f8k021111ex4ii_trianglecast.htm


Exhibit 4.2


 


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


 


 



	$2,000,000 	 January 24, 2011





 


Section 1.   Principal.  PROSPECT GLOBAL RESOURCES INC., a Delaware corporation (the “Company”), for value received, hereby promises to pay to the order of Richard Merkin (the “Holder”), in lawful money of the United States at the address of Holder set forth below, the principal amount of $2,000,000, 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.







“Note Purchase Agreement” means this Convertible Secured Promissory Note, dated as of the date hereof, between the Company and Richard Merkin, 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.







 




  





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“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.


 


Section 4.    Payments of Principal and Interest.


 


4.1 The “Maturity Date” of the Note shall be January 24, 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 Requisite Holders accelerate and demand 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 Optional Conversion.  On or prior to the Maturity Date, the Holder may elect, by providing written notice to the Company, to convert the aggregate Principal Amount plus all accrued Interest into 10,538,583 shares of Common Stock (subject to adjustment for stock splits, recapitalizations or similar events).


 


5.2 Upon conversion of this Note pursuant to Sections 5.1, the Holder shall surrender the Note in exchange for the Common Stock or the common stock of the Company's successor, as applicable.


 





 




  





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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 Obligations, the Company shall not:


 


(a) Amend the Certificate or Bylaws.  Amend the Certificate of Incorporation or Bylaws of the Company.


 


(b) Debt Incurrence.  Create, incur, assume or suffer to exist any indebtedness other than the Note.


 


(c) Issuance of Equity Securities.  Issue any equity securities other than Common Stock.


 


(d) Material Transaction.  Enter into any material joint venture or strategic partnership, or make any acquisition of or investment in any Person, other than a Public Company Merger.


 


(e) Change in Business.  Make any change or modification to the Company's current business.


 


(f) Change of Auditors.  Change the Company's independent financial auditor firm.


 


                                (g) Sale of the Company.  Enter into any transaction, or series of transactions, whether by merger, sale or otherwise, that results in (i) a majority of the Company's outstanding Common Stock being owned by one or more Persons who are not holders of the Company's outstanding Common Stock on the day hereof or (ii) the sale of all or substantially all of the Company's assets to a Person owned by one or more Persons who are not holders of the Company's outstanding Common Stock on the day hereof.


 





 




  





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(h) 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.


 


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


 


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


 


(k) 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.


 


                 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 Note 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


 


(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);


 





 




  





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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 Requisite Holders 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.







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:







 




  





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If to the Company to:













	
  

	
Prospect Global Resources Inc.







                600 17th Street, Suite 2800 South



	
  

	
Denver, Colorado  80202








	
  

	
Attn:  Patrick L. Avery








	
  

	
Fax No.:  720-294-0402













	
  

	
If to the Holder to:













	
  

	
Richard Merkin








	
  

	
*************













	
  

	
Fax: ********








	
  

	
email: *******












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 Requisite Holders.


 


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


 


 


THE COMPANY:







PROSPECT GLOBAL RESOURCES INC.









By: /s/Patrick L. Avery                     


Patrick L. Avery


Chief Executive Officer


 





 




  





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