Document:

Exhibit 10.4

 

MUTUAL RELEASE OF CLAIMS

 

This Mutual Release of Claims (this “Agreement”) is made and entered into as of                                    , 2014, 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, with reference to the following facts:

 

A.                                    Prospect DE entered into and delivered to the order of Karlsson that certain Senior First Priority Secured Promissory Note, dated as of August 1, 2012 (as amended, modified, extended and/or restated from time to time, the “Note”).

 

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

 

C.                                    The Loan was 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 “AWP Deed of Trust”) with respect to the property described therein (the “Premises”), (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”, and together with the AWP Deed of Trust, the Security Agreement, the 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, 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, including but not limited to the documents listed on Exhibit A to this Agreement, each as amended from time to time, are collectively referred to herein as the “Loan Documents.”

 

D.                                    Pursuant to the terms of the Sixth Extension Agreement (as defined in Exhibit A hereto), the Discounted Payoff (as therein defined) of the Loan has been effectuated by the Prospect Parties.

 

 

E.                                     In conformity with the terms of the Sixth Extension Agreement, Karlsson and the Prospect Parties accordingly are entering into this Agreement pursuant to which they wish mutually to release all claims against the other of any nature, including but not limited to those arising under (i) the Loan Documents and/or (ii) the Membership Interest Purchase Agreement dated as of May 30, 2012 by and among Prospect DE, AWP and Karlsson or any other document or instrument executed pursuant thereto or in connection therewith, but excluding from such release, in all cases, those rights and claims of Karlsson, and obligations of one or more of the Prospect Parties, arising under the Agreements listed on Exhibit B to this Agreement (collectively, each as amended from time to time the “Surviving Agreements”), which it is the intention of the parties hereto shall survive the execution of this Agreement.

 

The parties hereby agree as follows:

 

1.                                      Effectiveness.  This Agreement (including those mutual releases set forth in Section 2 hereof) shall become effective upon execution hereof by Karlsson and each of the Prospect Parties.

 

2.                                      Release.  In each case, to the maximum extent permitted by law, (a) each Prospect Party, for itself and on behalf of its directors, shareholders, officers, partners, principals, members, employees, counsel, agents, representatives, predecessors-in-interest, successors-in-interest, and assigns (collectively, with the Prospect Parties, the “Prospect Release Parties”) hereby waives, releases and discharges Karlsson and its directors, shareholders, officers, partners, principals, members, employees, counsel, agents, representatives, predecessors-in-interest, successors-in-interest, and assigns (collectively with Karlsson, the “Karlsson Release Parties”); and (b) Karlsson, for itself and on behalf of each other Karlsson Release Party, hereby waives, releases and discharges each Prospect Release Party, in each case 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 Karlsson Release Party or Prospect Release Party may have arising out of acts, omissions, or events occurring at any time prior to and including the Effective Date; provided, however, that notwithstanding the generality of the foregoing, nothing herein shall be deemed to release any Prospect Release Party from any obligation under, or release any Claim by any Karlsson Release Party now or hereafter existing pursuant or with respect to, any Surviving Agreement.  Karlsson and each Prospect Party hereby agree and represent that the matters released herein are not limited to matters which are known, disclosed or foreseeable.  Karlsson and the Prospect Parties intend to waive all Claims, and the Karlsson Release Parties intend to release all Claims not arising under the Surviving Agreements, including in each case Claims which they do not know or suspect to exist in their favor, to the fullest extent that a waiver of such Claims under California law can be effected.  Accordingly, the parties waive 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 THE RELEASE WHICH IF KNOWN BY HIM MUST HAVE 

 

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MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

 

Karlsson and the Prospect Parties expressly acknowledge the foregoing waiver of the provisions of Section 1542 of the California Civil Code.

 

3.                                      Specific Legal Advice With Respect To Agreement And Releases.  Karlsson and the Prospect Parties acknowledge that the effect and import of this Agreement, including, without limitation, the releases and waivers contained herein have been explained to them by their own legal counsel.  With this knowledge and understanding, Karlsson and the Prospect Parties elect to, and do, waive the provisions of Section 1542 of the California Civil Code and of any similar case or statutory law of other states that may be applicable, and relinquish any rights which they may otherwise have thereunder, to the fullest extent permitted by law, with regard to the above releases, and agree that the above releases shall remain in full force and effect notwithstanding any discovery or existence of any additional or different facts.  It is expressly understood and agreed that Karlsson and the Prospect Parties voluntarily waive and relinquish all rights and benefits under the provisions of any rule, regulation, statute or law in any jurisdiction:  (a) in which this Agreement may be enforced; (b) in which this Agreement may be applicable; and (c) in which any action or inaction giving rise to such relinquishment may occur, which is reasonably similar to Section 1542, and which may apply to the subject matter of this Agreement.

 

INITIALS:                                    Prospect DE
 Parent
 AWP
 Apache
 Karlsson

 

4.                                      No Assignment.  Karlsson and the Prospect Parties hereby represent and warrant that they have not heretofore assigned or transferred or purported to assign or transfer to any person or entity, whether by act, operation of law or otherwise, all or any part of or any interest in any claim, contention, demand or cause of action relating to any Claims or matters released pursuant to Section 2 of this Agreement.

 

5.                                      Legal Representation.  Karlsson and the Prospect Parties hereby warrant and acknowledge that each has been represented by legal counsel throughout the negotiations which preceded the execution of this Agreement, and that each of them has executed this Agreement with the consent and advice of such legal counsel.

 

6.                                      Notices.  All notices, demands, requests and other communications of any kind which any 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 

 

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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 Jaffee 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.

 

7.                                      Further Assurances.  Karlsson and the Prospect Parties shall, from time to time, promptly execute and deliver such further instruments, documents and papers and perform such further acts as may be necessary to carry out and effect the terms of this Agreement.

 

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8.                                      Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon Karlsson and the Prospect Parties and (as applicable) their respective principals, partners, officers, directors, shareholders, employees, trustees, trust beneficiaries, agents, independent contractors and the successors, assigns, heirs, executors, administrators and representatives of each of the foregoing.

 

9.                                      Entire Agreement.  This Agreement contains the entire agreement and understanding among Karlsson and the Prospect Parties with respect to the subject matter hereof, and supersedes any and all prior and contemporaneous oral and written agreements and understandings with respect to such subject matter.  None of the Karlsson or the Prospect Parties may rely on any representation, warranty, condition, understanding or agreement of any kind with respect to the subject matter hereof other than those contained herein.

 

10.                               Governing Law; Venue.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to the conflicts of laws principles thereof.  Any and all legal proceedings to enforce this Agreement shall be brought in the state or Federal courts sitting in Los Angeles, California, Karlsson and the Prospect Parties hereby waiving any claim or defense that such forum is not convenient or proper.  Each of the Karlsson and the Prospect Parties hereby agrees that any such court shall have in personal jurisdiction over it and consents to service of process in any manner authorized by California law.

 

11.                               Electronic Delivery And Counterparts.  The Karlsson and the Prospect Parties and their respective successors and assigns shall be authorized to rely upon the signatures of each person and entity who are signatories to this Agreement which signatures are delivered by facsimile or other electronic means as constituting a duly authorized, irrevocable, actual, current delivery of this Agreement with original ink signatures of each person and entity.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which, together, shall be deemed to constitute a single document.

 

12.                               Construction.  When necessary herein, all terms used in the singular shall apply to the plural, and vice versa; the present tense shall include the past and future tense, and vice versa; and the masculine shall include the feminine and the neuter, and vice versa.  The language in all parts of this Agreement shall in all cases be construed simply, according to its fair meaning, and not strictly for or against of the parties.  Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Agreement or any part thereof.

 

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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:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PROSPECT   DE:
    
	
 
    	
 
    
	
 
    	
Prospect   Global Resources, Inc.,
    
	
 
    	
a   Delaware corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:   Damon Barber
    
	
 
    	
Its:   President, CEO and Secretary
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PARENT:
    
	
 
    	
 
    
	
 
    	
Prospect   Global Resources, Inc.,
    
	
 
    	
a   Nevada corporation
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:   Damon Barber
    
	
 
    	
Its:   President, CEO and Secretary
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
AWP:
    
	
 
    	
 
    
	
 
    	
American   West Potash, LLC
    
	
 
    	
a   Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:   Damon Barber
    
	
 
    	
Its:   President, CEO and Secretary
    
					

 

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Exhibit A

 

CERTAIN LOAN DOCUMENTS

 

	
1)
    	
Extension   Agreement dated as of April 15, 2013 among Karlsson and the Prospect   Parties
    
	
2)
    	
Second   Extension Agreement dated as of June 26, 2013 among Karlsson and the   Prospect Parties
    
	
3)
    	
Third   Extension Agreement dated as of September 13, 2013 among Karlsson and   the Prospect Parties
    
	
4)
    	
Fourth   Extension Agreement dated as of December 10, 2013 among Karlsson and the   Prospect Parties (the “Fourth Extension   Agreement”)
    
	
5)
    	
Fifth   Extension Agreement dated as of March 12, 2014 among Karlsson and the   Prospect Parties
    
	
6)
    	
Sixth   Extension Agreement dated as of April 3, 2014 among Karlsson and the   Prospect Parties (the “Sixth Extension   Agreement”)
    
	
7)
    	
Unconditional   Guaranty by Parent in favor of Karlsson dated as of April 15, 2013
    
	
8)
    	
Pledge   Agreement by Parent in favor of Karlsson dated as of April 15, 2013
    
	
9)
    	
Escrow   Agreement among Karlsson, Parent and JPMorgan Chase Bank, N.A., as escrow   agent, dated as of April 15, 2013, as amended from time to time
    
	
10)
    	
Side   Letter dated August 1, 2012 between Prospect DE and Karlsson
    

 

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Exhibit B

 

SURVIVING AGREEMENTS

 

Each of the following agreements, as amended from time to time:

 

	
1.
    	
Supplemental   Payment Agreement dated as of August 1, 2012 by and among Prospect DE,   AWP and Karlsson;
    
	
2.
    	
Additional   Consideration Agreement dated as of August 1, 2012 by and among Prospect   DE, AWP and Karlsson; the Royalty Agreement dated as of                            , 2014 between AWP and Karlsson; the Royalty   Agreement dated as of                          , 2014 between Apache and Karlsson; and each other   Royalty Agreement now or hereafter executed and delivered pursuant to   Section 12(b) of the Fourth Extension Agreement;
    
	
3.
    	
Sections   4(a), 5(b), 7, 11 and 12 of each of the Fourth Extension Agreement and the   Sixth Extension Agreement and Section 3A of the Sixth Extension   Agreement;
    
	
4.
    	
Registration   Rights Agreement dated as of August 1, 2012 between Parent and Karlsson;
    
	
5.
    	
Warrant   dated                      , 2014 issued to Karlsson.
    

 

8Exhibit 10.5

 

RECORDING REQUESTED BY AND
 WHEN RECORDED MAIL TO:

 

Gerrit M. Steenblik
 POLSINELLI PC
 One East Washington Street, Suite 1200
 Phoenix, AZ  85004

 

ROYALTY AGREEMENT

 

(American West Potash)

 

THIS ROYALTY AGREEMENT (“Royalty Agreement”), dated as of April 29, 2014, is made by and between American West Potash, LLC, a Delaware limited liability company (the “Company”), and The Karlsson Group, Inc., an Arizona corporation, (“Karlsson”) (sometimes referred to collectively, as the “Parties,” and individually, as a “Party”) with reference to the following facts and intentions:

 

RECITALS

 

A.                                    The Company is a wholly-owned subsidiary of Prospect Global Resources, Inc., a Delaware corporation (“Prospect”);

 

B.                                    Prior to May 30, 2012, the Company acquired the land and other real property interests that are described on the attached Exhibit “A;”

 

C.                                    Effective as of May 30, 2012, Prospect and Karlsson entered into that certain Membership Interest Purchase Agreement (the “Purchase Agreement”) whereby Prospect purchased, and Karlsson sold, all of Karlsson’s limited liability company membership interests (the “Membership Interests”), representing fifty percent (50%) of the total limited liability company membership interests, in the Company and Prospect executed and delivered various documents in order to evidence and secure the obligation to pay the purchase price and other obligations;

 

D.                                    As partial consideration for the sale of the Membership Interests and concurrently with the execution of the Purchase Agreement, the Parties entered into an Additional Consideration Agreement (as amended from time to time, the “Original Agreement”) pursuant to which Prospect agreed to cause the Company to grant to Karlsson additional consideration for the sale, to be paid as a percentage of the Gross Sales of Authorized Minerals (as defined respectively below) from the Company’s land and other real property interests and as a percentage of royalties received by the Company from HNZ Potash, LLC, a Delaware limited liability company (“HNZ”);

 

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E.                                     On April 15, 2013 the Parties entered into an Amendment to the Original Agreement (the “First Amendment”) and on April 29, 2014, the Parties entered into Amendment No. 2 to the Original Agreement;

 

F.                                      The Parties have subsequently amended their obligations arising out of the Purchase Agreement, including but not limited to the Fourth Extension Agreement (the “Fourth Extension Agreement”) on or about December 10, 2013, and the Seventh Extension Agreement on April 29, 2014 (collectively, the “Extension Agreements”) with respect to the payment and performance of the obligations arising out of the Purchase Agreement by Prospect, the Company and other Affiliates (as defined below); and

 

G.                                    Upon the terms and conditions set forth in this Royalty Agreement the Parties intend to hereby to further amend the Original Agreement, to cause the Additional Consideration payable for the sale of the Membership Interests with respect to the AWP Area (defined below) to be paid in the form of the Royalty described below, to provide Karlsson with the other rights described in this Royalty Agreement, and to cause the obligation to pay the Royalty to be recorded or filed in the public records as a Royalty Agreement.

 

NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:

 

AGREEMENT

 

1.                                      Recitals Incorporated.  The foregoing Recitals are incorporated herein by reference.

 

2.                                      Definitions.

 

a.                                      “Affiliates” shall mean collectively (i) Prospect; Prospect Global Resources, Inc., a Nevada corporation; and Apache County Land & Ranch, LLC, a Nevada limited liability company; (ii) any other person or entity that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Company or any of the foregoing Affiliates; (iii) any joint venture to which the Company or any of the foregoing Affiliates is a party; and (iv) any successor or assign of the Company or any of the foregoing Affiliates, but as to clauses (iii) and (iv) solely to the extent that such joint venture, successor or assign acquires the interests of the Company or any of the other foregoing Affiliates in the Authorized Minerals.  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.                                      “Authorized Minerals” shall mean all potash and rock salt naturally occurring within potash deposits which is known to exist or which is hereafter discovered to exist in and under the AWP Area (defined below) and is extracted, mined, processed or produced by underground mining, solution mining or other mining methods and sold from any or all of the lands and real property interests that are more particularly described as the AWP Area or other lands or real property interests of the Company or any of its Affiliates that become subject to this

 

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or any other Royalty Agreement in favor of Karlsson, whether pursuant to Section 3.e below or otherwise and whether now existing or hereafter developed or invented, including but not limited to any and all such minerals that are mined, extracted, processed or produced and sold from or as a result of any permit, lease or mineral lease issued in favor of the Company or any of its Affiliates by the Arizona State Land Department or by any other landowner.

 

c.                                       “AWP Area” means the land and other real property interests legally described on Exhibit “A” attached hereto, as modified pursuant to the provisions of Section 3.e below, and shall also include all rights in other lands and real property interests now or hereafter owned or leased by the Company or its Affiliates.

 

d.                                      “Gross Sales” shall mean a sum calculated based on tons of Authorized Minerals actually sold during a calendar quarter at the actual average quarterly per ton sales price received by the Company during such calendar quarter on a weighted basis, whether such sales are made pursuant to purchase orders, off-take agreements or otherwise.  In the case of sales of Authorized Minerals sold under non-arm’s length contracts, “Gross Sales” shall mean the fair market value of such Authorized Minerals without deduction for any costs, expenses, liabilities or obligations paid or incurred by the Company other than transportation from the point of shipment to market at the mine (but not intra-mine transportation costs).  In the event of a sale made pursuant to a long-term contract where a deposit is made, such deposit shall be treated as a Gross Sale.

 

e.                                       “Potash Sharing Agreement” means that certain Potash Sharing Agreement dated as of July 27, 2011, among the Company, James Marlin Gale, Evelyn W. Lucking, David Glen Spurlock, Ransom Theodore Spurlock, Robert H.W.W. Spurlock, Vincent Pride Spurlock, Nancy Elizabeth Winn (collectively, the “SL Group”), American General Life Insurance Company, a Texas corporation (“AIG”) and Pap and Pop Family Ltd., a Texas limited partnership, and 3MKJ LP, a Texas limited partnership (collectively, the “Hortenstine Group”).

 

3.                                      Grant of Royalty.

 

a.                                      In accordance with the terms and conditions of the Original Agreement as amended by this Royalty Agreement the Company has granted, sold and conveyed and  by these presents does grant, sell and convey unto Karlsson the following royalties and overriding royalties (collectively, the “Royalty”) (i) an undivided three percent (3%) of one hundred percent (100%) of the Gross Sales of all Authorized Minerals sold by the Company from the AWP Area plus (ii) an amount equal to twenty-five percent (25%) of all amounts received by the Company from HNZ pursuant to the Agreement dated April 23, 2012 by and between HNZ and the Company (the “HNZ Royalties”), a memorandum of which is recorded as Document #2012-002323 of the records of Apache County, Arizona.

 

b.                                      Any Royalty paid pursuant to this Royalty Agreement shall be pari passu with payment of the following obligations: (i) a royalty of not more than 1% of the Company’s Gross Sales of Authorized Minerals to Buffalo Management LLC, (ii) a royalty in an amount not to exceed 2.1% of the Company’s Gross Sales of Authorized Minerals to Grandhaven Energy, LLC and (iii) the Company’s obligations to the SL Group, AIG and the Hortenstine Group under the Potash Sharing Agreement (collectively, the “Other Royalty Holders”).

 

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c.                                       The Royalty shall be calculated quarterly as of the last day of March, June, September and December; provided, however, that a Royalty, if any, paid upon written off receivables shall be credited to the next calendar quarter.  Royalty payments for each preceding calendar quarter shall be paid in arrears within forty-five (45) days of the end of each of June, September, and December and within ninety (90) days of the end of each March, by the Company to Karlsson.

 

d.                                      The Royalty shall be paid in U.S. dollars, without demand, notice, setoff or reduction, by wire transfer in good and immediately available U.S. funds to such account or accounts as the Karlsson may from time to time designate in writing.

 

e.                                       The Company may, in the good faith exercise of its reasonable discretion, modify and amend its existing leases applicable to the AWP Area and release portions of the AWP Area (the “Released Areas”) from such leases and/or replace such Released Areas with other real property owned by the applicable lessors (the “Replacement Areas”) on which the Company will in the immediate future conduct mining of Authorized Minerals and in connection therewith shall add any such Replacement Areas to the AWP Area and remove any such Released Areas from the AWP Area; provided that no such amendment or modification shall reduce, diminish or otherwise adversely affect Karlsson’s Royalty without Karlsson’s prior written consent, which may be withheld by Karlsson in its sole and absolute discretion.

 

f.                                        Concurrently with each quarterly payment, the Company shall cause to be provided to Karlsson (i) a quarterly statement setting forth for that quarter the finished tons of all Authorized Minerals, the Company’s Gross Sales and the HNZ Royalties received by the Company, (ii) the payments made to the Other Royalty Holders; and (iii) the calculation of the Royalty payable to Karlsson.

 

g.                                       In addition to the quarterly statements, within ninety (90) days after the end of each March, the Company shall provide an audited annual report of all of its operations consisting of a summary of the preceding year’s activities with respect to the AWP Area insofar as those activities are relevant to the calculation of the Royalty.

 

h.                                      The following events shall be deemed to be “Reportable Events:” (i) the acquisition of an interest in any land or other real property interests by the Company or any of its Affiliates; (ii) the release of any Released Areas and the acquisition of any Replacement Areas; (iii) any modification to the Potash Sharing Agreement or any other lease, license, permit or other agreement pertaining to Authorized Minerals, whether in the name of the Company or any of its Affiliates (collectively, the “Underlying Agreements”), and any material notices (including claim of any default) given or received under any of the Underlying Agreements; (iv) if the Arizona State Land Department refuses to consent to the assignment of any Royalty or requires any reduction of or imposes any condition on the Royalty assignment as a condition of approving an assignment of Royalty on State Lands or approving any royalty reduction or other action with respect to lease or other agreement covering State Lands; and (v) any change of an operator that is engaged in extracting, mining, processing or producing Authorized Minerals (an “Operator”).  Within thirty (30) days after each Reportable Event the Company shall provide Karlsson with a reasonable written description of the event.

 

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i.                                          Any Royalty payment that is not paid when due shall accrue interest at an annual rate equal to the prime rate as published in the Wall Street Journal plus 5%, compounded monthly, which shall be payable on demand.

 

j.                                         Nothing herein shall be deemed to create any ownership interests (other than royalty interests and overriding royalty interests) of Karlsson in the Authorized Minerals or the AWP Area or in any other real property owned, leased, or otherwise subject to a license, permit or other agreement benefitting the Company.

 

k.                                      The Company shall comply with all obligations under the Underlying Agreements at all times in order to maintain the Underlying Agreements in good standing and avoid any default thereunder, including by timely performing all work required under the Underlying Agreements, and timely paying all rental fees, advance royalty payments, royalty payments, payments in lieu of work expenditures, and other payments required by the terms of the Underlying Agreements or by applicable law.  The Company shall timely file with the Arizona State Land Department and any other applicable state agencies all reports and other information required by any Underlying Agreements covering State Lands or by applicable law.

 

l.                                          If, by reason of failure to use best mining practices or negligence on the part of the Company or another Operator, Authorized Minerals are lost or wasted, or rendered economically unrecoverable, the Company shall be obligated to pay Karlsson the Royalty thereon to the same extent as if such Authorized Minerals had been mined or processed utilizing best mining practices, and settlement shall be made on the basis of independent estimates obtained by the Company and approved by Karlsson of the tonnage, grade and recovery rate of Authorized Minerals so lost, wasted or rendered economically unrecoverable

 

4.                                      Representations and Warranties.  The Company hereby represents and warrants to Karlsson that as of the date of this Agreement (a) the Company is duly formed, validly existing and in good standing and has all requisite power and authority to enter into and perform its obligations under this Royalty Agreement; (b) the consummation of the transactions contemplated by this Royalty Agreement will not violate nor be in conflict with any provision of the Company’s certificate of formation, limited liability company agreement, or any agreement or instrument, to which the Company is a party or is bound, or any judgment, decree, order, writ, injunction, statute, rule or regulation applicable to the Company; (c) the execution, delivery and performance of this Royalty Agreement, and the transactions contemplated hereby, have been duly and validly authorized by all requisite action on the part of the Company; (d) neither the Company nor any of its Affiliates except Apache County Land & Ranch, LLC owns any land, leasehold interest, license or permit for the use of lands for the extracting, mining or processing of Authorized Minerals; (e) the Company is in compliance in all material respects with all material requirements of applicable law; and (f) each payment that the Company was required to make, on or before the date hereof, to the Arizona State Land Department with respect to the AWP Area was made in full to such agency on or before the due date applicable to such payment.

 

5.                                      Books and Records/Inspection.  The Company shall, and shall cause any Operator that enters into an agreement with the Company or any of its Affiliates, to permit Karlsson and any of its authorized representatives, at Karlsson’s cost and expense, to inspect the

 

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Company’s and such Operator’s financial accounting records (including without limitation, any records and data that are maintained electronically), and in conjunction with such inspection to make copies and take extracts therefrom and to discuss with the Company and such Operator the calculations of the Royalty and Gross Sales; provided, however that such inspection shall take place at reasonable times during normal business hours and not more often than once per calendar quarter.  The Company shall cause that all of its books and records and those used by any such Operator to calculate the Royalty and Gross Sales to be kept according to the U.S. generally accepted accounting principles consistently applied.  In the event that any Affiliate conducts mining operations on the AWP Area to extract, mine, process or produce and sell Authorized Minerals said Affiliate shall also comply with the terms of this Section 5.  Karlsson and its representatives shall, at their sole risk and expense, upon reasonable advance notice to the Company, have access during normal business hours once in each calendar year (which limitation shall not apply if the Company is in default hereunder or to access in connection with a prospective purchaser of Karlsson’s interest) to all operations conducted by or on behalf of the Company on or related to the AWP Area for the purposes of viewing or inspecting the same, provided that Karlsson and its representatives shall not unreasonably interfere with such operations.

 

6.                                      Other Important Terms.

 

a.                                      Notices.  All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid.  Such communications must be sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 6.a):

 

	
If to Karlsson:
    	
 
    	
The Karlsson Group, Inc. 
   18 Ozone Avenue 
   Venice, CA 90291 
   Facsimile: 310-933-0262 
   Email: sevenciel@ca.rr.com 
   Attention: Michael Stone
    
	
 
    	
 
    	
 
    
	
with a copy, which shall not constitute   notice, to:
    	
 
    	
Law Offices of Richard C. Weisberg 
   33 Derwen Road 
   Bala Cynwyd, PA 19004 
   Facsimile 215-689-1504 
   Email: weisberg@weisberg-law.com 
   Attention: Mr. Richard Weisberg
    

 

6

 

	
If to the Company or Prospect:
    	
 
    	
Prospect Global Resources, Inc. 
   1621 18th Street, Suite 260 
   Denver, CO 80202 
   Facsimile: 720-294-0402 
   Email: DBarber@prospectGRI.com 
   Attention: Mr. Damon Barber
    
	
 
    	
 
    	
 
    
	
with a copy, which shall not constitute   notice, to:
    	
 
    	
Eisner, Kahan & Gorry, P.C. 
   9601 Wilshire Boulevard, Suite 700 
   Beverly Hills, CA 90210 
   Facsimile: 310-855-3201 
   Email: meisner@eisnerlaw.com 
   Attention: Mr. Michael Eisner
    

 

b.                                      Construction; Representation by Counsel.  The Parties acknowledge and agree that they have been represented and advised by counsel in connection with the negotiation and preparation of this Royalty Agreement, and this Royalty Agreement shall be deemed to have been drafted jointly by the Parties, notwithstanding that one Party or the other may have performed the actual drafting hereof.  This Royalty Agreement shall be construed and interpreted in accordance with the plain meaning of its language, and not for or against any Party, and as a whole, giving effect to all the terms, conditions and provisions hereof.  Whenever the context may require, any provisions used in this Royalty Agreement shall include the corresponding masculine, feminine, or neuter forms.

 

c.                                       Headings.  The headings in this Royalty Agreement are for reference only and shall not affect the interpretation of this Royalty Agreement.

 

d.                                      Severability.  If any provision of this Royalty Agreement is held invalid or unenforceable, such decision shall not affect the validity or enforceability of any other provision of this Royalty Agreement, all of which other provisions shall remain in full force and effect.

 

e.                                       Merger.  This Royalty Agreement amends the Original Agreement, and except as otherwise provided in the Original Agreement and Section 12(b) of the Fourth Extension Agreement, contains the entire agreement between the Parties with respect to the transactions contemplated hereby, and supersedes all other prior negotiations, agreements, representations, warranties, commitments, whether in writing or oral.  Except as otherwise provided in the Original Agreement, Section 12(b) of the Fourth Extension Agreement and Section 3.e of this Royalty Agreement, this Royalty Agreement may only be amended, modified or supplemented by an agreement in writing signed by each Party hereto.  In the event of a conflict between the terms and provisions of this Royalty Agreement and the terms and provisions of the Original Agreement, the terms and provisions of this Royalty Agreement shall govern.

 

f.                                        Successors and Assigns.  This Royalty Agreement shall run with the land and be binding upon the successors and assigns of the Company as owners of any of the land or real property interests described as the AWP Area or the Replacement Areas, and any other lands 

 

7

 

or real property interests that become subject to this or any other Royalty Agreement in favor of Karlsson, and shall inure to the benefit of Karlsson and its successors and assigns.

 

g.                                       Waiver.  No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving.  No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver.  No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Royalty Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

h.                                      Governing Law; Submission to Jurisdiction; Attorneys Fees.  This Royalty Agreement shall be governed by and construed in accordance with the internal laws of the State of Arizona without giving effect to any choice or conflict of law provision or rule (whether of the State of Arizona or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Arizona.  The Parties consent to the sole and exclusive jurisdiction and venue in the Federal or State courts in Arizona, and agree that all disputes based on or arising out of this Royalty Agreement shall only be submitted to and determined by said courts, which shall have sole and exclusive jurisdiction.  In any dispute arising out of or relating to this Agreement, the prevailing Party shall be entitled to recover from the other Party court costs and reasonable attorneys’ fees.

 

i.                                          Counterparts.  This Royalty Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement.

 

j.                                         Rule Against Perpetuities.  The parties intend that any right, interest option or estate in property created hereunder or pursuant hereto be construed as not subject to any common law or statutory rule against perpetuities.  In the event that any common law or statutory rule against perpetuities is held to apply to any such right, interest, option or estate, notwithstanding any other provision of this Royalty Agreement, if such right, interest, option or estate in property conveyed by this Royalty Agreement does not vest upon the date hereof, such right, interest or estate shall vest, if at all, within twenty-one years less 10 days after the death of the last surviving descendant of Joseph P. Kennedy (the late father of the former President of the United States), who is living on the earlier of the date of this Royalty Agreement or the date this Royalty Agreement is first executed by one of the parties hereto.  Notwithstanding the limitation in the preceding sentence, the parties agree and intend that a court finding any common law or statutory rule against perpetuities applicable shall reform such right, interest, option or estate so that such right, interest, option or estate is exercisable for the longest period permissible under such rule, including such longer time as may be authorized by the Arizona Statutory Rule Against Perpetuities, if by such reformation such right, interest, option or estate would be exercisable for a period longer than that provided in the preceding sentence.

 

k.                                      Further Assurances.  The Company hereby covenants that from time to time upon request by Karlsson it will execute, acknowledge and deliver additional assignments

 

8

 

and deeds in substantially the same form as this Royalty Agreement necessary to properly convey, create and maintain the Royalty as to the entire AWP Area.  If the Company or its Affiliates should ever purchase, acquire directly or indirectly, by exchange or otherwise, any interest in the AWP Area owned by the lessor or other party to any of the Underlying Agreements, then the Royalty granted hereunder shall automatically convert to a perpetual, non-participating royalty interest burdening such acquired portion of the AWP Area if located within Apache County, Arizona and an additional Royalty Deed substantially in the same form as this Royalty Agreement shall be recorded in any other county in which the lands or real property interests are located.  The Company shall obtain, at its sole cost and expense and without diminishing the Royalty, any consents required from the Arizona State Land Department or the parties to the Underlying Agreements, required for the Royalty hereunder.  Separate deeds and assignments of the Royalty in any State Lands may be executed on officially approved forms by the Company to Karlsson, in sufficient counterparts to satisfy applicable statutory and regulatory requirements.  Those deeds and assignments of the Royalty in State Lands shall be deemed to contain all of the exceptions, reservations, warranties, rights, titles, powers and privileges set forth in this Royalty Agreement as fully as though they were set forth in each such deed or assignment.  The interests conveyed by such separate deeds and assignments of the Royalty are the same, and not in addition to, the interests conveyed herein.

 

[SIGNATURE PAGE FOLLOWS]

 

9

 

IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Royalty Agreement as of the date first set forth above.

 

	
 
    	
 
    	
THE COMPANY:
    	
 

	
 
    	
 
    	
 
    	
 

	
 
    	
 
    	
AMERICAN WEST POTASH, LLC,
    	
 

	
 
    	
 
    	
a Delaware limited liability company
    	
 

	
 
    	
 
    	
 
    	
 

	
 
    	
 
    	
 
    	
 

	
 
    	
 
    	
By:
    	
/s/ Gregory Dangler
    	
 
    
	
 
    	
 
    	
Name: Gregory Dangler
    	
 
    
	
 
    	
 
    	
Title President
    	
 
    
	
 
    	
 
    	
 
    	
 

	
State   of California
    	
)
    	
 
    	
 
    	
 

	
 
    	
) SS.
    	
 
    	
 
    	
 

	
County   of Los Angeles
    	
)
    	
 
    	
 
    	
 

						

 

On                           , 2014 before me,                               personally appeared                                                                      who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

 

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

 

WITNESS my hand and official seal.

 

 

	
Signature
    	
 
    	
 
    	
(Seal)
    

 

 

	
 
    	
 
    	
KARLSSON:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
THE KARLSSON GROUP, INC.,
    
	
 
    	
 
    	
an Arizona corporation
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ Michael Stone
    
	
 
    	
 
    	
Name: Michael Stone
    
	
 
    	
 
    	
Title: CFO/Treasurer
    
	
 
    	
 
    	
 
    
	
State of California
    	
)
    	
 
    	
 
    
	
 
    	
) SS.
    	
 
    	
 
    
	
County of Los Angeles
    	
)
    	
 
    	
 
    

 

On                                 , 2014 before me,                                                                                personally appeared                                              who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

 

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

 

WITNESS my hand and official seal.

 

 

	
Signature
    	
 
    	
 
    	
(Seal)
    

 

 

EXHIBIT A

 

AWP AREA

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