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EX-31.2 - EX-31.2 - PROSPECT GLOBAL RESOURCES INC.a13-12963_1ex31d2.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-K/A

 

Amendment No. 1

 

x                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2012 or

 

o                   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to            

 

Commission file number: 001-35590

 

Prospect Global Resources Inc.

(Name of registrant as specified in its charter)

 

NEVADA

 

26-3024783

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

1401 17th Street, Suite 1550, Denver, CO 80202

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number including area code:

(303) 990-8444

 

Securities registered under Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

$0.001 par value Common Stock

 

 

 

Securities registered under Section 12(g) of the Act:

 

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x

 

Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

State the aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $55,077,754.

 

As of April 29, 2013, 72,520,718 shares of the registrant’s common stock were issued and outstanding.

 

 

 



Table of Contents

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

TABLE OF CONTENTS

 

PART I

 

Explanatory Note

1

Cautionary Statement Regarding Forward-Looking Statements

1

Items 1. & 2. Business and Properties

1

Item 1A. Risk Factors

4

Item 1B. Unresolved Staff Comments

11

Item 3. Legal Proceedings

11

Item 4. Mine Safety Disclosures

11

PART II

11

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

11

Purchases of Equity Securities

11

Item 6. Selected Financial Data

12

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

Plan of Operation

12

Operating Results

12

Liquidity and Capital Resources

13

Critical Accounting Policies and Estimates

14

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

16

Item 8. Financial Statements and Supplementary Data

16

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

16

Item 9A. Controls and Procedures

16

Item 9B. Other Information

16

PART III

17

Item 10. Directors, Executive Officers and Corporate Governance

17

Item 11. Executive Compensation

24

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

28

Item 13. Certain Relationships and Related Transactions, and Director Independence

30

Item 14. Principal Accounting Fees and Services

33

Exhibit Index

35

Signatures

40

 

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EXPLANATORY NOTE

 

We are filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend our Annual Report on Form 10-K for the year ended March 31, 2012 (our “Form 10-K”), originally filed with the Securities and Exchange Commission (the “SEC”) on May 10, 2012, to include the information required by Items 10 through 14 of Part III of our Form 10-K. This information was previously omitted from our Form 10-K in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in our Form 10-K by reference from our definitive proxy statement if such statement is filed no later than 120 days after our fiscal year-end. We are filing this Amendment to include Part III information in our Form 10-K because a definitive proxy statement containing such information was not filed by July 29, 2012.  We are also filing this Amendment to revise the mineral disclosure included herein and to expand on disclosure relating to our transition from an exploratory stage to a development stage company.

 

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), new Exhibits 31.1 and 31.2 are filed, and new Exhibit 32.1 is furnished herewith. This Amendment does not amend or otherwise update any other information in our Form 10-K and the financial statements have therefore been omitted. Accordingly, this Amendment should be read in conjunction with our Form 10-K and with our filings with the SEC subsequent to the filing of our Form 10-K.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements. This Annual Report includes statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. These forward looking statements can be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.). Items contemplating or making assumptions about, actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward- looking statements.

 

Although forward-looking statements in this report reflect the good faith judgment of management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

 

In this Amendment, unless the context otherwise requires:

 

(a)                                 all references to “Prospect” or “Prospect Global” refer to Prospect Global Resources Inc. f/k/a Triangle Castings, Inc., a Nevada corporation.

 

(b)                                 all references to “old Prospect Global” refer to our wholly owned subsidiary Prospect Global Resources Inc., a Delaware corporation.

 

(c)                                  all references to “we,” “us,” “our” and “the Company” refer collectively to Prospect and its subsidiaries old Prospect Global and American West Potash LLC.

 

(d)                                 all references to “Triangle” refer to Prospect Global prior to the merger, at which time its name was Triangle Castings, Inc.

 

(e)                                  all references to 2011 mean the year ended March 31, 2011 and to 2012 mean the year ended March 31, 2012.

 

Items 1. & 2. Business and Properties

 

Overview of Our Business

 

During 2012, Prospect transitioned from an exploration stage to a development stage company engaged in the development of a potash mine in the Holbrook Basin of eastern Arizona. In the 1960’s and 1970’s, Arkla Exploration Company, Duval Corporation

 

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and others drilled approximately 135 core holes to delineate the potash potential in the basin. However, to date the Holbrook Basin has not commercially produced potash.

 

The salt basins of the Holbrook Basin formed as a result of tectonic influence during the late Tertiary period and occur within the Permian Supai Salt Formation. The Permian salts are underlain by mostly marine sediments. These units include Cambrian sandstone, Devonian dolomitic limestone, Mississippian limestone, and Pennsylvanian limestone and shale. The Pennsylvanian deposits may inter-finger with the directly overlying Supai Formation. The Supai consists of three units: a lower redbed unit; a middle unit of dolomite, limestone, and evaporite; and the upper unit of siliclastic deposits including limestone, dolomite, and the evaporite unit which contains the potash. The potential mineralized zones are located at relatively shallow depths, less than 1600 feet.

 

American West Potash, or AWP, in which we own a 50% interest and which we operate, holds potash exploration permits on 42 Arizona state sections and leases for the mineral rights on 109 private sections which, in total, cover approximately 94,000 acres. The state permits are for five year terms, of which 15 expire in 2014 and 27 expire in 2015. Of the 109 private sections, eight of the leases expire in 2020 while the rest run in perpetuity subject to certain terms and conditions. As long as AWP performs exploration or development activity, it may extend all leases, subject to various default clauses. As the operator of AWP, we manage all phases of the project which include but are not limited to exploration activities, geological analysis, permitting, engineering, construction, mining and production.

 

During calendar year 2011, AWP acquired approximately 70 miles of 2D seismic data and completed the drilling and coring of 12 holes. The results from the seismic data and the drilling helped delineate the potash potential on AWP’s acreage. This was combined with the historic information of approximately 58 wells in our project area. Due to the relatively shallow depth of the deposit, AWP plans to mine the potash employing conventional underground mining techniques.

 

In January 2011, we contracted North Rim Exploration Ltd, a leading third party geologic engineering firm, to supervise field activity, analyze the results and prepare a NI 43-101 mineral Resource Calculation.  North Rim completed the requisite activities and issued a Resource Calculation on October 17, 2011.  Based on the conclusions reached and recommendations within the Resource Calculation, we contracted with Tetra Tech, a leading third party engineering firm, to complete a preliminary economic analysis, or PEA, to determine the economic viability of mining the resource.

 

Prospect plans to drill and core 10 additional wells to continue to develop the resources identified in the Resource calculation.  As of March 31, 2012, Prospect drilled two wells and is currently analyzing the core samples from these wells.

 

Given that AWP recently commenced its development program and the Company has no other production properties, we do not currently generate revenue and have incurred losses since inception.

 

We were incorporated in the state of Nevada on July 7, 2008. Our wholly- owned subsidiary, old Prospect Global, was incorporated in the state of Delaware on August 5, 2010.

 

Business and Operating Strategy

 

Our business strategy is to grow stockholder value primarily through the development of potash located in the Holbrook Basin of eastern Arizona. Key elements of our strategy include the following:

 

·                  Further delineate the resource to establish proven and probable reserves;

 

·                  Strengthen our leasehold position through acquiring bolt-on acreage and maintaining operatorship in order to manage the pace of spending and establish the project’s full lifecycle plan;

 

·                  Leverage unique geographic advantages such as minimal distance to processing, close proximity to sales markets and access to transportation infrastructure to achieve lower cost of sales;

 

·                  Build early partnerships and sales arrangements with key customers;

 

·                  Partner with state and local agencies to conduct environmental studies and permit a potash mine; and

 

·                  Maximize ore recovery and operational efficiency through conventional mining rather than solution mining, incorporate a multi-stage floatation process which utilizes high recycle rates, and utilize state of the art equipment in all areas.

 

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As described above in the Overview of Our Business, North Rim supervised the seismic and drilling efforts and prepared the Resource Calculation and Tetra Tech completed a PEA. Based on the findings from both the Resource Calculation and PEA, we believe our acreage in the Holbrook Basin holds significant potash potential. During FY 2013, we plan to expand the drilling and coring of 8 to 10 additional holes to further delineate the potential and achieve the confidence levels required under SEC Industry Guide 7 for proven and probable reserves. We can provide no assurance, however, that this additional drilling will actually lead to proven or probable reserves.

 

We decided to pursue potash mining in the United States based on our belief that the United States represents lower risks than many other foreign mining jurisdictions. The United States is also one of the world’s largest consumers of potash, importing over 80% of all domestically consumed potash in calendar year 2011. Accordingly, we believe our property will possess geographic competitive advantages in fulfilling market demand. As a domestic provider we believe we will represent a potentially more attractive source for potash than many of the imports which are subject to significant transport expenses, delivery risks, political risks, risk of potential future cross border taxation and other uncertainties and/or costs.

 

Although our investment in AWP is our initial asset, we believe that opportunities exist among other global commodities which exhibit similar demand characteristics to those inherent to potash. Accordingly, we will from time to time look at investments in or acquisitions of other natural resource projects, and we may make investments in or acquisitions of other natural resource projects either in the United States or in other parts of the world.

 

American West Potash LLC

 

We have partnered with the Karlsson Group, a group of entrepreneurs unaffiliated with Prospect, for the purpose of exploring for, and possibly producing, potash from the Holbrook Basin of eastern Arizona. Karlsson acquired and accumulated the initial acreage and permits in the Holbrook Basin. We formed AWP with the Karlsson Group in December, 2010. Pursuant to the terms of the AWP operating agreement, we are the exclusive operator of the project. We and Karlsson each designate two of AWP’s managers who provide overall direction. The operating agreement provides for a fifth manager to be mutually selected by Karlsson and Prospect but a fifth manager has not been appointed. Patrick L. Avery and Jonathan Bloomfield were appointed as President/CEO and CFO, respectively, of AWP.

 

Pursuant to AWP’s operating agreement, Karlsson transferred to AWP its ownership of mineral rights, surface rights and title consisting of approximately 31,000 gross acres in the Holbrook Basin in exchange for a 50% equity interest in AWP. We contributed $11 million in cash to fund AWP’s operations in exchange for our 50% equity interest in AWP, and as the operator of AWP, we provide to AWP technical resources, mining expertise and industry knowledge.

 

Governmental Regulation and Environmental, Health and Safety

 

We must obtain numerous governmental, environmental, mining and other licenses, permits and approvals authorizing our operations. Our existing exploration permits require us to make leasehold payments to either the state or private entities based on the number of leased land sections and acres. If we commence production on these leases, then we will be required to make royalty payments based on the revenue generated by the potash we produce from the leased land. We anticipate making significant leasehold payments to both governmental and private entities. Modifications of financial terms of these leases may adversely affect the viability of our projects.

 

Our exploration and development activities subject us to an evolving set of federal, state and local health, safety and environmental, or HSE, laws that regulate or propose to regulate surface disturbance, air and water quality impacts and safety procedures followed by our employees. Upon commencement of potash production, we will also need to comply with laws that regulate or propose to regulate our mining activities, including the management and handling of raw materials, disposal, storage and management of hazardous and solid waste, the safety of our employees and post-mining land reclamation.

 

Due to our recent status change from exploratory status to a development stage company, we have only recently commenced discussions with regulatory agencies regarding the environmental and permitting process. In FY 2013, we anticipate making significant capital expenditures to perform additional environmental studies to evaluate the impact of a potash mine on its surrounding environment. These studies include but are not limited to water, wildlife, vegetation, air, noise, surface disturbance and dust.

 

We cannot predict the impact of new or changed laws, regulations or permitting requirements, or changes in the ways that such laws, regulations or permitting requirements are enforced, interpreted or administered. HSE laws and regulations are complex, are subject to change and have become more stringent over time. It is possible that greater than anticipated HSE capital expenditures or reclamation and closure expenditures will be required in the future. We expect continued government and public emphasis on environmental issues will result in increased future investments for environmental controls at our operations.

 

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Natural Resources Market Conditions and Trends

 

Prospect believes the long-term demand for commodities remains intact and will be driven by the continued growth in emerging economies and their investment in domestic infrastructure and social systems. In the near term, we anticipate that the global economy will continue to recover, albeit on a slower pace. A sustained recovery in the global economy in the coming quarters and years, combined with positive forecasts of global consumption, may lead to an increase in demand for commodities. In turn, this could lead to a further appreciation in commodity prices and create additional upside for natural resources companies.

 

Potash Market Conditions and Trends

 

Potash is primarily used as an agricultural fertilizer due to its high potassium content. Potassium, nitrogen and phosphate are the three primary nutrients essential for plant growth. A proper balance of these nutrients improves plant health and increases crop yields. Currently, no cost effective substitutes exist for these three nutrients. Less effective nutrient sources do exist, however, the relatively low nutrient content of these sources and cost of transportation reduce their viability. As a key ingredient in fertilizer, potash improves root strength, increases crop yields and enhances soil fertility. The continued growth in the world population, increases in meat consumption and less land availability drives the demand for agricultural products. This is most evident in the emerging and developing economies of China, India and Brazil.

 

Potash is generated from evaporated marine deposits and is mined through both conventional underground methods and surface or solution mining. Domestically, fertilizer applications account for approximately 85% of potash consumption with the chemical industry consuming the remaining 15%. Internationally, the fertilizer industry accounts for approximately 95% of potash consumption.

 

In calendar year 2008, global potash consumption exceeded 50MMT. However, due to the global economic downturn in calendar year 2009, global potash consumption fell to less than 30MMT. In calendar years 2010 and 2011, potash consumption recovered to over 50MMT in each year, of which the U.S. produced approximately 1MMT annually. The U.S. is a net importer of potash, producing approximately 17% of the potash it consumes. Canada currently accounts for approximately 30% of global potash production. The next six largest producers, China, Russia, Belarus, Germany, Israel and Jordan, account for approximately 61% of global production.

 

Employees

 

As of May 1, 2012, we have a total of five employees. We believe that our employee relations are good. Our employees are not subject to any collective bargaining agreements, and we are not aware of any current efforts to implement such agreements.

 

Glossary of Terms

 

Potash:  A generic term for potassium salts (primarily potassium chloride, but also potassium nitrate, potassium sulfate and sulfate of potash magnesia, or langbeinite) used predominantly and widely as a fertilizer in agricultural markets worldwide. Unless otherwise indicated or inferred by context, references to “potash” refer to muriate of potash.

 

Potassium Chloride:  (KCl—muriate of potash): a metal halide salt composed of potassium and chlorine, varying in color from white to red depending on the mining and recovery process used. The majority of potassium chloride produced is used for making fertilizer.

 

Ton:  (also referred to as a short ton) a measurement of mass equal to 2,000 pounds.

 

Tonne:  (also referred to as a metric ton) a measurement of mass equal to 1000 kg or 2,204.6 pounds.

 

Item 1A.  Risk Factors

 

Investing in our shares involves significant risks, including the potential loss of all or part of your investment. These risks could materially affect our business, financial condition and results of operations and cause a decline in the market price of our shares. You should carefully consider all of the risks described in this Annual Report, in addition to the other information contained in this Annual Report, before you make an investment in our shares. Unless otherwise indicated, references to us, Prospect or Prospect Global include our operating subsidiaries old Prospect Global and AWP.

 

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Risks Related to Our Business

 

We are a development stage company with no current revenue source and a history of operating losses and there is an expectation that we will generate operating losses for the foreseeable future; we may not achieve profitability for some time, if at all.

 

We have incurred losses each year since our inception. We expect to continue incurring operating losses until several months after production occurs. The process of exploring, developing and bringing into production a producing mine is time-consuming and requires significant up-front and ongoing capital. We expect that our activities, together with our general and administrative expenses, will continue to result in operating losses for the foreseeable future. As of March 31, 2012, our losses accumulated in the development stage were $79,710,846. For the year ended March 31, 2012 our net loss attributable to Prospect Global was $62,876,767.

 

Our limited history makes an evaluation of us and our future difficult and profits are not assured. Many development stage mining companies never make it to the production stage.

 

Prospect was formed through a reverse merger with Triangle on February 11, 2011. Prior to the reverse merger, Triangle had no previous experience or investment holdings in the natural resource sector. In view of our limited history in the natural resources business, you may have difficulty in evaluating us and our business and prospects. You should also consider our business and prospects in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Many development stage mining companies never make it to the production stage. For our business plan to succeed, we must successfully undertake most of the following activities:

 

·                  Acquire mineral properties and/or interest in companies that have mineral properties but require additional technical expertise and/or capital investment;

 

·                  Obtain operatorship of assets in order to control our pace of spending and establish the project’s full lifecycle plan;

 

·                  Capitalize on global demand strength of certain global commodities;

 

·                  Seek assets that have high basic product-to-upgrade ratio (ore to product) or high economic ratio (raw material cost to gross margin);

 

·                  Invest in assets that have inherent geographic advantages such as minimal distance to processing, close proximity to sales markets and access to transportation infrastructure;

 

·                  Build early partnership arrangements with key customers;

 

·                  Invest in assets and projects that generate positive cash flow;

 

·                  Maintain access to funds to pursue our capital-intensive business plan;

 

·                  Implement and successfully execute our business strategy;

 

·                  Respond to competitive developments and market changes; and

 

·                  Attract, retain and motivate qualified personnel.

 

There can be no assurance that we will be successful in undertaking such activities. Our failure to undertake successfully some or most of the activities described above could materially and adversely affect our business, prospects, financial condition and results of operations. In addition, there can be no assurance that our exploration and production activities will produce natural resources in commercially viable quantities. There can be no assurance that sales of our natural resources production will ever generate sufficient revenues or that we will be able to sustain profitability in any future period.

 

We have significant capital needs over the next few years, and if we are unable to secure this capital when needed or on terms that are acceptable to us our ability to achieve our business strategy will be impacted.

 

Our current estimate for constructing the potash mine and mill facility in the Holbrook Basis of eastern Arizona is approximately $1.33 billion, and there can be no assurance that we will be able to raise these funds or that if we are able to raise the funds that it will be on terms acceptable to us or when needed. If we cannot raise the capital required to implement our business strategy, we may be required to curtail operations or pursue a different strategy, both of which could adversely affect our financial

 

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condition and results of operations. Further, any future debt financing, if incurred, would most likely require repayment regardless of whether or not we generate profits or cash flows from our business activities and any equity financings would likely result in dilution to existing stockholders and may involve the use of securities that have rights, preferences, or privileges senior to our common stock.

 

Our operations are dependent on receiving the required permits and approvals from governmental authorities. Denial or delay by a government agency in issuing any of our permits and approvals or imposition of restrictive conditions on us with respect to these permits and approvals may impair our business and operations.

 

We must obtain numerous environmental, mining and other permits and approvals authorizing our future operations. A decision by a government agency to deny a permit or approval could have a material adverse effect on our ability to continue operations at the affected facility.

 

The development of our existing property into a mine is also predicated upon securing all necessary permits and approvals. A denial of or delay in obtaining any of these permits or approvals or the issuance of any of these permits with cost-prohibitive conditions could interfere with our planned development of this property and have a material adverse effect on our business, financial condition or results of operations.

 

Target properties that we decide to explore or mine may not yield natural resources in commercially viable quantities or revenues that are sufficient to cover our cost of operations.

 

A target property is a property in which we hold an interest and has what we believe, based on available geological data, to be indications of mineral interests of certain natural resources. However, there is no way to predict in advance of actual mining whether any target property will yield natural resources in sufficient grades or quantities to recover our mining and development cost. Even the use of geological data and other technologies and the study of producing mines in the same area will not enable us to know conclusively prior to mining whether natural resources will be present or, if present, whether in the quantities and grades expected. We cannot assure you that all of the testing and analysis we perform will completely mitigate this risk.

 

The mining industry is very competitive and our ability to attract and retain qualified contractors and staff is critical to our success. The departure of key personnel or loss of key contractors could adversely affect our ability to run the business and achieve our business objectives.

 

The construction and operation of a mine and mill of the size we have planned for the Holbrook Basin is expected to require up to 800 workers during the construction phase and up to 400 workers once the mine is in production. We will also require many of the same skill sets sought by other natural resource companies and we will be competing with these other natural resource companies in finding qualified contractors, consultants and staffing. Since many of these skills sets are highly specialized, the market for and availability of individuals possessing these skills will also be impacted by the overall health of the natural resource sector.

 

Our future success is also dependent on our ability to retain Mr. Patrick Avery, our President and Chief Executive Officer. Mr. Avery has over 25 years of experience in the mining and fertilizer sectors and his knowledge and credibility are both critical to our future success and development.

 

We face competition from larger companies having access to substantially more resources than we possess.

 

Our competitors include other mining companies and fertilizer producers in the United States and globally, including state-owned and government-subsidized entities. Many of these competitors are large, well-established companies and have substantially larger operating staffs and greater capital resources than we do. We may not be able to successfully conduct our operations, evaluate and select suitable properties and consummate transactions in this highly competitive environment. Specifically, these larger competitors may be able to pay more for exploratory prospects and productive mineral properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, such companies may be able to expend greater resources on the existing and changing technologies that we believe are and will be increasingly important to attaining success in the industry.

 

There are risks in acquiring properties, including difficulties in integrating acquired properties into our business, additional liabilities and expenses associated with acquired properties, diversion of management attention, increasing the scope, geographic diversity and complexity of our operations and incurrence of additional debt.

 

Our business strategy includes growing our mineral interest base through acquisitions. Our failure to integrate acquired businesses successfully into our existing business, or the expense incurred in consummating future acquisitions, could result in unanticipated expenses and losses. In addition, we may assume cleanup or reclamation obligations or other unanticipated liabilities in

 

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connection with these acquisitions. The scope and cost of these obligations may ultimately be materially greater than estimated at the time of the acquisition.

 

The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant management attention and financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Our ability to make future acquisitions may be constrained by our ability to obtain additional financing. Future acquisitions could result in our incurring additional debt, contingent liabilities and expenses, all of which could have a material adverse effect on our financial condition and operating results.

 

Our business involves many operating risks, which may result in substantial losses, and insurance may be unavailable or inadequate to protect us against these risks.

 

Our operations are subject to hazards and risks associated with the exploration and mining of natural resources and related fertilizer materials and products, such as:

 

·                  Fires;

 

·                  Explosions;

 

·                  Inclement weather and natural disasters;

 

·                  Mechanical failures;

 

·                  Rock failures and mine roof collapses;

 

·                  Unscheduled downtime;

 

·                  Environmental hazards such as chemical spills, discharges or release of toxic or hazardous substances, storage tank leaks; and

 

·                  Availability of needed equipment at acceptable prices.

 

Any of these risks can cause substantial losses resulting from:

 

·                  Injury or loss of life;

 

·                  Damage to and destruction of property, natural resources and equipment;

 

·                  Pollution and other environmental damage;

 

·                  Regulatory investigations and penalties;

 

·                  Revocation or denial of our permits;

 

·                  Suspension of our operations; and

 

·                  Repair and remediation costs.

 

Our liability for environmental hazards may extend to those created either by the previous owners of properties that we purchase or lease or by acquired companies prior to the date we acquire them. We do not currently maintain insurance against all of the risks described above. In the future we may not be able to obtain insurance at premium levels that justify its purchase. We may also experience losses in amounts in excess of the insurance coverages carried. Either of these occurrences could harm our financial condition and results of operations.

 

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Risks Related to the Mining Industry

 

Potash is a commodity whose selling price is highly dependent on and fluctuates with the business and economic conditions and governmental policies affecting the agricultural industry. These factors are outside of our control and may significantly affect our profitability.

 

Our future revenues, operating results, profitability and rate of growth will depend primarily upon business and economic conditions and governmental policies affecting the agricultural industry, which we cannot control. The agricultural products business can be affected by a number of factors. The most important of these factors, for U.S. markets, are:

 

·                  Weather patterns and field conditions (particularly during periods of traditionally high crop nutrients consumption);

 

·                  Quantities of crop nutrients imported to and exported from North America;

 

·                  Current and projected grain inventories and prices, both of which are heavily influenced by U.S. exports and world-wide grain markets; and

 

·                  U.S. governmental policies, including farm and biofuel policies and subsidies, which may directly or indirectly influence the number of acres planted, the level of grain inventories, the mix of crops planted or crop prices.

 

International market conditions, which are also outside of our control, may also significantly influence our future operating results. The international market for crop nutrients is influenced by such factors as the relative value of the U.S. dollar and its impact upon the cost of importing crop nutrients, foreign agricultural policies, the existence of, or changes in, import barriers, or foreign currency fluctuations in certain foreign markets, changes in the hard currency demands of certain countries and other regulatory policies of foreign governments, as well as the laws and policies of the United States affecting foreign trade and investment.

 

Government regulation may adversely affect our business and results of operations.

 

Projects related to mining and natural resources are subject to various and numerous federal, state and local government regulations, which may be changed from time to time. There are federal, state and local laws and regulations primarily relating to protection of human health and the environment applicable to the mining, development, production, handling, storage, transportation and disposal of natural resources, including potash, or its by-products and other substances and materials produced or used in connection with mining operations. Activities subject to regulation include the use, handling, processing, storage, transportation and disposal of hazardous materials, and we could incur substantial additional costs to comply with environmental, health and safety law requirements related to these activities. We also could incur substantial costs for liabilities arising from past unknown releases of, or exposure to, hazardous substances.

 

Under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, we could be held jointly and severally responsible for the removal or remediation of any hazardous substance contamination at future facilities, at neighboring properties to which such contamination may have migrated and at third-party waste disposal sites to which we have sent waste. We could also be held liable for natural resource damages. Liabilities under these and other environmental health and safety laws involve inherent uncertainties. Violations of environmental, health and safety laws are subject to civil, and, in some cases, criminal sanctions. As a result of liabilities under and violations of environmental, health and safety laws and related uncertainties, we may incur unexpected interruptions to operations, fines, penalties or other reductions in income, third-party claims for property damage or personal injury or remedial or other costs that would negatively impact our financial condition and operating results. Finally, we may discover currently unknown environmental problems or conditions. The discovery of currently unknown environmental problems may subject us to material capital expenditures or liabilities in the future.

 

Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at ongoing operations, which may lead to increased expenses. Permit renewals and compliance with present and future environmental laws and regulations applicable to our operations may require substantial capital expenditures and may have a material adverse effect on our business, financial condition and operating results.

 

The mining industry is capital intensive and the ability of a mining company to raise the necessary capital can be impacted by factors beyond its control.

 

The upfront cost incurred for the acquisition, exploration and development of a mining project can be substantial, and the ability of a mining company to raise that capital can be influenced by a number of factors beyond the company’s control including but not limited to general economic conditions, political turmoil, market demand, commodity prices and expectations for commodity prices, debt and equity market conditions and government policies and regulations.

 

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Once in production, mining companies require annual maintenance capital in order to sustain their operations. This sustaining capital can also be substantial and may have to be secured from external sources to the extent cash flows from operations are insufficient.

 

Future cash flow from operations is subject to a number of variables, including:

 

·                  The quality of the reserve base and the grade of those reserves;

 

·                  The quantity of materials mined:

 

·                  The cost to mine the materials; and

 

·                  The prices at which the mined materials can be sold.

 

Any one of these variables can materially affect a mining company’s ability to fund its sustaining capital needs.

 

If our future revenues are adversely affected as a result of lower potash prices, operating difficulties, declines in reserves or for any other reason, we may have limited ability to obtain the capital necessary to undertake or complete future mining projects. We may, from time to time, seek additional financing, either in the form of bank borrowings, sales of debt or equity securities or other forms of financing or consider selling non-core assets to raise operating capital. However, we may not be able to obtain additional financing or make sales of non-core assets upon terms acceptable to us.

 

New sources of supply can create structural market imbalances, which could negatively affect our operating results and financial performance.

 

Potash prices have increased since 2009 and this coupled with projected increases in demand for potash have led to a renewed interest in bringing new sources of potash supply into the market. If production increases to the point where the market is over supplied, the price at which we are able to sell and the volumes we are able to sell could be impacted to the extent where this would materially and adversely affect our projected business, operating results and financial condition.

 

Variations in crop nutrient application rates may exacerbate the cyclicality of the crop nutrient markets.

 

Farmers are able to maximize their economic return by applying optimum amounts of crop nutrients. Farmers’ decisions about the application rate for each crop nutrient, or to forego application of a crop nutrient, particularly phosphate and potash, vary from year to year depending on a number of factors, including among others, crop prices, crop nutrient and other crop input costs or the level of the crop nutrient remaining in the soil following the previous harvest. Farmers are more likely to increase application rates when crop prices are relatively high, crop nutrient and other crop input costs are relatively low and the level of the crop nutrient remaining in the soil is relatively low. Conversely, farmers are likely to reduce or forego application when farm economics are weak or declining or the level of the crop nutrients remaining in the soil is relatively high. This variability in application rates can materially accentuate the cyclicality in prices for our future products and our sales volumes.

 

Uncertainties created by global economic events can adversely affect our business.

 

A global economic crisis could adversely affect our business and impact our financial results. A continuation or worsening of current economic conditions, a prolonged global, national or regional economic recession or other events that could produce major changes in demand patterns, could have a material adverse effect on our sales, margins and profitability.

 

Risks Relating to our Shares

 

There is no active public market for our shares and we cannot assure you that an active trading market will be established or maintained.

 

Our common stock is eligible for trading on the OTC Bulletin Board trading system. The OTC Bulletin Board tends to be highly illiquid, in part because there is no national quotation system by which potential investors can track the market price of shares except through information received or generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of share price volatility for securities that trade on the OTC Bulletin Board as opposed to a national exchange or quotation system. This volatility may be caused by a variety of factors including:

 

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·                  The lack of readily available price quotations;

 

·                  The absence of consistent administrative supervision of “bid” and “ask” quotations;

 

·                  Lower trading volume; and

 

·                  Market conditions.

 

The market price and trading volume of our shares may be volatile, and you may not be able to resell your shares at or above what you paid for them.

 

The price of our shares may fluctuate widely, depending upon many factors, including:

 

·                  The perceived prospects for natural resources in general;

 

·                  Differences between our actual financial and operating results and those expected by investors;

 

·                  Changes in the share price of public companies with which we compete;

 

·                  News about our industry and our competitors;

 

·                  Changes in general economic or market conditions including broad market fluctuations;

 

·                  Adverse regulatory actions; and

 

·                  Other events or factors, many of which are beyond our control.

 

Our shares may trade at prices significantly below current levels, in which case holders of the shares may experience difficulty in reselling, or an inability to sell, the shares. In addition, when the market price of a company’s common equity drops significantly, stockholders often institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources away from the day-to-day operations of our business.

 

We have a number of common stock warrants outstanding that if converted would dilute existing shareholders and could depress the market price of our common stock. We may also issue additional warrants and shares of our common stock in the future.

 

We have issued warrants to purchase an aggregate of 12,097,363 shares of our common stock. We may also issue additional warrants and shares of our common stock in the future and this could lower the market price of our common stock.

 

We incur increased costs as a result of being an operating public company.

 

As a public company, we incur increased legal, accounting and other costs that we would not incur as a private company. The corporate governance practices of public companies are heavily regulated. For example, public companies are subject to the Sarbanes-Oxley Act of 2002, related rules and regulations of the Securities and Exchange Commission, as well as the rules and regulations of any exchange or quotation service on which a company’s shares may be listed or quoted.

 

Our common stock could be considered a “penny stock” making it difficult to sell.

 

The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. Our stock trades infrequently and in the past several months trades have been reported both above and below $5.00 per share on the OTC Bulletin Board. The SEC’s penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that before a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the

 

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purchaser’s agreement to the transaction. These rules may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until our common stock no longer is considered a penny stock.

 

We cannot assure that we will list our common stock on any national securities system or exchange.

 

Although we intend to apply to list our common stock on an exchange other than the OTC Bulletin Board, we do not currently meet the initial listing standards for many exchanges and we cannot assure that we will be able to qualify for and maintain a listing of our common stock on any stock exchange in the future.

 

Securities analysts may not initiate coverage of our shares or may issue negative reports, which may adversely affect the trading price of the shares.

 

Our stock is not currently covered by any securities analyst and we cannot assure you that securities analysts will cover our company going forward. If securities analysts do not cover our company, this lack of coverage may adversely affect the trading price of the shares. The trading market for the shares will rely in part on the research and reports that securities analysts publish about us and our business. If one or more of the analysts who cover our company downgrades the shares, the trading price of the shares may decline. If one or more of these analysts ceases to cover our company, we could lose visibility in the market, which, in turn, could also cause the trading price of the shares to decline. Further, because of our small market capitalization, it may be difficult for us to attract securities analysts to cover our company, which could significantly and adversely affect the trading price of our shares.

 

Item 1B.  Unresolved Staff Comments

 

None.

 

Item 3.  Legal Proceedings

 

The Company is not a party to any pending material legal proceedings nor is the Company aware of any threatened or contemplated proceeding by any governmental authority against the Company.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

 

Purchases of Equity Securities

 

Market Information

 

Our common stock trades on the OTC Bulletin Board trading system under the symbol “PGRX.”

 

The following table sets forth the high and low bid prices for our common stock for the respective periods, as reported on the OTC Bulletin Board trading system.

 

Year

 

Three months including:

 

High

 

Low

 

2011

 

Apr-Jun

 

4.00

 

2.85

 

 

 

Jul-Sept

 

7.75

 

3.75

 

 

 

Oct-Dec

 

8.50

 

4.00

 

2012

 

Jan-Mar

 

10.00

 

2.05

 

 

Holders

 

As of May 1, 2012, there were approximately 62 holders of record of our common stock based upon information provided by our transfer agent.

 

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Dividends

 

We have never declared or paid dividends on our common stock nor do we anticipate paying any cash dividends on our common stock within the foreseeable future. Our board of directors has the ability and may so choose to declare cash dividends on our common stock, at their discretion, in the future. In their determination to declare dividends, the board will consider, among other factors, the company’s financial positions, results of operations, cash requirements, and any applicable outstanding covenants.

 

Equity Compensation Plans

 

See Note 11—Stock Based Compensation within the accompanying financial statements for information related to our equity compensation plans.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 6.  Selected Financial Data

 

As a smaller reporting company we are not required to provide this information. See Item 8. Financial Statements and Supplementary Data.

 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s discussion and analysis contains various forward-looking statements. These statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate” or “continue” or use of negative or other variations or comparable terminology.

 

We caution that these statements are further qualified by important factors that could cause actual results to differ materially from those contained in the forward-looking statements that these forward-looking statements are necessarily speculative, and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. See Section 1A—Risk Factors in this Annual Report.

 

Plan of Operation

 

We are a development stage company engaged in the exploration, development and mining of potash in the Holbrook Basin of eastern Arizona. We believe that potash, along with other global commodities, exhibits long term global demand strength and limited supply. Instead of relying on the traditional supply push of manufacturing whereby manufacturers push large quantities of standardized commodities into the market, we plan to capitalize on the growing demand of these commodities in both developed and emerging markets.

 

Prospect operates in the Holbrook Basin through its 50% ownership in AWP, which is described under the caption “American West Potash LLC” above.

 

Operating Results

 

Revenue

 

For the year ended March 31, 2012 and from August 5, 2010 (Inception) to March 31, 2012, the Company had no revenue.

 

Exploration Expense

 

Exploration expense for the year and cumulative period ended March 31, 2012 totaled $4,954,383 and $5,600,289, respectively. Exploration expenses incurred in 2012 included $490,988, $4,315,200 and $148,195 attributable to seismic, drilling and permitting/environmental, respectively. Exploration expenses were related to AWP’s activities in the Holbrook Basin area of eastern Arizona.  For the period January 1, 2012 to March 31, 2012, $833,046 was capitalized as development costs in mineral properties that would have been considered exploration expense had Prospect not been able to capitalize these costs.  The Company made a determination following the completion of the Resource Report and PEA in late 2011 that it had met the requirements to transition from an exploration stage to a development stage company and accordingly began capitalizing all development related costs related to the Holbrook Project as of January 1, 2012.  Prior to this date and while we were in the exploration stage, all costs related to the Holbrook Project were expensed as incurred.

 

General and Administrative Expense (“G&A”)

 

General and administrative expense for the year and cumulative period ended March 31, 2012 totaled $16,876,815 and $18,363,806, respectively. G&A expenses incurred during the year ended March 31, 2012 included $11,076,008, $4,122,265 and

 

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$1,678,542  related to salaries and benefits, stock compensation, management fees and board compensation; legal, accounting and insurance; and office, travel and other, respectively. From Inception through March 31, 2012, G&A expenses incurred included $11,679,832, $4,692,680, and $1,991,294 related to salaries and benefits, stock compensation, management fees and board compensation; legal, accounting and insurance; and office, travel and other, respectively.  For the period January 1, 2012 to March 31, 2012, $328,942 was capitalized as development costs in mineral properties that would have been considered G&A expense had Prospect not been able to capitalize these costs.  The Company made a determination following the completion of the Resource Report and PEA in late 2011 that it had met the requirements to transition from an exploration stage to a development stage company and accordingly began capitalizing all development related costs related to the Holbrook Project as of January 1, 2012.  Prior to this date and while we were in the exploration stage, all costs related to the Holbrook Project were expensed as incurred.

 

Included within G&A expenses above are rental expenses of $43,249 and $58,554 for the year and cumulative period ended March 31, 2012.

 

Derivative Losses

 

Derivative losses for the year and cumulative period ended March 31, 2012 totaled $39,810,054 and $54,765,601, respectively. These derivative losses relate to the change in the fair value of the compound embedded derivatives of our convertible notes and warrants. It also includes the derivative loss incurred upon issuance of the convertible notes which occurs when the fair value of the derivative instruments exceeds the financing proceeds. Derivative expense was calculated using a Monte Carlo valuation model for the convertible notes and a binomial-lattice-based valuation model for the warrants.

 

Our common stock is traded in the over-the-counter market and historically has traded in small volumes and infrequently. As such, prior to September 30, 2011, we used the stock price of a publicly traded entity with similar circumstances and industry as our own as an input to estimate a fair value stock price of the Company for use in valuing our derivative financial instruments under the Monte Carlo and binomial-lattice-based valuation models. During the quarter ended September 30, 2011, certain extraneous circumstances occurred that, in our judgment, rendered the other entity’s stock price to no longer be a reasonable proxy as an input into the valuation of our own common stock price. Consequently, we looked to other indications and facts and circumstances available to support our stock price for use in this valuation model. Our common stock continues to be traded infrequently and in small volumes, which makes us believe that it may not provide the best indication of fair value. The derivative financial instruments associated with the losses were settled on November 22, 2011 with the conversion of the outstanding convertible notes. As of November 22, 2011, we determined that recent transactions with third parties in private placements of our common stock represented the best indicator of the fair value of our common stock. As such, we changed our assumption for estimating the share price in both the binomial-lattice-based and Monte Carlo valuation models for these derivative financial instruments. Because derivative financial instruments are initially and subsequently carried at fair values, our loss reflects the volatility from this change in assumption used in the valuation model, as well as fluctuations in the underlying estimates. Refer to Note 7—Convertible Notes in the accompanying financial statements for additional information.

 

Loss on Debt Extinguishment

 

We incurred a $2,000,000 loss on debt extinguishment for the year ended March 31, 2012. This loss is addressed in the discussion of the Merkin Note in Note 7—Convertible Notes of the accompanying financial statements.

 

Interest Expense

 

Net interest expense for the year and cumulative period ended March 31, 2012 totaled $1,939,000 and $2,059,190, respectively. Net interest expense incurred in 2012 included $409,097 and $1,529,903 for interest associated with the convertible secured notes and amortization of the note discount and financing costs, respectively. From August 5, 2010 (Inception) through March 31, 2012, net interest expense included $474,146 and $1,585,044 for interest associated with the convertible secured notes and amortization of the note discount and financing costs, respectively.

 

Off-Balance Sheet Arrangements

 

None.

 

Liquidity and Capital Resources

 

As of March 31, 2012, Prospect had approximately $11.3 million in cash, compared to approximately $2.3 million as of March 31, 2011. Since inception, we have raised and relied almost exclusively on private placements of common stock and convertible notes to fund our operations. Year-to-date and since August 5, 2010 (Inception), we have raised approximately $23.5 and $27.1 million dollars through the issuance of convertible notes and common stock to founding stockholders and outside investors. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and raise additional funds. While we intend to raise additional funds by way of public or private offerings of debt, equity, convertible notes or other financial

 

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instruments, there can be no assurances that we will be successful in these efforts. We also need to raise additional money to fund significant capital and operating expenses we anticipate to incur throughout FY 2013.

 

The following table summarizes our cash flows for the periods indicated:

 

 

 

 

 

 

 

Cumulative from

 

 

 

Twelve months

 

August 5, 2010

 

August 5, 2010

 

 

 

ended March 31,

 

(Inception) through

 

(Inception) through

 

 

 

2012

 

March 31, 2011

 

March 31, 2012

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(10,443,435

)

$

(1,268,408

)

$

(11,711,743

)

Net cash used in investing activities

 

$

(2,029,441

)

$

(56,126

)

$

(2,085,567

)

Net cash provided by financing activities

 

21,494,206

 

3,603,412

 

25,097,518

 

Increase in cash and cash equivalents

 

$

9,021,330

 

$

2,278,878

 

$

11,300,208

 

 

Cash used in operating activities during 2012 was primarily related to the continuation of our drilling activities in the Holbrook Basin and other corporate general and administrative expenses. The net cash used in investing activities predominantly pertains to the Company’s acquisition of adjacent and complementary acreage and the exercising of options to obtain mineral rights in the Holbrook Basin. The net cash provided by financing activities predominantly relates to the issuances of convertible notes and common stock.

 

Excluding the notes converted in connection with the reverse merger (as discussed in Note 1—Organization and Business Operations in the accompanying financial statements), outstanding debt throughout the year was comprised of five convertible, secured promissory notes, each secured by all of our assets on a pari passu basis with each of the other notes. On November 22, 2011, we completed a qualified financing (defined as Prospect’s sale of securities in a transaction or series of transactions for at least $10,000,000), resulting in the conversion of these notes into our common stock. As of March 31, 2012, we had no outstanding debt.

 

Further information relating to each of the convertible notes outstanding throughout the year is provided in Note 7—Convertible Notes in the accompanying financial statements.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of these assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A summary of significant accounting policies is included in Note 2—Summary of Significant Accounting Principles in the accompanying financial statements. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our Company’s operating results and financial condition.

 

Note Regarding Forward-Looking Statements

 

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. This Annual Report on Form 10-K includes statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. These forward looking statements can be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.). The forward-looking statements may appear in a number of places and include statements with respect to, among other things: business objectives and strategies, including our focus on the Holbrook Basin in Arizona, as well as statements regarding intended value creation; our opinion about future demand for and supply of potash; our plan to capitalize on potash demand; our plan to acquire properties, companies or interests in companies with a potash reserve base; our plan to prove up reserves by acquiring seismic data and drilling and coring test holes; our plan to begin the environmental and permitting process, preliminary mine design and bankable feasibility study, which we estimate to complete this year; our plan of exploration; the viability of a potash mine in the Holbrook Basin; the economic benefits of a potash mine; future sales of state leases and permits; our intention to raise additional funds by way of public or private offerings of debt, equity,

 

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convertible notes or other financial instruments; our anticipation of raising and contributing to AWP and raising additional money to fund our general corporate expenses; our ability to further implement our business plan and generate revenue; our anticipation of investing considerable amounts of capital to establish production from our mining project; our anticipation of our ability to generate reserves that are capable of providing an acceptable return for investors that is commensurate with the inherent risks of a mining project; anticipated operating costs; impact of the adoption of new accounting standards and our financial and accounting systems and analysis programs; anticipated compliance with and impact of laws and regulations; anticipated results and impact of litigation and other legal proceedings; and effectiveness of our internal control over financial reporting.

 

Although forward-looking statements in this report reflect the good faith judgment of management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the SEC which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected. Factors that may cause our actual performance to differ materially from that contemplated by such forward-looking statements include, among others:

 

·                  Our history of operating losses;

 

·                  Our limited operating history;

 

·                  Our inability to obtain sufficient additional capital;

 

·                  Our dependence on the success of the development activities of AWP;

 

·                  The denial or delay by a government agency in issuing permits and approvals necessary for our operations or the imposition of restrictive conditions with respect to such permits and approvals;

 

·                  The failure of our mining prospects to yield natural resources in commercially viable quantities;

 

·                  Production disruptions;

 

·                  The departure of key personnel;

 

·                  Competition from other potash companies;

 

·                  Risks associated with acquiring producing properties, such as difficulties in integrating acquired properties into our business, additional liabilities and expenses associated with acquired properties, diversion of management attention, increasing the scope, geographic diversity and complexity of our operations and incurrence of additional debt;

 

·                  Our inability to insure against operating risks;

 

·                  The market price of potash and products based on potash;

 

·                  Conditions in the agricultural industry;

 

·                  Government regulation;

 

·                  Global supply of and demand for potash and potash products;

 

·                  The cyclicality of the crop nutrient markets;

 

·                  Global economic conditions;

 

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·                  The lack of an active public market for shares of our common stock;

 

·                  The potential volatility of the market price and trading volume of our shares of common stock;

 

·                  The dilutive effect of future issuances of shares of common stock;

 

·                  The effects on the market price of our common stock of future issuances of shares of our common stock;

 

·                  Costs associated with being a public company;

 

·                  Our common stock being a “penny stock;”

 

·                  Our failure to list our common stock on any national securities system or exchange; and

 

·                  The failure of securities analysts to initiate coverage of our shares or their issuance of negative reports.

 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company we are not required to provide this information.

 

Item 8.  Financial Statements and Supplementary Data

 

Prospect Global Resources Inc.

(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

 

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.  Controls and Procedures

 

The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 31, 2012.

 

Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of March 31, 2012, the Company’s disclosure controls and procedures were effective, in that they provide a reasonable level of assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

 

The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2012 that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B.  Other Information

 

None.

 

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PART III

 

Item 10.    Directors and Executive Officers and Corporate Governance

 

The following table sets forth the names, ages and positions of the persons who are our directors and named executive officers as of the date of this Amendment:

 

NAME

 

AGE

 

POSITION

Dr. Barry Munitz

 

71

 

Chairman of Board of Directors; Chairman of Governance, Nominating and Compensation Committee

Chad Brownstein

 

39

 

Executive Vice Chairman of Board of Directors

Devon Archer

 

38

 

Director, Chairman of Audit Committee

Marc Holtzman

 

52

 

Director

Zhi Zhong Qiu

 

57

 

Director

J. Ari Swiller

 

43

 

Director, Chairman of Finance and Operations Committee

Conway J. Schatz

 

42

 

Director

Patrick L. Avery

 

59

 

Director, President, CEO, Treasurer and Secretary

Wayne Rich

 

47

 

CFO, Vice President of Finance

Brian W. Wallace

 

54

 

COO, Executive Vice President

 

Directors hold office for a period of one year from their election at the annual meeting of stockholders and until a particular director’s successor is duly elected and qualified. Officers are elected by, and serve at the discretion of, our board of directors. None of the above individuals has any family relationship with any other. It is expected that our board of directors will elect officers annually following each annual meeting of stockholders.

 

Dr. Barry Munitz: Chairman of the Board of Directors.    Dr. Munitz joined our board of directors as chairman in February 2011. From August 2010 to February 2011, Dr. Munitz served as chairman of the board of directors of Old Prospect Global Resources, Inc., our wholly owned subsidiary. Dr. Munitz has been Trustee Professor at the California State University, Los Angeles campus since 2006. Between 2005 and 2010, Dr. Munitz chaired California’s P-16 Council, an organization that develops strategies to improve education in the State of California. Dr. Munitz served as President and CEO of the J. Paul Getty Trust from 1997 to 2006 where he was responsible for the two museums (Brentwood and Malibu), the Conservation and Research Institutes, the philanthropic foundation, the investment portfolio, and all education outreach programs. From 1991 to 1997, he served as Chancellor of the California State University (CSU)—a twenty-three campus system which is the largest senior university in the United States. Prior to that role, Dr. Munitz was vice chairman of the publicly held company MAXXAM and president of the private company which was its major stockholder (Federated Development) where he was involved for a decade in their natural resources activity, as well as timber, banking, energy and real estate. During the past decades, he served as a Trustee of Princeton University, the Seattle Art Museum, and the Courtauld Institute in London, as well as a corporate director at SunAmerica and Kaufman & Broad. Dr. Munitz is the immediate past chair and current vice chair of the board of Sierra Nevada College, is president of the Cotsen Foundation for the Art of Teaching and for Academic Research, is a governor of the three Eli and Edythe Broad Family Foundations and a corporate director at SallieMae. Dr. Munitz received a Bachelor’s degree in Classics and Comparative Literature from Brooklyn College, and received a Masters and a Ph.D. from Princeton University. Dr. Munitz is a fellow of the American Academy of Arts and Sciences and holds honorary degrees from Whittier College, Claremont University, the California State University, the University of Southern California, Notre Dame and the University of Edinburgh.

 

Director Qualifications:

 

·                  Leadership Experience—Chair of California’s P-16 Council, president and chief executive officer of J. Paul Getty Trust, chancellor of the California State University (CSU), president of Cotsen Foundation, Governor of three Eli and Edythe Broad Family Foundations, corporate director at SallieMae and extensive board and civic leadership as described in further detail above.

 

·                  Industry Experience—Extensive experience in the natural resources industry as vice chairman of MAXXAM, President of Federated Development, chairman of Old Prospect Global Resources Inc. and personal investments in the natural resources industry.

 

Chad Brownstein: Vice Chairman of the Board of Directors.    Mr. Brownstein, one of our co-founders joined our board of directors as non-executive vice-chairman in August 2011 and became executive vice chairman in August 2012. Mr. Brownstein is an advisor to Crescent Capital Group (formerly Trust Company of the West Leveraged Finance Group) where he focuses on investing in

 

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Special Situations. Mr. Brownstein was a Member of Crescent Capital Group from January 2011 to July 2012 and was Senior Vice President at Trust Company of the West from February 2009 to December 2010. Previously, he was a Senior Advisor at Knowledge Universe Ltd., where he focused on turnaround operations and private equity investing. Prior to that, he was a Partner at ITU Ventures making venture and growth investments with a specialization in corporate strategy. Earlier in his career, Mr. Brownstein worked at Donaldson Lufkin & Jenrette in the Merchant and Investment Banking divisions. Mr. Brownstein is a member of the Cedars Sinai Board of Governors, California Competes Council, and serves on the board of directors for Los Angeles Conservation Corps and First PacTrust Bancorp (a Nasdaq listed company). Mr. Brownstein attended Columbia Business School and received a BA from Tulane University.

 

Director Qualifications:

 

·                  Leadership Experience—Member of Crescent Capital Group, Senior Advisor at Knowledge Universe Ltd., Partner, ITU Ventures, Cedars Sinai Board of Governors; director of Los Angeles Conservation Corps and First PacTrust Bancorp (a Nasdaq listed company) and extensive experience in corporate strategy in the capacities described above.

 

·                  Industry Experience—one of our co-founders and personal investments in the natural resources industry.

 

Devon Archer: Chairman of the Audit Committee; Director.    Mr. Archer joined our board of directors in March 2012. Mr. Archer is the Co-Founder and Senior Managing Partner of Rosemont Capital, LLC, where he has led the development of the investment platform, which manages private equity, fixed income and real estate investments since January 2005. Mr. Archer was the Founder and President of Sitaro LTD., a leading marketing software and services company acquired by CoActive Marketing Group in 2004. From September 1999 to January 2001, Mr. Archer worked at New England Financial and MetLife as a special analyst to the Strategic Management Group of New England Financial’s and MetLife’s Executive Committees through their merger. Mr. Archer started his career at Citibank in September 1996 as a Management Associate and worked for the foreign direct investment group, Citicorp Asia Ltd. Along with Rosemont Realty, LLC, Mr. Archer serves on the Boards of Rosemont private portfolio companies; Viet Thai Joint Stock Company, 2-20 Records & Diamondback Tactical, and is a Trustee of the Heinz Family Office. Mr. Archer earned his Bachelor of Arts in American Studies from Yale University.

 

Director Qualifications:

 

·                  Leadership Experience—Co-Founder and Senior Managing Partner of Rosemont Capital, LLC, Founder and President of Sitaro LTD., qualification as an audit committee financial expert and extensive experience in corporate leadership and strategy as described in further detail above.

 

·                  Industry Experience—Extensive investment and finance experience in domestic and international capital markets.

 

Marc Holtzman: Director.    Mr. Holtzman joined our board of directors in April 2011. Since August 2008, Mr. Holtzman has served as vice chairman of Barclays Capital, the investment banking division of Barclays Bank PLC. In 2007, Mr. Holtzman was executive vice chairman of ABN Amro Bank until August 2008. In 2006, Mr. Holtzman was a candidate for the Republican nomination for Colorado Governor. From 2003 through 2005 Mr. Holtzman was president of the University of Denver. Previously from 1999 through 2003, Mr. Holtzman served in the cabinet of Governor Bill Owens as Colorado’s first secretary of technology. In addition, Mr. Holtzman was chairman of Colorado’s Information Management Commission and co-chairman of the Governor’s Commission on Science and Technology. Mr. Holtzman helped guide Colorado’s economic transformation into a fully diversified technology hub. Prior to his tenure in Colorado politics, Mr. Holtzman served as executive vice chairman of ABN Amro Bank, was the co-founder and president of MeesPierson EurAmerica (a firm which was subsequently acquired by ABN Amro) and served as senior adviser to Salomon Brothers, when he lived and worked in Eastern Europe and Russia from September 1989 until October 1998. Drawing on his early experience in helping develop Central Asia’s finance sector, Mr. Holtzman was appointed by Kazakhstan’s Prime Minister to serve on the board of trustees of The Almaty Regional Financial Centre. In addition, since 2008 Mr. Holtzman has served as non-executive chairman of Indus, a leading Indian oil and gas company listed on London’s AIM market with a market capitalization of approximately US $2 billion and since 2009 has served as a director of the Bank of Kigali, Rwanda’s largest financial institution and a public company registered under the Company law of Rwanda and regulated by the National Bank of Rwanda. He holds a bachelor of arts degree in economics from Lehigh University.

 

Director Qualifications:

 

·                  Leadership Experience—Vice chairman of Barclays Capital, executive vice chairman of ABN Amro Bank, President of the University of Denver, Secretary of Technology of the State of Colorado, co-founder and president of MeesPierson EurAmerica, senior advisor to Salomon Brothers; non executive chairman of Indus.

 

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·                  Industry Experience—Experience in analyzing natural resources investments.

 

Zhi Zhong Qiu: Director.    Mr. Qiu joined our board of directors in November 2011. Mr. Qiu is the Vice Chairman of Asia Pacific and Chairman of Greater China of Barclays Capital, responsible for the Bank’s senior relationship with corporate clients, institutions and governments, and has served in this role since 2009. Before joining Barclays Capital, Mr. Qiu was the Chairman of China and Vice Chairman of Asia of ABN AMRO bank, responsible for all the Bank’s activities and business related to China from 2006 to 2009. Mr. Zhi Zhong Qiu is also the Chairman of DragonTech Ventures Fund and its management company and has served in this capacity since 2004. Mr. Qiu holds a number of directorship positions in the investment companies of DragonTech Ventures Fund, including the NYSE listed Suntech Power Holdings (Ticker: STP). Prior to 2002, Mr. Qiu was the Chairman of Greater China Region of Credit Suisse First Boston (“CSFB”), responsible for CSFB’s overall business in the Greater China region (including Taiwan and Hong Kong). Prior to his appointment as the Chairman in 1998 at CSFB, Mr. Qiu was a Managing Director in charge of all derivatives activities for Credit Suisse Financial Products (“CSFP”), the financial derivatives subsidiary of CSFB, in the Great China region. Mr. Qiu joined CSFB in 1991 and became a Managing Director in 1995. He built the CSFP and CSFB’s derivatives and investment banking business in the Greater China region. Mr. Qiu was elected as one of the world’s “50 Most Wanted in Finance” by Global Finance magazine in 1994, and named as one of the 50 world “Derivatives Superstars” by the same magazine in 1995. Prior to joining CSFB, Mr. Qiu held positions in Booz Allen & Hamilton, providing consulting services to major banks and financial institutions in North America and Asia. Mr. Qiu received his B.S. (magna cum laude) in Computer Science from New York University, his B.E. (summa cum laude) in Electrical Engineering from Cooper Union, his M.S. degree in Electrical Power Engineering from Ohio State University, and his M.B.A. from Harvard Business School.

 

Director Qualifications:

 

·                  Leadership Experience—Vice Chairman of Asia Pacific and Chairman of Greater China of Barclays Capital, former Chairman of China and Vice Chairman of Asia of ABN AMRO bank, Chairman of DragonTech Ventures Fund and its management company, and former Managing Director in charge of all derivatives activities for Credit Suisse Financial Products.

 

·                  Industry Experience—Extensive investment and finance experience in international markets.

 

J. Ari Swiller: Director.    Mr. Swiller joined our board of directors in February, 2011. From October 2010 to February 2011, Mr. Swiller served as a director of Old Prospect Global Resources, Inc., our wholly owned subsidiary. Mr. Swiller is co-founder of the Renewable Resources Group (RRG). RRG has developed two million acre-feet (AF) of water projects, over a gigawatt of renewable energy and marketed hundreds of water rights in nine states. Currently the firm owns and/or manages more than 100,000 acres of farmland for the purpose of water, renewable energy, and/or carbon development. Mr. Swiller’s responsibilities include managing all aspects of the business. Prior to founding RRG, Mr. Swiller was a Principal in The Yucaipa Companies; he served as Vice President of External Affairs at Ralphs Grocery Company and Executive Director of The Ralphs/Food4Less Foundation. He serves on the board of rfXcel Corporation, which develops supply chain performance improvement software. Mr. Swiller also serves on the Board of the Los Angeles Conservation Corps, the Miguel Contreras Educational Foundation and Falcon Waterfree Technologies. Mr. Swiller earned a B.A. from Cornell University.

 

Director Qualifications:

 

·                  Leadership Experience—Co-founder of Renewable Resources Group, principal in The Yucaipa Companies, vice president of external affairs at Ralphs Grocery Company, executive director of The Ralph’s/Food4Less Foundation.

 

·                  Industry Experience—Extensive experience in developing energy and natural resource projects, director of Old Prospect Global Resources Inc.

 

Conway J. Schatz: Director.    Mr. Schatz joined our board of directors in April 2012. Mr. Schatz currently serves as vice-president of Hexagon, LLC, a Denver-based private equity firm, overseeing energy and real estate investing. Mr. Schatz joined Hexagon in 1998. Prior to 1998, Mr. Schatz worked in the business advisory / audit division of Arthur Andersen, LLP, with client industries such as oil and gas, light manufacturing, financial services, real estate, cable and technology. Mr. Schatz also serves as a director to a Colorado based real estate operating company, and a European real estate fund. He was a director and audit committee chair of Recovery Energy, Inc. (RECV), a publicly traded oil and gas company, from June 2010 until January 2012. Mr. Schatz became a certified public accountant in 1996, licensed in the state of Colorado. Mr. Schatz received dual bachelor of science degrees in finance and accounting from Minnesota State University, an M.B.A. (2001) and an M.S. in real estate development and construction management (2010) from the University of Denver. We have secured financings through Mr. Schatz’s employer, Hexagon, as described further under the section entitled Transactions with Related Persons. Mr. Schatz is also a manager of Very Hungry LLC, but does not have dispositive power over the shares owned by Very Hungry LLC, as described further in the section entitled Security

 

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Ownership of Certain Beneficial Owners and Management. Very Hungry LLC owns 7,588,727 shares of our common stock and warrants to purchase 4,841,608 common shares (representing in the aggregate approximately 20.7% of our outstanding shares).

 

Director Qualifications:

 

·                  Leadership Experience—Vice-president of Hexagon Investments, director to a real estate operating company and a European real estate fund, former director and audit committee chair of a public company, qualified audit committee financial expert, former consultant at Arthur Andersen, LLP, dual bachelor of science degrees in finance and accounting from Minnesota State University, an executive masters of business administration from the Daniels College of Business at the University of Denver and an executive masters of science in real estate development and Construction Management.

 

·                  Industry Experience—Experience overseeing energy investing at Hexagon Investments, former consulting work in natural resources industry at Arthur Andersen.

 

Patrick L. Avery: Director, President, Chief Executive Officer, Treasurer and Secretary.    In February 2011, Mr. Avery joined our board of directors and became our president, chief executive officer, treasurer and secretary. Mr. Avery has more than 25 years of experience in all phases of industrial businesses. From August 2010 to February 2011, Mr. Avery served as president and chief executive officer of Old Prospect Global Resources Inc., our wholly owned subsidiary. From July 2009 to September 2010, Mr. Avery was vice president of energy and commodities for Broe Company where he managed grain, fuel and fertilizer businesses. From March 2009 to June 2009, Mr. Avery managed his investments. Mr. Avery served as president of Intrepid Potash from April 2007 to February 2009 where he led all aspects of mining, manufacturing, logistics and sales. His key efforts at Intrepid Potash included re-vamping older facilities and significant growth in all key operational and sales metrics. From May 1996 to March 2007, Mr. Avery served in several senior positions at JR Simplot including, SVP, Mining, Manufacturing and Sales, and SVP, Retail Operations. During his time at JR Simplot, Mr. Avery oversaw mining and manufacturing at over 10 complex facilities, and ran logistics and sales functions in facilities spanning 13 western states. Mr. Avery performed undergraduate studies at the University of Colorado and performed graduate work in engineering from Loyola Marymount University. He received his MBA from the Graziadio School of Business at Pepperdine University.

 

Director Qualifications:

 

·                  Leadership Experience—Vice president of energy and commodities for Broe Company, president of Intrepid Potash, various senior positions at JR Simplot.

 

·                  Industry Experience—Extensive experience with mining, fertilizers and natural resources, particularly his direct experience as a chief executive officer in the potash industry for a public company and president, chief executive officer and director of Old Prospect Global Resources Inc.

 

Wayne Rich: Chief Financial Officer and Vice President of Finance.    Prospect Global appointed Wayne Rich as chief financial officer and vice president of finance effective September 6, 2011. Jonathan Bloomfield, our former chief financial officer, became our vice president of corporate development effective September 6, 2011. Mr. Rich served as treasurer and director of corporate finance at Thompson Creek Metals Inc., a publicly traded metals and mining company, from October 2008 until September 2011. Prior to that he served in several capacities at The Doe Run Resources Corporation, an integrated mining and metals manufacturing company, from August 1998 to October 2008, including as treasurer from April 2007 to October 2008 and assistant treasurer from July 2004 to April 2007. Mr. Rich holds a masters in business administration from Illinois State University and a bachelors of science in accountancy from Eastern Illinois University.

 

Brian W. Wallace: Chief Operating Officer and Executive Vice President.    Prospect Global appointed Brian W. Wallace our chief operating officer and executive vice president on August 15, 2012. Prior to this, he worked for Incitec Pivot, Limited, first as vice president, strategy, and since June 2008 as president of its operating division, Dyno Nobel Americas. Incitec Pivot is a multinational supplier of fertilizer and explosives products and services based in Melbourne, Australia, and Dyno Nobel Americas is a provider of explosive products and services to the mining, quarrying, construction and seismic exploration industries based in Salt Lake City, Utah. Mr. Wallace has full management responsibility for Dyno Nobel Americas, which has 3,000 employees and had annual sales of $1.2 billion in 2011. From 2001 to February 2008 he worked in various capacities at Orica Limited, a global chemicals manufacturer supplying the mining/resources sectors based in Melbourne, Australia. Among other strategic roles, Mr. Wallace was responsible for designing and implementing retention strategies for the company’s top global customers. He holds BS and Masters degrees in chemistry from the University of Natal and an MBA from the University of the Witwatersrand, both in South Africa, and he

 

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completed the Advanced Management Program at Harvard University in 2005. Mr. Wallace served as chairman of the Institute of Makers of Explosives in 2010 and 2011.

 

The Board of Directors and Committees Thereof

 

Prospect Global’s board of directors held ten meetings in fiscal year 2012. Each of our current directors who were directors at such time attended at least 75% of the aggregate total of meetings of the board of directors and committees on which they served. Our non-management directors meet at least one time throughout the year and as necessary or appropriate in executive session as which members of management are not present. Other than those directors who joined the board after our annual meeting and Mr. Holtzman, all of our directors attended our annual meeting. Our policy regarding directors’ attendance at the annual meetings of stockholders is that all directors are expected to attend, absent extenuating circumstances.

 

Affirmative determinations regarding director independence and other matters

 

Our board of director follows the standards of independence established under the Nasdaq rules in determining if directors are independent and has determined that Dr. Munitz, Mr. Archer, Mr. Holtzman, Mr. Qiu, Mr. Schatz and Mr. Swiller are “independent directors” under those rules. No independent director receives, or has received, any fees or compensation from Prospect Global other than compensation received in his or her capacity as a director. There were no transactions, relationships or arrangements not otherwise disclosed that were considered by the board of directors in determining that any of the directors are independent. There are no family relationships among any of our executive officers, directors or nominees for directors.

 

Committees of the board of directors

 

Pursuant to our amended and restated bylaws, our board of directors is permitted to establish committees from time to time as it deems appropriate. To facilitate independent director review and to make the most effective use of our directors’ time and capabilities, our board of directors established in fiscal year 2012 a governance, nominating and compensation committee and a finance and operations committee. In fiscal year 2012, our board of directors also approved the formation of an audit committee, although due to a lack of qualified independent directors, the board did not appoint members to the audit committee until April 1, 2012 as discussed further below. The function of these committees is described below.

 

Audit committee

 

Effective as of April 1, 2012, the board appointed Mr. Archer, Mr. Schatz and Mr. Holtzman to the audit committee, with Mr. Archer serving as chair. The board has determined that each of the members of the audit committee meet the Securities and Exchange Commission’s definition of an audit committee financial expert. Each member of the audit committee is an “independent director” pursuant to the independence standards established under the Nasdaq rules. The audit committee is appointed by the board of directors to assist the board in fulfilling its oversight responsibilities with respect to (1) the integrity of Prospect’s financials statements and financial reporting process and systems of internal controls regarding finance, accounting and compliance with legal and regulatory requirements, (2) the qualifications, independence and performance of Prospect’s independent accountants, and (3) and other matters as set forth in the audit committee charter approved by the board. Management is responsible for Prospect’s financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. Our independent registered public accountants are responsible for performing an independent audit of Prospect’s financial statements in accordance with generally accepted accounting standards and issuing a report thereon. The audit committee’s responsibility is to monitor and oversee these processes. In fiscal year 2012, we did not have an audit committee because we did not have enough qualified independent directors to form a committee. Accordingly, the audit committee did not hold any meetings in fiscal year 2012, and has not included an audit committee report in this Amendment. However, for the our 10-K for the fiscal year ended March 31, 2012 and filed with the commission on May 10, 2012, the audit committee has (a) reviewed and discussed the audited financials with management, (b) discussed with our independent auditors the matters required to be discussed by the statement on Auditing Standards No. 114, as amended and as adopted by the Public Company Accounting Oversight Board in Rule 3200T and (c) reviewed and recommended to the board that the audited financial statements be included in the company’s annual report on Form 10-K. In the absence of an audit committee, our finance and operations committee performed an equivalent function as discussed below under “Finance and operations committee”. Our board approved a written charter for the audit committee in November 2011 which can be found at www.prospectgri.com under the tab “Investors”.

 

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Governance, Nominating and Compensation committee

 

We currently have a governance, nominating and compensation committee established at a board of directors meeting on November 14, 2011, which currently consists of Dr. Munitz and Ari Swiller. Dr. Munitz serves as chair of the governance, nominating and compensation committee. The governance, nominating and compensation committee operates pursuant to a written charter which can be found at www.prospectgri.com under the tab “Investors”. The committee meets annually to determine whether to recommend to the board to include the nomination of incumbent directors with expiring terms in the proxy statement. The committee meets at other times as needed to consider candidates to fill any vacancies that may occur. At least once a year, the committee considers whether the number of directors is appropriate for Prospect’s needs and recommends to the board any changes in the number of directors, and reviews the performance of the board.

 

Director nominations

 

In the event that vacancies on our board of directors arise, the governance, nominating and compensation committee considers potential candidates for director, which may come to the attention of the governance, nominating and compensation committee through current directors, professional executive search firms, stockholders or other persons. The governance, nominating and compensation committee will consider candidates recommended by stockholders if the names and qualifications of such candidates are submitted in writing in accordance with the notice provisions for stockholder proposals set forth under the caption “General Information—Next Annual Meeting of Stockholders” in our proxy statement to our corporate secretary, Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202, Attention: Corporate Secretary. The governance, nominating and compensation committee considers properly submitted stockholder nominations for candidates for the board of directors in the same manner as it evaluates other nominees. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the governance, nominating and compensation committee and the materials provided by a stockholder to the corporate secretary for consideration of a nominee for director are forwarded to the governance, nominating and compensation committee. All candidates are evaluated at meetings of the governance, nominating and compensation committee. In evaluating such nominations, the governance, nominating and compensation committee seeks to achieve the appropriate balance of industry and business knowledge and experience in light of the function and needs of the board of directors. The governance, nominating and compensation committee considers candidates with excellent decision-making ability, business experience, personal integrity and reputation. Scott Reiman, a former director and, together with his affiliates, the holder of 5.6% of our outstanding common stock, suggested that the committee consider nominating Conway J. Schatz as a director. Mr. Schatz was appointed to the board effective April 1, 2012. Our management recommended our incumbent directors for election at our 2012 annual meeting. We did not receive any other director nominations.

 

Corporate Governance

 

In addition to director nominations, the governance, nominating and compensation committee monitors the implementation and operation of our corporate governance guidelines and reviews from time to time the adequacy of the corporate governance guidelines in light of broadly accepted practices of corporate governance, emerging governance standards and market and regulatory expectations, and advises and makes recommendations to the board with respect to appropriate modifications. The committee also identifies and reviews measures to strengthen the operation of our governance guidelines, prepares and supervises the implementation of the board’s annual reviews of director independence, and the board’s performance, as contemplated by the corporate governance guidelines, and oversees the board’s processes for evaluation of management.

 

Compensation subcommittee

 

Our compensation subcommittee of the governance, nominating and compensation committee currently consists of Dr. Munitz and Mr. Swiller. The compensation subcommittee met three times during fiscal year 2012. The compensation subcommittee reviews, approves and modifies our executive compensation programs, plans and awards provided to our directors, executive officers and key associates. The compensation subcommittee also reviews and approves short-term and long-term incentive plans and other stock or stock-based incentive plans. In addition, the subcommittee reviews our compensation and benefit philosophy, plans and programs on an as-needed basis. In reviewing our compensation and benefits policies, the compensation subcommittee may consider the recruitment, development, promotion, retention, compensation of executive and senior officers of Prospect Global, trends in management compensation and any other factors that it deems appropriate. Our president and chief executive officer provides the compensation subcommittee with recommendations regarding our compensation program and the compensation of our named executive officers other than himself. The compensation subcommittee is not bound by the input it receives from our president and chief executive officer and exercises independent discretion when making executive compensation decisions. The compensation subcommittee may engage consultants (but has not already done so) in determining or recommending the amount of compensation paid to our directors and executive officer.

 

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Compensation subcommittee interlocks and insider participation

 

None of the members of the compensation subcommittee are company officers. None of our executive officers currently serves or has served on the compensation subcommittee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors (unless properly excusing themselves) or as a director of another entity, one of whose executive officer serves or served as one of our directors or on our compensation subcommittee.

 

Finance and operations committee

 

We currently have a finance and operations committee established at a board of directors meeting on November 14, 2011, which currently consists of Mr. Holtzman, Mr. Swiller and Mr. Schatz (with Mr. Schatz’s appointment dated effective as of April 1, 2012), and met one time during fiscal year 2012. Mr. Swiller serves as chairman of the finance and operations committee. Mr. Swiller, Mr. Schatz and Mr. Holtzman are independent directors. The finance and operations committee monitors matters relating to our financial and business operations, including financial performance, capital structure, financial operations, business operations, capital expenditures, dividends and strategic planning policy matters. In the absence of an audit committee, our finance and operations committee (prior to Mr. Schatz’s appointment) (i) reviewed and discussed the audited financials with management, (ii) discussed with our independent auditors the matters required to be discussed by the statement on Auditing Standards No. 114, as amended and as adopted by the Public Company Accounting Oversight Board in Rule 3200T and (iii) reviewed and recommended to the board that the audited financial statements be included in the company’s annual report on Form 10-K for the fiscal year ended December 31, 2011 and filed with the commission on March 30, 2012.

 

Communications with the board of directors

 

Stockholders may communicate with our board of directors, any of the directors or any of the committees by sending written communications addressed to the board of directors, any of the directors or any of the committees to Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202, Attention: Corporate Secretary. All communications are compiled by the corporate secretary and forwarded to the board or the individual director(s) accordingly.

 

Code of ethics

 

We have a financial code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller and any of our officers and employees that are members of our finance team, including any persons performing similar functions. We also have a code of ethics for senior financial officers that applies to our principal executive officer, principal financial officer, principal accounting officer or controller. Our financial code of ethics and code of ethics for senior financial officers codify the business and ethical principles that govern the financial aspects of our business. Both the financial code of ethics and the code of ethics for senior financial officers were adopted by Triangle prior to the reverse merger and were replaced in October 2011 with our Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Corporate Communications Policy, Corporate Governance Guidelines, Corporate Governance Guidelines on Director Independence and an Insider Trading Policy. Copies of these policies are available on our website at www.prospectgri.com under the tab “Investors.” We will provide a copy of our financial code of ethics or code of ethics for senior financial officers to any person, at no charge, upon a written request. All written requests should be directed to: Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202, Attention: Corporate Secretary.

 

Board leadership structure

 

The board’s current leadership structure separates the positions of chairman and principal executive officer. The board has determined our leadership structure based on factors such as the experience of the applicable individuals, the current business and financial environment faced by Prospect Global, particularly in view of its financial condition and industry conditions generally and other relevant factors. After considering these factors, we determined that separating the positions of chairman of the board and principal executive officer is the appropriate leadership structure at this time. The board, through the chairman is currently responsible for the strategic direction of Prospect Global. The chief executive officer is currently responsible for the day to day operation and performance of Prospect Global. The board feels that this provides an appropriate balance of strategic direction, operational focus, flexibility and oversight.

 

The board’s role in risk oversight

 

It is management’s responsibility to manage risk and bring to the board’s attention any material risks to Prospect Global. The board has oversight responsibility for Prospect Global’s risk policies and processes relating to the financial statements and financial reporting processes and the guidelines, policies and processes for mitigating those risks.

 

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Item 11.    Executive Compensation

 

Compensation of Directors

 

On March 20, 2012, Prospect’s board of directors resolved to change our fiscal year end from December 31 to March 31, commencing with the 12 month period ending March 31, 2012. The table below sets forth the compensation earned by our non-employee directors during the 2012 and 2011 fiscal years taking into account our change in fiscal year. There were no non-equity incentive plan compensation, change in pension value or any non-qualifying deferred compensation earnings during these fiscal years. All amounts are in dollars. On February 11, 2011, Prospect Global (formerly known as Triangle Castings, Inc.) completed a reverse merger and acquired Prospect Global Resources Inc., a Delaware corporation incorporated on August 5, 2010, referred to herein as Old Prospect Global.

 

Name

 

Year

 

Fees Earned or
Paid in Cash
Compensation

 

Stock
Awards

 

Option
Awards

 

All Other
Compensation

 

Total

 

Dr. Barry Munitz(1),(11)

 

2012

 

$

37,500

 

 

$

1,363,952

 

 

$

1,401,452

 

 

 

2011

 

 

$

1,125

 

 

 

$

1,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad Brownstein(2),(11)

 

2012

 

$

12,500

 

 

$

340,988

 

 

$

353,488

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Devon Archer(3),(11)

 

2012

 

$

12,500

 

 

 

 

$

12,500

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marc Holtzman(4),(11)

 

2012

 

$

12,500

 

 

$

1,022,964

 

 

$

1,035,464

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zhi Zhong Qiu(5),(11)

 

2012

 

$

12,500

 

 

$

681,976

 

 

$

694,476

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scott Reiman(6),(11)

 

2012

 

$

12,500

 

 

$

681,976

 

 

$

694,476

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J. Ari Swiller(7),(11)

 

2012

 

$

17,500

 

 

$

340,988

 

 

$

358,488

 

 

 

2011

 

 

$

150

 

 

 

$

150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conway J. Schatz(8),(11)

 

2012

 

 

 

 

 

 

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mitsuru Kataoka(9)

 

2012

 

 

 

 

 

 

 

 

2011

 

 

$

150

 

 

 

$

150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denis M. Snyder(10)

 

2012

 

 

 

 

 

 

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Joseph E. McMillan(10)

 

2012

 

 

 

 

 

 

 

 

2011

 

 

 

 

 

 

 


(1)                                 Dr. Munitz joined our board of directors as chairman in February 2011. From August 2010 to February 2011, Dr. Munitz served as chairman of the board of directors of Old Prospect Global. Dr. Munitz did not receive any expense reimbursements from us in fiscal years 2012 and 2011.

 

(2)                                 Mr. Brownstein joined our board of directors as non-executive vice chairman in August, 2011 and became executive vice chairman on August 1, 2012. Mr. Brownstein received expense reimbursements from us of $22,266 in fiscal year 2012 and $-0- in fiscal year 2011.

 

(3)                                 Mr. Archer joined our board of directors in March, 2012. Mr. Archer did not receive any expense reimbursements from us in fiscal years 2012 or 2011.

 

(4)                                 Mr. Holtzman joined our board of directors in April, 2011. Mr. Holtzman received expense reimbursements from us of $0 in fiscal year 2012 and $1,893 in fiscal year 2011.

 

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(5)                                 Mr. Qiu joined our board of directors in November, 2011. Mr. Qiu did not receive any expense reimbursements from us in fiscal years 2012 or 2011.

 

(6)                                 Mr. Reiman joined our board of directors in August, 2011 and resigned in March, 2012. Mr. Reiman did not receive any expense reimbursements from us in fiscal years 2012 or 2011.

 

(7)                                 Mr. Swiller joined our board of directors in February, 2011. From October 2010 to February 2011, Mr. Swiller served as a director of Old Prospect Global. Mr. Swiller did not receive any expense reimbursements from us in fiscal years 2012 or 2011.

 

(8)                                 Mr. Schatz joined our board of directors as of April 1, 2012. Mr. Schatz did not receive any expense reimbursements from us in fiscal years 2012 or 2011.

 

(9)                                 Mr. Kataoka joined the board of directors of Old Prospect Global in August 2010 and resigned from the Old Prospect Global board in October 2010. Mr. Kataoka did not receive any expense reimbursements from Old Prospect Global. Mr. Kataoka received payments of $60,000 in fiscal year 2012 and $15,000 in fiscal year 2011 for consulting services that were unrelated to board service.

 

(10)                          Denis Snyder and Joseph McMillan resigned from the board of directors of Triangle on February 11, 2011 in connection with the consummation of the reverse merger.

 

(11)                          For the years ended March 31, 2011 and March 31, 2012, we paid annual cash compensation (payable quarterly) of $75,000 to our chairman of the board, $50,000 to the chairman of the audit committee, $35,000 to the chairmen of the finance committee and the compensation and operations committee and $25,000 to each other non-employee director. Such amounts are reflected in the table above.

 

Executive Compensation

 

Summary compensation table

 

On March 20, 2012, Prospect’s board of directors resolved to change our fiscal year end from December 31 to March 31, commencing with the 12 month period ending March 31, 2012. The table below sets forth the compensation earned by our named executive officers during the 2012 and 2011 fiscal years taking into account our change in fiscal year. There were no non-equity incentive plan compensation, change in pension value or any non-qualifying deferred compensation earnings during fiscal 2012 or 2011. The amounts in the table are in dollars.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal
Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Stock
Awards
($)

 

Option
Awards
($)

 

Non equity
Incentive Plan
Compensation
($)

 

Nonqualified
Deferred
Compensation
Earnings
($)

 

All Other
Compensation
($)(6)

 

Total
($)

 

Patrick L. Avery(1)

 

2012

 

$

269,167

 

$

270,000

 

 

$

2,045,928

 

 

 

$

27,005

 

$

2,612,100

 

Chief Executive Officer, President and Director

 

2011

 

$

149,230

(7)

$

25,000

 

$

1,500

(2)

 

 

 

$

10,937

 

$

186,667

 

Jonathan Bloomfield(3)

 

2012

 

$

185,000

 

$

90,000

 

 

$

704,012

 

 

 

$

10,344

 

$

989,356

 

Chief Financial Officer, until September 5, 2011

 

2011

 

$

107,917

 

$

45,000

 

$

500

(4)

 

 

 

$

4,198

 

$

157,615

 

Wayne Rich

 

2012

 

$

156,597

 

$

100,000

 

 

$

3,443,751

 

 

 

$

11,799

 

$

3,712,147

 

Chief Financial Officer, starting September 6, 2011

 

2011

 

 

 

 

 

 

 

 

 

Chad Brownstein(5)

 

2012

 

 

 

 

 

 

 

 

 

Executive Vice Chairman, starting August 1, 2012

 

2011

 

 

 

 

 

 

 

 

 

 

Brian W. Wallace(5)

 

2012

 

 

 

 

 

 

 

 

 

Chief Operating Officer, Executive Vice President starting August 15, 2012

 

2011

 

 

 

 

 

 

 

 

 

Denis M. Snyder(5)

 

2012

 

 

 

 

 

 

 

 

 

Chief Executive Officer, President, Chief Financial Officer, Treasurer, Secretary and Director

 

2011

 

 

$

48,000

 

 

 

 

 

 

$

48,000

 

 

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Table of Contents

 


(1)                                     Mr. Avery was appointed director, chief executive officer and president of Old Prospect Global on August 17, 2010 and upon consummation of the reverse merger in February 2011 was appointed director, chief executive officer and president of Prospect Global on February 11, 2011.

 

(2)                                     Reflects the value of awards of shares of common stock, valued at the closing price on the date of the grant. Mr. Avery, received a stock grant award of 1,500,000 shares on August 17, 2010 with vesting occurring over a two-year period. As of March 31, 2012, 1,250,000 shares of Mr. Avery’s grant had vested and the remaining 250,000 shares will vest on August 17, 2012. As of March 31, 2011, Mr. Avery was not vested in 750,000 shares of common stock valued at $750 that had been granted to him. Old Prospect Global recognized $750 of compensation expense in the fiscal year ending March 31, 2011 for these shares.

 

(3)                                     Mr. Bloomfield was appointed chief financial officer of Old Prospect Global on September 1, 2010, appointed chief financial officer of Prospect Global on February 11, 2011 and served in this capacity until September 6, 2011 when Mr. Bloomfield became Prospect Global’s vice president of corporate development. Wayne Rich became Prospect Global’s chief financial officer effective September 6, 2011.

 

(4)                                     Reflects the value of awards of shares of common stock, valued at the closing price on the date of the grant. Under Mr. Bloomfield’s employment agreement as chief financial officer, 100,000 of Mr. Bloomfield’s shares vested on September 1, 2010 and 200,000 shares vested on September 1, 2011 and the remaining 200,000 shares will vest on September 1, 2012. The remaining unvested shares will vest immediately upon a change of control or if Mr. Bloomfield’s services as vice president of corporate development are terminated other than for cause or by Mr. Bloomfield. As of March 31, 2011, Mr. Bloomfield was not vested in 400,000 shares of common stock valued at $400 that were granted to him under his employment agreement as chief financial officer. Old Prospect Global recognized $100 of compensation expense in the fiscal year ending March 31, 2011 for these shares.

 

(5)                                     Mr. Brownstein and Mr. Wallace did not earn compensation as named executive officers during our 2012 and 2011 fiscal years.

 

(6)                                     Mr. Snyder resigned as Triangle’s chief executive officer, chief financial officer, treasurer, secretary and director effective as of February 11, 2011. Mr. Avery became Prospect Global’s chief executive officer on that date upon consummation of the reverse merger.

 

(7)                                     Other compensation consists of payments by Prospect Global of executive health benefits for coverage for the named executive officers. Mr. Avery received expense reimbursements from Old Prospect Global during fiscal year 2011 in the amount of $6,953 and received expense reimbursements from Prospect Global in the amount of $1,900 in fiscal year 2011 and $6,450 in fiscal year 2012. Mr. Bloomfield received expense reimbursements in the amount of $3,747 from Old Prospect Global during fiscal year 2011 and received expense reimbursements from Prospect Global in the amount of $734 in fiscal year 2011 and $2,603 in fiscal year 2012. Mr. Rich received expense reimbursement in the amounts of $0 in fiscal year 2011 and $3,971 in fiscal year 2012 from Prospect Global.

 

(8)                                     Does not include the $25,000 paid by Old Prospect Global to LDR Solutions LLC, Mr. Avery’s consulting business, for services rendered by LDR Solutions LLC in preparation for the incorporation of Old Prospect Global. The material terms of the oral agreement pursuant to which LDR Solutions LLC provided such services are more fully described in “Certain Relationships and Related Party Transactions.”

 

Equity Compensation Plan Information

 

The table below describes equity compensation plans approved by our stockholders prior to August 1, 2012:

 

Plan Category(1)

 

Number of securities
to be issued upon
exercise of outstanding
options, warrants and rights
(a)

 

Weighted average exercise
price of outstanding options,
warrants and rights
(b)

 

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)

 

2011 Employee Equity Incentive Plan (1),(3)

 

3,336,000

(2)

$

3.49

 

1,664,000

(2)

2011 Director and Consultant Equity Incentive Plan (1), (4)

 

2,485,000

(2)

$

3.67

 

15,000

(2)

 


(1)                                 Reflects equity compensation plans approved by our stockholders. We currently do not have any equity compensation plans that have not been approved by our stockholders.

 

(2)                                 Represents shares of common stock.

 

(3)                                 Provides for the grant of such awards, as well as incentive stock option awards, to employees (including employees who are officers) of Prospect and its qualifying subsidiaries.

 

(4)                                 Provides for the grant of such awards to non-employee directors and consultants of Prospect and its qualifying subsidiaries.

 

Outstanding Equity Awards at Fiscal Year-End

 

The below table contains information regarding unexercised options; stock that has not vested; and equity incentive plan awards for each named executive officer outstanding as of the end of March 31, 2012:

 

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Table of Contents

 

 

 

OPTION AWARDS

 

STOCK AWARDS

 

Name and Principal
Position
(a)

 

Number of
Securities
underlying
unexercised
options (#)
exercisable
(b)

 

Number of
securities
underlying
unexercised
options (#)
exercisable
(c)

 

Equity Incentive
plan awards:
Number of
securities
underlying
unexercised
unearned
options (#)
(d)

 

Option
exercise
price ($)
(e)

 

Option
expiration
date
(f)

 

Number of
shares or
units of
stock that
have not
vested (#)
(g)

 

Market value
of shares
or units
of stock
that
have not
vested ($)
(h)

 

Equity incentive
plan awards:
Number of
unearned
shares, units
or other rights
that have not
vested (#)
(i)

 

Equity inventive
plan awards:
Market or
payout value
of unearned
shares units
or other rights
that have not
vested ($)
(j)

 

Patrick L. Avery(1)

 

 

600,000

 

 

$

4.25

 

12/26/2021

 

250,000

(5)

$

2,500,000

(7)

 

 

Chief Executive Officer, President and Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jonathan Bloomfield(2)

 

 

 

200,000

(3)

$

4.25

 

12/26/2021

 

200,000

(6)

2,000,000

(7)

 

 

Chief Financial Officer, until September 5, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wayne Rich

 

 

500,000

 

500,000

(4)

$

4.25

 

12/26/2021

 

 

 

 

 

Chief Financial Officer, starting September 6, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chad Brownstein(8)

 

 

 

 

 

 

 

 

 

 

Executive Vice Chairman starting August 1, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brian W. Wallace(8)

 

 

 

 

 

 

 

 

 

 

Chief Operating Officer, Executive Vice President, starting August 15, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)                                      Mr. Avery was appointed director, chief executive officer and president of Old Prospect Global on August 17, 2010 and upon consummation of the reverse merger in February 2011 was appointed director, chief executive officer and president of Prospect Global on February 11, 2011.

 

(2)                                      Mr. Bloomfield was appointed chief financial officer of Old Prospect Global on September 1, 2010, appointed chief financial officer of Prospect Global on February 11, 2011 and served in this capacity until September 6, 2011 when Mr. Bloomfield became Prospect Global’s vice president of corporate development. Wayne Rich became Prospect Global’s chief financial officer effective September 6, 2011.

 

(3)                                      100,000 options vest on December 31, 2012 and the remaining 100,000 options vest on December 31, 2013.

 

(4)                                      These options vest on September 6, 2012.

 

(5)                                      These shares vest on August 17, 2012.

 

(6)                                      These shares vest on September 1, 2013.

 

(7)                                      Close price of our stock on March 30, 2012 was $10.00.

 

(8)                                      Mr. Brownstein and Mr. Wallace were not named executive officers as of the end of March 31, 2012.

 

Employment Agreements with Executive Vice Chairman, Chief Executive Officer, Chief Financial Officer and Chief Operating Officer and Executive Vice President

 

We have an at will employment agreement with Mr. Brownstein effective August 1, 2012. Mr. Brownstein is our executive vice chairman, reporting to our non-executive board chairman. Under the agreement Mr. Brownstein is required to devote all of his professional time with respect to natural resources to Prospect Global. He receives a base salary of $375,000 per year and is eligible for an annual cash bonus at the discretion of the compensation committee of the board of directors.

 

We have an at will employment agreement with Mr. Avery. Mr. Avery receives an annual base salary of $480,000 and received a stock grant of 1,500,000 shares of our common stock, of which 500,000 of the shares vested on August 17, 2010, 250,000 shares vested on December 1, 2010, 500,000 shares vested on August 17, 2011 and the remaining 250,000 shares will vest on August 17, 2012. The remaining unvested shares will vest immediately upon a change of control or if Mr. Avery’s services as chief executive officer are terminated other than for cause or by Mr. Avery. Mr. Avery is eligible for an annual cash bonus based on performance goals that may include targets related to earnings before interest taxes, depreciation and amortization, with a targeted bonus of 120% of the then current base salary (with board approval). On December 27, 2011, Mr. Avery was granted 600,000 options which vested immediately, have an exercise price of $4.25 and expire on December 26, 2021.

 

We have an at will employment agreement with Mr. Rich. Mr. Rich receives an annual salary of $275,000 and received options to purchase 1,000,000 shares of our common stock exercisable at $4.25 per share. 250,000 of the options vested on December 27, 2011, 250,000 options vested on March 4, 2012 and 500,000 options will vest on September 6, 2012. The options will vest immediately upon a change of control or if Mr. Rich’s services as chief financial officer are terminated other than for cause or by Mr. Rich. Mr. Rich is eligible for an annual cash bonus based on performance goals established by the compensation committee of the board of directors (or the board in the compensation committee’s absence) in a minimum amount of 80% of base salary and a maximum amount of 120% of base salary. Mr. Rich’s annual bonus cannot be less than $100,000 annually pursuant to the terms of his at will employment agreement.

 

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Our Mr. Wallace has an at will employment agreement with us effective August 15, 2012. Pursuant to the terms of his employment agreement, he receives a base salary of $450,000 per year and is expected to receive no later than November 15, 2012 options to purchase 1,000,000 shares of our common stock exercisable at fair market value at the time of grant. 500,000 of the options will be vested on the grant date, 250,000 options will vest on August 15, 2013 and 250,000 options will vest on August 15, 2014. The options will vest immediately upon a change of control or if Mr. Wallace’s services as chief operating officer are terminated by us other than for cause or by Mr. Wallace for good reason. Mr. Wallace is eligible for an annual cash bonus based on performance goals established by the compensation committee of the board of directors in a maximum amount of 120% of base salary.

 

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

 

The following table sets forth certain information with respect to beneficial ownership of our common stock as of August 1, 2012 by each of our executive officers and directors and each person known to be the beneficial owner of 5% or more of the outstanding common stock. Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. In computing the number of shares beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days after the date hereof are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. As of August 1, 2012, we had 55,264,468 issued and outstanding shares of common stock. Unless otherwise indicated, the address of each stockholder listed in the table is c/o Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202.

 

 

 

Shares Beneficially Owned

 

Name and Address of Beneficial Owner

 

Amount and Nature of
Beneficial Ownership(1)

 

Percent of
Class(2)

 

Central Valley Administrators, Inc.

 

10,538,583

 

19.1

%

Very Hungry LLC(3)

 

12,430,335

 

20.7

%

BlackRock, Inc.

 

5,769,230

 

10.4

%

The Karlsson Group(4)

 

5,605,834

 

9.2

%

Bevan Cooney

 

4,000,000

 

7.2

%

COR Investments II LLC(5)

 

4,127,678

 

7.5

%

Scott J. Reiman(6)

 

3,181,427

 

5.6

%

Avalon Portfolio, LLC(7)

 

3,184,435

 

5.6

%

Delta Offshore Master Ltd(8)

 

2,352,942

 

4.2

%

 

 

 

 

 

 

Directors and Executive Officers

 

 

 

 

 

Patrick L. Avery, Chief Executive Officer, President, Director(9)

 

2,250,000

 

4.0

%

Dr. Barry Munitz, Chairman of the Board of Directors(10)

 

1,675,000

 

3.0

%

Chad Brownstein, Executive Vice Chairman of the Board of Directors(11)

 

8,250,660

 

13.8

%

Marc Holtzman, Director(12)

 

300,000

 

0.5

%

J. Ari Swiller, Director(13)

 

250,000

 

0.5

%

Devon Archer, Director(14)

 

100,000

 

0.2

%

Zhi Zhong Qiu, Director(15)

 

200,000

 

0.4

%

Conway J. Schatz(16)

 

0

 

0

%

Wayne Rich, Chief Financial Officer(17)

 

1,000,000

 

1.8

%

Total beneficial ownership of directors and officers as a group (nine persons)(9)(10)(11)(12)(13)(14)(15)(16)(17)(18)

 

14,025,660

 

22.3

%

 


(1)                                 Each person listed has sole investment and/or voting power with respect to the shares indicated, except as otherwise noted. The inclusion herein of any shares as beneficially owned does not constitute an admission of beneficial ownership. Amounts listed in this column reflect shares issuable upon the exercise of options and warrants exercisable on August 1, 2012 or within 60 days thereafter.

 

(2)                                 Number of shares deemed outstanding includes 55,264,468 shares of our common stock outstanding as of August 1, 2012 and any grants, options and warrants for shares that are exercisable by such beneficial owner on August 1, 2012 or within 60 days thereafter.

 

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(3)                                 Very Hungry LLC holds 7,588,727 shares of our common stock and immediately exercisable warrants to purchase 1,860,530 shares of our common stock at $4.25 per share expiring on November 12, 2012, immediately exercisable warrants to purchase 479,228 shares of our common stock at $3.00 per share expiring on April 25, 2013, immediately exercisable warrants to purchase 1,797,103 shares of our common stock at $3.00 per share expiring on April 25, 2014 and immediately exercisable warrants to purchase 704,747 shares of our common stock at $3.83 expiring on September 19, 2013. The address of the reporting person is 730 17th St., Suite 800, Denver CO 80202.

 

(4)                                 The Karlsson Group holds immediately exercisable warrants to purchase 5,605,834 shares of our common stock at $4.25 per share expiring on May 30, 2019.

 

(5)                                 COR Investments II LLC holds 3,000,000 shares of our common stock and is affiliated with our stockholders COR Capital Holdings, COR Advisors LLC and COR US Equity Income Fund. Such amount includes (i) COR Investments II LLC’s 3,000,000 shares of our common stock, (ii) COR Capital Holdings’ 240,000 shares of our common stock, (iii) COR Advisors LLC’s 100,000 shares of our common stock, (iv) COR US Equity Income Fund’s 579,322 shares of our common stock, and (v) 208,356 shares of our common stock issued to Arrow Capital Management, whose investment advisor is COR Capital Management LLC. The address of the reporting person is 233 Wilshire Blvd., Suite 830, Santa Monica, CA 90401.

 

(6)                                 Such amount includes (i) personal holdings of immediately exercisable options to purchase 200,000 shares of our common stock at an exercise price of $4.25 per share expiring on December 26, 2021 and (ii) 1,087,740 shares of our common stock and immediately exercisable warrants to purchase 727,705 shares of our common stock at $4.25 per share expiring on November 12, 2012, immediately exercisable warrants to purchase 187,439 shares of our common stock at $3.00 per share expiring on April 25, 2013, immediately exercisable warrants to purchase 702,897 shares of our common stock at $3.00 per share expiring on April 25, 2014 and immediately exercisable warrants to purchase 275,646 shares of our common stock at $3.83 expiring on September 19, 2013, each held by the Scott Reiman 1991 Trust. The address of the reporting person is 730 17th St., Suite 800, Denver CO 80202.

 

(7)                                 Avalon Portfolio, LLC holds 1,284,435 shares of our common stock and an immediately exercisable warrant to purchase 1,900,000 shares of our common stock at $3.00 per share expiring on February 3, 2014. The address of the reporting person is 5786 La Jolla Blvd., La Jolla, CA 92037.

 

(8)                                 Such amount includes (i) Delta Institutional LP’s 209,900 shares of our common stock and an immediately exercisable warrant to purchase 209,900 shares of our common stock at $4.25 per share expiring on January 31, 2013 (ii) Delta Offshore Master Ltd’s 867,771 shares of our common stock and an immediately exercisable warrant to purchase 867,771 shares of our common stock at $4.25 per share expiring on January 31, 2013 and (iii) Delta Onshore LP’s 98,800 shares of our common stock and an immediately exercisable warrant to purchase 98,800 shares of our common stock at $4.25 per share expiring on January 31, 2013. Delta Institutional LP, Delta Offshore Master Ltd and Delta Onshore LP are affiliated entities. The address of the reporting person is Trefelet & Company LP, 900 3rd Avenue, 5th Floor, New York, NY 10022.

 

(9)                                 Mr. Avery, our president and chief executive officer, received stock-based compensation of 1,500,000 shares of common stock on August 17, 2010, of which 1,250,000 shares have vested and 250,000 shares will vest on August 17, 2012. On December 27, 2011, Prospect granted Mr. Avery immediately exercisable options to purchase 600,000 shares of our common stock at an exercise price of $4.25 per share expiring on December 26, 2021 and on July 2, 2012, Mr. Avery was granted options to purchase 300,000 shares of our common stock of which 150,000 are subject to approval by shareholders to increase the amount of shares that are available under the 2011 Employee Equity Incentive Plan. The options granted on July 2, 2012 have an exercise price of $2.60 per share and expiration date of July 1, 2022. Mr. Avery also owns a 10% non-voting ownership in Buffalo Management LLC. Chad Brownstein, our executive vice chairman, has sole voting and dispositive power of the shares owned by Buffalo. The address of the reporting person is c/o Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202.

 

(10)                          Dr. Munitz, our board chairman, holds 1,125,000 shares of our common stock and immediately exercisable options to purchase 700,000 shares of our common stock of which 150,000 are subject to approval by shareholders to increase the amount of shares that are available under the 2011 Director and Consultant Equity Incentive Plan. Of the 700,000 options, 400,000 have an exercise price of $4.25 per share and an expiration date of December 26, 2021 while 300,000 have an exercise price of $2.60 per share and expiration date of July 1, 2022. Mr. Munitz also owns a 15% non-voting ownership interest in Buffalo Management LLC. Chad Brownstein, our executive vice chairman, has sole voting and dispositive power of the shares owned by Buffalo. The address of the reporting person is c/o Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202.

 

(11)                          This amount includes (i) Mr. Brownstein’s personal holdings of immediately exercisable options to purchase 100,000 shares of our common stock at an exercise price of $4.25 per share expiring on December 26, 2021 and options to purchase 200,000 shares of our common stock at an exercise price of $2.60 per share and having a vesting date of July 1, 2013 and an expiration date of July 1, 2022 (of which 100,000 are subject to approval by shareholders to increase the amount of shares

 

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that are available under the 2011 Director and Consultant Equity Incentive Plan) (ii) 816,667 shares of our common stock and a warrant to purchase 4,433,993 shares of our common stock at an weighted average exercise price of $3.07 per share held by Buffalo Management LLC and (iii) 2,900,000 shares of our common stock owned by Quincy Prelude LLC. Mr. Brownstein owns 100% of the voting interest of Quincy Prelude LLC. Quincy Prelude LLC owns 100% of the voting interests and 75% of the economic interests of Buffalo Management LLC and has sole voting and dispositive power of the shares owned by Buffalo.

 

(12)                          Mr. Holtzman, one of our directors, holds immediately exercisable options to purchase 300,000 shares of our common stock at an exercise price of $4.25 per share expiring on December 26, 2021 and options to purchase 140,000 shares of our common stock at an exercise price of $2.60 per share and having a vesting date of July 1, 2013 and an expiration date of July 1, 2022 (of which 70,000 are subject to approval by shareholders to increase the amount of shares that are available under the 2011 Director and Consultant Equity Incentive Plan). The address of the reporting person is c/o Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202.

 

(13)                          Mr. Swiller, one of our directors, holds 150,000 shares of our common stock and immediately exercisable options to purchase 100,000 shares of our common stock at an exercise price of $4.25 per share expiring on December 26, 2021 and options to purchase 140,000 shares of our common stock at an exercise price of $2.60 per share and having a vesting date of July 1, 2013 and an expiration date of July 1, 2022 (of which 70,000 are subject to approval by shareholders to increase the amount of shares that are available under the 2011 Director and Consultant Equity Incentive Plan). The address of the reporting person is c/o Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202.

 

(14)                          Mr. Archer, one of our directors, has sole voting and dispositive power of the 100,000 shares of our common stock beneficially owned by Archer Diversified Investments LLC. In addition, Mr. Archer’s personal holdings include options to purchase 300,000 shares of our common stock at an exercise price of $2.60 per share and having a vesting date of July 1, 2013 and an expiration date of July 1, 2022 (of which 150,000 are subject to approval by shareholders to increase the amount of shares that are available under the 2011 Director and Consultant Equity Incentive Plan). The address of the reporting person is c/o Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202.

 

(15)                          Mr. Qiu, one of our directors, holds immediately exercisable options to purchase 200,000 shares of our common stock at an exercise price of $4.25 per share expiring on December 26, 2021 and options to purchase 140,000 shares of our common stock at an exercise price of $2.60 per share and having a vesting date of July 1, 2013 and an expiration date of July 1, 2022 (of which 70,000 are subject to approval by shareholders to increase the amount of shares that are available under the 2011 Director and Consultant Equity Incentive Plan). The address of the reporting person is c/o Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202.

 

(16)                          Mr. Schatz joined our board of directors effective as of April 1, 2012 holds options to purchase 140,000 shares of our common stock at an exercise price of $2.60 per share and having a vesting date of July 1, 2013 and an expiration date of July 1, 2022 (of which 70,000 are subject to approval by shareholders to increase the amount of shares that are available under the 2011 Director and Consultant Equity Incentive Plan). Mr. Schatz is a manager of Very Hungry LLC but does not have dispositive power over the shares owned by Very Hungry LLC.

 

(17)                          Mr. Rich, our chief financial officer, holds options to purchase 1,000,000 shares of our common stock at an exercise price of $4.25 per share expiring on December 26, 2021. Half of these options are immediately exercisable and half vest on September 6, 2012. The address of the reporting person is c/o Prospect Global Resources Inc., 1621 18th Street, Suite 260, Denver, CO 80202.

 

(18)                          Some of these shares are subject to vesting as described in these footnotes.

 

Item 13.    Certain Relationships and Related Transactions, and Director Independence

 

TRANSACTIONS WITH RELATED PERSONS

 

We will present all possible transactions between us and our officers, directors or 5% stockholders, and our affiliates to the board of directors for their consideration and approval. Any such transaction will require approval by a majority of the disinterested directors and such transactions will be on terms no less favorable than those available to disinterested third parties. Appropriate protocols regarding conflicts of interest and transactions with related persons are addressed in writing in our Code of Business Conduct and Ethics. During fiscal years 2012 and 2011 through the date of this report, we have engaged in the following transactions with related parties:

 

LDR Solutions LLC.   Patrick Avery, president and chief executive officer of Prospect provided consulting services to the founding stockholders of Old Prospect Global prior to the inception of Old Prospect Global though his consulting business, LDR

 

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Solutions LLC, pursuant to an oral agreement. From March 2010 to August 2010, LDR Solutions, LLC received an aggregate of $25,000 in compensation based on $150 per hour of services provided. This payment was recorded as general and administrative expense during the third quarter of 2010. The scope of the consulting included initial analysis of the potash potential in the Holbrook Basin, mine planning, forecasting and negotiations with The Karlsson Group. Upon Mr. Avery’s employment with Old Prospect Global, the consulting agreement terminated.

 

Buffalo Management LLC.    In August, 2010, Old Prospect Global entered into a management services agreement with Buffalo Management LLC, which was amended in November, 2010 and was assigned to us at the merger closing. Buffalo Management provides advisory and management services to Prospect which includes but is not limited to identifying, analyzing, and structuring growth initiatives, strategic acquisitions and investments and arranging debt and equity financing. To date, Buffalo has sourced investors, facilitated Prospect’s leasehold position in the Holbrook Basin and generated business development opportunities throughout international sales markets. As compensation for these services, we have agreed to pay Buffalo Management (i) a consulting fee of $20,000 per month, (ii) an annual management fee in an amount equal to 2% of our annual gross revenues as shown on our audited financial statements each year, (iii) an acquisition advisory fee with respect to the consummation of each future acquisition or business combination engaged in by us equal to 1% of the transaction value, and (iv) an advisory fee of $650,000 related to consummating a transaction in which Old Prospect Global merges with or becomes a wholly-owned subsidiary of a publicly traded company. We will also reimburse Buffalo Management for office expenses up to $5,000 per month. Buffalo Management also received a warrant to purchase 1,813,539 shares of our common stock at an exercise price of $3.75 per share and such warrant expires June 21, 2016. In connection with the management services agreement with Buffalo Management, we entered into a registration rights agreement which requires us to register for resale the common stock and the shares of common stock issuable upon exercise of the warrant. During 2011, Old Prospect Global and Buffalo Management reached an agreement whereby Buffalo received 1,516,667 shares of Old Prospect Global’s common stock, with an estimated fair value of $288,167, in lieu of cash for amounts due for management fees, office expenses and advisory fees through February 11, 2011. From January 1, 2011 through July 31, 2012, Prospect paid Buffalo $407,500, of which $257,500 related to amounts accrued by Prospect and owed to Buffalo through December 31, 2011.

 

On August 1, 2012 we entered into a termination of management services agreement with Buffalo Management. The management services agreement, which was terminable only by Buffalo Management, provided for fees to Buffalo Management for management services rendered in connection with significant transactions such acquisitions, dispositions and financings. Also on August 1, 2012 Chad Brownstein, the principal at Buffalo Management who rendered services to us pursuant to the management services agreement and our non-executive board chairman, became our executive vice chairman, a salaried employee of Prospect.

 

Pursuant to the termination agreement we: (i) paid Buffalo Management $975,000 cash and a warrant to purchase 352,150 shares of our common stock for $2.60 per share in satisfaction of the $1,500,000 fee payable to Buffalo Management in connection with the acquisition of the 50% of American West Potash LLC that we did not previously own and described above; (ii) issued Buffalo Management a warrant to purchase 268,304 shares of our common stock for $2.60 per share in connection with services rendered by Buffalo Management in connection with our recent public offering of 15,400,000 shares of common stock at $2.60 per share; and (iii) issued Buffalo a warrant to purchase 2,000,000 shares of our common stock for $2.60 per share in consideration of Buffalo Management’s terminating its right to future transaction fees and the $25,000 monthly consulting and office space reimbursement fee under the management services agreement. The fee payable to Buffalo Management equal to 2% of Prospect’s annual gross revenues provided for under the management services agreement survives the termination in perpetuity.

 

Quincy Prelude LLC, one of our stockholders beneficially owning more than 5% of our common stock, owns 100% of the voting interests and 75% of the economic interests of Buffalo Management and has sole voting and dispositive power of the shares of our common stock owned by Buffalo Management LLC. Chad Brownstein, one of our directors and our executive vice chairman, is the sole member of Quincy Prelude LLC and has sole voting and dispositive power of the shares of our common stock beneficially owned by Quincy Prelude LLC. Patrick Avery, our chief executive officer, owns a 10% non-voting economic interest in Buffalo Management and Barry Munitz, our chairman, owns a 15% non-voting economic interest in Buffalo Management.

 

Hexagon Investments, LLC.    One of our former board members, Scott Reiman, who served on our board from August, 2011 to March, 2012, is the founder of Hexagon Investments, LLC. Hexagon was not a related party prior to these transactions. The details for these transactions with Hexagon are summarized below:

 

·                  On April 25, 2011, we issued a $2,500,000 face value secured convertible note in exchange for net proceeds of $2,500,000. The note converted to 881,507 shares of our common stock on November 22, 2011. We also issued Hexagon two warrants to purchase our common stock. The first warrant is exercisable until April 25, 2013 for up to 666,667 of our shares at an exercise price of $3.00 per share. The second warrant is exercisable until April 25, 2014 for up to 2,500,000 of our shares at an exercise price of $3.00 per share. In connection with issuance of the convertible note

 

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we granted piggy-back registration rights to Hexagon for the shares issuable upon conversion of the note and exercise of the warrants.

 

·                  On September 19, 2011, we issued a $1,500,000 convertible secured note in exchange for net proceeds of $1,500,000. This note converted to 399,033 shares of our common stock on November 22, 2011. We also issued Hexagon a warrant to purchase up to 980,392 shares of our common stock at an exercise price of $3.83 per share, which is exercisable until September 18, 2013. In connection with issuance of the convertible note, we granted piggy-back registration rights to Hexagon for the shares issuable upon conversion of the note and exercise of the warrants.

 

·                  On November 22, 2011 we sold 2,588,235 shares of common stock and a warrant to purchase 2,588,235 shares of common stock at $4.25 per share for total cash proceeds of $10,999,998.75 to Very Hungry LLC, an affiliate of Hexagon. The warrant is exercisable at any time through November 22, 2012. We granted piggy-back registration rights for the shares purchased and issuable upon exercise of the warrant.

 

Also on November 22, 2011 we entered into a royalty agreement with Grandhaven Energy, LLC, another affiliate of Hexagon, whereby we sold Grandhaven an overriding royalty interest of 1% of the gross proceeds received by our subsidiary, American West Potash, or AWP, from the extraction of potash from its existing land holdings for $25,000 cash. If (i) the Arizona State Land Department declines to issue any lease to AWP with respect to any state exploration permit, or (ii) the Arizona State Land Department terminates any state exploration permit, or (iii) the Arizona State Land Department refuses to consent to the assignment of any royalty interests in any Arizona state lease, or requires any reduction of or imposes any condition on such royalty interests as a condition of approving an assignment of such royalty interests or approving any royalty reduction or other action with respect to a state lease, or (iv) if AWP has not been issued all of the state leases and conveyed to Grandhaven all royalty interests in all of AWP’s Arizona state leased premises on or before March 1, 2013, Grandhaven shall have the option to receive substitute royalty interests from us in the same number of acres in portions of our non-Arizona state properties, in a percentage sufficient to compensate Grandhaven for the reduced royalty interests in the affected state lease. If AWP has not been issued any Arizona state leases as of the date that AWP conveys assignments of the royalty interest in the non-Arizona state properties Grandhaven may elect to receive in substitution an assignment of a 1.388% royalty interest in all of the non-Arizona state leased premises. If we do not deliver assignments of the royalty interest from AWP to Grandhaven by December 31, 2013, Grandhaven has the option, at anytime thereafter, to purchase shares of our common stock at $4.25 per share in exchange for the surrender by Grandhaven of royalty interests for which assignments have not been obtained, valued at their fair market value at that time.

 

·                  On June 7, 2012, Hexagon consummated the contribution of all of its shares of common stock and warrants to purchase common stock to Very Hungry LLC. Subsequent to that transaction, the Scott Reiman 1991 Trust liquidated its membership Interest in Very Hungry and received a pro rata distribution of its interests in Very Hungry, including equity securities of Prospect. The beneficial ownership table set forth above reflects these transactions.

 

·                  On July 5, 2012, Very Hungry purchased 4,807,692 shares of our common stock at $2.60 per share in our recent public offering.

 

COR Advisors LLC.    On July 5, 2011, we entered into an Investor Relations Consulting Agreement with COR Advisors LLC, pursuant to which COR will provide to us investor relations services. This Investor Relations Consulting Agreement was subsequently amended on May 9, 2012 and on August 1, 2012. In connection with these amendments, COR’s services were extended through July 4, 2015 and expanded to provide additional services beyond investor relations following our recent public offering. For services performed during the year ending on July 5, 2012, COR received (a) as compensation 300,000 shares of our common stock with 100,000 shares fully vesting on execution, 100,000 shares vesting on January 5, 2012 and 100,000 shares vesting on July 5, 2012 and (b) a onetime bonus of 40,000 shares of our common stock upon the listing of our shares on The NASDAQ Capital Market. COR will receive as compensation an additional 300,000 shares of our common stock for services to be performed during the year ending on July 5, 2013 with 75,000 of the shares vesting at the end each quarter during the renewal period. COR will also receive a monthly retainer of $20,000 through July 4, 2015 as compensation for its services. COR and its affiliates beneficially own more than 5% of our common stock.

 

The Karlsson Group Credit Facility.    Prospect Global conducts its operations through its wholly-owned subsidiary, Old Prospect Global, which owns a 50% operated interest in AWP. Old Prospect Global provided The Karlsson Group, Inc., the other 50% owner of AWP, with a $250,000 credit facility to fund expenses pertaining to leasehold activity in the Holbrook Basin that The Karlsson Group incurred subsequent to September 1, 2010. Advances under the credit facility accrued interest at 8% per annum. Pursuant to AWP’s Operating Agreement, approximately $78,000 in advances and accrued interest were repaid in January 2011 by deducting the principal and interest from Old Prospect Global’s initial $2,200,000 cash contribution to AWP, and Old Prospect Global simultaneously terminated the credit facility.

 

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Related Party Receivables from AWP.    Old Prospect Global paid $27,849 in 2010 and Prospect Global paid approximately $14,112 in 2011 on behalf of AWP. As a result of the consolidation of financial statements, related party receivables are eliminated upon consolidation.

 

Purchase of Remaining 50% Interest of AWP from The Karlsson Group.    Prospect entered into an agreement with The Karlsson Group, Inc. on May 30, 2012 whereby Prospect agreed to acquire the 50% of American West Potash LLC that it does not currently own for an aggregate purchase price of $150,000,000, or the equivalent of approximately $2.52 per share, before consideration of royalties and potential contingent payments. The transaction closed on August 1, 2012 at which time Prospect became the sole owner and operator of American West Potash.

 

Our wholly-owned subsidiary, Old Prospect Global signed a purchase agreement dated May 30, 2012 with The Karlsson Group, Inc. for the acquisition. We paid The Karlsson Group a non-refundable deposit consisting of (a) $6,000,000 cash, of which $5,500,000 was credited against the purchase price, and (b) a warrant to purchase 5,605,834 shares of our common stock for $4.25 per share. At closing, (a) we paid The Karlsson Group an additional $19,500,000 in cash, (b) Old Prospect Global issued The Karlsson Group a senior secured $125,000,000 promissory note and (c) American West Potash granted The Karlsson Group the right to receive 1% of the gross sales received by American West Potash from potash production from the real property over which American West Potash currently has leases, licenses and permits for mining purposes, capped at $75,000,000. In the event of a sale of at least 50% of American West Potash or a merger of American West Potash with or into an unaffiliated entity on or prior to August 1, 2016, we agreed to pay The Karlsson Group an additional payment equal to 15% of the net proceeds received from the transaction, capped at $75,000,000. In addition, at the closing, American West Potash received an option to purchase approximately 5,080 acres in Apache County, Arizona from an affiliate of The Karlsson Group for $250,000 which is exercisable for 150 days after payment in full of the promissory note. The stockholders of The Karlsson Group have agreed not to compete with American West Potash within the Holbrook Basin of Arizona prior to August 1, 2015.

 

Brownstein Hyatt Farber Schreck, LLP.    On July 5, 2011, we entered into a Fee Agreement with Brownstein Hyatt Farber Schreck LLP, pursuant to which Brownstein Hyatt provides government relations services to us. Chad Brownstein, one of our directors, is the son of a founding partner of Brownstein Hyatt Farber Schreck, LLP which serves as Prospect Global’s principal outside legal counsel. Mr. Brownstein’s father controls 696,153 shares of Prospect Global’s common stock. Prospect Global has paid Brownstein Hyatt approximately $2,110,646 in legal and lobbying fees for the period starting January 1, 2011 through August 1, 2012. Prospect Global has also issued Brownstein Hyatt, as compensation for government relations services, 100,000 fully vested shares of common stock. Additionally, Brownstein Hyatt has purchased 200,000 shares of Prospect Global’s common stock which was paid for by issuing a promissory note to Prospect Global in the amount of $750,000 (representing the fair market value of the stock on the purchase date). The promissory note bears interest at the short term applicable federal rate and matures in one year. The promissory note is secured by the common stock purchased, and 20% of the outstanding principal balance constitutes a recourse obligation. As a result of the firm providing Prospect Global with government relations services as of August 15, 2011 and February 3, 2012, the principal amount of the Note was reduced by $750,000. On July 2, 2012, we granted Brownstein Hyatt ten year options to purchase 120,000 shares of our common stock at $2.60 per share as compensation for legal services. Chad Brownstein, our director and non-executive vice chairman, does not share in any of these fees or transactions.

 

Conflict of Interests

 

We have established protocols for corporate conflict of interests in our Code of Business Conduct and Ethics policy that prohibits conflicts of interests unless approved by the board of directors. Our board of directors has established a course of conduct whereby it considers in each case whether the proposed transaction is on terms as favorable or more to Prospect Global than would be available from a non-related party. Our board also looks at whether the transaction is fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us. Each of the related party transactions was presented to our board of directors for consideration and each of these transactions was unanimously approved by our board of directors after reviewing the criteria set forth in the preceding two sentences. Each of the related party transaction was individually negotiated, and none of the transactions was contingent upon or otherwise related to any other transaction. As discussed above, copies of our Code of Business Conduct and Ethics policy and Code of Ethics for Senior Financial Advisors can be found on our website: www.prospectgri.com under the tab “Investors”.

 

Item 14.    Principal Accounting Fees and Services

 

Webb & Company was Triangle’s independent registered public accounting firm in 2008 and until February 11, 2011. EKS&H LLLP became our independent registered public accounting firm on February 11, 2011 and was Old Prospect Global’s independent registered public accounting firm in 2010. There were no disagreements on any matter of accounting principles or practices, financial statement

 

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disclosures or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused Webb & Company or EKS&H LLLP to refer to in their respective opinions.

 

On March 20, 2012, Prospect’s board of directors resolved to change our fiscal year end from December 31 to March 31, commencing with the 12 month period ending March 31, 2012. The three tables below present the applicable fees in light of our change in fiscal year.

 

The following table sets forth fees billed by Triangle’s principal accounting firm of Webb & Company for the years ended December 31, 2011 and 2010:

 

 

 

Year Ended
December 31,

 

 

 

2011(1)

 

2010(1)

 

Audit Fees

 

$

5,500

 

$

14,675

 

Audit Related Fees

 

 

 

Tax Fees

 

 

 

All Other Fees

 

484

 

 

 

 

$

5,984

 

$

14,675

 

 


(1)                                 This table reflects the year ended as of December 31 since Webb & Company ceased being our registered public accounting firm on February 11, 2011 and at the time the services were rendered Prospect’s fiscal year ended on December 31.

 

The following table sets forth fees billed by EKS&H LLLP, the principal accounting firm for (i) Old Prospect Global for the year ended in 2010 and (ii) Prospect for the year ended in 2011:

 

 

 

Year Ended
December 31,

 

 

 

2011

 

2010

 

Audit Fees

 

$

108,318

 

$

69,492

 

Audit Related Fees

 

 

7,860

 

Tax Fees

 

 

 

All Other Fees

 

 

 

 

 

$

108,318

 

$

77,352

 

 

The following table sets forth fees billed by EKS&H LLLP, the principal accounting firm for (i) Old Prospect Global for the year ended March 31, 2011, (ii) Prospect for the period starting February 11, 2011, the date of our reverse merger, through the year ended March 31, 2011 and (iii) Prospect for the year ended March 31, 2012.

 

 

 

Year Ended March 31,

 

 

 

2012

 

2011(1)

 

2011(2)

 

Audit Fees

 

$

140,344

 

$

69,492

 

$

21,102

 

Audit Related Fees

 

7,145

 

 

7,860

 

Tax Fees

 

 

 

 

All Other Fees

 

 

 

 

 

 

$

147,489

 

$

69,492

 

$

28,962

 

 


(1)                                 These amounts reflect the fees for Old Prospect Global for the year ended March 31, 2011.

 

(2)                                 These amounts reflect the fees for Prospect for the period starting February 11, 2011 through the year ended March 31, 2011.

 

Prospect’s board of directors approved the 2011 audit fees as we did not establish an audit committee until April 2012. The audit committee’s pre-approval policies and procedures described in 17 CFR 210.2-01(c)(7)(i) and other protocols are discussed in its written charter which can be found at www.prospectgri.com under the tab “Investors”.

 

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PART IV

 

PART IV

 

Item 15.  Exhibits, Financial Statement Schedules

 

(a)  Documents filed as part of this report are as follows:

 

1.                                      Financial Statements

 

The following financial statements of Prospect Global are included at the indicated pages of the document as stated below:

 

Report of Independent Registered Public Accounting Firm

18

Financial Statements:

 

Consolidated Balance Sheets as of March 31, 2013 and 2012

19

Consolidated Statements of Operations for the years ended March 31, 2013 and 2012 and for the cumulative period from August 5, 2010 (Inception) through March 31, 2013

20

Consolidated Statements of Cash Flows for the years ended March 31, 2013 and 2012 and for the cumulative period from August 5, 2010 (Inception) through March 31, 2013

21

Consolidated Statements of Shareholders’ Equity (Deficit) from August 5, 2010 (Inception) to March 31, 2013

22

Notes to Consolidated Financial Statements

23

 

2.                                      Financial Statement Schedules

 

Financial statement schedules are omitted because they are not required or not applicable.

 

3.                                      Exhibits

 

The following exhibits required by Item 601 of Regulation S-K are incorporated by reference or are filed or furnished with this report as indicated below:

 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

2.1

 

Agreement and Plan of Merger, dated February 11, 2011 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

3.1

 

Amended and Restated Articles of Incorporation dated February 11, 2011 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

3.2

 

Second Amended and Restated Bylaws dated April 29, 2011 (incorporated herein by reference to Exhibit 3.2 to the Issuer’s Current Report on Form 8-K filed on July 20, 2011).

 

 

 

4.1

 

Registration Rights Agreement with Buffalo Management LLC dated June 17, 2010 (incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

4.2

 

Senior Secured Convertible Promissory Note with Dr. Richard Merkin dated January 24, 2011 (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

4.3

 

Registration Rights Agreement with Dr. Richard Merkin dated January 24, 2011 (incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

4.4

 

Stockholders Agreement dated January 24, 2011 (incorporated herein by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

4.5

 

Common Stock Purchase Warrant with Buffalo Management LLC (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

4.6

 

Note Purchase Agreement with COR US Equity Income Fund dated March 11, 2011 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 17, 2011).

 

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Exhibit No.

 

Description

4.7

 

Registration Rights Agreement with COR Capital dated March 11, 2011 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 17, 2011).

 

 

 

4.8

 

Senior Secured Convertible $2,500,000 Promissory Note with Hexagon Investments, LLC dated April 25, 2011 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.9

 

Two year Common Stock Purchase Warrant with Hexagon Investments (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.10

 

Three year Common Stock Purchase Warrant with Hexagon Investments (incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.11

 

Common Stock Purchase Warrant with COR Capital (incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.12

 

Registration Rights Agreement with Hexagon Investments dated April 25, 2011 (incorporated herein by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.13

 

Amendment to Note Purchase Agreement and Senior Secured Convertible Promissory Note with Dr. Richard Merkin dated April 20, 2011 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.14

 

Common Stock Purchase Warrant with COR Capital LLC (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on August 2, 2011).

 

 

 

4.15

 

Senior Secured Convertible $1,500,000 Promissory Note with Avalon Portfolio, LLC dated August 3, 2011 (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

4.16

 

Common Stock Purchase Warrant with Avalon Portfolio, LLC (incorporated herein by reference to Exhibit 4.2 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

4.17

 

Registration Rights Agreement with Avalon Portfolio, LLC dated August 3, 2011 (incorporated herein by reference to Exhibit 4.3 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

4.18‡

 

2011 Director and Consultant Equity Incentive Plan dated August 22, 2011 (incorporated herein by reference to Exhibit 4.2 to the Issuer’s Current Report on Form 8-K filed on August 30, 2011).

 

 

 

4.19‡

 

2011 Employee Equity Incentive Plan dated August 24, 2011 (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on August 30, 2011).

 

 

 

4.20

 

$1,500,000 Convertible Secured Promissory Note with Hexagon Investments, LLC dated September 19, 2011 (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

4.21

 

Two year Common Stock Purchase Warrant with Hexagon Investments dated September 29, 2011 (incorporated herein by reference to Exhibit 4.2 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

4.22

 

Registration Rights Agreement with Hexagon Investments dated September 19, 2011 (incorporated herein by reference to Exhibit 4.3 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

4.23‡

 

2011 Employee Equity Incentive Plan dated October 27, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on November 1, 2011).

 

 

 

4.24‡

 

2011 Director and Consultant Equity Incentive Plan dated October 27, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on November 1, 2011).

 

 

 

4.25

 

Common Stock Purchase Warrant with Very Hungry LLC dated November 22, 2011 (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

4.26

 

Registration Rights Agreement with Very Hungry LLC dated November 22, 2011 (incorporated herein by reference to Exhibit 4.2 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

4.27

 

Amended and Restated Stockholders Agreement dated November 22, 2011 (incorporated herein by reference to Exhibit 4.3 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

36



Table of Contents

 

Exhibit No.

 

Description

10.1‡

 

Amended and Restated Management Services Agreement with Buffalo Management LLC dated January 7, 2011 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.2

 

Amended Investment Banking Engagement Agreement with Spouting Rock Capital Advisors, LLC dated January 19, 2011 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

10.3

 

Third Amended and Restated AWP Operating Agreement dated January 21, 2011 (incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.4

 

Note Purchase Agreement with Dr. Richard Merkin dated January 24, 2011 (incorporated herein by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.5

 

Security Agreement with Dr. Richard Merkin dated January 24, 2011 (incorporated herein by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.6‡

 

Side Letter with Buffalo Management LLC dated February 11, 2011 (incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.7

 

Convertible Secured Promissory Note with COR Capital dated March 11, 2011 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 17, 2011).

 

 

 

10.8

 

Amended and Restated Security Agreement with Dr. Richard Merkin and COR Capital dated March 11, 2011 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 17, 2011).

 

 

 

10.9

 

Amendment to Note Purchase Agreement and Senior Secured Convertible Promissory Note with Dr. Richard Merkin dated April 20, 2011 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

10.10

 

Waiver and Consent with COR Capital dated April 20, 2011 (incorporated herein by reference to Exhibit 10.4 to the Issuer’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

10.11

 

Securities Purchase Agreement with Hexagon Investments dated April 25, 2011 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

10.12

 

Amended and Restated Security Agreement with Dr. Richard Merkin, COR Capital and Hexagon Investments dated April 25, 2011 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

10.13

 

Investor Relations Consulting Agreement between the Company and COR Advisors LLC dated July 5, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on July 8, 2011).

 

 

 

10.14

 

Fee Agreement between American West Potash LLC and BHFS dated July 5, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on July 8, 2011).

 

 

 

10.15

 

Secured Partial Recourse Promissory Note dated July 5, 2011 (incorporated herein by reference to Exhibit 10.3 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

10.16

 

Pledge Agreement July 5, 2011 (incorporated herein by reference to Exhibit 10.4 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

10.17†

 

Potash Sharing Agreement dated July 27, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on August 2, 2011).

 

 

 

10.18†

 

First Mineral Lease dated July 27, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on August 2, 2011).

 

 

 

10.19†

 

Second Mineral Lease July 27, 2011 (incorporated herein by reference to Exhibit 10.3 to the Issuer’s Current Report on Form 8-K filed on August 2, 2011).

 

 

 

10.20

 

Securities Purchase Agreement with Avalon Portfolio, LLC August 3, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

10.21

 

Amended and Restated Security Agreement with Dr. Richard Merkin, COR Capital, Hexagon Investments and Avalon

 

37



Table of Contents

 

Exhibit No.

 

Description

 

 

Portfolio, LLC August 3, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

10.22

 

Rescission Agreement with Marc Holtzman dated August 15, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on August 19, 2011).

 

 

 

10.23‡

 

Employment Agreement with Wayne Rich dated September 6, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on August 30, 2011).

 

 

 

10.24

 

Securities Purchase Agreement with Hexagon Investments dated September 19, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

10.25

 

Security Agreement with Hexagon Investments dated September 19, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

10.26

 

Common Stock Purchase Agreement with Very Hungry LLC dated November 22, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.27

 

Amendment to Note Purchase Agreement with COR Capital dated November 22, 2011 (incorporated herein by reference to Exhibit 10.4 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.28

 

Second Amendment to Note Purchase Agreement with Dr. Richard Merkin dated November 22, 2011 (incorporated herein by reference to Exhibit 10.3 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.29

 

Potash Royalty Purchase and Sale Agreement and Option with Grandhaven Energy, LLC dated November 22, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.30

 

Amendment to COR Advisor LLC Investor Relations Consulting Agreement dated May 9, 2012 (incorporated herein by reference to Exhibit 10.30 to the Company’s Transition Report on form 10-KT filed on May 10, 2012).

 

 

 

14.1

 

Code of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

16.1

 

Letter from Webb & Company, P.A dated February 11, 2011 (incorporated herein by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

21.1

 

List of Subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

23.1*

 

Consent of North Rim Exploration Ltd.

 

 

 

23.2*

 

Consent of Tetra Tech

 

 

 

31.1

+

+

+

 

Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

 

 

31.2

+

+

+

 

Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

 

 

32.1**

 

Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

99.1

 

Financial Statements for the period from inception (August 5, 2010) through December 31, 2010 (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

99.2

 

Unaudited Pro Forma Financial information of Prospect and old Prospect Global for the period ended December 31, 2010 (incorporated herein by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

101.INS***

+

+

+

 

XBRL Instance Document.

 

 

 

101.SCH***

+

+

+

 

XBRL Taxonomy Extension Schema.

 

 

 

101.CAL***

+

+

+

 

XBRL Taxonomy Extension Calculation Linkbase.

 

 

 

101.DEF***

+

+

+

 

XBRL Taxonomy Extension Definition Linkbase.

 

 

 

101.LAB***

+

+

+

 

XBRL Taxonomy Extension Label Linkbase.

 

38



Table of Contents

 

Exhibit No.

 

Description

101.PRE***

+

+

+

 

XBRL Taxonomy Extension Presentation Linkbase.

 


*                                         Filed herewith.

 

**                                  Furnished herewith.

 

***                           Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

 

                                         Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

 

                                         Management contract, compensatory plan or arrangement.

 

+

+              Previously filed.

+

 

39



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Denver, State of Colorado, on May 22, 2013.

 

 

PROSPECT GLOBAL RESOURCES INC.

 

 

 

/s/ Damon G. Barber

 

Damon G. Barber

 

Chief Executive Officer and Principal Executive Officer

 

40



Table of Contents

 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

2.1

 

Agreement and Plan of Merger, dated February 11, 2011 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

3.1

 

Amended and Restated Articles of Incorporation dated February 11, 2011 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

3.2

 

Second Amended and Restated Bylaws dated April 29, 2011 (incorporated herein by reference to Exhibit 3.2 to the Issuer’s Current Report on Form 8-K filed on July 20, 2011).

 

 

 

4.1

 

Registration Rights Agreement with Buffalo Management LLC dated June 17, 2010 (incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

4.2

 

Senior Secured Convertible Promissory Note with Dr. Richard Merkin dated January 24, 2011 (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

4.3

 

Registration Rights Agreement with Dr. Richard Merkin dated January 24, 2011 (incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

4.4

 

Stockholders Agreement dated January 24, 2011 (incorporated herein by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

4.5

 

Common Stock Purchase Warrant with Buffalo Management LLC (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

4.6

 

Note Purchase Agreement with COR US Equity Income Fund dated March 11, 2011 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 17, 2011).

 

 

 

4.7

 

Registration Rights Agreement with COR Capital dated March 11, 2011 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 17, 2011).

 

 

 

4.8

 

Senior Secured Convertible $2,500,000 Promissory Note with Hexagon Investments, LLC dated April 25, 2011 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.9

 

Two year Common Stock Purchase Warrant with Hexagon Investments (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.10

 

Three year Common Stock Purchase Warrant with Hexagon Investments (incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.11

 

Common Stock Purchase Warrant with COR Capital (incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.12

 

Registration Rights Agreement with Hexagon Investments dated April 25, 2011 (incorporated herein by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.13

 

Amendment to Note Purchase Agreement and Senior Secured Convertible Promissory Note with Dr. Richard Merkin dated April 20, 2011 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

4.14

 

Common Stock Purchase Warrant with COR Capital LLC (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on August 2, 2011).

 

 

 

4.15

 

Senior Secured Convertible $1,500,000 Promissory Note with Avalon Portfolio, LLC dated August 3, 2011 (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

4.16

 

Common Stock Purchase Warrant with Avalon Portfolio, LLC (incorporated herein by reference to Exhibit 4.2 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

4.17

 

Registration Rights Agreement with Avalon Portfolio, LLC dated August 3, 2011 (incorporated herein by reference to Exhibit 4.3 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

4.18‡

 

2011 Director and Consultant Equity Incentive Plan dated August 22, 2011 (incorporated herein by reference to Exhibit 4.2 to the Issuer’s Current Report on Form 8-K filed on August 30, 2011).

 

 

 

4.19‡

 

2011 Employee Equity Incentive Plan dated August 24, 2011 (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on August 30, 2011).

 

41



Table of Contents

 

Exhibit No.

 

Description

4.20

 

$1,500,000 Convertible Secured Promissory Note with Hexagon Investments, LLC dated September 19, 2011 (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

4.21

 

Two year Common Stock Purchase Warrant with Hexagon Investments dated September 29, 2011 (incorporated herein by reference to Exhibit 4.2 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

4.22

 

Registration Rights Agreement with Hexagon Investments dated September 19, 2011 (incorporated herein by reference to Exhibit 4.3 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

4.23‡

 

2011 Employee Equity Incentive Plan dated October 27, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on November 1, 2011).

 

 

 

4.24‡

 

2011 Director and Consultant Equity Incentive Plan dated October 27, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on November 1, 2011).

 

 

 

4.25

 

Common Stock Purchase Warrant with Very Hungry LLC dated November 22, 2011 (incorporated herein by reference to Exhibit 4.1 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

4.26

 

Registration Rights Agreement with Very Hungry LLC dated November 22, 2011 (incorporated herein by reference to Exhibit 4.2 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

4.27

 

Amended and Restated Stockholders Agreement dated November 22, 2011 (incorporated herein by reference to Exhibit 4.3 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.1‡

 

Amended and Restated Management Services Agreement with Buffalo Management LLC dated January 7, 2011 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.2

 

Amended Investment Banking Engagement Agreement with Spouting Rock Capital Advisors, LLC dated January 19, 2011 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

10.3

 

Third Amended and Restated AWP Operating Agreement dated January 21, 2011 (incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.4

 

Note Purchase Agreement with Dr. Richard Merkin dated January 24, 2011 (incorporated herein by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.5

 

Security Agreement with Dr. Richard Merkin dated January 24, 2011 (incorporated herein by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.6‡

 

Side Letter with Buffalo Management LLC dated February 11, 2011 (incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

10.7

 

Convertible Secured Promissory Note with COR Capital dated March 11, 2011 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 17, 2011).

 

 

 

10.8

 

Amended and Restated Security Agreement with Dr. Richard Merkin and COR Capital dated March 11, 2011 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 17, 2011).

 

 

 

10.9

 

Amendment to Note Purchase Agreement and Senior Secured Convertible Promissory Note with Dr. Richard Merkin dated April 20, 2011 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

10.10

 

Waiver and Consent with COR Capital dated April 20, 2011 (incorporated herein by reference to Exhibit 10.4 to the Issuer’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

10.11

 

Securities Purchase Agreement with Hexagon Investments dated April 25, 2011 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

10.12

 

Amended and Restated Security Agreement with Dr. Richard Merkin, COR Capital and Hexagon Investments dated April 25, 2011 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

 

 

 

10.13

 

Investor Relations Consulting Agreement between the Company and COR Advisors LLC dated July 5, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on July 8, 2011).

 

 

 

10.14

 

Fee Agreement between American West Potash LLC and BHFS dated July 5, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on July 8, 2011).

 

42



Table of Contents

 

Exhibit No.

 

Description

10.15

 

Secured Partial Recourse Promissory Note dated July 5, 2011 (incorporated herein by reference to Exhibit 10.3 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

10.16

 

Pledge Agreement July 5, 2011 (incorporated herein by reference to Exhibit 10.4 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

10.17†

 

Potash Sharing Agreement dated July 27, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on August 2, 2011).

 

 

 

10.18†

 

First Mineral Lease dated July 27, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on August 2, 2011).

 

 

 

10.19†

 

Second Mineral Lease July 27, 2011 (incorporated herein by reference to Exhibit 10.3 to the Issuer’s Current Report on Form 8-K filed on August 2, 2011).

 

 

 

10.20

 

Securities Purchase Agreement with Avalon Portfolio, LLC August 3, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

10.21

 

Amended and Restated Security Agreement with Dr. Richard Merkin, COR Capital, Hexagon Investments and Avalon Portfolio, LLC August 3, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on August 5, 2011).

 

 

 

10.22

 

Rescission Agreement with Marc Holtzman dated August 15, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on August 19, 2011).

 

 

 

10.23‡

 

Employment Agreement with Wayne Rich dated September 6, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on August 30, 2011).

 

 

 

10.24

 

Securities Purchase Agreement with Hexagon Investments dated September 19, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

10.25

 

Security Agreement with Hexagon Investments dated September 19, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on September 23, 2011).

 

 

 

10.26

 

Common Stock Purchase Agreement with Very Hungry LLC dated November 22, 2011 (incorporated herein by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.27

 

Amendment to Note Purchase Agreement with COR Capital dated November 22, 2011 (incorporated herein by reference to Exhibit 10.4 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.28

 

Second Amendment to Note Purchase Agreement with Dr. Richard Merkin dated November 22, 2011 (incorporated herein by reference to Exhibit 10.3 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.29

 

Potash Royalty Purchase and Sale Agreement and Option with Grandhaven Energy, LLC dated November 22, 2011 (incorporated herein by reference to Exhibit 10.2 to the Issuer’s Current Report on Form 8-K filed on November 29, 2011).

 

 

 

10.30

 

Amendment to COR Advisor LLC Investor Relations Consulting Agreement dated May 9, 2012 (incorporated herein by reference to Exhibit 10.30 to the Company’s Transition Report on form 10-KT filed on May 10, 2012).

 

 

 

14.1

 

Code of Ethics (incorporated herein by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

16.1

 

Letter from Webb & Company, P.A dated February 11, 2011 (incorporated herein by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on February 11, 2011).

 

 

 

21.1

 

List of Subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

23.1

+

+

+

 

Consent of North Rim Exploration Ltd.

 

 

 

23.2

+

+

+

 

Consent of Tetra Tech

 

 

 

31.1*

 

Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

 

 

31.2*

 

Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

 

 

32.1**

 

Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

43



Table of Contents

 

Exhibit No.

 

Description

99.1

 

Financial Statements for the period from inception (August 5, 2010) through December 31, 2010 (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

99.2

 

Unaudited Pro Forma Financial information of Prospect and old Prospect Global for the period ended December 31, 2010 (incorporated herein by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K/A filed on March 31, 2011).

 

 

 

101.INS***

+

+

+

 

XBRL Instance Document.

 

 

 

101.SCH***

+

+

+

 

XBRL Taxonomy Extension Schema.

 

 

 

101.CAL***

+

+

+

 

XBRL Taxonomy Extension Calculation Linkbase.

 

 

 

101.DEF***

+

+

+

 

XBRL Taxonomy Extension Definition Linkbase.

 

 

 

101.LAB***

+

+

+

 

XBRL Taxonomy Extension Label Linkbase.

 

 

 

101.PRE***

+

+

+

 

XBRL Taxonomy Extension Presentation Linkbase.

 


*

 

Filed herewith.

 

 

 

**

 

Furnished herewith.

 

 

 

***

 

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

 

 

 

 

Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

 

 

 

 

Management contract, compensatory plan or arrangement.

 

 

 

+

+

+

 

Previously Filed.

 

44