THIS SENIOR SECURED CONVERTIBLE PROMISSORYNOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OF THE SECURITIES LAWS OF ANYSTATE. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER THE ACT OR AN EFFECTIVE REGISTRATION STATEMENTRELATED THERETO OR AN APPLICABLE EXEMPTION THEREFROM.

 

SENIOR SECURED CONVERTIBLE PROMISSORYNOTE

 

 

For value received,Prime Acquisition Corp., a Cayman Islands company (“***Company***”), hereby promises to pay to the order ofChardan Capital Markets, LLC, a New York limited liability company or its assignee or transferee (“***Purchaser***”),the principal sum of EIGHT HUNDRED EIGHTY NINE THOUSAND EIGHT HUNDRED THIRTY THREE DOLLARS ($889,833.00) with interest on the outstandingprincipal amount at the rate of five percent (5.0%) per annum, compounded annually based on a 365-day year, on December 31, 2013(the “***Maturity Date***”). Interest shall commence with the date hereof and shall continue on the outstandingprincipal until paid in full. This note is being issued in lieu of the payment of $889,833.00 of the amount to be paid to ChardanCapital Market, LLC pursuant to Section 1.5 of that certain Underwriting Agreement dated March 24, 2011.

 

1.                 Pre-Payment.

 

1.1             Optional Pre-Payment. This note may be pre-paid in whole or in partat any time prior to the Maturity Date without penalty.

 

1.2             Mandatory Pre-Payment. If, at any time prior to the Maturity Date,the Company issues and sells securities or enters into a joint venture transaction pursuant to which cash is made available tothe Company and this note has not been paid in full, then the outstanding principal balance of this Note and all accrued but unpaidinterest thereon shall become immediately due and payable to the Purchaser.

 

2.                 Conversion Rights. If this note has not been paid in full withinfive business days after the Maturity Date, the Purchaser has the right, but not the obligation, to convert this note into fullypaid and non-assessable ordinary shares of the Company (“**Conversion Shares**”). The number of Conversion Sharesto be received by any Purchaser in connection with such conversion shall be an amount determined by dividing (x) the sum of theoutstanding principal amount and/or accrued interest payable to such Purchaser by (y) $9.10 (the “**Conversion Price**”).The Purchaser shall have the right, but not the obligation, to convert all, but not part, of the issued and outstanding principalamount and accrued interest into Conversion Shares at the Conversion Price.

 

2.1             Fractional Shares. No fractional shares of Company’s capitalstock will be issued upon conversion of this note. In lieu of any fractional share to which Purchaser would otherwise be entitled,Company will pay to Purchaser in cash the amount of the unconverted principal and interest balance of this note that would otherwisebe converted into such fractional share.

 

 

2.2             Effect of Conversion. Upon conversion of this note pursuant to thisSection 2, Purchaser shall surrender this note, duly endorsed, at the principal offices of Company. This note will be deemed convertedon the date the Purchaser delivers this note and a conversion notice to the Company. Prior to any conversion of this note pursuantto Section 2.1, Purchaser shall execute and deliver to Company a purchase agreement reasonably acceptable to Company containingcustomary representations and warranties and transfer restrictions. At its expense, the Company will, as soon as practicable thereafter,issue and deliver to Purchaser, at Purchaser’s address set forth on the signature page hereto or such other address requestedby Purchaser, a certificate or certificates for the number of Conversion Shares to which Purchaser is entitled upon such conversion(bearing such legends as are customary pursuant to applicable state and federal securities laws) and any other securities and propertyto which Purchaser is entitled upon such conversion under the terms of this note, including a check payable to Purchaser for anycash amounts payable as a result of any fractional shares as described herein.

 

2.3             Adjustment Provisions. The Conversion Price and number of ConversionShares to be issued upon conversion determined pursuant to this note shall be subject to adjustment from time to time upon theoccurrence of certain events during the period that this conversion right remains outstanding, as follows:

 

(a)               Reclassification. If the Company at any time shall, by reclassification or otherwise, change its ordinary sharesinto the same or a different number of securities of any class or classes, this note, as to the unpaid principal amount and accruedinterest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind ofsecurities as would have been issuable as the result of such change with respect to the ordinary shares (i) immediately prior toor (ii) immediately after, such reclassification or other change, at the sole election of the Purchaser.

 

(b)              Stock Splits, Combinations and Dividends. If the Company’s ordinary shares are subdivided or combined intoa greater or smaller number of shares of shares, or if a dividend is paid on the Company’s ordinary shares in additionalordinary shares, the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionatelyincreased in the case of combination of shares, in each such case by the ratio which the total number of shares of ordinary sharesoutstanding immediately after such event bears to the total number of shares of ordinary shares outstanding immediately prior tosuch event.

 

3.                 Default Remedies

 

3.1                Eventsof Default. Each of the following shall constitute an event of default (each, an“***Event of Default***”) under this Note:

 

(a)               The Company shall fail to pay (i) when due any principal or interest payment or (ii) any other payment requiredunder the terms of this note on the date due, and, in each case, such payment shall not have been made within five business daysof the applicable due date;

 

(b)              The Company does not enter in a security agreement in favor of the Purchaser will respect to all of its assets by November30, 2013;

 

(c)               The Company files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law orany other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any general assignment for the benefitof creditors or takes any corporate action in furtherance of any of the foregoing;

 

(d)              An involuntary petition is filed against the Company (unless such petition is dismissed or discharged within thirty (30)days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors(or other similar official) is appointed to take possession, custody or control of any property of the Company; or

 

(e)               The Company’s shareholders or board of directors affirmatively vote to liquidate, dissolve, or wind up the Companyor the Company otherwise ceases to early on its ongoing business operations.

 

3.2             Following the occurrence and during the continuance of an Event of Default, the Company shall pay additional intereston the outstanding principal balance of this note in an amount equal to ten percent (10%) per annum, and all outstanding obligationsunder this note, including unpaid interest, shall continue to accrue interest at such additional interest rate from the date ofsuch Event of Default until the date such Event of Default is cured or waived.

 

4.                 Waiver; Payment Of Fees And Expenses. Company waives presentmentand demand for payment, notice of dishonor, protest and notice of protest of this note, and shall pay all costs of collection whenincurred, including, without limitation, reasonable attorneys’ fees, costs and other expenses. The right to plead any andall statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law. No delayby Purchaser shall constitute a waiver, election or acquiescence by it.

 

5.                 Cumulative Remedies. Purchaser shall have all other rights and remediesnot inconsistent herewith as provided under the UCC, by law or in equity. No exercise by Purchaser of one right or remedy shallbe deemed an election, and no waiver by Purchaser of any Event of Default shall be deemed a continuing waiver of such Event ofDefault or the waiver of any other Event of Default.

 

6.                 Miscellaneous

 

6.1             Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCEDIN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY CONSENTSAND AGREES THAT THE STATE AND/OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTIONTO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE HOLDER AND/OR ANY OTHER CREDITOR PARTY,ON THE OTHER HAND, PERTAINING TO THIS NOTE OR ANY OF THE OTHER RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TOTHIS NOTE OR ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVETO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK. THE COMPANY EXPRESSLY SUBMITS AND CONSENTSIN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTIONWHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.

 

 

6.2             Successors and Assigns; Assignment. The terms and conditions of thisnote shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Company may not assignthis note or delegate any of its obligations hereunder without the written consent of the Purchaser. Purchaser may assign thisNote and its rights hereunder at any time without consent of Company.

 

6.3             Titles and Subtitles. The titles and subtitles used in this noteare used for convenience only and are not to be considered in construing or interpreting the note.

 

6.4             Notices. All notices required or permitted hereunder shall be inwriting and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) five (5) daysafter having been sent by registered or certified mail, return receipt requested, postage prepaid, (c) when sent by confirmedelectronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day or (d) one(1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification ofreceipt. All communications shall be sent, as applicable, to the Company at its principal office and to the Purchaser at the addressset forth on the signature page hereto, or at such other address as the Company or the Purchaser may designate by ten (10) daysadvance written notice to the other party hereto.

 

6.5             Amendment; Modification; Waiver. This Note may be amended, modifiedor terminated and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactivelyor prospectively) only by a written instrument executed by the Company and the Purchaser. No waivers of or exceptions to any term,condition or provision of this Note, in any one or more instances, shall be deemed to be, or construed as, a further or continuingwaiver of any such term, condition or provision.

 

6.6             Usury. In the event any interest is paid on this Note which is deemedto be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of thethen legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.

 

6.7             Counterparts. This note may be executed in two or more counterparts,each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

6.8             Further Assurances. The Company shall execute, acknowledge whereappropriate, and deliver from time to time promptly at the request of the Purchaser all such instruments and documents as are reasonablynecessary or desirable to carry out the intent and purposes of this note.

 

 

6.9             Loss, Etc., of Note. Upon receipt of evidence satisfactory to theCompany of the loss, theft, destruction or mutilation of this note, and of indemnity reasonably satisfactory to the Company iflost, stolen or destroyed, and upon surrender and cancellation of this note if mutilated, and upon reimbursement of the Company’sreasonable incidental expenses, the Company shall execute and deliver to the Purchaser a new note of like date, tenor and denomination.

 

6.10         Entire Agreement. The terms and provisions of this note supersedeall written and oral agreements and representations made by or on behalf of the Company. This note contains the entire agreementof the parties with respect to the subject matter hereof.

 

[SIGNATURE PAGE TO FOLLOW]

 

INWITNESS WHEREOF, the parties hereto have executed this Senior Secured Convertible Promissory Note as of the day and year firstwritten above.

 

**PRIME ACQUISITION CORP.**

 

By: /s/