sole discretion; provided, however, that prior to providing any non-public information regarding Parent or any of its subsidiaries, Karlsson shall obtain from the person to which disclosure is to be made an executed confidentiality agreement which shall provide that (i) such person agrees to be bound by the terms of Section 5.06 of the Purchase Agreement, and (ii) Parent and its subsidiaries are intended third party beneficiaries of

 

12

 

such confidentiality agreement.  This Section 19 of this Agreement amends, supersedes and replaces Section 19 of the Third Extension Agreement.

 

20.                               Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona.

 

21.                               Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first hereinabove written.

 

	
 
    	
KARLSSON:
    
	
 
    	
 
    
	
 
    	
The   Karlsson Group, Inc.
    
	
 
    	
an   Arizona corporation
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Michael Stone
    
	
 
    	
Name:   Michael Stone
    
	
 
    	
Title:   CFO/Treasurer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PROSPECT   DE:
    
	
 
    	
 
    
	
 
    	
Prospect   Global Resources, Inc.,
    
	
 
    	
a   Delaware corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Damon Barber
    
	
 
    	
Name:   Damon Barber
    
	
 
    	
Its:   President, CEO and Secretary
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PARENT:
    
	
 
    	
 
    
	
 
    	
Prospect   Global Resources, Inc.,
    
	
 
    	
a   Nevada corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Damon Barber
    
	
 
    	
Name:   Damon Barber
    
	
 
    	
Its:   President, CEO and Secretary
    

 

13

 

	
 
    	
AWP:
    
	
 
    	
 
    
	
 
    	
American   West Potash, LLC
    
	
 
    	
a   Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Damon Barber
    
	
 
    	
Name:   Damon Barber
    
	
 
    	
Its:   President, CEO and Secretary
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
APACHE:
    
	
 
    	
 
    
	
 
    	
Apache   County Land & Ranch, LLC
    
	
 
    	
a   Nevada limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Damon Barber
    
	
 
    	
Name:   Damon Barber
    
	
 
    	
Its:   President, CEO and Secretary
    

 

14

 

Exhibit A

 

FORM OF TENTH AMENDMENT TO NOTE

 

 

Exhibit B

 

FORM OF AMENDMENT NO. 3 TO MAY 30, 2012 WARRANT

 

16

 

Exhibit C

 

FORM OF WARRANT

 

17

 

Exhibit D

 

FORM OF AMENDMENT NO. 2 TO JUNE 26, 2013 WARRANT

 

18Exhibit 10.2

 

TENTH AMENDMENT TO
 SENIOR FIRST PRIORITY SECURED PROMISSORY NOTE

 

This TENTH AMENDMENT TO SENIOR FIRST PRIORITY SECURED PROMISSORY NOTE (this “Tenth Amendment”) is made as of March 12, 2014 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 (“AWP”), 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, AWP, Prospect Nevada, Apache, Maker and Holder entered into that certain Second Extension Agreement dated as of June 26, 2013;

 

WHEREAS, Maker and Holder entered into a Second Amendment to Senior First Priority Secured Promissory Note dated as of June 26, 2013;

 

WHEREAS, Maker and Holder entered into a Third Amendment to Senior First Priority Secured Promissory Note dated as of September 9, 2013;

 

WHEREAS, Maker and Holder entered into a Fourth Amendment to Senior First Priority Secured Promissory Note dated as of September 13, 2013;

 

WHEREAS, Maker and Holder entered into a Fifth Amendment to Senior First Priority Secured Promissory Note dated as of November 13, 2013;

 

WHEREAS, Maker and Holder entered into a Sixth Amendment to Senior First Priority Secured Promissory Note dated as of December 3, 2013;

 

WHEREAS, Maker and Holder entered into a Seventh Amendment to Senior First Priority Secured Promissory Note dated as of December 10, 2013;

 

 

WHEREAS, Maker and Holder entered into an Eighth Amendment to Senior First Priority Secured Promissory Note dated as of January 31, 2014;

 

WHEREAS, Maker and Holder entered into a Ninth Amendment to Senior First Priority Secured Promissory Note dated as of March 7, 2014;

 

WHEREAS, AWP, Prospect Nevada, Apache, Maker and Holder entered into that certain Fifth Extension Agreement (the “Fifth Extension Agreement”) dated as of March 12, 2014; and

 

WHEREAS, it is a condition to the effectiveness of the Fifth 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)                                 Amendment to Section 2.2.  Section 2.2 of the Note is amended and restated to read in its entirety as follows:

 

“Payments Other Than Interest or Principal.  Maker shall pay to Holder, designating in writing such payments as payments under this section of this Note, the following amounts, as additional consideration for the Holder’s sale of its membership interest in American West Potash, LLC under the Purchase Agreement and not as prepayments of principal under this Note, (i) a payment equal to the 2012 453A Amount on or before the Initial 453A Payment Date, (ii) a payment equal to the 2013 453A Amount on or before the Initial 453A Payment Date, (iii) a payment equal to the 2014 453A Amount on or before February 10, 2015, and, (iv) along with each payment of principal pursuant to Section 3.2 of this Note, and at the Maturity Date, the Principal Payment Tax Gross-Up Amount or amount due under Section 3.5 with respect to such payment; provided, however, that no Principal Payment Tax Gross-Up Amount or amount under Section 3.5 shall be due with respect to the first $200,000 of pre-payments under Section 3.2(a).  For purposes hereof, the “Initial 453A Payment Date” shall mean the earlier of (i) April 10, 2014; and (ii) the date of occurrence of the first Event of Default to occur under this Note on or after November 14, 2013.  For the avoidance of doubt, no payment made pursuant to any other provision of this Note, including but not limited to Section 3.2(c) hereof, shall satisfy in whole or any part Maker’s obligation to make the payments set forth in this Section 2.2.”

 

(b)                                 Amendment to Section 3.4.  Section 3.4 of the Note is amended to read in its entirety as follows:

 

2

 

“Prepayment Discount.  In the event that Maker makes payments under the Note totaling Twenty-Five Million Dollars ($25,000,000) on or after December 10, 2013 and on or before April 10, 2014, whether through one or multiple payments, and whether pursuant to Section 2.2, Section 3.2 or Section 3.3, then all of Maker’s obligations under this Note shall be deemed to have been satisfied in full by Maker as of the date of such payment, or, in the case of multiple payments, the date on which the last such payment is made.”

 

(c)                                  Amendment to Section 5.4(ii).  Section 5.4(ii) of the Note is amended to read in its entirety as follows:

 

“No later than April 10, 2014, deliver a completed and updated 43-101 final resource report for purposes of the Definitive Feasibility Study.”

 

(d)                                 Amendment to Section 5.13.  Section 5.13 of the Note is amended to read in its entirety as follows:

 

5.13                        “Section 3.4 Prepayment.  Maker shall not have prepaid the Note in the full amount of Twenty-Five Million Dollars ($25,000,000) on or after December 10, 2013 and on or before April 10, 2014 in accordance with Section 3.4 of the Note.”

 

(e)                                  New Section 11.  The following new Section 11 shall be added to the Note:

 

“Copies of Communications with Governmental Authorities.  Within two (2) business days from the sending or receipt thereof, as applicable, Maker shall, and shall cause Prospect Nevada to, deliver to Holder: (i) copies of all written correspondence with any state or federal governmental authority (including but not limited to the ASLD), including but not limited to electronic correspondence and including but not limited all correspondence of any kind and nature regarding or relevant to any Mineral Development Report, any exploration permit, or any mining license; and (ii) true and correct summaries of all non-written communications with any state or federal governmental authority (including but not limited to the ASLD), including but not limited to all communications of any kind and nature regarding or relevant to any Mineral Development Report, any exploration permit, or any mining license.”

 

3.                                      Miscellaneous.

 

(a)                                 No Other Amendment.  Except as expressly amended in this Tenth 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 Tenth Amendment and the terms and conditions of the Note, the provisions of this Tenth Amendment shall govern.

 

(b)                                 Relation to Note.  This Tenth Amendment constitutes an integral part of the Note.  Upon the effectiveness of this Tenth Amendment, each reference in the Note to “this

 

3

 

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 Tenth 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 Tenth 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.

 

IN WITNESS WHEREOF, the parties hereto have caused this Tenth 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 MARCH 12, 2014:
    
	
 
    
	
THE   KARLSSON GROUP, INC.,
    
	
an   Arizona corporation
    
	
 
    
	
 
    
	
By:
    	
/s/   Michael Stone
    	
 
    
	
Name:
    	
Michael   Stone
    	
 
    
	
Title:
    	
CFO/Treasurer
    	
 
    

 

4

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