Note 11—Related Party Transactions

Quincy Prelude LLC and Buffalo Management LLC

Quincy Prelude LLC 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. Buffalo owns 15,000,000 shares of our non-voting preferred stock with a liquidation preference of $15.0 million and 8% annual cumulative dividend. 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. Together Quincy Prelude and Buffalo Management beneficially own more than 5% of our common stock.

During the six months ended September 30, 2013 and 2012 and for the period from inception through September 30, 2013, Prospect paid Buffalo approximately nil, $1.1 million and $1.4 million, respectively. No amounts were outstanding to Buffalo as of September 30, 2013 or 2012.

Under the Karlsson Extension Agreements, we were required to increase Karlsson’s royalty interest from 1% to 2% without increasing the aggregate amount of royalty interests payable to third parties. In order to achieve this result, we negotiated with Buffalo to reduce our revenue interest to Buffalo from 2% to 1%. On August 14, 2013, we compensated Buffalo for this 1% revenue interest by issuing Buffalo 15.0 million shares of our newly created redeemable preferred stock and warrants to purchase 1,005,283 shares of our common stock at $7.20 per share, expiring on August 13, 2018. These warrants have full-ratchet anti-dilution protection to $3.50 per share. Due to the full ratchet protection, Buffalo was issued an additional 781,887 warrants in connection with our September 2013 capital raise which was completed at $4.05 per share. The September capital raise also resulted in the re-pricing of the 1,005,283 warrants from $7.20 to $4.05. Due to the additional warrants being issued as a result of the full ratchet anti-dilution protection, additional expense was incurred for the new warrants. When this agreement was finalized on August 14, 2013, we recorded a gain of $0.5 million for the change in fair value of the warrants as originally estimated at quarter-ended June 30, 2013.

For warrants with full ratchet anti-dilution protection, any issuances of common stock (or securities exercisable into common stock) at a price below the exercise price of the warrants results in a reduction in the exercise price of the warrants to the new issuance or strike price and a corresponding increase in the number of warrants issued. For example, if an investor held 300 warrants with an exercise price of $4.00 and we issued new shares of common stock at $3.00 per share, the strike price on the warrants would be reduced to $3.00 and the investor would receive an additional 100 warrants with a $3.00 exercise price. As of September 30, 2013, Quincy Prelude and Buffalo’s holdings included the following:

Stock and Warrants	Quantity	Strike Price ($)	Expiration Date
Warrants	36,271	187.50	2016
Warrants	35,410	130.00	2017
Warrants	1,787,171	4.05	2018
Common Stock	63,763	N/A	N/A
Preferred Stock 8% Cumulative	15,000,000	N/A	N/A
Options*	4,000	130.00	2022
Options*	2,000	212.50	2021

*Options held by Chad Brownstein, our Executive Vice Chairman

Gregory M. Dangler, our interim chief financial officer, performs services from time to time for Buffalo Management, which is permitted by his employment agreement, and is compensated by Buffalo Management for this work.

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 and also provides government relations services to us. Through November 13, 2013, Mr. Brownstein’s father controls 105,998 shares of Prospect Global’s common stock which includes 6,000 issued in July 2011, 15,640 in May 2013, 49,875 in September 2013 and 34,483 issued in October 2013 in lieu of payment for services then owing. Brownstein Hyatt also holds fully vested options to purchase 2,400 shares of our common stock at $130.00 per share, expiring in 2022.

During the six months ended September 30, 2013 and 2012 and for the period from inception through September 30, 2013, Prospect made cash payments to Brownstein Hyatt totaling approximately $1.4 million, $1.7 million and $5.7 million respectively for legal and lobbying/permitting fees. Approximately $0.5 million and $0.8 million payable to Brownstein Hyatt are included in accrued liabilities and accounts payable as of September 30, 2013 and 2012, respectively. Chad Brownstein does not share in any of these fees.

Hexagon Investments, LLC and affiliates

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, an employee of Hexagon, became a director in April 2012 and resigned from our board on September 29, 2013. Grandhaven Energy, Very Hungry LLC and the Scott Reiman 1991 Trust are all affiliates of Hexagon. At September 30, 2013, Hexagon and its affiliates’ holdings consisted of the following:

Entity	Quantity	Exercise Price		Expiration Date
Common Stock Held
Very Hungry LLC	891,112	N/A		N/A
Scott Reiman Trust	199,086	N/A		N/A
Total Common Stock	1,090,198
Warrants
Very Hungry LLC (1)	739,337	$	6.00	2014
Very Hungry LLC	96,833	$	15.00	2017
Very Hungry LLC (2)	1,095,314	$	4.05	2018
Scott Reiman Trust (1)	177,331	$	6.00	2014
Scott Reiman Trust	37,874	$	15.00	2017
Scott Reiman Trust (2)	262,713	$	4.05	2018
Total Warrants	2,409,402
Options
Conway Schatz	2,800	$	130.00	2014

(1) Series B warrants entitling the holder to purchase for $6.00 per unit one share of our common stock and one Series A warrant to purchase an additional share of our common stock for $6.00 per share. If exercised, each Series A warrant would have full ratchet anti-dilution protection.

(2) Warrants have full ratchet anti-dilution protection.

Grandhaven Energy Royalty Interest

Grandhaven holds a 1% overriding royalty interest in the gross proceeds received by our subsidiary AWP from the extraction of potash from lands and state exploration permits held by AWP on November 22, 2011. Grandhaven has the option, exercisable at any time, to receive shares of our common stock valued at $212.50 per share in exchange for the fair market value of any royalty interest surrendered (the “Grandhaven Option”).

In addition, if;

(i) the Arizona State Land Department declines to issue any lease to us 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,

then Grandhaven has the option to receive substitute royalty interests from us in the same number of acres in portions of our private mineral leases, in a percentage sufficient to compensate Grandhaven for the reduced royalty interests in the affected state leases.

If we have not been issued any Arizona state leases as of the date that we convey the assignment of the royalty interest in our private mineral leases, Grandhaven may elect to exchange their royalty in our Arizona state leases for a 1.388% royalty interest in all of our private mineral leases.