Exhibit 4.1





Exhibit 4.1




THIS NOTE AND THE COMMON STOCK INTO WHICH IT MAY BE CONVERTED HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR SUCH LAWS COVERING THE TRANSFER OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.



PROSPECT GLOBAL RESOURCES INC.




CONVERTIBLE SECURED PROMISSORY NOTE




			
	$1,500,000
	 	August 3, 2011






Section 1. Principal. PROSPECT GLOBAL RESOURCES INC., a Nevada corporation (the
“Company”), for value received, hereby promises to pay to the order of Avalon Portfolio,
LLC, and any assignees or transferees thereof (the “Holder”), in lawful money of the United
States at the address of Holder set forth below, the principal amount of $1,500,000, together with
interest as provided in Section 2 below.



Section 2. Interest. Except as otherwise provided herein, interest
(“Interest”) shall accrue on the outstanding Principal Amount of the Note at the rate of
10% per annum (the “Interest Rate”).



Section 3. Definitions. For purposes of this Note, the following terms have the
meanings set forth below:



“Business Day” means any day other than Saturday, Sunday or a day on which banks are
required to be closed in the State of Colorado.




“Common Stock” means the common stock, par value $0.001 per share, of the Company.




“Note” means this Convertible Secured Promissory Note.



“Securities Purchase Agreement” means the Securities Purchase Agreement, dated as of
the date hereof, between the Company and the Holder, pursuant to which this Note was issued.



“Obligations” means any and all amounts owing to the Holder under the Note, including
Principal and Interest provided for herein and the conversion rights of the Holder.


 


 









 





“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political subdivision thereof.



“Principal Amount” means, as to this Note, the principal amount set forth on the first
page of this Note, or such lesser principal amount of this Note (“Principal”) as may be
outstanding hereunder at any time and from time to time.



“Qualified Financing” means the Company’s next sale of its securities in one
transaction or series of related transactions occurring on or before the Maturity Date for an
aggregate purchase price paid to the Company of no less than $10,000,000.



Section 4. Payments of Principal and Interest.



4.1 The “Maturity Date” of the Note shall be August 3, 2012.



4.2 Except as otherwise provided herein, the aggregate unpaid Principal Amount of the Note
together with all accrued and unpaid Interest thereon shall be due and payable in full on the
Maturity Date.



4.3 The aggregate unpaid Principal Amount of the Note together with all accrued and unpaid
Interest thereon shall be due and payable in full upon an Event of Default in the event that the
Holder accelerates and demands payment pursuant to the terms herein. Upon any conversion into
Common Stock, as provided for herein, then the Company’s only obligation shall be to issue the
Common Stock to the Holder in accordance with the terms hereof.



4.4 Whenever any payment of any Obligation under the Note shall become due, or otherwise would
occur, on a day that is not a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the computation of such
Interest payable.



4.5 If at any time any payment of any Obligations under this Note is rescinded or must
otherwise be restored or returned upon the insolvency, bankruptcy or reorganization of the Company
or otherwise, such Obligations, but only to the extent so rescinded, restored or returned, shall be
reinstated as though such payment had been due but not made when due.




Section 5. Conversion.



5.1 Automatic Conversion. This Note shall automatically convert upon a Qualified
Financing if that Qualified Financing occurs prior to the Maturity Date at a conversion price per
share equal to $3.00 (subject to adjustment for stock splits, recapitalizations or similar events).
To the extent that a Qualified Financing occurs at a per share purchase price of less than $3.60,
then Holder shall receive additional shares of Common Stock such that the total shares received by
Holder upon conversion equals the aggregate Principal Amount (X) plus all accrued Interest (Y)
divided by 0.8 times the per share purchase price of the Qualified Financing (Z). If the Qualified
Financing occurs in a series of transactions, then (Z) shall be on the most favorable terms offered
to any other investor in that series of transactions. For clarity, the total shares received by
Holder shall be equal to (X + Y)÷(0.8 * Z).


 


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5.2 Optional Conversion. On or prior to the Maturity Date or the closing of a
Qualified Financing, the Holder may elect, by providing written notice to the Company, to convert
the aggregate Principal Amount plus all accrued Interest into shares of Common Stock at a
conversion price per share equal to $3.00 (subject to adjustment for stock splits,
recapitalizations or similar events).



5.3 Upon conversion of this Note pursuant to Section 5.1 or 5.2, the Holder shall surrender
the Note in exchange for shares representing the Common Stock.




Section 6. Covenants.



6.1 Affirmative Covenants of the Company. The Company covenants and agrees that,
between the date hereof and the earlier of (i) conversion of the Note pursuant to Section 5, or
(ii) the date of repayment of the Principal Amount plus all accrued Interest, the Company shall:



(a) Corporate Existence. At all times cause to be done all things reasonably
necessary to maintain, preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses.



(b) Compliance with Laws. Comply with all applicable laws, rules and regulations of
all governmental authorities, the violation of which could reasonably be expected to have a
Material Adverse Effect on its business or properties.



(c) Books and Records. Maintain proper books of record and account which present
fairly in all material respects its financial condition and results of operations and make
provisions on its financial statements for all such proper reserves as in each case are required in
accordance with generally accepted accounting principles, consistently applied.



6.2 Negative Covenants of the Company. The Company covenants and agrees that, between
the date hereof and the earlier of (i) conversion of the Note pursuant to Section 5 or (ii) the
repayment of the Principal Amount plus all accrued Interest, the Company shall not:



(a) Equity Plans. Adopt or otherwise implement any new stock option, stock grant or
other equity compensation plan for the Company’s employees, directors or consultants.



(b) Liquidation. Take any action to liquidate, dissolve or otherwise wind-up the
Company.




(c) Redemptions. Redeem or repurchase any outstanding Common Stock.


 


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(d) No Impairment. Through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist in the carrying out
of all the provisions of the Note and in the taking of all such action as may be necessary or
appropriate in order to protect the respective conversion rights of Holder against impairment.



6.3 Other Rights. The Company shall treat the Note and the Holder pari passu in all
respects with the Company’s $2,000,000 Convertible Secured Promissory Note dated January 24, 2011
payable to Richard Merkin (the “Merkin Note”), the Company’s $500,000 Convertible Secured
Promissory Note dated March 11, 2011 payable to COR Capital LLC (the “COR Note”) and the
Company’s $2,500,000 Convertible Secured Promissory Note dated April 25, 2011 payable to Hexagon
Investments, LLC (the “Hexagon Note”). The Company will make no payments to the holders of
the Merkin Note, the COR Note or the Hexagon Note in order to induce the waiver of any negative
covenant in the Merkin Note, the COR Note or the Hexagon Note or to make any other amendment to the
Merkin Note, the COR Note or the Hexagon Note without making a pro rata payment to Holder based on
the relative outstanding principal balances of this Note and the Merkin Note, the COR Note and the
Hexagon Note. The Company also agrees to notify Holder of any communications with the holders of
the Merkin Note, the COR Note or the Hexagon Note which may impact Holder pursuant to this
provision, this Note, the related Registration Rights Agreement between Holder and Company and/or
the Security Agreement among Richard Merkin, COR Capital LLC, Hexagon, Holder and the Company.



Section 7. Events of Default. In case of the happening of any of the following events
(each, an “Event of Default”):



(a) the Company shall materially fail to observe or perform any material covenant or agreement
contained in this Note and such failure shall continue unremedied for a period of 15 days following
written notice thereof to the Company from any Holder;



(b) any breach of any representation, warranty or covenant made by the Company contained in
this Note or the Securities Purchase Agreement;



(c) the Company shall (i) voluntarily commence any proceeding or file any petition or any
notice of its intent to commence or file any such proceeding, petition or proposal seeking relief
under Title 11 of the United States Code or any other federal or state bankruptcy, insolvency or
similar law, (ii) apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator or similar official for any such Person or for any substantial part of its property or
assets, (iii) make a general assignment for the benefit of creditors, or (iv) take any corporate or
stockholder action in furtherance of any of the foregoing;



(d) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in
a court of competent jurisdiction seeking (i) relief in respect of the Company or of any
substantial part of the property or assets thereof, under Title 11 of the United States Code or any
other federal or state bankruptcy, insolvency or similar law, (ii) the appointment of a receiver,
trustee, custodian, sequestrator or similar official for the Company or any substantial part of its
property or (iii) the winding-up or liquidation of the Company, and such proceeding, petition or
order shall continue unstayed and in effect for a period of 90 consecutive days; or


 


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(e) the Note shall cease to be in full force and effect and enforceable against the Company in
accordance with its terms (other than by reason of any action taken (or the failure to take any
action) by the Holder);



then, upon the occurrence of any such Event of Default (other than an Event of Default described in
Section 7(c) or (d) above, in which case all Principal and Interest shall automatically become
immediately due and payable in full), at any time thereafter during the continuation of such Event
of Default, the Holder may elect, by written notice delivered to the Company (a “Remedies
Election”), to take any or all of the following actions: (i) declare the Note to be forthwith
due and payable, whereupon the entire unpaid Principal Amount, together with accrued and unpaid
Interest thereon, and all other cash Obligations thereunder, shall become forthwith due and
payable, without presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by the Company, anything contained herein or in the Note to the contrary
notwithstanding; and (ii) exercise any and all other remedies provided in the Note or available at
law or in equity upon the occurrence and continuation of an Event of Default.




Section 8. Miscellaneous.



8.1 Successors and Assigns. Subject to the exceptions specifically set forth in this
Note, the terms and conditions of this Note shall inure to the benefit of and be binding upon the
respective executors, administrators, heirs, successors and assigns of the parties.



8.2 Survival. The warranties, representations and covenants of the Company and the
Holder contained in or made pursuant to this Note shall survive the execution and delivery of this
Note.



8.3 Loss or Mutilation of Note. Upon receipt by the Company of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Note, together with indemnity
reasonably satisfactory to the Company, in the case of loss, theft or destruction, or the surrender
and cancellation of the Note, in the case of mutilation, the Company shall execute and deliver to
Holder a new Note of like tenor and denomination as this Note. Principal is payable only to the
registered Holder of the Note.



8.4 Legend. Any certificate representing shares of the Company’s capital stock issued
upon conversion of this Note or otherwise issued hereunder shall be stamped or otherwise imprinted
with a legend substantially in the following form:




THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR SUCH LAWS COVERING THE TRANSFER OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.


 


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8.5 Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or by facsimile or email
(facsimile or email receipt confirmed electronically) or shall be sent by a reputable express
delivery service addressed as follows:




If to the Company to:




Prospect Global Resources Inc.

600 17th Street, Suite 2800 South

Denver, CO 80202

Attn: Patrick L. Avery

Fax No.: 720-294-0402

email: pavery@prospectgri.com




If to the Holder to:




Avalon Portfolio, LLC

PO Box 1397

North Sioux City, SD 57049

Attn: Shane Hartnett

Fax: 605-232-9486

email: shartnett@avalon.com



Either party hereto may change the above specified recipient or mailing address by notice to the
other party given in the manner herein prescribed. All notices shall be deemed given on the day
when actually delivered as provided above (if delivered personally or by facsimile, provided that
any such facsimile is received during regular business hours at the recipient’s location) or on the
day shown on the return receipt (if delivered by mail or delivery service).



8.6 Law. This Note shall be governed by and construed in accordance with the domestic
laws of the Colorado, without giving effect to any choice of law or conflict of law provision or
rule that would cause the application of the laws of any jurisdiction other than the State of
Colorado. The Holder and the Company each accepts and consents to the exclusive jurisdiction of
the state or federal courts located in the City of Denver and State of Colorado, for itself and in
respect of its property, and waives in respect of both itself and its property any defense it may
have as to or based on sovereign immunity, jurisdiction, improper venue or inconvenient forum.
Each of the parties hereto irrevocably consents to the service of any process or other papers by
the use of any of the methods and to the addresses set for the giving of notices pursuant to this
Agreement.



8.7 Waiver and Amendment. Any term of this Note may be amended and the observance of
any term of this Note may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the prior written consent of the Company and the Holder.


 


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IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name.



	 	 	 	 	 
	 	THE COMPANY:



PROSPECT GLOBAL RESOURCES INC.

 	 
	 	By:  	/s/ Jonathan Bloomfield
 	 
	 	 	Jonathan Bloomfield 	 
	 	 	Chief Financial Officer 	 




 


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