Document:

Exhibit 4.1

 

ANNEX A

 

CERTIFICATE OF DESIGNATION
 OF 
 SENIOR MANDATORILY CONVERTIBLE PREFERRED STOCK 
 OF PROSPECT GLOBAL RESOURCES INC.

 

Pursuant to Section 78.1955 of the 
 Nevada Revised Statutes

 

Prospect Global Resources Inc., a Nevada corporation (the “Corporation”), certifies that pursuant to the authority conferred upon the Board of Directors of the Corporation (the “Board of Directors”) by the Second Amended and Restated Articles of Incorporation of the Corporation (as further amended from time to time, the “Articles of Incorporation”), and in accordance with the provisions of Section 78.1955 of the Nevada Revised Statutes, as amended (the “NRS”), the Board of Directors, on July 9, 2013, adopted the following resolution creating a series of its preferred stock, par value $0.001 per share:

 

RESOLVED, that (1) pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation, the Board of Directors hereby designates 5,500,000 shares of the preferred stock, par value $0.001 per share, of the Corporation as “Senior Mandatorily Convertible Preferred Stock” (the “Senior Preferred Stock”), and the powers, designations, preferences and relative, participating, optional and other rights of the Senior Preferred Stock and the qualifications, limitations and restrictions thereof, be, and they hereby are, as set forth in this certificate of designation (this “Certificate of Designation”), and (2) in connection therewith, the officers of the Corporation be, and each of them hereby is, authorized, empowered and directed on behalf of the Corporation and in its name to execute and to file this Certificate of Designation with the Nevada Secretary of State:

 

Section 1.      Designation and Amount. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as “Senior Mandatorily Convertible Preferred Stock.” The number of shares constituting such series shall be 5,500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors, provided that such number shall not be decreased below the number of shares of such series outstanding at the effective time of such decrease. The Senior Preferred Stock shall have par value $0.001 per share and the liquidation preference of the Senior Preferred Stock shall initially be $1.00 per share (as the same may be increased from time to time pursuant to Section 4(c), the “Liquidation Preference”).

 

Section 2.      Ranking. The Senior Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation, rank (i) on a parity with each other class or series of the Corporation’s preferred stock established after the Effective Date, the terms of which other class or series expressly provide that such class or series will rank on a parity with the Senior Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (such other classes and series of preferred stock collectively referred to as “Parity Securities”) and (ii) senior to the Corporation’s common stock (the “Common Stock”) and each other class or series of the Corporation’s capital stock outstanding or established after the Effective Date, the terms of which other class or series do not expressly

 

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provide that it ranks on a parity with or senior to the Senior Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (such other classes and series of capital stock collectively referred to as “Junior Securities”). The Corporation shall have the right to authorize, establish and/or issue additional shares or classes or series of Junior Securities without the consent of the Holders.

 

Section 3.      Definitions. Unless the context or use indicates another meaning or intent, the following terms shall have the following meanings, whether used in the singular or the plural:

 

(a)           “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such first Person. As used in this definition, “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 policies of a Person, whether through the ownership of securities, partnership interests or by contract or otherwise.

 

(b)           “Applicable Conversion Price” means the Conversion Price in effect at any given time.

 

(c)           “Articles of Incorporation” has the meaning set forth in the preamble hereto.

 

(d)           “As-Converted Basis” means, with respect to any share of Senior Preferred Stock at any time, the number of shares of Common Stock equal to the number of Units into which such share of Senior Preferred Stock would be then convertible (without regard to any shares of Common Stock issuable upon exercise of any Warrants that would issue upon such conversion), as if the Mandatory Conversion Date had occurred.

 

(e)           “Beneficial Owner” has the meaning given such term in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this Certificate of Designation, such Person or group shall be deemed to have “beneficial ownership” of all shares that any such Person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time.

 

(f)            “Board of Directors” has the meaning set forth in the preamble hereto.

 

(g)           “Business Day” means any day other than a Saturday, Sunday or any other day on which banks in New York City, New York are generally required or authorized by law to be closed.

 

(h)           “Capital Stock” means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of the Corporation, including any Common Stock or any series of preferred stock of the Corporation, but excluding any debt securities convertible into such equity.

 

(i)            “Certificate of Designation” has the meaning set forth in the preamble hereto.

 

(j)            “Closing Price” of the Common Stock on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares 

 

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of the Common Stock on the NASDAQ Capital Market on such date. If the Common Stock is not traded on the NASDAQ Capital Market on any date of determination, the Closing Price of the Common Stock on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange on which the Common Stock is so listed or quoted, or if the Common Stock is not so listed or quoted on a U.S. national or regional securities exchange, the last quoted bid price for the Common Stock in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization, or, if that bid price is not available, the market price of the Common Stock on that date as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

 

For purposes of this Certificate of Designation, all references herein to the “Closing Price” and “last reported sale price” of the Common Stock on the NASDAQ Capital Market shall be such closing sale price and last reported sale price as reflected on the website of the NASDAQ Capital Market (http://www.nasdaq.com) and as reported by Bloomberg Professional Service; provided that in the event that there is a discrepancy between the closing sale price or last reported sale price as reflected on the website of the NASDAQ Capital Market and as reported by Bloomberg Professional Service, the closing sale price and last reported sale price on the website of the NASDAQ Capital Market shall govern. If the date of determination is not a Trading Day, then such determination shall be made as of the last Trading Day prior to such date.

 

(k)           “Common Stock” has the meaning set forth in Section 2.

 

(l)            “Continuing Director” means any member of the Board of Directors who (i) was a member of the Board of Directors as of the effective date of this Certificate of Designation or (ii)  was nominated for election, elected or appointed to the Board of Directors with the approval of a majority of the Continuing Directors who were members of the Board of Directors at the time of such nomination, election or appointment.

 

(m)          “Conversion Price” means, for each share of Senior Preferred Stock, $0.12, subject to adjustment as set forth herein.

 

(n)           “Corporation” has the meaning set forth in the preamble hereto.

 

(o)           “Current Market Price” means, with respect to any date, the average of the daily Closing Price per share of the Common Stock on each of the five consecutive Trading Days preceding the earlier of the day before such date and the day before the Ex-Date with respect to the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10.

 

(p)           “Effective Date” means the date on which shares of the Senior Preferred Stock are first issued.

 

(q)           “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

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(r)            “Exchange Property” has the meaning set forth in Section 11(a).

 

(s)            “Ex-Date,” when used with respect to any issuance or distribution, means the first date on which the Common Stock or other securities trade without the right to receive the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10, provided that if the issuance or distribution giving rise to an adjustment to the Conversion Price does not result from such an issuance or distribution on the Common Stock, then the Ex-Date shall be the effective date of the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10.

 

(t)            “Fundamental Change” means one of the following:

 

(i)    a “person” or “group” (other than any “person” or “group” that includes either Holder or any of its respective Affiliates) within the meaning of Section 13d of the Exchange Act files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate Beneficial Owner of common equity of the Corporation representing more than 50% of the voting power of the outstanding Voting Stock;

 

(ii)   the occurrence of the consummation of any consolidation or merger of the Corporation or similar transaction or any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Corporation and its subsidiaries, taken as a whole, with, into or to any Person other than one or more of the Corporation’s subsidiaries or any Holder or any of its respective Affiliates, in each case pursuant to which the Common Stock will be converted into cash, securities or other property, other than pursuant to a transaction in which the Persons that “beneficially owned” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, voting shares of the Corporation immediately prior to such transaction beneficially own, directly or indirectly, voting shares representing a majority of the continuing or surviving Person immediately after the transaction; or

 

(iii)  a majority of the members of the Board of Directors are not Continuing Directors.

 

(u)           “Holder” means, as of any date, the Person in whose name the shares of the Senior Preferred Stock are registered as of such date, which Person may be treated by the Corporation as the absolute owner of the shares of Senior Preferred Stock for any and all purposes, including, without limitation, for the purpose of making payment and settling conversions.

 

(v)           “Liquidation Preference” has the meaning set forth in Section 1.

 

(w)          “Liquidation Transaction” has the meaning set forth in Section 5(a).

 

(x)           “Mandatory Conversion Date” means, with respect to any share of Senior Preferred Stock held by any Holder, the day on which the Corporation has received all Stockholder Approvals necessary to permit such Holder to convert such share of Senior 

 

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Preferred Stock into authorized share(s) of Common Stock without such conversion constituting or resulting in a Violation.

 

(y)           “Notice of Mandatory Conversion” has the meaning set forth in Section 9(a).

 

(z)           “Parity Securities” has the meaning set forth in Section 2.

 

(aa)         “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

 

(bb)         “Record Date” has the meaning set forth in Section 4(e).

 

(cc)         “Reorganization Event” has the meaning set forth in Section 11(a).

 

(dd)         “Section 4(c) Dividend Payment Date” has the meaning set forth in Section 4(c).

 

(ee)         “Section 4(c) Dividend Period” has the meaning set forth in Section 4(c).

 

(ff)          “Senior Preferred Stock” has the meaning set forth in the preamble hereto.

 

(gg)         “Series A Warrant” means a warrant immediately exercisable for one share of Common Stock at an initial exercise price of $0.12 per share.

 

(hh)         “Series B Warrant” means a warrant immediately exercisable for one share of Common Stock at an initial exercise price of $0.12 per share

 

(ii)           “Special Dividend” has the meaning set forth in Section 4(c).

 

(jj)           “Special Dividend Rate” means (i) on and after December 15, 2013, to but not including June 15, 2014, 20%, (ii) on and after June 15, 2014, to but not including December 15, 2014, 25%, and (iii) on and after December 15, 2014, 30%.

 

(kk)         “Stockholder Approvals” means all approvals of the stockholders of the Corporation necessary to approve the conversion of the Senior Preferred Stock into Units for purposes of Rule 5635 of the NASDAQ Stock Market Rules and of a reverse stock split sufficient to allow the Company to issue Common Stock upon conversion of the Senior Preferred Stock as provided herein and upon exercise of the Warrants issued or issuable to the Holders pursuant to the Units received upon exercise.

 

(ll)           “Trading Day” means a day on which the shares of Common Stock:

 

(i)    are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business; and

 

(ii)   have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

 

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(mm)      “Units” means a unit consisting of one Share of Common Stock, one Series A Warrant and one Series B Warrant, with the Warrants being immediately detachable and separately tradable from the Common Stock.

 

(nn)         “Violation” means a violation of the stockholder approval requirements of Rule 5635 of the NASDAQ Stock Market Rules.

 

(oo)         “Voting Stock” means securities of any class of Capital Stock of the Corporation entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors.

 

Section 4.      Dividends and Distributions.

 

(a)           From and after the Effective Date, Holders shall be entitled to receive, out of the funds legally available therefor, (i) non-cumulative cash dividends in the amount determined as set forth in Section 4(b) and (ii) cumulative dividends as set forth in Section 4(c), and no more.

 

(b)           If the Board of Directors declares and the Corporation pays a cash dividend in respect of any shares of Common Stock, then the Board of Directors shall declare and the Corporation shall pay to the Holders a cash dividend in an amount per share of Senior Preferred Stock equal to the product of (i) the per share dividend declared and paid in respect of each share of Common Stock and (ii) the number of Units into which such share of Senior Preferred Stock would then be ultimately convertible if Stockholder Approvals had been obtained.

 

(c)           In addition to the dividends provided for in Section 4(b), dividends shall commence accruing from December 15, 2013 and continue to accrue, whether or not declared, and be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year (each, a “Section 4(c) Dividend Payment Date”) or, if any such day is not a Business Day, the next Business Day. Dividends payable pursuant to this Section 4(c) will accrue, whether or not declared, and shall, for each outstanding share of Senior Preferred Stock, accrete at an annual rate on the Liquidation Preference equal to the Special Dividend Rate (such dividend, the “Special Dividend”). Special Dividends will be computed on the basis of a 360-day year of 12 30-day months and, for any Section 4(c) Dividend Period greater or less than a full Section 4(c) Dividend Period, will be computed on the basis of the actual number of days elapsed in the period divided by 360. Special Dividends accrued and payable during any Section 4(c) Dividend Period will not be paid in cash, but instead will be added to the Liquidation Preference on the earliest of (i) such Section 4(c) Dividend Payment Date, (ii) for any partial period prior to a Section 4(c) Dividend Payment Date, the date of a liquidation, dissolution or winding up of the Corporation, or (iii) for any partial period prior to a Section 4(c) Dividend Payment Date, the Mandatory Conversion Date. Each period from and including a Section 4(c) Dividend Payment Date to but excluding the following Section 4(c) Dividend Payment Date is herein referred to as a “Section 4(c) Dividend Period.”

 

(d)           Dividends payable pursuant to Section 4(b) shall be payable on the same date that dividends are payable to holders of shares of Common Stock, and no dividends shall be payable 

 

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to holders of shares of Common Stock unless the full dividends contemplated by Section 4(b) are paid at the same time in respect of the Senior Preferred Stock.

 

(e)           Each dividend will be payable to Holders of record as they appear in the records of the Corporation at the close of business on the record date (each, a “Record Date”), which (i) with respect to dividends payable pursuant to Section 4(b), shall be the same day as the record date for the payment of the corresponding dividends to the holders of shares of Common Stock and (ii) with respect to dividends payable pursuant to Section 4(c), shall be on the first day of the month in which the relevant Section 4(c) Dividend Payment Date occurs or, if such date is not a Business Day, the first Business Day of such month.

 

(f)            Dividends payable pursuant to Section 4(b) on the Senior Preferred Stock are non-cumulative. If the Board of Directors does not declare a dividend on the Common Stock, the Holders of such Senior Preferred Stock will have no right to receive any dividend for such dividend period, and the Corporation will have no obligation to pay a dividend for such dividend period, whether or not dividends are declared and paid for any future dividend period with respect to the Senior Preferred Stock or any other class or series of the Corporation’s preferred stock or the Common Stock.

 

(g)           If the Mandatory Conversion Date with respect to any share of Senior Preferred Stock is after the Record Date for any declared dividend and prior to the payment date for that dividend, the Holder thereof shall receive that dividend on the relevant payment date if such Holder was the Holder of record on the Record Date for that dividend.

 

Section 5.      Liquidation.

 

(a)           In the event the Corporation voluntarily or involuntarily liquidates, dissolves or winds up (a “Liquidation Transaction”), each Holder at the time of such Liquidation Transaction shall be entitled to receive for each share of Senior Preferred Stock held by such Holder liquidating distributions in the amount of the then-current Liquidation Preference per share of Senior Preferred Stock, plus an amount equal to any accrued dividends, whether or not declared, thereon to and including the date of such Liquidation Transaction to the extent not added to the Liquidation Preference pursuant to Section 4(c), out of assets legally available for distribution to the Corporation’s stockholders, before any distribution of assets is made to the holders of Common Stock or any other Junior Securities. After payment of the full amount of such liquidating distributions, Holders shall not be entitled to participate in any further distribution of the remaining assets of the Corporation.

 

(b)           In the event the assets of the Corporation available for distribution to stockholders upon any Liquidation Transaction, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Senior Preferred Stock and the corresponding amounts payable on any Parity Securities, Holders and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in proportion to the full respective liquidating distributions to which they would otherwise be respectively entitled.

 

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(c)           The Corporation’s consolidation or merger with or into any other entity, the consolidation or merger of any other entity with or into the Corporation, or the sale of all or substantially all of the Corporation’s property or business will not constitute its liquidation, dissolution or winding up; provided, that, a Fundamental Change shall be deemed a Liquidation Transaction unless waived by the vote or consent of the Holders of a majority of the shares of Senior Preferred Stock at the time outstanding voting as a single class.

 

Section 6.      Maturity. The Senior Preferred Stock shall be perpetual unless converted in accordance with this Certificate of Designation.

 

Section 7.      Redemptions. The Senior Preferred Stock shall not be redeemable either at the Corporation’s option or at the option of Holders at any time.

 

Section 8.      Conversion.

 

(a)           Mandatory Conversion. Effective as of the close of business on the Mandatory Conversion Date, each share of Senior Preferred Stock shall automatically convert into Units as set forth in this Certificate of Designation.

 

(b)           Number of Units upon Conversion. The number of Units into which a share of Senior Preferred Stock shall be convertible shall be determined by dividing the then-current Liquidation Preference by the Applicable Conversion Price (subject to the conversion procedures of Section 9 hereof) plus cash in lieu of fractional Units in accordance with Section 13 hereof.

 

Section 9.      Conversion Procedures.

 

(a)           Upon occurrence of the Mandatory Conversion Date, the Corporation shall provide notice of the mandatory conversion to each Holder (such notice a “Notice of Mandatory Conversion”). In addition to any information required by applicable law or regulation, the Notice of Mandatory Conversion with respect to such Holder shall state, as appropriate:

 

(i)    the Mandatory Conversion Date; and

 

(ii)   the number of Units to be issued upon conversion of each share of Senior Preferred Stock held of record by such Holder.

 

(b)           Effective immediately prior to the close of business on the Mandatory Conversion Date with respect to any share of Senior Preferred Stock, dividends shall no longer be declared or accrue on any such converted share of Senior Preferred Stock and such share of Senior Preferred Stock shall only represent such number of Units issuable upon conversion thereof and shall cease to be outstanding, in each case, subject to the right of the Holder to receive any declared or accrued and unpaid dividends on such share to the extent provided in Section 4(g) and any other payments to which such Holder is otherwise entitled pursuant to Section 8, Section 11 or Section 13 hereof, as applicable.

 

(c)           No allowance or adjustment, except pursuant to Section 10, shall be made in respect of dividends payable to holders of the Common Stock of record as of any date prior to the close of business on the Mandatory Conversion Date with respect to any share of Senior

 

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Preferred Stock. Prior to the close of business on the Mandatory Conversion Date with respect to any share of Senior Preferred Stock, shares of Common Stock and Warrants issuable upon conversion thereof, or other securities issuable upon conversion of such share of Senior Preferred Stock, shall not be deemed outstanding for any purpose, and the Holder thereof shall have no rights with respect to the Common Stock, Warrants or other securities issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock or other securities issuable upon conversion and rights to receive any dividends or other distributions on the Common Stock or other securities issuable upon conversion) by virtue of holding such share of Senior Preferred Stock.

 

(d)           Shares of Senior Preferred Stock converted in accordance with this Certificate of Designation, or otherwise reacquired by the Corporation, will, without any action by the Board of Directors or otherwise, resume the status of authorized and unissued preferred stock, undesignated as to series and available for future issuance.

 

(e)           The Person or Persons entitled to receive Common Stock, Warrants and/or cash, securities or other property issuable upon conversion of Senior Preferred Stock shall be treated for all purposes as the record holder(s) of shares of Common Stock, Warrants and/or securities as of the close of business on the Mandatory Conversion Date with respect thereto. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock, Warrants and/or cash, securities or other property (including payments of cash in lieu of fractional Units) to be issued or paid upon conversion of shares of Senior Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such securities, and make such payment, in the name of the Holder and in the manner shown on the records of the Corporation or pursuant to applicable law.

 

Section 10.    Anti-Dilution Adjustments.

 

(a)           The Conversion Price shall be subject to the following adjustments.

 

(i)    Stock Dividends and Distributions. If the Corporation pays dividends or other distributions on the Common Stock in shares of Common Stock, then the Conversion Price in effect immediately prior to the Ex-Date for such dividend or distribution will be multiplied by the following fraction:

 

	
 
    	
 
    	
OS0
    	
 
    	
 
    
	
 
    	
 
    	
OS1
    	
 
    	
 
    

 

where:

 

OS0 = the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution.

 

OS1 = the sum of the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution plus the total number of shares of Common Stock constituting such dividend or distribution.

 

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If any dividend or distribution described in this clause (i) is declared but not so paid or made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to make such dividend or distribution, to such Conversion Price that would be in effect if such dividend or distribution had not been declared.

 

(ii)   Subdivisions, Splits and Combinations. If the Corporation subdivides, splits or combines the shares of Common Stock, then the Conversion Price in effect immediately prior to the effective date of such share subdivision, split or combination will be multiplied by the following fraction:

 

	
 
    	
 
    	
OS0
    	
 
    	
 
    
	
 
    	
 
    	
OS1
    	
 
    	
 
    

 

where:

 

OS0 = the number of shares of Common Stock outstanding immediately prior to the effective date of such share subdivision, split or combination.

 

OS1 = the number of shares of Common Stock outstanding immediately after the close of business on the effective date of such share subdivision, split or combination.

 

If any subdivision, split or combination described in this clause (ii) is announced but the outstanding shares of Common Stock are not subdivided, split or combined, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to subdivide, split or combine the outstanding shares of Common Stock, to such Conversion Price that would be in effect if such subdivision, split or combination had not been announced.

 

(iii) Issuance of Stock Purchase Rights. If the Corporation issues to all holders of the shares of Common Stock (and does not make the equivalent issuance to the Holders) rights or warrants (other than rights or warrants issued pursuant to a dividend reinvestment plan or share purchase plan or other similar plans) entitling them, for a period of up to 60 days from the date of issuance of such rights or warrants, to subscribe for or purchase shares of Common Stock at less than the Current Market Price on the date fixed for the determination of stockholders entitled to receive such rights or warrants, then the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

 

	
 
    	
 
    	
OS0+ Y
    	
 
    	
 
    
	
 
    	
 
    	
OS0 + X
    	
 
    	
 
    

 

where:

 

OS0 = the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such distribution.

 

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X = the total number of shares of Common Stock issuable pursuant to such rights or warrants.

 

Y = the number of shares of Common Stock equal to the aggregate price payable to exercise such rights or warrants divided by the aggregate Current Market Price of shares of Common Stock issuable upon conversion of one share of Senior Preferred Stock.

 

The Corporation shall not issue any such rights or warrants in respect of shares of the Common Stock acquired by the Corporation. In the event that such rights or warrants described in this clause (iii) are not so issued, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to issue such rights or warrants, to the Conversion Price that would then be in effect if such issuance had not been declared. To the extent that such rights or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, the Conversion Price shall be readjusted to such Conversion Price that would then be in effect had the adjustment made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered. In determining the aggregate offering price payable for such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants and the value of such consideration (if other than cash, to be determined by the Board of Directors).

 

(iv)  Debt or Asset Distributions. If the Corporation distributes to all holders of shares of Common Stock evidences of indebtedness, shares of capital stock, securities, cash or other assets (excluding (a) any dividend or distribution referred to in clause (i) above, (b) any rights or warrants referred to in clause (iii) above, (c) any dividend or distribution paid exclusively in cash, (d) any consideration payable in connection with a tender or exchange offer made by the Corporation or any of its subsidiaries, and (e) any dividend of shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary of the Corporation or other business unit in the case of certain spin-off transactions as described below), then the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

 

	
 
    	
 
    	
SP0 – FMV
    	
 
    	
 
    
	
 
    	
 
    	
SP0
    	
 
    	
 
    

 

where:

 

SP0 = the aggregate Current Market Price of the Common Stock issuable upon conversion of one share of Senior Preferred Stock.

 

FMV = the fair market value of the portion of the distribution applicable to one share of Common Stock on such date as determined by the Board of Directors.

 

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In a “spin-off,” where the Corporation makes a distribution to all holders of shares of Common Stock consisting of capital stock of any class or series, or similar equity interests of, or relating to, a subsidiary of the Corporation or other business unit, the Conversion Price will be adjusted on the fifteenth Trading Day after the effective date of the distribution by multiplying such Conversion Price in effect immediately prior to such fifteenth Trading Day by the following fraction:

 

	
 
    	
 
    	
MP0
    	
 
    	
 
    
	
 
    	
 
    	
MP0 + MPs
    	
 
    	
 
    

 

where:

 

MP0 = the average of the Closing Prices of the Common Stock over the first ten Trading Days commencing on and including the fifth Trading Day following the effective date of such distribution aggregated for all shares of Common Stock issuable upon conversion of one share of Senior Preferred Stock.

 

MPs = the average of the Closing Prices of the capital stock or equity interests representing the portion of the distribution applicable to one share of Senior Preferred Stock over the first ten Trading Days commencing on and including the fifth Trading Day following the effective date of such distribution, or, if not traded on a national or regional securities exchange or over-the-counter market, the fair market value of the capital stock or equity interests representing the portion of the distribution applicable to one share of Senior Preferred Stock on such date as determined by the Board of Directors.

 

In the event that such distribution described in this clause (iv) is not so paid or made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay or make such dividend or distribution, to the Conversion Price that would then be in effect if such dividend or distribution had not been declared.

 

(v)   Cash Distributions. If the Corporation makes a distribution consisting exclusively of cash to all holders of Common Stock, excluding (a) any cash dividend on the Common Stock to the extent a corresponding cash dividend is paid on the Senior Preferred Stock pursuant to Section 4(b), (b) any cash that is distributed in a Reorganization Event or as part of a “spin-off” referred to in clause (iv) above, (c) any dividend or distribution in connection with a Liquidation Transaction, and (d) any consideration payable in connection with a tender or exchange offer made by the Corporation or any of its subsidiaries, then in each event, the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

 

	
 
    	
 
    	
SP0
    	
 
    	
 
    
	
 
    	
 
    	
SP0 + DIV
    	
 
    	
 
    

 

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where:

 

SP0 = the aggregate Closing Price per share of Common Stock on the Trading Day immediately preceding the Ex-Date for all shares that are issuable upon conversion of one share of Senior Preferred Stock.

 

DIV = the amount per share of Common Stock of the dividend or distribution.

 

In the event that any distribution described in this clause (v) is not so made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such distribution, to the Conversion Price which would then be in effect if such distribution had not been declared.

 

(vi)  Self Tender Offers and Exchange Offers. If the Corporation or any of its subsidiaries successfully completes a tender or exchange offer for the Common Stock (and does not make the equivalent offer to the Holders in respect of Senior Preferred Stock) where the cash and the value of any other consideration included in the payment per share of the Common Stock exceeds the Closing Price per share of Common Stock on the Trading Day immediately succeeding the expiration of the tender or exchange offer, then the Conversion Price in effect at the close of business on such immediately succeeding Trading Day will be multiplied by the following fraction:

 

	
 
    	
 
    	
OS0 x SP0
    	
 
    	
 
    
	
 
    	
 
    	
AC   + (SP0 x OS1)
    	
 
    	
 
    

 

where:

 

SP0 = the aggregate Closing Price for the shares of Common Stock issuable upon conversion of one share of Senior Preferred Stock, with such Closing Price being that on the Trading Day immediately succeeding the expiration of the tender or exchange offer.

 

OS0 = the number of shares of Common Stock outstanding immediately prior to the expiration of the tender or exchange offer, including any shares validly tendered and not withdrawn.

 

OS1= the number of shares of Common Stock outstanding immediately after the expiration of the tender or exchange offer and after taking into account the shares purchased pursuant thereto.

 

AC = the aggregate cash and fair market value of the other consideration payable in the tender or exchange offer, as determined by the Board of Directors.

 

In the event that the Corporation, or one of its subsidiaries, is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation, or such subsidiary, is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Price shall be readjusted to be such Conversion Price that would then be in effect if such tender offer or exchange offer had not been made with respect to such shares.

 

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(vii)         Rights Plans. To the extent that the Corporation has a rights plan in effect with respect to the Common Stock on the Mandatory Conversion Date, upon conversion of any shares of the Senior Preferred Stock, Holders will receive, in addition to the shares of Common Stock, the rights under the rights plan, unless, prior to the Mandatory Conversion Date, the rights have separated from the shares of Common Stock, in which case the Conversion Price will be adjusted at the time of separation as if the Corporation had made a distribution to all holders of the Common Stock as described in clause (iv)  above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

 

(b)                                 The Corporation may, with the consent of Holders of a majority of the Senior Preferred Stock, make such decreases in the Conversion Price, in addition to any other decreases required by this Section 10, if the Board of Directors deems it advisable to avoid or diminish any income tax to holders of the Common Stock resulting from any dividend or distribution of shares of Common Stock (or issuance of rights or warrants to acquire shares of Common Stock) or from any event treated as such for income tax purposes or for any other reason.

 

(c)                                  (i)  All adjustments to the Conversion Price shall be calculated to the nearest 1/100 of a cent. No adjustment in the Conversion Price shall be required if such adjustment would be less than $0.001; provided, that any adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided further that on the Mandatory Conversion Date adjustments to the Conversion Price will be made with respect to any such adjustment carried forward and which has not been taken into account before such date.

 

(ii)  No adjustment to the Conversion Price shall be made if Holders may participate in the transaction that would otherwise give rise to an adjustment, as a result of holding the Senior Preferred Stock (including without limitation pursuant to Section 4(b)), without having to convert the Senior Preferred Stock, as if they held the full number of shares of Common Stock into which a share of the Senior Preferred Stock may then be converted.

 

(iii)  Notwithstanding anything contained herein, the Applicable Conversion Price shall not be adjusted:

 

(A)                               upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on the Corporation’s securities and the investment of additional optional amounts in shares of Common Stock under any plan;

 

(B)                               upon the issuance of any shares of Common Stock or rights or warrants to purchase those shares pursuant to any (x) existing employee, director or consultant benefit plan or program of or assumed by the Corporation or any of its subsidiaries; or (y) future employee, director or consultant benefit plan or program of or assumed by the Corporation or any of its subsidiaries that does not increase the aggregate number of shares authorized under such plan or program 

 

A-14

 

by more than 200% of the aggregate number of shares authorized under any existing plan or program;

 

(C)                               upon the issuance of any shares of Common Stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date shares of the Senior Preferred Stock were first issued;

 

(D)                               for accrued and unpaid dividends on the Senior Preferred Stock; or

 

(E)                                in connection with the rights offering of the Corporation to the Corporation’s stockholders as contemplated by that certain prospectus supplement of the Corporation filed May 22, 2013 with the United States Securities Exchange Commission pursuant to Rule 424(b) of the Securities Act of 1933, as amended.

 

(d)          Whenever the Conversion Price is to be adjusted in accordance with Section 10(a) or Section 10(b), the Corporation shall: (i) compute the Conversion Price in accordance with Section 10(a) or Section 10(b), taking into account the threshold set forth in Section 10(c); (ii) as soon as practicable following the occurrence of an event that requires an adjustment to the Conversion Price pursuant to Section 10(a) or Section 10(b), taking into account the threshold set forth in Section 10(c), provide, or cause to be provided, a written notice to the Holders of the occurrence of such event; and (iii) as soon as practicable following the determination of the revised Conversion Price in accordance with Section 10(a) or Section 10(b), provide, or cause to be provided, a written notice to the Holders setting forth in reasonable detail the method by which the adjustment to the Conversion Price was determined and setting forth the revised Conversion Price.

 

Section 11.           Reorganization Events.

 

(a)                                 In the event of and only if such event is not a Fundamental Change:

 

(i)                                     any consolidation, merger of the Corporation with or into another Person, or other similar transaction, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

 

(ii)                                  any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

 

(iii)                               any reclassification of the Common Stock including into securities other than the Common Stock;

 

(any such event specified in this Section 11(a), a “Reorganization Event”); each share of Senior Preferred Stock outstanding immediately prior to such Reorganization Event shall remain outstanding but shall become convertible, when and if convertible pursuant to the terms hereof, into the kind of securities, cash and other property receivable in such Reorganization Event by the holder (excluding the counterparty to the Reorganization Event or an Affiliate of such counterparty) of that number of shares of Common Stock into which the share of Senior 

 

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Preferred Stock would then be convertible (plus an additional number of shares of Common Stock assuming cashless exercise of the Warrants forming a part of the Units into which such share of Senior Preferred Stock would then be convertible in accordance with the Warrant Agreements) as if the Mandatory Conversion Date had occurred (such securities, cash and other property, the “Exchange Property”).

 

(b)                                 In the event that holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such Reorganization Event, the consideration that the Holders are entitled to receive shall be deemed to be the types and amounts of  consideration received by the majority of the holders of the shares of Common Stock that affirmatively make an election. The amount of Exchange Property receivable upon conversion of any Senior Preferred Stock in accordance with Section 8 shall be determined based upon the Conversion Price in effect on the date of consummation of the Reorganization Event.

 

(c)                                  The above provisions of this Section 11 shall similarly apply to successive Reorganization Events and the provisions of Section 10 shall apply to any shares of capital stock of the Corporation (or any successor) received by the holders of Common Stock in any such Reorganization Event.

 

(d)                                 The Corporation (or any successor) shall, within 20 days of the occurrence of any Reorganization Event, provide written notice to the Holders of such occurrence of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 11.

 

(e)                                  Notwithstanding anything to the contrary in this Section 11 or otherwise in this Certificate of Designation, the Corporation shall not enter into any agreement for a transaction constituting a Fundamental Change unless such agreement (i) entitles Holders to receive the securities, cash and other property that such Holders would have been entitled to receive upon a liquidation, dissolution or winding up of the Corporation pursuant to Section 5, or (ii) in each case, subject to obtaining the required waiver specified in Section 5(c), (1) the Senior Preferred Stock remains outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, is converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, that is an entity organized and existing under the laws of the United States of America, any state thereof or the District of Columbia, and (2) such Senior Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the Holders thereof than the rights, preferences, privileges and voting powers of the Senior Preferred Stock, taken as a whole. For the avoidance of doubt, nothing herein shall prohibit the Corporation from entering into or consummating a transaction constituting a Fundamental Change so long as the Senior Preferred Stock is treated as set forth in the preceding sentence.

 

Section 12.           Voting Rights.

 

(a)                                 Holders shall be entitled to vote, on an As-Converted Basis, with holders of the Common Stock on all matters that such holders of Common Stock are entitled to vote upon, provided, that (i) the votes attributable to such shares with respect to any Holder shall 

 

A-16

 

automatically be reduced, pro rata amongst all Holders, such that the total voting power of all of the shares of Senior Preferred Stock, together with the total voting power held by the Holders and their Affiliates, is not more than 19.99% of the total voting power of the outstanding Common Stock on the date of issuance of the Senior Preferred Stock and (ii) no Holder shall be entitled to vote any share of Senior Preferred Stock in connection with the matter referred to in the definition of Stockholder Approvals.

 

(b)                                 Notwithstanding the foregoing, Holders shall not have any voting rights if, at or prior to the effective time of the act with respect to which such vote would otherwise be required, all outstanding shares of Senior Preferred Stock shall have been converted into Units.

 

Section 13.           Fractional Units.

 

(a)                                 No fractional Units will be issued as a result of any conversion of shares of Senior Preferred Stock.

 

(b)                                 In lieu of any fractional Units otherwise issuable in respect of any mandatory conversion pursuant to Section 8, the Corporation shall pay an amount in cash (computed to the nearest cent) equal to the same fraction of the aggregate Closing Price of the Common Stock issuable upon conversion of a share of Senior Preferred Stock determined as of the second Trading Day immediately preceding the Mandatory Conversion Date.

 

Section 14.           Reservation of Capital Stock.

 

(a)                                 Following a Mandatory Conversion Date, the Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock or shares held by the Corporation, solely for issuance upon the conversion of all outstanding shares of Senior Preferred Stock as provided in this Certificate of Designation, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all shares of Senior Preferred Stock then outstanding and the exercise of all Warrants forming a part of the Units issuable upon conversion of all the shares of Senior Preferred Stock then outstanding, assuming that the Applicable Conversion Price equaled the Conversion Price on the Effective Date. For purposes of this Section 14(a), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Senior Preferred Stock and the exercise of all Warrants forming a part of the Units deliverable upon the conversion of all outstanding shares of Senior Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.

 

(b)                                 All shares of Common Stock delivered upon conversion of the Senior Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders).

 

(c)                                  Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Senior Preferred Stock, the Corporation shall use its reasonable best efforts to comply with all federal and state laws and regulations, including obtaining any approvals of or consents to the delivery of such securities by any governmental authority, and if notwithstanding such efforts the Units cannot be delivered in compliance with such laws and 

 

A-17

 

regulations, then the Corporation shall not be required to so deliver until it can deliver in compliance with such laws and regulations.

 

(d)                                 The Corporation hereby covenants and agrees that, so long as the Common Stock is listed on the NASDAQ Capital Market or any other national securities exchange or automated quotation system, the Corporation will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such  exchange or automated quotation system, all the Common Stock issuable upon conversion of the Senior Preferred Stock and the exercise of all Warrants forming a part of the Units deliverable upon the conversion of all outstanding shares of Senior Preferred Stock. For the avoidance of doubt, nothing herein shall require the Corporation to list the Senior Preferred Stock.

 

Section 15.           Repurchases of Junior Securities. For as long as the Senior Preferred Stock remains outstanding, the Corporation shall not redeem, purchase or acquire any Junior Securities, other than (i) redemptions, purchases or other acquisitions of Junior Securities in connection with any benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants or in connection with a dividend reinvestment or stockholder stock purchase plan and (ii) conversions into or exchanges for other Junior Securities and cash solely in lieu of fractional shares of the Junior Securities.

 

Section 16.           Replacement Certificates.

 

(a)                                 The Corporation shall replace any mutilated certificate representing any Senior Preferred Stock at the Holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates representing any Senior Preferred Stock that become destroyed, stolen or lost at the Holder’s expense upon delivery to the Corporation of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be required by the Corporation.

 

(b)                                 The Corporation shall not be required to issue any certificates representing the Senior Preferred Stock on or after the Mandatory Conversion Date. In place of the delivery of a replacement certificate following the Mandatory Conversion Date, the Corporation, upon delivery of the evidence and indemnity described in clause (a) above, shall deliver the Units pursuant to the terms of the Senior Preferred Stock formerly evidenced by the certificate.

 

Section 17.           Miscellaneous.

 

(a)                                 All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three Business Days after the mailing thereof if sent by registered or certified mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Designation) with postage prepaid, addressed: (i) if to the Corporation, to: Prospect Global Resources Inc., 1401 17th Street, Suite 1550, Denver, CO 80202, Attention: Corporate Secretary, or (ii) if to any Holder, to such Holder at the address of such Holder as listed in the stock record books of the Corporation, or (iii) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

 

A-18

 

(b)                                 The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Senior Preferred Stock, shares of Common Stock, Warrants or other securities issued on account of Senior Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax that may be payable in respect of any transfer involved in the issuance or delivery of shares of Senior Preferred Stock or Common Stock, Warrants or other securities in a name other than that in which the shares of Senior Preferred  Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any Person other than a payment to the registered Holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the Person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable.

 

*                                         *                                         *                                         *

 

A-19

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation of Mandatorily Convertible Preferred Stock to be executed as of the date first above written.

 

 

	
 
    	
PROSPECT   GLOBAL RESOURCES INC.
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:   Gregory M. Dangler
    
	
 
    	
 
    	
Title:   Interim Chief Financial Officer
    

 

A-20Exhibit 10.1

 

NOTE EXCHANGE AND SUBSCRIPTION AGREEMENT

 

THIS NOTE EXCHANGE AND SUBSCRIPTION AGREEMENT (this “Agreement”) is made and entered into as of July 10, 2013 by Prospect Global Resources Inc., a Nevada corporation (the “Company”) and Very Hungry, LLC (“Very Hungry”) and Scott Reiman 1991 Trust (together with Very Hungry, the “Noteholders”) the Company and each Noteholder are sometimes referred to herein individually as a “Party” or collectively as the “Parties.”

 

ARTICLE I
 EXCHANGE OF NOTES FOR PREFERRED STOCK

 

1.01             Exchange.  Subject to the terms and conditions hereof, on the date hereof each Noteholder agrees to exchange its Subordinated Promissory Note dated May 2, 2013 issued by the Company (each a “Note” and together the “Notes”) for the number of shares of the Company’s Senior Mandatorily Convertible Preferred Stock (the “Preferred Stock”) set forth on the signature pages hereof.  The original Notes shall be delivered to the Company on the date hereof.  The Preferred Stock will be convertible into the Company’s common stock, par value $.0001 per share (“Common Stock”), and warrants (the “Warrants”) to purchase Common Stock as described in a certificate of designation attached hereto as Annex A.  The Preferred Stock, the Warrants and the Common Stock into which the Preferred Stock is convertible and the Common Stock that may be purchased on exercise of the Warrants are referred to as the “Subject Securities.”

 

1.02             Fair Market Values for Tax Reporting.   The Parties agree that the fair market value of each Note exchanged under this Agreement is its principal amount, and that the fair market value of each share of Preferred Stock exchanged under this Agreement is $1.00.  Each Party agrees that all federal, state and local tax filings and reportings made by such Party in connection with the transactions contemplated by this Agreement shall be consistent with the foregoing agreed-upon fair market values.

 

ARTICLE II
 REPRESENTATIONS, WARRANTIES AND UNDERSTANDINGS OF THE NOTEHOLDERS

 

Each Noteholder hereby represents and warrants to the Company as follows:

 

2.01             Ownership.  The Noteholder is the sole record holder and beneficial owner of the Note bearing its name as payee.  The Noteholder owns its Note free and clear of all liens, pledges, mortgages, charges, security interests or encumbrances of any kind whatsoever.  The Noteholder is not a party to any agreement or arrangement which will impose any such encumbrance upon its Note as a result of the transactions contemplated hereby.

 

2.02             Power and Authority; Enforceability.  The Noteholder has the power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby.  This Agreement constitutes a legal, valid,

 

 

and binding obligation of the Noteholder, and is enforceable against the Noteholder in accordance with its terms.

 

2.03             Approvals.  No consent, approval, authorization or order of any person, entity, court, administrative agency or governmental authority is required for the execution, delivery or performance of this Agreement by the Noteholder.

 

2.04             Conflicts.  The execution, delivery and performance of this Agreement by the Noteholder will not (a) conflict with, or result in a breach of, or constitute a default under, or result in violation of, any agreement or instrument to which the Noteholder is a party or by which the property of the Noteholder is bound or (b) result in the violation of any applicable law or order, judgment, writ, injunction, decree or award of any court, administrative agency or governmental authority.

 

2.05             Acquiring for Investment.  The Noteholder is acquiring the Preferred Stock for his or its own account, for investment purposes only and not with a view towards or in connection with the public sale or distribution thereof in violation of the Securities Act of 1933, as amended (the “Securities Act”).  The Noteholder will not, directly or indirectly, offer, sell, pledge or otherwise transfer its Preferred Stock, or any interest therein, except pursuant to transactions that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act.  The Noteholder understands and acknowledges that there is no public market for the Preferred Stock and it is unlikely that any public market will develop.  There can be no assurance that the Noteholder will be able to sell or otherwise dispose of the Preferred Stock.  The Noteholder acknowledges that he, she or it must bear the economic risk of the Noteholder’s investment in the Preferred Stock indefinitely, unless the Preferred Stock is registered pursuant to the Securities Act and any applicable state securities laws or an exemption from such registration is available, and that the Company has no present intention of registering any such Securities or any obligation to do so in the future.

 

2.06             Accredited Investor Status.  The Noteholder is: (a) an “accredited investor” within the meaning of Rule 501 of Regulation D under the Securities Act; (b) experienced in making investments of the kind contemplated by this Agreement; and (c) capable, by reason of its business and financial experience, of evaluating the relative merits and risks of an investment in the Preferred Stock.

 

2.07             Access to Information.  The Noteholder has had the opportunity to discuss the transactions contemplated hereby with the management of the Company and has had the opportunity to obtain such information pertaining to the Company as has been requested.  The Noteholder understands that an investment in the Company involves substantial risks.  The Noteholder (a) can bear the economic risk of losing its entire investment in the Company and has adequate means for providing for its current financial needs and contingencies and (b) has the financial acumen and sophistication to make an informed investment decision with respect to the transactions contemplated hereby and the Preferred Stock to be issued hereunder.

 

 

2.08             Advice.  The Noteholder is relying solely upon the advice of its own legal, tax and financial advisers with respect to the tax and other legal aspects of an investment in the Preferred Stock.

 

2.09             Exemption of Offering.  The Noteholder understands that the Preferred Stock is being issued in reliance upon an exemption from the registration requirements of the Securities Act, and applicable state securities laws, and that the Company is relying upon the accuracy of, and the Noteholder’s compliance with, the Noteholder’s representations, warranties and covenants set forth in this Agreement to determine the availability of such exemption.

 

ARTICLE III
 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to and covenants with, each Noteholder as follows:

 

3.01             Organization and Standing.  Each of the Company and its subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority necessary for it to own or lease its properties and assets and to carry on its business as it is now being conducted (and, to the extent described therein, as described in the SEC Reports as defined below).  Each of the Company and its subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of its businesses makes such qualification necessary, except where any failure to so qualify or be in good standing, individually or in the aggregate, would not have a material adverse effect on the business, assets, operations, properties or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, or on the Company’s ability to consummate the transactions contemplated by this Agreement (a “Material Adverse Effect”).

 

3.02             Capitalization.  The authorized capital stock of the Company consists of 300,000,000 shares of Common Stock and 100,000,000 shares of preferred stock, par value $0.001 per share.  As of June 30, 2013, (i) 115,119,415 shares of Common Stock were issued and outstanding, and (ii) no shares of Preferred Stock were issued and outstanding.  All of the outstanding shares of capital stock of the Company have been duly and validly authorized and issued, and are fully paid and nonassessable.  The Preferred Stock has been duly and validly authorized and when issued and delivered by the Company in accordance with this Agreement, will be validly issued, fully paid and nonassessable.  Except as set forth in SEC Reports, there are no outstanding options, warrants, conversion rights, subscription rights, preemptive rights, rights of first refusal or other rights or agreements of any nature outstanding to subscribe for or to purchase any shares of Common Stock or any other securities of the Company of any kind binding on the Company.  The issuance by the Company of the Subject Securities is not subject to any preemptive rights, rights of first refusal or other similar limitation or any other claim, lien, charge, encumbrance or security interest applicable to the assets of the Company, except those which have been waived.  There are no restrictions upon the voting or transfer of any shares of Common Stock pursuant to the Company’s certificate of incorporation or bylaws.

 

 

3.03             Authorization; Enforceability.  The Company has the corporate power and authority to execute, deliver and perform this Agreement and has taken all necessary corporate action to authorize the execution, delivery and performance by it of, and the consummation of the transactions contemplated by, this Agreement, except Stockholder Approval as defined below.  No other corporate proceeding on the part of the Company is necessary for the valid execution and delivery by the Company of this Agreement and the Subject Securities.  Assuming the due execution and delivery of this Agreement by Noteholder, this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

 

3.04             No Violation; Consents.

 

(a)           The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby to be performed by the Company do not and will not (i) conflict with, violate or contravene the applicable provisions of any law of any court or any federal or state government or political subdivision thereof and any agency or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (a “Governmental Authority”) to or by which the Company or any of its subsidiaries or any of its or their respective assets is bound, (ii) violate, result in a breach of or constitute (with due notice or lapse of time or both) a default or give rise to an event of acceleration under, or give to others any right of termination, amendment, or cancellation of, or give to others a right to require any payment to be made under, any contract, lease, license, permit, loan or credit agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which the Company is a party or by which it is bound or to which any of their respective assets is subject, nor result in the creation or imposition of any lien, security interest, charge or encumbrance of any kind upon any of the assets or capital stock of the Company, or (iii) conflict with or violate any provision of the organizational and other governing documents of the Company, except in the case of each of clauses (i), (ii) and (iii) above as would not have a Material Adverse Effect.

 

(b)           Subject to the accuracy of Purchaser’s representations and warranties herein, no consent, approval, authorization or order of, or filing or registration with, any governmental authority or other person is required to be obtained or made by the Company for the execution, delivery and performance of this Agreement or the consummation of any of the transactions contemplated hereby, except for any filings required to be made under the rules and regulations of the NASDAQ Stock Market to list the Common Stock and the Stockholder Approval.

 

 

3.05             SEC Reports; Financial Condition; No Adverse Changes.  The audited and unaudited consolidated financial statements of the Company and the related notes thereto contained in the SEC Reports (the “Company Financial Statements”) present fairly the financial position of the Company and its subsidiaries at such date and the results of operations of the Company and its subsidiaries for the periods set forth therein; provided, however, that the unaudited financial statements are subject to normal year-end adjustments.  The Company Financial Statements, including the related notes thereto, have been prepared in accordance with generally accepted accounting principles in the United States as in effect for the periods covered thereby.  The Company’s most recent Annual Report on Form 10-K (the “10-K”), and the other reports on Form 10-Q, as amended, and Form 8-K filed by the Company with the Securities and Exchange Commission (the “SEC”) are referred to as the “SEC Reports.”

 

3.06             Securities Laws.  All notices, filings, registrations, or qualifications under state securities or “blue sky” laws, that are required in connection with the offer, issuance, sale and delivery of the Subject Securities pursuant to this Agreement, have been, or will be, completed by the Company.

 

3.07             No Default.  The Company and its subsidiaries are not, and, immediately after the consummation of the transactions contemplated hereby, none will be, in default of (whether upon the passage of time, the giving of notice or both) any term of its charter document or its bylaws or any provision of any equity security issued by the Company, or of any agreement, instrument or other undertaking to which the Company or its subsidiaries is a party or by which it or any of its properties or assets is bound, or the applicable provisions of any law of any governmental authority to or by which the Company or any of its subsidiaries or any of its assets is bound, which default would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

3.08             No Litigation.  Except as disclosed in the SEC Reports, no litigation, proceeding, other action or claim (including those for unpaid taxes), or environmental proceeding against the Company or any of its subsidiaries is pending, or, to the Company’s knowledge, threatened or contemplated, that, if determined adversely, would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

3.09             Environmental Matters.  None of the Company nor any of its subsidiaries is in violation, in any material respect, of any applicable state and federal environmental law, and the Company has no knowledge of any event or condition that exists or has occurred that is reasonably likely to result in any material violation of any environmental law that would individually or in the aggregate reasonably be expected to result in a Material Adverse Effect.

 

3.10             Sections 78.3781-78.3793 of Nevada Revised Statutes.  The Company has taken all actions necessary or advisable to ensure that Sections 78.3781-78.3793 of Nevada Revised Statutes do not apply to any of the transactions contemplated by this Agreement (including the purchase of the Preferred Shares and purchase of any other of the Subject Securities.

 

 

3.11             Material Contracts.  The Exhibit list to the 10-K lists all Material Contracts other than this Agreement and those entered into in connection with the transactions contemplated by this Agreement.  None of the Material Contracts has been amended, modified or supplemented in any material respect except as described in the SEC Reports.

 

ARTICLE IV

TRANSFER RESTRICTIONS

 

4.01             Transfer Restriction.  The Preferred Stock may not be transferred without the consent of the Company.

 

4.02             Transfer of Preferred Stock.  Each Noteholder acknowledges that the shares of Preferred Stock are restricted securities and in addition to the restriction contained in Section 4.01 may be transferred only pursuant to:  (a) an effective registration statement under the Securities Act and applicable state securities laws pertaining to such securities or an available exemption therefrom; and (b) Rule 144 of the Securities and Exchange Commission (or any similar rule or rules then in force) if such rule or rules are available.

 

4.03             Restrictive Legend.  Each Noteholder acknowledges and agrees that, upon issuance pursuant to this Agreement, the certificates representing the Preferred Stock shall have endorsed thereon a legend in substantially the following form:

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.  THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.  TRANSFER OR THESE SECURITIES IS FURTHER RESTRICTED BY THE TERMS OF THE NOTE EXCHANGE AND SUBSCRIPTION AGREEMENT DATED AS OF JULY     , 2013.”

 

ARTICLE V

ADDITIONAL AGREEMENTS

 

5.01             Agreement to Call Stockholder Meeting.  The Company shall call a meeting of its stockholders (the “Stockholders Meeting”) to be held as promptly as practicable for the purpose of considering and voting upon the issuance of the Subject Securities and each other matter required to be approved by such stockholders in connection with the transactions contemplated hereby.  The Company will, through its board of directors, subject to its fiduciary obligations, recommend to its stockholders the approval of the issuance of the Subject Securities and each such other matter, and the Company shall use commercially reasonable efforts to solicit 

 

 

proxies in favor of the issuance of the Subject Securities and each such other matter and otherwise to secure the required vote of its stockholders.

 

5.02             Proxy Statement; Other Commission Filings.  As soon as reasonably practicable after the execution of this Agreement, the Company shall file with the SEC a preliminary proxy statement (the “Proxy Statement”) for the Stockholders meeting, which may be the Company’s annual meeting of Stockholders in which case the Company shall file the Proxy Statement after the information required for the annual meeting has been completed.  The Company shall respond promptly to any comments of the SEC and shall use commercially reasonable efforts to cause the Proxy Statement to be cleared by the SEC as promptly as practicable after such filing after which the Company shall promptly mail the definitive Proxy Statement to its stockholders.  The Company will notify Purchaser promptly of the receipt of any comments from the SEC or its staff or any other government officials and of any request by the SEC or its staff or such other government officials for amendments or supplements to the Proxy Statement or any filing incorporated therein or for additional information, and will supply Purchaser with copies of all correspondence between it and any of its representatives, on the one hand, and the SEC or its staff or any other government officials on the other hand, with respect to the Proxy Statement and the transactions contemplated by this Agreement.  The Company shall promptly prepare and file with the SEC any amendment or supplement to the Proxy Statement the Company deems required or advisable and, following clearance thereof, if applicable, mail such amendment or supplement to its stockholders.

 

5.03             Listing Applications.  The Company shall apply to list the Common Stock issuable to Noteholders in connection with the Subject Securities for trading on the NASDAQ Stock Market and will use all commercially reasonable efforts to cause such listing to be effective subject to issuance.  It will advise Noteholders of any correspondence with the NASDAQ Stock Market with respect to this listing.

 

ARTICLE VI

MISCELLANEOUS PROVISIONS

 

6.01             Survival of Representations; Entire Agreement.  All representations and warranties made by the Parties pursuant to this Agreement shall survive the execution and delivery of this Agreement.  This Agreement and the related documents referred to herein constitute the entire understanding between the Parties with respect to the subject matter contained herein and therein and supersede any prior or contemporaneous understandings and agreements among them respecting such subject matter.  Except as specifically set forth herein or therein, neither the Company nor either Noteholder makes any representation, warranty, covenant or undertaking with respect to such matters.

 

6.02             Governing Law; Jurisdiction.  This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado applicable to contracts made and to be performed in the State of Colorado.  Each Party irrevocably consents to the jurisdiction of the United States federal courts and state courts located in the City of Denver, Colorado in any suit or proceeding based on or arising under this Agreement or the Preferred Stock or the 

 

 

transactions contemplated hereby and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts.  The Parties further agree that service of process upon any Party mailed by first class mail in accordance with Section 6.05 shall be deemed in every respect effective service of process upon such Party in any suit or proceeding arising hereunder.  Nothing herein shall affect the right of a Party to serve process in any other manner permitted by law.  The Parties agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.  The Parties irrevocably waive any right to a trial by jury under applicable law

 

6.03             Amendments; Counterparts.  This Agreement may be amended only by a written instrument duly executed by each of the Parties.  This Agreement may be executed in counterparts, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument.  In order to facilitate execution of this Agreement, this Agreement may be duly executed and delivered by facsimile or other electronic transmission.

 

6.04             Further Assurances.  The Parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as any other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions contemplated by this Agreement.

 

6.05             Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by nationally-recognized overnight courier or by confirmed facsimile or other electronic transmission, and shall be deemed given and effective on the earliest of (a) the date of transmission if such notice or communication is delivered by facsimile or other electronic transmission prior to 5:00 p.m. (Mountain Time) on a business day, (b) the next business day after the date of transmission if such notice or communication is delivered via facsimile or other electronic transmission on a day that is not a business day or later than 5:00 p.m. (Mountain Time) on a business day, or (c) upon actual receipt by the Party to whom such notice is required to be given. The addresses for such communications shall be:

 

	
If to   the Company:
    	
Prospect   Global Resources Inc.
    
	
 
    	
1401 17th Street, Suite 1550
    
	
 
    	
Denver   CO 80202
    
	
 
    	
Attention:   Gregory M. Dangler
    
	
 
    	
Facsimile:   303-990-8440
    
	
 
    	
Email:   gdangler@prospectgri.com
    
	
 
    	
 
    
	
with a   copy to:
    	
Brownstein Hyatt Farber Schreck, LLP
    
	
 
    	
410 17th Street, 22nd Floor
    
	
 
    	
Denver   CO 80202
    
	
 
    	
Attention:   Jeff Knetsch
    
	
 
    	
Facsimile:   303-223-1111
    
	
 
    	
Email:   jknetsch@bhfs.com
    

 

 

	
If to a   Noteholder:
    	
c/o   Hexagon Investments, LLC
    
	
 
    	
730 17th Street, Suite 800
    
	
 
    	
Denver   CO 80202
    
	
 
    	
Attention:   Conway J. Schatz
    
	
 
    	
Facsimile:   303-571-1221
    
	
 
    	
Email:   cjs@hexagoninc.com
    
	
 
    	
 
    
	
with a   copy to:
    	
Bryan   Cave HRO
    
	
 
    	
1700   Lincoln Street, Suite 4100
    
	
 
    	
Denver   CO 80203
    
	
 
    	
Attention:   Dean Salter
    
	
 
    	
Facsimile:   303-866-0200
    
	
 
    	
Email:   dean.salter@bryancave.com
    

 

6.06             Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

6.07             Severability.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

 

(Signature Page Follows)

 

 

IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date first above written.

 

 

	
 
    	
PROSPECT   GLOBAL RESOURCES INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Gregory   M. Dangler
    
	
 
    	
 
    	
Gregory   M. Dangler, Interim Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
VERY   HUNGRY, LLC
    
	
 
    	
4,436,017.30   shares of Preferred Stock
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael J. Hipp
    
	
 
    	
 
    	
Name: Michael J.   Hipp
    
	
 
    	
 
    	
Title:   Manager
    
	
 
    	
 
    
	
 
    	
SCOTT   REIMAN 1991 TRUST
    
	
 
    	
1,063,982.70   shares of Preferred Stock
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Michael J. Hipp
    
	
 
    	
 
    	
Name: Michael J.   Hipp
    
	
 
    	
 
    	
Title:   Trustee

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