This Royalty Agreement involves
Title: ROYALTY AGREEMENT
Governing Law: Arizona Date: 5/2/2014
Industry: Non-Metallic Mining Sector: Basic Materials
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Gerrit M. Steenblik
One East Washington Street, Suite 1200
Phoenix, AZ 85004
(Apache County Land & Ranch)
THIS ROYALTY AGREEMENT (“ Royalty Agreement ”), dated as of April 29, 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:
A. The Company is a wholly-owned subsidiary of Prospect Global Resources, Inc., a Delaware corporation (“ Prospect ”);
B. The Company owns 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 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;
D. 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 (as amended from time to time, the “ Original Agreement ”) pursuant to which Prospect agreed to cause the Company to grant to Karlsson additional consideration for the sale, to be paid as a percentage of the Gross Sales of Authorized Minerals (as defined respectively below) from 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 ”);
E. 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 Minerals (as defined respectively below) from the Apache Lands as defined below (the “ First Amendment ”) and on April 29, 2014, the Parties entered into Amendment No. 2 to the Original Agreement;
F. The Parties have subsequently amended their obligations arising out of the Purchase Agreement, including but not limited to the Fourth Extension Agreement (the “ Fourth Extension Agreement ”) on or about December 10, 2013 and the Seventh Extension Agreement on April 29, 2014 (collectively, the “ Extension Agreements ”) with respect to the payment and performance of their obligations arising out of the Purchase Agreement by Prospect, the Company and other Affiliates (as defined below); and
G. Upon the terms and conditions set forth in this Royalty Agreement the parties intend to hereby to further amend the Original Agreement, to cause the Additional Consideration payable for the sale of the Membership Interests with respect to the Apache Lands to be paid in the form of the Royalty described below, to provide Karlsson with the other rights described in this Royalty Agreement, and to cause the 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:
1. Recitals Incorporated . The foregoing Recitals are incorporated herein by reference.
2. 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.
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 ”).
3. Grant of Royalty .
a. In accordance with the terms and conditions of the Original Agreement as amended by this Royalty Agreement, the Company has granted, sold and conveyed and by these presents does grant, sell and convey unto Karlsson the following royalties and overriding royalties (collectively, the “ Royalty ”) (i) an undivided three percent (3%) of one hundred percent (100%) of the Gross Sales of all Authorized Minerals sold by the Company from the 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 memorandum of which is recorded as Document #2012-002323 of the records of Apache County, Arizona (collectively, the “ Royalty ”).
b. Any Royalty paid pursuant to this Royalty Agreement shall be pari passu with payment of the following obligations: (i) a royalty of not more than 1% of the Company’s Gross Sales of Authorized Minerals to Buffalo Management LLC; (ii) a royalty in an amount not to exceed 2.1% of the Company’s Gross Sales of Authorized Minerals to Grandhaven Energy, LLC; and (iii) the Company’s obligations to the SL Group, AIG and the Hortenstine Group under the Potash Sharing Agreement (collectively, the “ Other Royalty Holders ”).
c. The Royalty shall be calculated quarterly as of the last day of March, June, September and December; provided, however, that a Royalty, if any, paid upon written off receivables shall be credited to the next calendar quarter. Royalty payments for each preceding calendar quarter shall be paid in arrears within forty-five (45) days of the end of each of June, September, and December and within ninety (90) days of the end of each March, by the Company to Karlsson.
d. The Royalty shall be paid in U.S. dollars, without demand, notice, setoff or reduction, by wire transfer in good and immediately available U.S. funds to such account or accounts as the Karlsson may from time to time designate in writing.
e. The Company may, in the good faith exercise of its reasonable discretion, modify and amend its existing leases applicable to the 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 provided that no such amendment or modification shall reduce, diminish or otherwise adversely affect Karlsson’s Royalty without Karlsson’s prior written consent, which may be withheld by Karlsson in its sole and absolute discretion.
f. Concurrently with each quarterly payment, the Company shall cause to be provided to Karlsson (i) a quarterly statement setting forth for that quarter the finished tons of all Authorized Minerals, the Company’s Gross Sales and the HNZ Royalties received by the Company; (ii) the payments made to the Other Royalty Holders; and (iii) the calculation of the Royalty payable to Karlsson.
g. In addition to the quarterly statements, within ninety (90) days after the end of each March, the Company shall provide an audited annual report of all of its operations consisting of a summary of the preceding year’s activities with respect to the 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 the Potash Sharing Agreement or any other lease, license, permit or other agreement pertaining to Authorized Minerals, whether in the name of the Company or any of its Affiliates (collectively, the “ Underlying Agreements ”), and any material notices (including claim of any default) given or received under any of the Underlying Agreements; and (iv) any change of an operator that is engaged in extracting, mining, processing or producing Authorized Minerals (an “ Operator ”).