Document:

f8k021111ex10x_trianglecast.htm

Exhibit 10.10

 

NOTE PURCHASE AGREEMENT

 

THIS NOTE PURCHASE AGREEMENT (this “Agreement”) is made as of the 24th day of January, 2011 by and between Richard Merkin (the “Purchaser”) and PROSPECT GLOBAL RESOURCES INC., a Delaware corporation (the “Company”).  Purchaser and the Company are sometimes each referred to herein as a “Party” and collectively as the “Parties.”

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions.  In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of Colorado are authorized or required by law or other governmental action to close.

 

 “Closing” means the closing of the purchase and sale of the Note pursuant to Section 2.1.

 

“Closing Date” means the Business Day on which this Agreement has been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchaser's obligations to pay the Purchase Price and (ii) the Company’s obligations to deliver the Note, in each case, have been satisfied or waived.

 

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

"Loan Documents" means this Agreement, the Note, the Security Agreement, the Registration Rights Agreement and the Shareholders Agreement.

 

"Note" means the Convertible Secured Promissory Note dated the date hereof in the amount of $2,000,000 issued by the Company to the Purchaser.

 

"Person" means an individual, a partnership, a corpora­tion, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

 

"Purchase Price" means $2,000,000 in cash.

 

"Registration Rights Agreement" means the Registration Rights Agreement dated the date hereof between the Company and the Purchaser.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

"Security Agreement" means the Security Agreement dated the date hereof between the Company and the Purchaser

 

  

  

  

 

"Shareholders Agreement" means the Stockholders Agreement dated the date hereof among the Company, the Purchaser and the shareholders of the Company party thereto.

 

“Shares” means the shares of Common Stock issued or issuable to the Purchaser upon conversion of the Note.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Closing.

 

(a) On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser agrees to purchase the Note.  The Purchaser shall deliver to the Company, via wire transfer or a certified check of immediately available funds, the Purchase Price and the Company shall deliver to the Purchaser the Note.  Upon satisfaction of the covenants and conditions set forth herein, the Closing shall occur at the offices of the Company or such other location as the parties shall mutually agree.

 

2.2 Deliveries.

 

(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to the Purchaser the following:

 

(i) this Agreement duly executed by the Company;

 

(ii) the Note duly executed by the Company;

 

(iii) the Security Agreement duly executed by the Company;

 

(iv) the Registration Rights Agreement duly executed by the Company; and

 

(v) the Shareholders Agreement duly executed by the Company and the shareholders of the Company party thereto.

 

(b) On or prior to the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the following:

 

(i) this Agreement duly executed by the Purchaser;

 

(ii) the Security Agreement duly executed by the Purchaser;

 

(iii) the Registration Rights Agreement duly executed by the Purchaser;

 

(iv) the Shareholders Agreement duly executed by the Purchaser: and

 

(v) the Purchase Price by wire transfer to the account as specified in writing by the Company.

 

  

  

  

 

2.3 Closing Conditions.

 

(a)           The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchaser contained herein (unless as of a specific date therein);

 

(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b) The respective obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein);

 

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement.

 

ARTICLE III. 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to the Purchaser as follows on the date hereof and on the Closing Date:

 

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

 

3.2 Power and Authority.  The Company has full power and authority to enter into the Loan Documents and to consummate the transactions contemplated hereby and thereby.  The Company has duly and validly executed and delivered the Loan Documents.  Each of the Loan Documents constitute legal, valid and binding obligations of the Company, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or similar laws in effect which affect the enforcement of creditors' rights generally and by equitable limitations on the availability of specific remedies.

 

  

  

  

 

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

 

3.4 Government Approvals.  Except as may be required by any state “blue sky” laws, no authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency, regulatory authority or political subdivision thereof, any securities exchange or any other Person is required in connection with the execution, delivery or performance by the Company of this Agreement or the business of the Company.

 

3.5 Liabilities.  Other than the Note, the Company has no liabilities and, to the best of its knowledge, no material contingent liabilities not disclosed in the financial statements provided to the Purchaser.

 

ARTICLE IV. 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The Purchaser hereby represents and warrants to the Company as follows on the date hereof and on the Closing Date:

 

4.1 Power and Authority. The Purchaser has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby and thereby.  The Purchaser has duly and validly executed and delivered this Agreement.  Each Loan Document to which the Purchaser is a party constitutes legal, valid and binding obligations of the Purchaser, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or similar laws in effect which affect the enforcement of creditors' rights generally and by equitable limitations on the availability of specific remedies.

 

4.2 Risk.  The Purchaser recognizes that the purchase of the Note involves a high degree of risk in that: (i) the Company is a development stage business with only limited operating history and may require additional operating funds from time to time; (ii) an investment in the Company is highly speculative and only investors who can afford the loss of their entire investment should consider investing in the Company and the Note; (iii) the Purchaser may not be able to liquidate his, her or its investment; (iv) transferability of the Note is extremely limited; and (v) in the event of a disposition of the Note or the Shares, the Purchaser could sustain the loss of his, her or its entire investment.

 

4.3 Accredited Investor.  The Purchaser is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act, and the Purchaser is able to bear the economic risk of a loss of its entire investment in the Note and the Shares.

 

  

  

  

 

4.4 Investment Experience.  The Purchaser has prior investment experience, including investment in non-listed and unregistered securities.

 

4.5  Residency.  The Purchaser's principal residence address is in the jurisdiction set forth on the signature page of this Agreement.

 

4.6 Information.  The Purchaser acknowledges and agrees that the Purchaser has been provided access to and has had the opportunity to discuss with the Company and review any information the Purchaser desires in order to analyze the Company's business, management, financial affairs, prospects and the terms and conditions of this transaction with the Company.  The Purchaser has such knowledge and experience in financial and business matters that the Purchaser is capable of evaluating the merits of this transaction.  The Purchaser has had the opportunity to seek independent advice in connection with such evaluation and analysis.

 

4.7 Protection of Interests; Exempt Offering.  The Purchaser by reason of the Purchaser's business or financial experience has the capacity to protect the Purchaser's own interests in connection with the transaction contemplated hereby.  The Purchaser agrees that the Purchaser will not sell or otherwise transfer the Note or the Shares unless they are registered under the Securities Act or unless an exemption from such registration is available.

 

4.8 Investment Intent.  The Purchaser understands that the Note and the Shares have not been registered under the Securities Act by reason of a claimed exemption under the provisions of the Securities Act which depends, in part, upon the Purchaser's investment intention.  In this connection, the Purchaser is acquiring the Note as principal for its own account and not with a view to or for distributing or reselling the Note or the Shares or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of the Note or the Shares in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of the Note or the Shares in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting the Purchaser’s right to sell the Note or the Shares in compliance with applicable federal and state securities laws).

 

4.9 Restricted Securities.  The Purchaser understands that there currently is no public market for the Note or the Shares and that even if there were, Rule 144 promulgated under the Securities Act requires, among other conditions, a one-year holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements under the Securities Act.  The Purchaser understands and hereby acknowledges that the Company is under no obligation to register the Note under the Securities Act or any state securities or “blue sky” laws (collectively, the “Securities Laws”).  The Purchaser consents that the Company may, if it desires, permit the transfer of the Note or the Shares out of the Purchaser's name only when the Purchaser's request for transfer is accompanied by an opinion of counsel reasonably satisfactory to the Company that neither the sale nor the proposed transfer results in a violation of Securities Laws.  The Purchaser agrees to hold the Company and its members, managers, officers, employees, controlling persons and agents and their respective heirs, representatives, successors and assigns harmless and to indemnify them against all liabilities, costs and expenses incurred by them as a result of any misrepresentation made by the Purchaser contained in this Agreement or any sale or distribution by the Purchaser in violation of the Securities Laws.  The Purchaser understands and agrees that in addition to restrictions on transfer imposed by applicable Securities Laws, the transfer of the Note and the Shares will be restricted by the terms of this Agreement.

 

  

  

  

 

4.10 Legends.  The Purchaser consents to the placement of a legend on any certificate or other document evidencing the Note or the Shares that the Note and the Shares have not been registered under Securities Laws and setting forth or referring to the restrictions on transferability and sale thereof contained in this Agreement.  The Purchaser is aware that the Company will make a notation in its appropriate records with respect to the restrictions on the transferability of the Note and the Shares and may place additional legends to such effect on the Purchaser's certificate(s) for the Shares.

 

ARTICLE V.

COVENANTS

 

5.1 Issuance of Additional Shares.  Following conversion of the Note into Shares and until Purchaser has received gross proceeds of at least $15,000,000 from sale of Shares, the Company agrees that each time the Purchaser in good faith sells Shares to a non-affiliate for gross proceeds of less than $3.00 per Share the Company will promptly issue the Purchaser a number of additional shares of Common Stock calculated as follows (the "Additional Shares"):

 

Number of Additional Shares to be issued = {[(N x $3.00) – P] / T} – (N – S)

 

Where:

 

N = Number of Shares held by the Purchaser pre-sale

 

P = Gross proceeds realized from transfer

 

S = Number of Shares sold

 

T = Per share sale price

 

5.2 Preemptive Right of First Offer.  The Company hereby grants to the Purchaser the right of first offer to purchase a pro rata portion of any New Securities that the Company may, from time to time, propose to sell and issue.  The Purchaser's pro rata share, for purposes of this right of first offer, is the ratio of (x) the number of shares of Common Stock (assuming conversion of all the Note) owned by the Purchaser to (Y) the total number of shares of Common Stock then outstanding (assuming conversion of all outstanding convertible notes).  This right of first offer shall be subject to the following provisions:

 

(a)           "New Securities" shall mean any Common Stock or preferred stock of the Company whether or not authorized on the date hereof, or rights, options, or warrants to purchase Common Stock or preferred stock of the Company, or securities of any type whatsoever that are, or may become, convertible into or exercisable for Common Stock or preferred stock of the Company; provided, however, that "New Securities" does not include the following:

 

  

  

  

 

(i)           securities issued or granted to officers, directors, employees and consultants of the Company or any subsidiary pursuant to stock grants, option plans, purchase plans or other stock incentive programs or arrangements approved by the Board of Directors, or upon exercise of options or warrants granted to such parties pursuant to any such plan or arrangement;

 

(iii)           securities issued pursuant to the exercise or conversion of any convertible notes, rights, agreements, options or warrants outstanding or issued as of the date of this Agreement;

 

(iv)           securities issued in a registered public offering under the Securities Act of 1933, as amended;

 

(v)           securities issued or issuable to banks, equipment lessors or other financial institutions pursuant to a commercial leasing or debt financing transaction;

 

(vi)           securities issued to suppliers or third party service providers in connection with the provision of goods or services; or

 

(viii)           securities of the Company issued or issuable pursuant to the acquisition of another entity by the Company by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement.

 

(b)           In the event that the Company proposes to undertake an issuance of New Securities, it shall give the Purchaser written notice of its intention, describing the type of New Securities, the price, and the general terms upon which the Company proposes to issue the same (the "Company's Notice").  The Purchaser shall have ten business days from the date such notice is given to agree to purchase up to its pro rata share of such New Securities (calculated as set forth above) at the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased.  In the event that.

 

(c)           The Company shall have 45 days thereafter to sell any New Securities not acquired by the Purchaser at a price and upon general terms no more favorable to the purchasers thereof than specified in the Company's Notice.  In the event the Company has not sold the New Securities within such 45-day period, the Company shall not thereafter issue or sell any of the unsold New Securities without first offering such New Securities to the Purchaser in the manner provided above.

 

(d)           The right of first offer described in this Section 5.2 shall terminate and be of no further force or effect upon the earlier of (i) the date of the Qualified Public Offering (as defined below), (ii) a Change of Control (as defined below) or (iii) when the Purchaser holds fewer than 1,000,000 Shares.  A "Qualified Public Offering" means the issuance of Common Stock in a registered public offering under the Securities Act of 1933, as amended, with gross proceeds to the Company of at least $10,000,000.  A "Change of Control" means either (i) the acquisition of the Company by a Person by means of any transaction or series of related transactions to which the Company is a party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of shares in the Company held by such holders prior to such transaction, at least 50% of the total voting power represented by the voting securities of the Company or such surviving Person outstanding immediately after such transaction or series of transactions; or (ii) a sale of all or substantially all of the assets of the Company.

 

  

  

  

 

5.3 Information Rights.  If and for so long as the Purchaser holds the Note or owns at least 1,000,000 Shares, the Company shall deliver to the Purchaser:

 

(i)           as soon as reasonably practicable, but in any event within 90 days after the end of each fiscal year of the Company, an audited balance sheet for such fiscal year, an audited income statement of the Company as of the end of such year, a statement of cash flows for such year, such audited year-end financial reports to be prepared in accordance with generally accepted accounting principles ("GAAP");

 

(ii)           as soon as reasonably practicable, but in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, an unaudited balance sheet as of the end of such fiscal quarter and an unaudited income statement and statement of cash flows for such fiscal quarter;

 

(iii)           as soon as reasonably practicable, but in any event within 30 days prior to the end of each fiscal year, a budget and business plan for the next fiscal year.

 

5.4 Negative Covenants of the Company.  If and for so long as the Purchaser holds the Note or owns at least 1,000,000 Shares, the Company covenants and agrees that the Company shall not:

 

(a) Amend the Certificate or Bylaws.  Amend the Certificate of Incorporation or Bylaws of the Company.

 

(b) Debt Incurrence.  Create, incur, assume or suffer to exist any indebtedness other than the Note.

 

(c) Issuance of Equity Securities.  Issue any equity securities other than Common Stock.

 

(d) Material Transaction.  Enter into any material joint venture or strategic partnership, or make any acquisition of or investment in any Person, other than the merger with or into Triangle Castings, Inc. on or before March 30, 2011.

 

(e) Change in Business.  Make any change or modification to the Company's current business.

 

(f) Change of Auditors.  Change the Company's independent financial auditor firm.

 

(g) Sale of the Company.  Enter into any transaction, or series of transactions, whether by merger, sale or otherwise, that results in (i) a majority of the Company's outstanding Common Stock being owned by one or more Persons who are not holders of the Company's outstanding Common Stock on the day hereof or (ii) the sale of all or substantially all of the Company's assets to a Person owned by one or more Persons who are not holders of the Company's outstanding Common Stock on the day hereof.

 

  

  

  

 

(h) Equity Plans.  Adopt or otherwise implement any stock option, stock grant or other equity compensation plan for the Company's employees, directors or consultants.

 

(i) Liquidation.  Take any action to liquidate, dissolve or otherwise wind-up the Company.

 

(j) Redemptions.  Redeem or repurchase any outstanding Common Stock or stock options of the Company.

 

(k) No Impairment.  Through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of the Note and in the taking of all such action as may be necessary or appropriate in order to protect the respective conversion rights of the holder of the Note against impairment.

 

5.5 Use of Proceeds.  The Company shall use the proceeds from the Note in the manner set forth on Schedule 5.5 hereto.

 

ARTICLE VI.

MISCELLANEOUS

 

6.1 Fees and Expenses.  The Company shall pay all costs and expenses that it incurs with respect to the preparation, negotiation, execution and delivery of this Agreement and the other documents and agreements entered into in connection herewith and shall pay, or reimburse the Purchaser for, all reasonable costs and expenses actually incurred by the Purchasers with respect to the preparation, negotiation, execution and delivery of this Agreement and the other documents and agreements entered into in connection herewith including, but not limited to, reasonable travel, consulting, legal, and accounting expenses; provided, however, that in no event shall such expenses exceed $25,000.  The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of the Note or the Shares to the Purchaser.

 

6.2 Entire Understanding.  This Agreement, together with the schedules hereto, set forth the entire agreement and understanding of the Parties and supersede any and all prior agreements, arrangements and understandings among the Parties, and there are no other prior written or oral agreements, undertakings, promises, warranties, or covenants respecting such subject matter not expressly set forth herein and therein.

 

6.3 Further Assurances.  Each of the Parties agrees to execute and deliver (or cause to be executed and delivered) such additional documents and instruments and to perform such additional acts as may be necessary and appropriate to effectuate, carry out, and perform all of the terms, provisions, and conditions of this Agreement.

 

6.4 Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature page of this Agreement prior to 5:30 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 at the facsimile number set forth on the signature page of this Agreement on a day that is not a Business Day or later than 5:30 p.m. (mountain time) on any Business Day, (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature page of this Agreement.

 

  

  

  

 

6.5 Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Colorado without giving effect to the principles of conflicts of law thereof.

 

6.6 Replacement of the Note or Shares.  If any certificate or instrument evidencing the Note or the Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction.  The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Note or Shares.

 

6.7 Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the Parties and delivered (including by facsimile) to the other Parties.

 

6.8 Recitals.  The recitals set forth above are hereby incorporated into this Agreement and made a binding part hereof.

 

6.9 WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

  

  

  

 

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

 

	
PROSPECT GLOBAL RESOURCES INC.,

	 	Address for Notice:
	
a Delaware corporation

	 	600 17th St. Suite 2800 South
	
 

	 	
Denver, CO 80202

 

	
By: 

	/s/ Patrick L. Avery                                                   	 	 Fax: ___________________
	 	Name:  Patrick L. Avery	 	 
	 	Title: Chief Executive Officer	 	 
	 	 	 	 
	 	With a copy to (which shall not constitute notice):	 	 

 

	
Brownstein Hyatt Farber Schreck, LLP

410 Seventeenth Street, Suite 2200

Denver, CO 80202-4437

Attn: Jeff Knetsch

	  

 

	THE PURCHASER:	 	 Address for Notice:
	 	 	 	 
	 	 	 	                                                       
	 	/s/ Richard Merkin                                                   	 	                                                        
	 	Richard Merkin	 	Facsimile:
	 	 	 	  

Email:f8k021111ex10xi_trianglecast.htm

Exhibit 10.11

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is made as of this 24th day of January, 2011 by and between Prospect Global Resources Inc., a Delaware corporation (the “Company”), and Richard Merkin and any assignees or transferees thereof (the “Investor”).

 

1.             Certain Definitions.  As used in this Agreement, the following terms shall have the following respective meanings:

 

(a) "Additional Shares" means additional shares of the Company's Common Stock issued to the Investor pursuant to Section 5.1 of the Note Purchase Agreement dated the date hereof between the Company and the Investor.

 

(b) An "Affiliate" of any Person (as defined herein) means a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the first mentioned Person.  A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise.

 

(c) "Board of Directors" means the Board of Directors of the Company.

 

(d) "Commission" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act and the Exchange Act.

 

(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

(f) "Holders" shall mean the holders of Registrable Securities.

 

(g) "Majority Interest" means Holders holding not less than a majority in interest of the Registrable Securities held by all Holders.

 

(h) "Note" means the Convertible Secured Promissory Note dated as of the date hereof in the principal amount of $2,000,000 issued by the Company to the Investor.

 

(i) "Person" shall mean an individual, a corporation, an association, a joint venture, a partnership, a limited liability company, an estate, a trust, an unincorporated organization, and any other entity or organization, governmental or otherwise.

 

  

  

  

 

(j) "Registrable Securities" shall mean (i) any shares of Common Stock held by the Investor or its transferees that were issued pursuant to the conversion of the Note or issued as Additional Shares and any other securities issued or issuable with respect to any such shares by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization; provided, however, that notwithstanding anything to the contrary contained herein, “Registrable Securities” shall not at any time include any securities (i) registered and sold pursuant to the Securities Act, (ii) sold to the public pursuant to Rule 144 promulgated under the Securities Act or (iii) which could then be sold in their entirety pursuant to Rule 144(k) promulgated under the Securities Act without limitation or restriction.

 

(k) "Registration Expenses" shall mean the expenses so described in Section 6 hereof.

 

(l) "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

 

2.             Demand Registration.

 

(a)                At any time beginning as of the date hereof, Holders of a majority of the Registrable Securities may require registration (a “Demand Registration”) under the Securities Act of all or any part of their Registrable Securities; provided that each such Demand Registration must be in respect of at least 100,000 shares of Common Stock.  Holders may exercise this demand registration right under this Section 2 by giving a written request to the Company specifying the intended method of disposition of Holders’ Registrable Securities.  Within five business days of receipt of such request, the Company shall promptly notify all other Holders of the request.  The Holders shall have thirty 30 days after receipt by such Holder of such notice from the Company to request that their Registrable Securities be included in the registration with the shares of the Holders initially requiring registration pursuant to this Section 2.  Holder will be entitled to require up to two Demand Registrations on Form S-1 and unlimited Demand Registrations on Form S-3 (or any respective successor forms).  A Demand Registration under this Section 2 shall not be deemed to have been effected or requested (a) unless a Registration Statement with respect thereto has become effective and Holder is legally permitted to sell the Registrable Securities included therein and the Registration Statement remains effective for at least 180 consecutive days (unless the Registrable Securities are sold within a shorter period, then the Registration Statement shall have remained effective for such shorter period); (b) if after the Registration Statement has become effective, a stop-order, injunction or order suspending the effectiveness of the Registration Statement is issued or any other limitation, restriction or suspension of the offer or sale of any Registrable Securities has been imposed and the Registrable Securities covered thereby have not been sold; or (c) if the conditions to be fulfilled by the Company for completion of the transactions contemplated by the selling agreement or underwriting agreement related to the registration are not satisfied by the Company or waived by the underwriters.

 

(b)           If Holders of a majority of the Registrable Securities being registered so elect, a Demand Registration may be in the form of an underwritten offering.  If the Demand Registration is an underwritten offering, Holders of a majority of the Registrable Securities being registered will have the right to select the investment bankers and managers for the offering, subject to the Company's approval, which approval shall not be unreasonably withheld.  In a Demand Registration that is an underwritten offering, as many securities of the Company that the Company elects may be included in such registration on the same terms and conditions as the Registrable Securities to be included in such registration; however, if the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and other securities to be included in the registration exceeds the number that can be sold in such offering at a price satisfactory to Holders, the Company will give priority for inclusion in such registration:  (a) first, to the Registrable Securities requested to be included in such registration by Holders and (b) second, to the securities the Company elects to be included in such registration.

 

  

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                (c)                 The Company may delay a Demand Registration for up to 90 days if a majority of the Company's Board of Directors determines that it would be significantly detrimental to the Company to proceed with the registration.  Notwithstanding anything in this Section 2 to the contrary, the Company will not be obligated to effect a Demand Registration within six months after the effective date of a previous Demand Registration.

 

3.             Piggyback Registration.  If the Company at any time proposes to register any of its Common Stock under the Securities Act for sale to the public either for its own account or for the account of another Person other than Holders, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, each such time it will promptly give written notice to the Holders of its intention to effect such registration.  Upon the written request of any such Holder given within 30 days after receipt by such Holder of such notice, the Company will, subject to the limits contained in this Section 3, use its reasonable best efforts to cause all Registrable Securities of such Holder that such Holder so requests to be registered under the Securities Act and qualified for sale under any state blue sky law, all to the extent required to permit such sale or other disposition of said Registrable Securities; provided, however, that if the Company is advised in writing in good faith by the managing underwriter of the Company’s securities being offered in an underwritten public offering pursuant to such registration statement that the amount to be sold by persons other than the Company (collectively, “Selling Stockholders”) is greater than the amount which can be offered without adversely affecting the marketability of the offering, the Company may reduce the amount offered for the accounts of Selling Stockholders (including any Holders) to a number reasonably deemed satisfactory by such managing underwriter; and provided, further, that the securities to be excluded shall be determined in the following sequence:  (i) first, securities held by any Persons not having any contractual incidental or “piggy back” registration rights, and (ii) second, Registrable Securities and securities held by any Persons having contractual incidental or “piggy back” registration rights pursuant to an agreement which is not this Agreement.  If there is a reduction in the number of shares of Common Stock or Registrable Securities to be registered pursuant to clauses (i) and (ii) above, such reduction shall be made within each tranche on a pro rata basis (based upon the aggregate number of shares of Common Stock or Registrable Securities held by the holders in each such tranche).

 

4.             Registration Procedures.  If and whenever the Company is required by the provisions of this Agreement to effect the registration of any of its securities under the Securities Act, the Company will, as expeditiously as possible:

 

  

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(a)    se its reasonable best efforts diligently to prepare and file with the Commission a registration statement on the appropriate form under the Securities Act with respect to such securities, which form shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and use its reasonable best efforts to cause such registration statement to become and remain effective until completion of the proposed offering (but not for more than 180 days);

 

(b) use its reasonable best efforts to prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the completion of the offering (but not for more than 180 days) and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the seller or sellers of such securities shall desire to sell or otherwise dispose of the same, but only to the extent provided in this Agreement;

 

(c) furnish to each selling Holder and the underwriters, if any, such number of copies of such registration statement, any amendments thereto, any documents incorporated by reference therein, the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such selling holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such selling holder;

 

(d) use its reasonable best efforts to register or qualify the securities covered by such registration statement under and to the extent required by such other securities or state blue sky laws of such jurisdictions as each selling holder shall reasonably request, and do any and all other acts and things which may be necessary under such securities or blue sky laws to enable such selling holder to consummate the public sale or other disposition in such jurisdictions of the securities owned by such selling holder, except that the Company shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified;

 

(e) within a reasonable time before each filing of the registration statement or prospectus or amendments or supplements thereto with the Commission, furnish to counsel selected by a Majority Interest (“Holders’ Counsel”) copies of such documents proposed to be filed, which documents shall be subject to the reasonable approval of such counsel;

 

(f) promptly notify each selling holder of Registrable Securities, Holders’ Counsel and any underwriter and (if requested by any such Person) confirm such notice in writing, of the happening of any event which makes any statement made in the registration statement or related prospectus untrue or which requires the making of any changes in such registration statement or prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made not misleading; and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

  

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(g) use its best efforts to prevent the issuance of any order suspending the effectiveness of a registration statement, and if one is issued use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement at the earliest possible moment;

 

(h) if requested by the managing underwriter or underwriters (if any), any selling holder, or Holders’ Counsel, promptly incorporate in a prospectus supplement or post-effective amendment such information as such Person requests to be included therein with respect to the selling holder or the securities being sold, including, without limitation, with respect to the securities being sold by such selling holder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment;

 

(i) make available to each selling Holder, any underwriter participating in any disposition pursuant to a registration statement, Holders’ Counsel and any accountant or other agent or representative retained by a Majority Interest (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information requested by any such Inspector in connection with such registration statement subject, in each case, to such confidentiality agreements as the Company shall reasonably request;

 

(j) enter into any reasonable underwriting agreement required by the proposed underwriter(s) for the selling holders, if any, and use its reasonable best efforts to facilitate the public offering of the securities;

 

(k) use its reasonable best efforts to cause the securities covered by such registration statement to be listed on the securities exchange or quoted on the quotation system on which the Common Stock is then listed or quoted (including the Over-the-Counter Bulletin Board);

 

(l) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission and make generally available to its security holders, in each case as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement of the Company which will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any comparable successor provisions); and

 

(m)                otherwise cooperate with the underwriter(s), the Commission and other regulatory agencies and take all reasonable actions and execute and deliver or cause to be executed and delivered all documents reasonably necessary to effect the registration of any securities under this Agreement.

 

  

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5.             Expenses.   All reasonable expenses incurred by the Company, the Investor and any other Holders in effecting the two Demand Registrations on Form S-1 and the first two Demand Registrations on Form S-3 provided for in Sections 2 and all registrations provided for in Section 3, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of Holders' Counsel, underwriting expenses (other than fees, commissions or discounts), expenses of any audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdiction pursuant to Section 4(d) hereof (all of such expenses referred to as “Registration Expenses”), shall be paid by the Company.  The Registration Expenses of Demand Registrations on Form S-3 after the first two shall be paid by the Holders effecting such Demand Registrations.

 

6.             Indemnification.

(a) The Company shall indemnify and hold harmless each selling Holder of Registrable Securities, each underwriter (as defined in the Securities Act), and each other Person who participates in the offering of such securities and each other Person, if any, who controls (within the meaning of the Securities Act) such seller, underwriter or participating Person (individually and collectively, the “Indemnified Person”) against any losses, claims, damages or liabilities (collectively, the “liability”), joint or several, to which such Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such liability (or action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation by the Company of the Securities Act, any state securities or “blue sky” laws or any rule or regulation thereunder in connection with such registration. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a) as it pertains to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, if such corrected prospectus was timely made available by the Company pursuant to Section 4(f), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used such incorrect prospectus. Except as otherwise provided in Section 6(d), the Company shall reimburse each such Indemnified Person in connection with investigating or defending any such liability as expenses in connection with the same are incurred; provided, however, that the Company shall not be liable to any Indemnified Person in any such case to the extent that any such liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary or final prospectus, or amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person specifically for use therein.

 

  

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(b) Each selling Holder of any securities included in such registration being effected shall indemnify and hold harmless each other selling holder of any securities, the Company, its directors and officers, each underwriter and each other Person, if any, who controls the Company or such underwriter (individually and collectively also the “Indemnified Person”), against any liability, joint or several, to which any such Indemnified Person may become subject under the Securities Act or any other statute or at common law, insofar as such liability (or actions in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which securities were registered under the Securities Act at the request of such selling holder, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission by such selling holder to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of (i) and (ii) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or final prospectus, amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such selling holder specifically for use therein.  Such selling Holder’s obligations hereunder shall be limited to an amount equal to the proceeds to such selling Holder of the securities sold in any such registration.

 

(c) Indemnification similar to that specified in Section 6(a) and Section 6(b) shall be given by the Company and each selling Holder (with such modifications as may be appropriate) with respect to any required registration or other qualification of their securities under any federal or state law or regulation of governmental authority other than the Securities Act.

 

(d) If the indemnification provided for in this Section 6 for any reason is held by a court of competent jurisdiction to be unavailable to an Indemnified Person in respect of any losses, claims, damages, expenses or liabilities referred to therein, then each Indemnifying Party under this Section 6, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the selling Holders and the underwriters from the offering of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of the Company, the other selling Holders and the underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations.  The relative benefits received by the Company, the selling Holders and the underwriters shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and the selling Holders and the underwriting discount received by the underwriters, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the Registrable Securities.  The relative fault of the Company, the selling Holders and the underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the selling Holders or the underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

  

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The Company, the selling Holders and the underwriters agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata or per capita allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph.  In no event, however, shall a selling Holder be required to contribute any amount under this Section 6(d) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total Registrable Securities sold under such registration statement which are being sold by such selling Holder or (ii) the net proceeds received by such selling holder from its sale of Registrable Securities under such registration statement.  No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

 

7.             Compliance with Rule 144.  The Company will use its reasonable best efforts to file with the Commission such information as is required under the Exchange Act for so long as there are holders of Registrable Securities; and in such event, the Company shall use its reasonable best efforts to take all action as may be required as a condition to the availability of Rule 144 under the Securities Act (or any comparable successor rules).  The Company shall furnish to any holder of Registrable Securities upon request a written statement executed by the Company as to the steps it has taken to comply with the current public information requirement of Rule 144 (or such comparable successor rules).  Subject to the limitations on transfers imposed by this Agreement, or any other agreement to which the Holders and the Company are a party, the Company shall use its reasonable best efforts to facilitate and expedite transfers of Registrable Securities pursuant to Rule 144 under the Securities Act, which efforts shall include timely notice to its transfer agent to expedite such transfers of Registrable Securities.

 

8.             Amendments.  The provisions of this Agreement may be amended, and the Company may take any action herein prohibited or omit to perform any act herein required to be performed by it, only with the written consent of the Company and a Majority Interest.

 

9.             Transferability of Registration Rights.  The registration rights set forth in this Agreement are transferable by the Investor to each transferee of Registrable Securities.  Each subsequent holder of Registrable Securities must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement.

 

10.           Rights Which May Be Granted to Subsequent Parties.  Other than transferees of Registrable Securities under Section 9 hereof, the Company shall not, without the prior written consent of a Majority Interest, allow purchasers of the Company’s securities to become a party to this Agreement.

 

11.           Damages.  The Company recognizes and agrees that each Holder of Registrable Securities will not have an adequate remedy if the Company fails to comply with the terms and provisions of this Agreement and that damages will not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, it shall not oppose an application by any holder of Registrable Securities or any other Person entitled to the benefits of this Agreement requiring specific performance of any and all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

 

  

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12.           Governing Law; Jurisdiction; Venue.  This Agreement shall be governed by and construed under the laws of the State of Colorado without regard to principles of conflict of laws.  The parties irrevocably consent to the jurisdiction and venue of the state courts located in Denver, Colorado and federal courts located in Denver, Colorado in connection with any action relating to this Agreement.

 

13.           Miscellaneous.

 

(a) All notices, requests, demands and other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), telegraphed, sent by express overnight courier service or electronic facsimile transmission (with a copy by mail), or delivered to the applicable party at the addresses indicated below:

 

If to the Company:                                           Prospect Global Resources Inc.

             600 17th Street, Suite 2800-South

             Denver CO 80202

             Attention:  Pat Avery

             Facsimile:  720-294-0402

 

If to the Investor:                                              Richard Merkin

             **********

             Facsimile:  **********

If to any other holder of Registrable Securities:

 

At such Person’s address for notice as set forth in the books and records of the Company.

 

or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to other parties complying as to delivery with the terms of this subsection (a).  All such notices, requests, demands and other communications shall, when mailed, faxed or sent, respectively, be effective (i) two days after being deposited in the mails or (ii) one day after being delivered to the telegraph company, deposited with the express overnight courier service or sent by electronic facsimile transmission, respectively, addressed as aforesaid.

 

(b) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

(c) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein.

 

  

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The parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above.

 

	 	PROSPECT GLOBAL RESOURCES INC.	 
	 	 	 	 
	
 

	
By: 

	/s/ Patrick Avery	 
	 	 Name:  Patrick Avery	 
	 	 Title: Chief Executive Officer	 
	 	 	 
	 	 	 
	 	/s/ Richard Merkin	 
	 	Richard Merkin	 

 

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