Document:

Exhibit 10.6

 

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 Fourth 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 Fourth 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

 

2

 

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

 

3

 

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 Kahan Gorry Chapman Ross & Jaffe 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.

 

4

 

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.

 

5

 

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
    
				

 

6

 

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     , 2013 among Karlsson and the Prospect Parties (the “Fourth Extension Agreement”)

 

5)             Unconditional Guaranty by Parent in favor of Karlsson dated as of April 15, 2013

 

6)             Pledge Agreement by Parent in favor of Karlsson dated as of April 15, 2013

 

7)             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

 

8)             Side Letter dated August 1, 2012 between Prospect DE and Karlsson

 

7

 

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 the Fourth Extension Agreement;

 

4.              Registration Rights Agreement dated as of August 1, 2012 between Parent and Karlsson;

 

5.              Warrant dated May 30, 2012 issued to Karlsson;

 

6.              Warrant dated June 26, 2013 issued to Karlsson; 

 

7.              Warrant dated                   , 2014issued to Karlsson;

 

8Exhibit 10.7

 

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                         , 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 (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”);

 

E.                                     On April 15, 2013 the Parties entered into an Amendment to the Original Agreement (the “First Amendment”); and

 

1

 

F.                                      On or about December     , 2013 the Parties entered into the Fourth Extension Agreement (the “Extension Agreement”) with respect to the payment and performance of their obligations arising out of the Purchase Agreement by Prospect, the Company and other Affiliates (as defined below).

 

G.                                    Upon the terms and conditions set forth in this Royalty Agreement the parties intend to hereby to further amend the Original Agreement and First Amendment, 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, 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, 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.

 

2

 

c.                                       “AWP Area” means the land and other real property interests legally described on Exhibit “A” attached hereto, as such AWP Area may be modified pursuant to the provisions of Section 3.e below.

 

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-arms 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 the First Amendment and this Royalty Agreement the Company has granted, sold and conveyed and  by these presents does grant, sell and convey unto Karlsson (i) an undivided two percent (2%) 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 copy of which is attached to the Original Agreement (collectively, the “Royalty”).

 

b.                                      Any Royalty paid pursuant to this Royalty Agreement shall be pari passu with payment of a royalty of not more than 1% of its Gross Sales of Authorized Minerals to each of Buffalo Management LLC and Grand Haven Energy, LLC and its obligations to the SL Group, AIG and the Hortenstine Group under the Potash Sharing Agreement (collectively, the “Other Royalty Holders”).

 

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.

 

3

 

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.

 

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 any existing leases, licenses, permits or other agreements pertaining to Authorized Minerals, whether in the name of the Company or any of its Affiliates; and (iv) 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.

 

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 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.

 

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, 

 

4

 

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 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.

 

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
    

 

5

 

	
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
    
	
 
    	
 
    	
 
    
	
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 First Amendment, and except as otherwise provided in Section 12(b) of the Extension Agreement contains the entire agreement between the Parties with respect to the transactions contemplated hereby, and supersedes all prior negotiations, agreements, representations, warranties, commitments, whether in writing or oral.  Except as otherwise provided in Section 3.e, 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 the Royalty Agreement and the terms and provisions of the Original 

 

6

 

Agreement and First Amendment, 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 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.  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.

 

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.

 

[SIGNATURE PAGE FOLLOWS]

 

7

 

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:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title
    	
 
    

 

 

	
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:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

 

	
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

 

(Legal Description)

 

PART I (Fee Lands)

 

Parcel No. 1:

 

All right, title or interest to minerals located in Sections 25, 27, 29, 31, 33 and 35, in Township 17 North, Range 25 East of the Gila and Salt River Base and Meridian, Apache County, Arizona.

 

EXCEPT for any title or rights to petrified wood, artifacts and fossils assigned in instrument recorded December 28, 2010, in Document No. 2010-007258, Official Records of Apache County, Arizona.

 

Parcel No. 2:

 

All right, title or interest to minerals located in Sections 30 and 34 in Township 17 North, Range 25 East of the Gila and Salt River Base and Meridian, Apache County, Arizona.

 

EXCEPT for any title or rights to petrified wood, artifacts and fossils assigned in instrument recorded December 28, 2010, in Document No. 2010-007258, Official Records of Apache County, Arizona.

 

Parcel No. 3:

 

All right, title or interest to minerals located in Section 32, Township 17 North, Range 25 East of the Gila and Salt River Base and Meridian, Apache County, Arizona.

 

EXCEPT the Northwest quarter of the Northwest quarter thereof.

 

EXCEPT for any title or rights to petrified wood, artifacts and fossils assigned in instrument recorded December 28, 2010, in Document No. 2010-007258, Official Records of Apache County, Arizona.

 

10

 

PART II (Mineral Leases)

 

 

	
Lessors
    	
 
    	
Lessee
    	
 
    	
Date of
   Lease
    	
 
    	
TS
    	
 
    	
R
    	
 
    	
Sections (all –
   except where noted)
    	
 
    	
Recorded
   Lease Mem.
   Doc. No.
   (Apache
   County)
    
	
James Gale;

Evelyn Lucking;

David Spurlock;

Ransom Spurlock;

Robert Spurlock;

Vincent Spurlock;

Nancy Winn
    	
 
    	
American West Potash, LLC
    	
 
    	
7/27/2011
    	
 
    	
17N
    	
 
    	
25E
    	
 
    	
1, 3, 5, 7, 9, 11, 13, 15, 17, 19,   21, 23
    	
 
    	
2011-005754
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
17N
    	
 
    	
26E
    	
 
    	
1, 3, 5, 7, 9, 11, 13, 15, 17, 19,   21, 23, 25, 27, 29, 31, 33, 35
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
18N
    	
 
    	
26E
    	
 
    	
1, 3, 9, 11, 13, 15, 21, 23, 25, 27,   29 (SE/4 — 160 ac), 31, 33, 34 (SW/4 of NW/4 — 40 ac), 35
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
19N
    	
 
    	
26E
    	
 
    	
13, 21, 23, 25, 27, 33, 35
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
20N
    	
 
    	
26E
    	
 
    	
21 (S/2 — 320 ac), 22 (S/2 — 320 ac),   23 (S of railroad — 375), 27 (N of railroad — 50 ac), 28 (NE/4, E/2 of NW/4,   NE/4 of SW/4 — 280 ac), 29 (S of I-40 — 440 ac), 31, 33 (W of Rio Puerco — 69   ac)
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
PAP & Pop Family Ltd; 3MKJ, LP
    	
 
    	
American West Potash, LLC
    	
 
    	
7/27/2011
    	
 
    	
18N
    	
 
    	
25E
    	
 
    	
All of Sections 1, 3, 5, 9, 11, 13,   15, 17, 21, 23, 25, 27, 29, 33 and 35
    	
 
    	
2011-005753
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
19N
    	
 
    	
25E
    	
 
    	
All of sections 13, 23, 25, 27, 33   and 35, together with those portions of sections 1, 11, 15 and 21 lying south   and east of the thread of the stream of the Rio Puerco of the West and lying   south of the southern limit of the right-of-way of the Atlantic and Pacific
    	
 
    	
 
    

 

11

 

	
Lessors
    	
 
    	
Lessee
    	
 
    	
Date of
   Lease
    	
 
    	
TS
    	
 
    	
R
    	
 
    	
Sections (all –
   except where noted)
    	
 
    	
Recorded
   Lease Mem.
   Doc. No.
   (Apache
   County)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Railroad together with the west half   of the southwest quarter and the south half of the northwest quarter of   Section 12
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
18N
    	
 
    	
26E
    	
 
    	
All of sections 5, 7, 17 and 19,   together with the north half and the southwest quarter of section 29
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
19N
    	
 
    	
26E
    	
 
    	
All of sections 3, 5, 7, 9, 11, 15,   17, 19, 29 and 31
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
20N
    	
 
    	
26E
    	
 
    	
All of Section 35 together with that   portion of section 33 lying south and east of the thread of the stream of the   Rio Puerco of the West and lying south of the southern limit of the   right-of-way of the Atlantic and Pacific Railroad
    	
 
    	
 
    

 

12

 

PART III (Permitted Lands)

 

	
Arizona State Land Department
    Mineral Exploration Permit No.
    	
 
    	
Section
    
	
08-113470
    	
 
    	
17N 25E 32
    
	
08-113908
    	
 
    	
17N 26E 34
    
	
08-113909
    	
 
    	
17N 26E 24
    
	
08-113910
    	
 
    	
17N 26E 26
    
	
08-114001
    	
 
    	
19N 26E 34
    
	
08-114002
    	
 
    	
19N 26E 28
    
	
08-114003
    	
 
    	
19N 26E 26
    
	
08-114004
    	
 
    	
19N 26E 24
    
	
08-114005
    	
 
    	
19N 26E 22
    
	
08-114006
    	
 
    	
19N 26E 14
    
	
08-114007
    	
 
    	
19N 26E 12
    
	
08-114008
    	
 
    	
19N 26E 10
    
	
08-114009
    	
 
    	
19N 26E 04
    
	
08-114010
    	
 
    	
19N 26E 02
    
	
08-114119
    	
 
    	
18N 26E 10
    
	
08-114124
    	
 
    	
18N 26E 22
    
	
08-114127
    	
 
    	
18N 26E 28
    
	
08-114128
    	
 
    	
18N 26E 36
    
	
08-114129
    	
 
    	
18N 26E 34
    
	
08-114130
    	
 
    	
17N 26E 04
    
	
08-114132
    	
 
    	
18N 26E 02
    
	
08-114077
    	
 
    	
17N 26E 30
    
	
08-114078
    	
 
    	
17N 26E 20
    
	
08-114086
    	
 
    	
18N 26E 26
    
	
08-114155
    	
 
    	
17N 26E 18
    
	
08-114164
    	
 
    	
18N 26E 24
    
	
08-114188
    	
 
    	
17N 26E 08
    
	
08-114198
    	
 
    	
18N 26E 14
    
	
08-114199
    	
 
    	
18N 26E 16
    
	
08-114206
    	
 
    	
17N 26E 06
    
	
08-114208
    	
 
    	
17N 26E 16
    
	
08-114265
    	
 
    	
18N 27E 32
    
	
08-114274
    	
 
    	
18N 26E 32
    
	
08-114275
    	
 
    	
18N 25E 36
    
	
08-114502
    	
 
    	
16N 25E 02
    
	
08-115057
    	
 
    	
18N 27E 28
    
	
08-115060
    	
 
    	
18N 27E 20
    
	
08-115061
    	
 
    	
18N 27E 22
    

 

13

 

RECORDING REQUESTED BY AND
 WHEN RECORDED MAIL TO:

 

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

 

ROYALTY AGREEMENT

 

(Apache County Land & Ranch)

 

THIS ROYALTY AGREEMENT (“Royalty Agreement”), dated as of                         , 2014, is made by and between Apache County Land & Ranch, LLC, a Nevada 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

 

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

 

I.                                        The Company owns the land and other real property interests that are described on the attached Exhibit “A;”

 

J.                                        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 American West Potash, LLC, a Delaware limited liability company (“AWP”) and Prospect executed and delivered various documents in order to evidence and secure the obligation to pay the purchase price and other obligations;

 

K.                                   As partial consideration for the sale of the Membership Interests and concurrently with the execution of the Purchase Agreement, AWP and Karlsson entered into an Additional Consideration Agreement (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 AWP’s land and other real property interests and as a percentage of royalties received by the AWP from HNZ Potash, LLC, a Delaware limited liability company (“HNZ”);

 

L.                                     On April 15, 2013, AWP, Karlsson and the Company entered into an Amendment to the Original Agreement pursuant to which the Company agreed that the additional consideration for the sale would also be paid as a percentage of the Gross Sales of Authorized

 

14

 

Minerals (as defined respectively below) from the Apache Lands as defined below (the “First Amendment”); and

 

M.                                 On or about December     , 2013 the Parties entered into the Fourth Extension Agreement (the “Extension Agreement”) with respect to the payment and performance of their obligations arising out of the Purchase Agreement by Prospect, the Company and other Affiliates (as defined below).

 

N.                                    Upon the terms and conditions set forth in this Royalty Agreement the parties intend to hereby to further amend the Original Agreement and First Amendment, to cause the Additional Consideration payable for the sale of the Membership Interests with respect to the Apache Lands to be paid in the form of the Royalty described below, and to cause the Company’s 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

 

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

 

8.                                      Definitions.

 

a.                                      “Affiliates” shall mean collectively (i) Prospect, AWP and Prospect Global Resources, Inc., a Nevada corporation; (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 Apache Lands (defined below) and is extracted, mined, processed or produced by underground mining, solution mining or other mining methods and sold from the lands and real property interests that are more particularly described as the Apache Lands, 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.

 

15

 

c.                                       “Apache Lands” means the land and other real property interests legally described on Exhibit “A” attached hereto, as such Apache Lands may be modified pursuant to the provisions of Section 3.e below.

 

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-arms 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”).

 

9.                                      Grant of Royalty.

 

a.                                      In accordance with the terms and conditions of the Original Agreement as amended by the First Amendment and this Royalty Agreement the Company has granted, sold and conveyed and by these presents does grant, sell and convey unto Karlsson (i) an undivided two percent (2%) of one hundred percent (100%) of the Gross Sales of all Authorized Minerals sold by the Company from the Apache Lands 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 AWP (the “HNZ Royalties”), a copy of which is attached to the Original Agreement (collectively, the “Royalty”).

 

b.                                      Any Royalty paid pursuant to this Royalty Agreement shall be pari passu with payment of a royalty of not more than 1% of its Gross Sales of Authorized Minerals to each of Buffalo Management LLC and Grand Haven Energy, LLC and its obligations to the SL Group, AIG and the Hortenstine Group under the Potash Sharing Agreement (collectively, the “Other Royalty Holders”).

 

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.

 

16

 

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 Apache Lands and release portions of the Apache Lands (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 Apache Lands and remove any such Released Areas from the Apache Lands.

 

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 Apache Lands 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 any existing leases, licenses, permits or other agreements pertaining to Authorized Minerals, whether in the name of the Company or any of its Affiliates; and (iv) 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.

 

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 of Karlsson in the Authorized Minerals or the Apache Lands or in any other real property owned, leased, or otherwise subject to a license, permit or other agreement benefitting the Company.

 

10.                               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,

 

17

 

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 AWP 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) any payment that the Company was required to make, on or before the date hereof, to the Arizona State Land Department with respect to the Apache Lands was made in full to such agency on or before the due date applicable to such payment.

 

11.                               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 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 Apache Lands to extract, mine, process or produce and sell Authorized Minerals said Affiliate shall also comply with the terms of this Section 5.

 

12.                               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
    

 

18

 

	
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
    
	
 
    	
 
    	
 
    
	
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 First Amendment, and except as otherwise provided in Section 12(b) of the Extension Agreement contains the entire agreement between the Parties with respect to the transactions contemplated hereby, and supersedes all prior negotiations, agreements, representations, warranties, commitments, whether in writing or oral.  Except as otherwise provided in Section 3.e, 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 the Royalty Agreement and the terms and provisions of the Original

 

19

 

Agreement and First Amendment, 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 Apache Lands or the Replacement Areas 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.  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.

 

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.

 

[SIGNATURE PAGE FOLLOWS]

 

20

 

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

 

 

	
 
    	
THE COMPANY:
    
	
 
    	
 
    
	
 
    	
APACHE COUNTY LAND & RANCH, LLC,
    
	
 
    	
a Nevada limited liability company
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    
	
 
    	
Title
    

 

	
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:
    	
 
    
	
 
    	
Name:
    
	
 
    	
Title:
    

 

	
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

 

APACHE LAND LEGAL DESCRIPTION

 

Parcel No. 1:

 

The Northwest quarter of the Southeast quarter;  the Southwest quarter of the Southeast quarter; the Northeast quarter of the Southwest quarter; the Southeast quarter of the Southwest quarter and the South half of the North half of the Northwest quarter of the Southwest quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT 1⁄2 all oil, gas, coal and other hydrocarbon substances as reserved in Deed recorded in Docket 14, page 556, records of Apache County, Arizona.

 

Parcel No. 2:

 

The Northwest quarter of the Southwest quarter of Section 9, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

Parcel No. 3:

 

The Northeast quarter of the Northeast quarter of Section 1, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all mineral and mineral rights in, on or under said land, including, but not limited to oil, gas, coal, uranium, thorium or any other minerals, which are or may be determined to be essential in the production of fissionable materials.

 

Parcel No. 4:

 

The Northeast quarter of the Southwest quarter of Section 1, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County;

 

EXCEPT all oil, gas, coal and hydrocarbon substances as reserved in Deed recorded in Book 6 of Deeds, page 282, records of Apache County, Arizona;

 

EXCEPT 1⁄2 oil, gas, coal and hydrocarbon substances as reserved in Deed recorded in Book 14 of Deeds, page 556, records of Apache County, Arizona;

 

 

EXCEPT 50% minerals, gas and other substances as reserved in Deed recorded in Docket 165, page 319, records of Apache County, Arizona;

 

EXCEPT mineral and mineral rights as reserved in Deed recorded in Docket 185, page 126 and Docket 195, page 231, records of Apache County, Arizona.

 

Parcel No 5:

 

The Southeast quarter of the Southeast quarter of Section 1, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County;

 

EXCEPT all oil, gas, coal and hydrocarbon substances as reserved in Deed recorded in Book 6 of Deeds, page 282, records of Apache County, Arizona;

 

EXCEPT 1⁄2 oil, gas, coal and hydrocarbon substances as reserved in Deed recorded in Book 14 of Deeds, page 556, records of Apache County, Arizona;

 

EXCEPT 50% minerals, gas and other substances as reserved in Deed recorded in Docket 165, page 319, records of Apache County, Arizona;

 

EXCEPT mineral and mineral rights as reserved in Deed recorded in Docket 185, page 126 and Docket 195, page 231, records of Apache County, Arizona.

 

Parcel No. 6:

 

The Northwest quarter of the Northwest quarter of Section 1, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal and other hydrocarbon substances and all minerals whatsoever found or which may hereafter be found upon or under said land as reserved by previous owners.

 

Parcel No. 7:

 

The Southwest quarter of the Northwest quarter of Section 1, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal and other hydrocarbon substances and all minerals whatsoever found or which may hereafter be found upon or under said land as reserved by previous owners.

 

 

Parcel No. 8:

 

The Southeast quarter of the Northeast quarter of Section 1, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County;

 

EXCEPT all oil, gas, coal and hydrocarbon substances as reserved in Deed recorded in Book 6 of Deeds, page 282, records of Apache County, Arizona;

 

EXCEPT 1⁄2 oil, gas, coal and hydrocarbon substances as reserved in Deed recorded in Book 14 of Deeds, page 556, records of Apache County, Arizona;

 

EXCEPT 50% minerals, gas and other substances as reserved in Deed recorded in Docket 165, page 319, records of Apache County, Arizona;

 

EXCEPT all mineral and mineral rights as reserved in Deed recorded in Docket 185, page 126 and Docket 195, page 231, records of Apache County, Arizona.

 

Parcel No. 9:

 

The East half of the Southwest quarter of the Northeast quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

Parcel No. 10:

 

The East half of the Southwest quarter of the Northwest quarter and The South 528 feet of the West half of the Southwest quarter of the Northwest quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

Parcel No. 11:

 

The North 792 feet of the West half of the Southwest quarter of the Northwest quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

 

Parcel No. 12:

 

The South half of the Northwest quarter of the Southwest quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona; (also known as the South half of Parcel 729)

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

Parcel No. 13:

 

The Southeast quarter of the Southeast quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona; (also known as Parcel 733)

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

Parcel No. 14:

 

The East half of the Northeast quarter of Southeast quarter and The South 528 feet of the West half of the Northeast quarter of the Southeast quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

Parcel No. 15:

 

The North 729 feet of the West half of the Northeast quarter of the Southeast quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

Parcel No. 16:

 

The Southeast quarter of the Northeast quarter of Section 3, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona; (also known as of Parcel 725)

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

 

Parcel No. 17:

 

The Northwest quarter of the Northwest quarter of Section 9, Township 17 North, Range 26 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal or other hydro-carbon substances and all minerals whatsoever as reserved in Deed recorded in Docket 143, page 512, records of Apache County, Arizona.

 

Parcel No. 18:

 

The Southeast quarter of the Southwest quarter of Section 31, Township 18 North, Range 28 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal and minerals, whatsoever, already found or which may hereafter be found, upon or under said land as reserved in Deed recorded in Book 31 of Deeds, page 595, records of Apache County, Arizona.

 

Parcel No. 19:

 

The South half of the North half of the Southeast quarter and the South half of the Southeast quarter of Section 33, Township 18 North, Range 28 East, of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal and minerals, whatsoever, already found or which may hereafter be found, upon or under said land as reserved in Deed recorded in Book 31 of Deeds, page 595, records of Apache County, Arizona.

 

Parcel No. 20:

 

The Southeast quarter of the Southeast quarter of Section 33, Township 18 North, Range 26 East of the Gila and Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT all oil, gas, coal and other hydrocarbon substances and all minerals whatsoever found or which may hereafter be found upon or under said land as reserved or conveyed by out prior owners.

 

Parcel No. 21:

 

The Southeast quarter of the Southwest quarter of Section 31, Township 18 North, Range 28 East, of the Gila and Salt River Base and Meridian, Apache County, Arizona;

 

 

EXCEPT all oil, gas, coal and minerals, whatsoever, already found or which may hereafter be found, upon or under said land as reserved in Deed recorded in Book 31 of Deeds, page 595, records of Apache County, Arizona.

 

Parcel No. 22:

 

The Southwest quarter of the Southwest quarter of Section 3, Township 17 North, Range 26 East of the Gila Salt River Base and Meridian, Apache County, Arizona;

 

EXCEPT oil, gas and minerals as reserved in Deed recorded in Docket 14, page 556, records of Apache County, Arizona.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00224-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00224-of-00352.parquet"}]]