2.4.0.81100 - Disclosure - Related Party Transactionstruefalsefalse1false falsefalseD2014Q1http://www.sec.gov/CIK0001477032duration2013-04-01T00:00:002013-06-30T00:00:001true 1us-gaap_RelatedPartyTransactionsAbstractus-gaap_truenadurationfalsefalsefalsefalsefalsefalsefalsefalse1falsefalsefalse00falsefalsefalsexbrli:stringItemTypestringfalse0Related Party Transactions2false 2us-gaap_RelatedPartyTransactionsDisclosureTextBlockus-gaap_truenadurationfalsefalsefalsefalsefalsefalsefalsefalseterseLabel1falsefalsefalse00<div style="font-size:10.0pt;font-family:Times New Roman;"> Note 10 — Related Party Transactions   Buffalo Management LLC   Quincy Prelude LLC, one of our stockholders beneficially owning more than 5% of our common stock, owns 100% of the voting interests and 82.5% of the economic interests of Buffalo Management LLC (“Buffalo Management” or “Buffalo”) and has sole voting and dispositive power of the shares of our common stock owned by Buffalo. Chad Brownstein, one of our directors and 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. Barry Munitz, our chairman, owns a 17.5% non-voting economic interest in Buffalo Management.   On August 1, 2012 we entered into a termination of the management services agreement with Buffalo.  The management services agreement, which was terminable only by Buffalo, provided for fees to Buffalo for management services rendered in connection with significant transactions such as acquisitions, dispositions and financings.  Also on August 1, 2012, Chad Brownstein, the principal at Buffalo who rendered services to us pursuant to the management services agreement and our non-executive board vice chairman at the time, became our executive vice chairman.   Pursuant to the termination agreement we: (i) paid Buffalo $975,000 in cash and issued them a warrant to purchase 352,150 shares of our common stock for $2.60 per share in satisfaction of the $1.5 million fee payable to it in connection with the acquisition of the 50% of American West Potash that we did not previously own; (ii) issued Buffalo a warrant to purchase 268,304 shares of our common stock for $2.60 per share in connection with services rendered by Buffalo in connection with our July, 2012 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 terminating its right to future transaction fees and the $20,000 monthly consulting fee under the management services agreement.  The fee payable to Buffalo is equal to 2% of Prospect Global’s annual gross revenues in perpetuity and provided for under Section 2(a) of the management services agreement survived the termination.  On April 15, 2013 and as a condition to the Extension Agreement entered into with The Karlsson Group on this same date, this 2% fee was reduced to 1% in exchange for other considerations. Refer to Note 17—Subsequent Events for additional information.   The warrant to purchase an aggregate of 2,620,454 shares of our common stock for $2.60 per share that we issued to Buffalo on August 1, 2012 is exercisable through July 31, 2017, subject to a two year extension in the event of a change of control of Prospect Global.  The fair value of the warrant issued to Buffalo on August 1, 2012 was estimated at $5.2 million using the Black-Scholes pricing model.  Significant inputs included the Company’s stock price, an estimated term of five years, estimated volatility of 177.26%, risk free rate of 0.61% and no dividends.  We also amended our registration rights agreement with Buffalo to cover the shares issuable pursuant to the August 1, 2012 warrant.  The amended registration rights agreement provides for demand and piggy-back registration rights, provided that each demand registration is limited to 1,100,000 shares.   During the three months ended June 30, 2013 and 2012 and for the period from inception through June 30, 2013, Prospect paid Buffalo approximately nil, $0.1 million and $1.4 million, respectively.  As of June 30, 2013 and 2012, accrued and other liabilities included $9.2 million and $0.1 million, respectively, related to amounts owing to Buffalo Management.  The $9.2 million in liabilities at June 30, 2013 represents the estimate of the value of the consideration to be exchanged with Buffalo for its 1% gross revenue (see above).   Brownstein Hyatt Farber Schreck, LLP   Chad Brownstein, one of our directors and executive vice chairman, is the son of a founding partner of Brownstein Hyatt Farber Schreck, LLP (“Brownstein Hyatt”), which serves as Prospect Global’s principal outside legal counsel. Mr. Brownstein’s father controls 1,778,150 shares of Prospect Global’s common stock which includes the 781,997 shares issued in May 2013 in lieu of payment for services then owing in the amount of $0.2 million. We have agreed to issue Brownstein Hyatt an additional 2,493,750 shares of our common stock upon stockholder approval of a proposed reverse stock split as payment for services then owing in the amount of $0.2 million.   During the three months ended June 30, 2013 and 2012 and for the period from inception through June 30, 2013, Prospect made cash payments to Brownstein Hyatt totaling approximately $0.9 million, $0.4 million and $5.2 million, respectively, for legal and lobbying/permitting fees. Approximately $0.3 million and $1.0 million payable to Brownstein Hyatt are included in accrued liabilities and accounts payable as of June 30, 2013 and 2012, respectively. Chad Brownstein does not share in any of these fees. On July 2, 2012, we issued Brownstein Hyatt ten year options to purchase 120,000 shares of our common stock at $2.60 per share as compensation.   Hexagon Investments, LLC / Grandhaven Energy, LLC / Very Hungry LLC / Scott Reiman 1991 Trust   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”). Conway Schatz, one of our current directors, is an employee of Hexagon. Hexagon was not a related party prior to these transactions. The relationship between Hexagon, Grandhaven Energy, Very Hungry and the Scott Reiman 1991 Trust and the details of our transactions with these entities are summarized below:   ·                  On April 25, 2011, we issued a $2.5 million face value secured convertible note in exchange for net proceeds of $2.5 million. The note converted into 881,507 shares of our common stock on November 22, 2011. We also issued Hexagon two warrants to purchase 3,166,667 shares of our common stock. Both warrants (as amended) are exercisable until August 1, 2017 at an exercise price of $0.30 per share. 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 September 19, 2011, we issued a $1.5 million convertible secured note in exchange for net proceeds of $1.5 million. This note converted to 399,033 shares of our common stock on November 22, 2011. We also issued Hexagon a warrant (as amended) to purchase up to 980,392 shares of our common stock at an exercise price of $0.30 per share, which is exercisable until August 1, 2017. 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 (as amended) to purchase 2,588,235 shares of common stock at $0.30 per share for total cash proceeds of $11.0 million to Very Hungry LLC, an affiliate of Hexagon. The warrant is exercisable at any time through August 1, 2017. 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, an affiliate of Hexagon, whereby we sold Grandhaven an overriding royalty interest of 1% of the gross proceeds received by our subsidiary 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 has 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 any time 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 (collectively the “Grandhaven Option”).   ·                  Conway Schatz, a manager of Very Hungry, joined our board of directors effective April 1, 2012 and currently holds 140,000 options to purchase shares of our common stock at an exercise price of $2.60 per share.  Mr. Schatz does not have dispositive power over the shares owned by Very Hungry.   ·                  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. 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.   ·                  On July 5, 2012, Very Hungry purchased 4,807,692 shares of our common stock at $2.60 per share in a public offering for total cash proceeds of $12.5 million.   ·                  On May 2, 2013, we borrowed $5.0 million from Very Hungry, LLC and the Scott Reiman 1991 Trust in exchange for $5.5 million in unsecured, subordinated promissory notes.  Refer to Note 9—Debt and Tax Gross-ups on Debt for additional information.  In consideration for this loan, we reduced the exercise price on all warrants to purchase our common stock held by the Very Hungry Parties to $0.30 per share (from exercises prices ranging from $4.25 per share to $3.00 per share) and extended the maturity of all these warrants to August 1, 2017.   ·                  On July 10, 2013 we entered into a note exchange and subscription agreement with Very Hungry and the Scott Reiman 1991 Trust, whereby they exchanged their $5.5 million unsecured, subordinated promissory notes issued on May 2, 2013 for 5.5 million shares of a newly created senior mandatorily convertible preferred stock. The preferred stock will convert into the same units issued in our June 2013 public offering at a conversion price equal to the public offering price of $0.12 per share upon shareholder approval of the conversion and of a proposed reverse stock split of up to 50-for-one, which will be voted upon at our annual meeting of stockholders expected to be held in late August 2013. Absent obtaining stockholder approval, the preferred stock will begin to accrue dividends of 20% per annum starting December 15, 2013, increasing to 25% on June 15, 2014 and again to 30% on December 31, 2014. The preferred stock limits the voting power of all common stock and preferred stock held by the preferred stock holders to 19.99% of the outstanding voting power.   </div>falsefalsefalsenonnum:textBlockItemTypenaThe entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39603-107864 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39622-107864 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 04 -Paragraph b -Article 3A Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(k)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph k -Article 4 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39691-107864 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6457730&loc=d3e39678-107864 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 57 -Paragraph 1-4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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