Document:

pacificnet_8k-ex1004.htm

    Exhibit
10.4

     

    

 

    THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING
OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND SUCH STATE LAWS.  THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER STATE LAWS.

     

    FORM
OF PACIFICNET INC.

    7%
DEBENTURE

     

    THIS
DEBENTURE is one of a series of a duly authorized and validly issued Debentures
of PACIFICNET INC., a corporation duly organized and existing under the laws of
the State of Delaware with its principal place of business at 23/F, Tower A,
Timecourt, No.6 Shuguang Xili, Chaoyang District, Beijing, China 100028 (the
“Company”) designated as its 7% Debenture (the “Debenture”).

     

    FOR VALUE
RECEIVED, the Company promises to pay to ___________________________, or its
registered assigns (the “Holder”), the principal sum of  $________ on
the Maturity Date (as hereinafter defined) and to pay interest on the principal
sum outstanding from time to time in arrears as provided herein on the Maturity
Date at the rate of 7% per annum accruing from the date of initial
issuance.  Accrual of interest shall commence on the date hereof until
payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been
made.  Interest shall be calculated on the basis of a 365-day year and
shall accrue daily.  The Company will pay the principal and interest
upon this Debenture on the Maturity Date, to the registered holder of this
Debenture and addressed to such holder at the address appearing above or to such
other address designated by such holder in writing.

     

    “Maturity
Date” shall mean the first date on which an Event of Default occurs under any of
the Second Amended and Restated Variable Rate Secured Convertible Debentures due
July 2009 or the Amended and Restated Variable Rate Secured Convertible
Debentures due July 2009 issued by the Company, which default has not been cured
as provided thereunder.

     

    This
Debenture is subject to the following additional provisions:

     

    1.           No
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
and any other amounts which may become due under, this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed.  This
Debenture is a direct obligation of the Company.

     

    2.           No
recourse shall be had for the payment of the principal of, or the interest on,
this Debenture, or for any claim based hereon, or otherwise in respect hereof,
against any incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    3.           The
Holder of the Debenture, by acceptance hereof, agrees that this Debenture is
being acquired for investment and that such Holder will not offer, sell or
otherwise dispose of this Debenture except under circumstances which will not
result in a violation of the Securities Act of 1933, as amended, or any
applicable state blue sky or foreign laws or similar laws relating to the sale
of securities.

     

    4.           All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflict of laws thereof.  Each party agrees that all
legal proceedings concerning the interpretation, enforcement and defense of this
Debenture (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”).  Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of this Debenture), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such New York Courts, or such New York
Courts are improper or inconvenient venue for such proceeding.  Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Debenture and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by applicable law.  Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Debenture or the transactions contemplated hereby.  If either party
shall commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred in the investigation, preparation and prosecution of such
action or proceeding.

     

    5.           This
Debenture shall be binding upon the Company and its successors and assigns and
shall inure to the benefit of the Holder and its successors and
assigns.  Notwithstanding the foregoing, the Company may not assign
this Debenture or any of its obligations hereunder without the prior written
consent of the Holder.

     

    6.           No
right or remedy herein conferred upon or reserved to the Holder is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    7.           No
failure or delay by the Holder in exercising any right, power or remedy under
this Debenture shall operate as a waiver thereof or any other right, power or
remedy under this Debenture; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under this
Debenture.  Any waiver must be in a writing signed by the
Holder.

     

    8.           All
payments made by the Company under this Debenture shall be made by the Company
free and clear of and without deduction for any and all present and future
taxes, levies, charges, deductions and withholdings.

     

    9.           The
Company hereby waives presentment, demand for payment, notice of dishonor or
nonpayment, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this
Debenture.

     

    10.           In
case any provision contained herein (or part thereof) shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision (or the
remaining part of the affected provision) hereof, but this Debenture shall be
construed as if such invalid, illegal or unenforceable provision (or part
thereof) had never been contained herein, but only to the extent that such
provision is invalid, illegal or unenforceable.

     

    11.           Subject
to the terms of the Settlement and Release Agreement executed simultaneously
herewith, this Debenture sets forth the entire agreement and understanding of
the Company and the Holder and supersedes any prior oral or written agreement
between the Company and the Holder with respect to the subject matter of this
Debenture.

     

    [Signature
page follows]

     

    

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the
Company has caused this instrument to be duly executed by an officer thereunto
duly authorized.

     

    Dated:  August
___, 2008

     

     

    
    

     

    
      	 	
              
                 PACIFICNET
      INC.

              

               

              
                 By:
      _____________________________

              

               Victor
      Tong

              
                 President

              

            

    

     

    
       

       

       

       

      -4-pacificnet_8k-ex1005.htm

    Exhibit 10.5

     

    

      SECURITY
AGREEMENT

       

      SECURITY AGREEMENT, dated as
of August 29, 2008, between PacificNet Inc., a Delaware corporation (the
“Debtor”), and Iroquois Master Fund, Ltd., individually and as agent (the
“Agent”) for the holders (the “Holders”) of the Second Amended and Restated
Variable Rate Secured Convertible Debentures due July 2009 and the Amended and
Restated Variable Rate Secured Convertible Debentures due July 2009 issued by
the Debtor (collectively, the “Debentures”).

       

      WHEREAS, the Debtor has issued
the Debentures to the Holders; and

       

      WHEREAS, the Debtor and the
Agent and Holders have executed that certain Settlement and Release Agreement,
dated August 29, 2008 (the “Settlement Agreement”), which provides for
settlement of certain defaults by the Debtor and for the payment by the Debtor
of the outstanding amounts due and owing to the Agent and Holders;
and

       

      WHEREAS, it is intention of
the parties that the performance by the Debtor of its obligations pursuant to
the Debentures be secured by a senior secured pledge of certain assets of the
Debtor as more particularly described herein;

       

      NOW, THEREFORE, in
consideration of the promises contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto intending to be legally bound agree as follows:

       

      ARTICLE
I

      DEFINITIONS

       

      All
capitalized terms used herein without definitions shall have the respective
meanings provided therefor in the Debentures.  The term “State”, as
used herein, means the State of New York.  All references herein to
the Uniform Commercial Code shall mean the Uniform Commercial Code in the
State.  All terms defined in the Uniform Commercial Code and used
herein shall have the same definitions herein as specified
therein.  However, if a term is defined in Article 9 of the Uniform
Commercial Code differently than in another Article of the Uniform Commercial
Code, the term has the meaning specified in Article 9.  The term
“Obligations”, as used herein, means all of the indebtedness, obligations and
liabilities of the Debtor to the Holders or the Agent, individually or
collectively, arising under or in respect of the Debentures, the Settlement
Agreement or this Agreement, and the term “Event of Default”, as used herein,
means the failure of the Debtor to pay or perform any of the Obligations as and
when due to be paid or performed and any default or event of default under the
terms of the Debentures, the Settlement Agreement, or this Agreement, as more
fully set forth in Article XII below.

       

      ARTICLE
II

      GRANT
OF SECURITY INTEREST

       

      The
Debtor hereby grants to the Agent, for the ratable benefit of the Holders as
particularly identified in Schedule A attached hereto, to secure the prompt
repayment and performance in full of all of the Obligations, a senior secured
first priority lien and security interest in and so pledges and assigns to the
Agent the accounts of, and securities held by, the Debtor as set forth in
Schedule B attached hereto, and all proceeds and products thereof (all of the
same being hereinafter called the “Collateral”).

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

      ARTICLE
III

      AUTHORIZATION
TO FILE FINANCING STATEMENTS

       

      The
Debtor hereby irrevocably authorizes the Agent, at any time and from time to
time, to execute such assignments, pledges, notices, financing statements and
other documents pursuant to the Uniform Commercial Code and all other applicable
law, in form satisfactory to the Agent, and will pay all filing or recording
costs with respect thereto, (including the cost of all federal, state or local
documentary, stamp or other taxes), in each case, in all public offices where
filing or recording is deemed by the Agent to be necessary or desirable. Debtor
hereby authorizes the Agent to take all action (including, without limitation,
the filing of any Uniform Commercial Code Financing Statements or amendments
thereto and the filing of all such mortgages, assignments, pledges, notices and
other documents, all without the signature of Debtor) which the Agent may deem
necessary or desirable to perfect or otherwise protect the liens and security
interests created hereunder and to obtain the benefits of this Security
Agreement.

       

      ARTICLE
IV

      OTHER
ACTIONS

       

      Further
to insure the attachment, perfection and first priority of the security interest
in the Collateral as set forth herein the Debtor agrees, in each case at the
Debtor’s own expense, to take any action reasonably requested by the Agent to
insure the attachment, perfection and priority of, and the ability of the Agent
to enforce, the security interest granted hereunder in any and all of the
Collateral including, without limitation, (a) executing, delivering and, where
appropriate, filing financing statements and amendments relating thereto under
the Uniform Commercial Code, to the extent, if any, that the Debtor’s signature
thereon is required therefor, (b) causing the Agent’s name to be noted as
secured party on any certificate of title for a titled security if such notation
is a condition to attachment, perfection or priority of, or ability of the Agent
to enforce, the security interest in such Collateral, (c) complying with any
provision of any statute, regulation or treaty of the United States as to any
Collateral if compliance with such provision is a condition to attachment,
perfection or priority of, or ability of the Agent to enforce, the security
interest in such Collateral, and (d) taking all actions required by any earlier
versions of the Uniform Commercial Code or by other law, as applicable in any
relevant Uniform Commercial Code jurisdiction, or by other law as applicable in
any foreign jurisdiction.

       

      ARTICLE
V

      REPRESENTATIONS
AND WARRANTIES

      CONCERNING
DEBTOR’S LEGAL STATUS

       

      The
Debtor represents and warrants as follows: (a) the Debtor’s exact legal name is
that indicated on the signature page hereof, and (b) the Debtor is a corporation
organized under the laws of the State of Delaware.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      ARTICLE
VI

      COVENANTS
CONCERNING DEBTOR’S LEGAL STATUS

       

      The
Debtor covenants as follows: (a) without providing at least thirty (30) days
prior written notice to the Agent, the Debtor will not change its name, its
place of business or, if more than one, its chief executive office, or its
mailing address, (b) the Debtor will not change its type of organization,
jurisdiction of organization or other legal structure without prior consent of
the Agent and (c) Debtor will promptly notify Agent in writing of any
litigation, legal proceeding or dispute involving the Collateral, that
exceeds $25,000.

       

      ARTICLE
VII

      REPRESENTATIONS
AND WARRANTIES CONCERNING COLLATERAL, ETC.

       

      The
Debtor further represents and warrants as follows: (a) the Debtor is the owner
of  and has other rights in or power to pledge, secure and transfer
the Collateral, free from any adverse lien, security interest or other
encumbrance or interest, except for the security interest created by this
Agreement and except as the Agent may otherwise permit (b) the Collateral has
not previously been pledged, assigned, or otherwise encumbered to or by any
third party and is owned by the Debtor free and clear of any lien, security
interest or other encumbrance or interest,   (c) the agreements,
amounts owed and the payment dates listed on Schedule B are true and accurate in
all respects, and (d) the Debtor has not compromised, settled, extended,
released or otherwise altered the agreements or amounts or obligations owed by
each of the debtors or payors listed on Schedule B nor have any contractual
rights or remedies in respect of the accounts or securities which comprise the
Collateral been altered, amended or released.

       

      ARTICLE
VIII

      COVENANTS
CONCERNING COLLATERAL, ETC.

       

      The
Debtor further covenants as follows: (a) the Debtor shall be the owner of or
have other rights in the Collateral free from any lien, security interest or
other encumbrance, and the Debtor shall defend the same against all claims and
demands of all persons at any time claiming the same or any interests therein
adverse to the Agent or the Holders, (b) the Debtor shall not pledge, mortgage
or create, or suffer to exist a security interest in the Collateral in favor of
any person other than the Agent for the ratable benefit of the Holders, (c) the
Debtor will not sell or otherwise dispose, or offer to sell or otherwise
dispose, of the Collateral or any interest therein, and (d) the Debtor will not
compromise, settle, extend, release or otherwise alter any of the payment or
other terms of the accounts or securities (or any agreements relating thereto)
which comprise the Collateral without the prior written consent of the
Agent.

       

      ARTICLE
IX

      COLLATERAL
PROTECTION EXPENSES

       

      In its
discretion, the Agent may discharge taxes and other encumbrances at any time
levied or placed on any of the Collateral.  The Debtor agrees to
reimburse the Agent on demand for any and all expenditures so
made.  The Agent shall have no obligation to the Debtor to make any
such expenditures, nor shall the making thereof relieve the Debtor of any
default or Event of Default.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      ARTICLE
X

      NOTIFICATION
TO ACCOUNT DEBTORS AND

      OTHER
PERSONS OBLIGATED ON COLLATERAL

       

      The
Debtor shall notify Heyspace International Limited (together with its successors
and assigns, the “Payor”), the obligor pursuant to that certain Stock Purchase
and Sale Agreement between the Payor and PacificNet Strategic Investment
Holdings Limited dated April 30, 2007, as modified by the Supplementary
Agreement of the Stock Purchase and Sale Agreement of Pacific 3G Information
& Technology Co., Limited dated March 20, 2008 (as may be amended or
modified from time to time, the “Heyspace Contract”), which contract constitutes
part of the Collateral as set forth in Schedule B, of the security interest of
the Agent for the benefit of the Holders, and that payment under the Heyspace
Contract is to be made timely and directly to the Agent or to any financial
institution designated by the Agent by wire transfer, which notice shall be in
the form of Schedule C annexed hereto.  In addition, on the date
hereof, Debtor has caused to be endorsed over to the Agent each of the
negotiable instruments executed by EPRO Group International Limited, which
constitute part of the Collateral as set forth on Schedule B (the “Negotiable
Instruments”), which the Agent shall submit to be cashed as promptly as
practicable on or after the respective dates of such Negotiable
Instruments.  Debtor also owns 5,788,000 shares of International
Financial Network Holdings Ltd., which shares constitute part of the Collateral
as set forth on Schedule B.  The disposition of such shares, and any
proceeds received therefrom, shall be determined in good faith by mutual
agreement of Debtor and the Holders.  In the event the Debtor shall
receive or hold any proceeds of, or constituting part of, the Collateral, any
amounts so received by the Debtor shall be held in trust by the Debtor as
trustee for the Holders without using, transferring or commingling the same with
other funds of the Debtor and shall turn the same over to the Agent in the
identical form received, together with any necessary endorsements or assignments
within one business day of receipt.  The Agent shall apply the
proceeds from, or constituting part of, the Collateral received by the Agent to
the Obligations as an amortization and/or interest payment under the Debentures,
such proceeds to be immediately entered after final payment in cash or other
immediately available funds of the items giving rise to them.  At such
time as the unpaid principal balance of the Debentures is less than fifty (50%)
percent of the outstanding principal balance of the Debentures as of the date
hereof (the “Principal Reduction”), the Agent and Holders shall apply any such
amounts received by the Agent against the next months amortization and interest
payment due, and remit the excess amounts to the Debtor.   After
the full and indefeasible payment in full of the Obligations, the Debtor and
Agent shall jointly notify the Payor that payments on account of the Heyspace
Contract may be made to the Debtor, and the Agent shall cause to be endorsed
over to the Debtor any Negotiable Instruments then in its possession which have
not been cashed as hereinabove provided.

       

      ARTICLE
XI

      APPOINTMENT
AND POWER OF AGENT

       

      The
following provisions regarding power of attorney are made part of this
Agreement.

       

      11.1           Appointment and Powers of
Agent.  The Debtor hereby irrevocably constitutes and appoints
the Agent and any officer or agent thereof, with full power of substitution, as
its true and lawful attorneys-in-fact with full irrevocable power and authority
in the place and stead of the Debtor, or in the Agent’s own name, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments that may
be necessary or desirable to accomplish the purposes of this Agreement and,
without limiting the generality of the foregoing, hereby gives said attorneys
the power and right, on behalf of the Debtor, without notice to or assent by the
Debtor, to do the following:

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      

       

      11.1.1                      Upon
the occurrence and during the continuance of an Event of Default, generally to
sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral in such manner as is consistent with the Uniform
Commercial Code or applicable law and as fully and completely as though the
Agent were the absolute owner thereof for all purposes, and to do at the
Debtor’s expense, at any time, or from time to time, all acts and things which
the Agent deems necessary to protect, preserve or realize upon the Collateral
and the security interest therein, in order to effect the intent of this
Agreement, all as fully and effectively as the Debtor might do, including,
without limitation, the execution, delivery and recording, in connection with
any sale or other disposition of any Collateral, of the endorsements,
assignments or other instruments of conveyance or transfer with respect to such
Collateral; and

       

      11.1.2                      To
the extent that the Debtor’s authorization given in Article III is not
sufficient, to file such financing statements with respect hereto, with or
without the Debtor’s signature, or a photocopy of this Agreement in substitution
for a financing statement, as the Agent may deem appropriate and to execute in
the Debtor’s name such financing statements and amendments thereto and
continuation statements which may require the Debtor’s signature.

       

      11.2           Ratification by
Debtor.  To the extent permitted by law, the Debtor hereby
ratifies all that said attorneys shall lawfully do or cause to be done by virtue
hereof.  This power of attorney is a power coupled with an interest
and shall be irrevocable.

       

      11.3           No Duty on Agent; Authority of
Agent.  The powers conferred on the Agent hereunder are solely
to protect its interests in the Collateral and shall not impose any duty upon it
to exercise any such powers.  The Agent shall be accountable only for
the amounts that it actually receives as a result of the exercise of such powers
and neither it nor any of its officers, directors, employees or agents shall be
responsible to the Debtor for any act or failure to act, except for the gross
negligence or willful misconduct of the Agent or any of its officers, directors,
or employees.  The Agent shall be conclusively presumed to be acting
as agent for the Holders with full and valid authority so to act or refrain from
acting.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      ARTICLE
XII

      REMEDIES

       

      12.1           Events of
Default.  An Event of Default (as defined in the Debentures)
shall constitute an Event of Default hereunder.  If an Event of
Default occurs under this Agreement and remains uncured for a period of fifteen
(15) calendar days after written notice to the Debtor (provided, however, that
no such written notice and cure period shall be required in the case of a
Bankruptcy Event (as defined in the Debentures)), at any time thereafter, the
Agent, on behalf of the Holders, shall have all of the rights of a secured party
under applicable law, and more specifically under the Uniform Commercial Code
and shall have all of the rights and remedies set forth in the
Debentures.  In addition and without limitation, the Agent, for the
ratable benefit of the Holders, may exercise any one or more of the following
rights and remedies:

       

      12.2           General
Remedies.  The Agent may, without further notice to or demand
upon the Debtor, declare this Agreement to be in default, and the Agent shall
thereafter have in any jurisdiction in which enforcement hereof is sought, in
addition to all other rights and remedies, the rights and remedies of a secured
party under the Uniform Commercial Code or of any jurisdiction in which
Collateral is located, including, without limitation, the right to take
possession of the Collateral.  The Agent shall give to the Debtor at
least five (5) business days prior written notice of the time and place of any
public sale of Collateral or of the time after which any private sale or any
other intended disposition is to be made.  The Debtor hereby
acknowledges that five (5) business days prior written notice of such sale or
sales shall be reasonable notice.  In addition, the Debtor waives any
and all rights that it may have to a judicial hearing in advance of the
enforcement of any of the Agent’s rights hereunder, including, without
limitation, its right following an Event of Default to take immediate possession
of the Collateral and to exercise its rights with respect thereto.

       

      12.3           Other Rights and
Remedies.  In addition, the Agent, for the ratable benefit of
the Holders, shall have and may exercise any or all other rights and remedies it
may have available at law, in equity, or otherwise.

       

      12.4           Cumulative
Remedies.  All of the Agent’s rights and remedies, whether
evidenced by this Agreement or the Debentures or by any amendments, shall be
cumulative and may be exercised singularly or concurrently.  Election
by the Agent to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an obligation
of the Debtor under this Agreement, after the Debtor’s failure to perform, shall
not affect the Agent’s right to declare a default and to exercise its
remedies.

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      ARTICLE
XIII

      STANDARDS
FOR EXERCISING REMEDIES

       

      To the
extent that applicable law imposes duties on the Agent or the Holders to
exercise remedies in a commercially reasonable manner, the Debtor acknowledges
and agrees that it is not commercially unreasonable for the Agent (a) to fail to
incur expenses reasonably deemed significant by the Agent to prepare Collateral
for disposition, (b) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, (c)
to fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (d) to fail to
exercise collection remedies against account debtors or other persons obligated
on Collateral or to remove liens or encumbrances on or any adverse claims
against Collateral, (e) to exercise collection remedies against account debtors
and other persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (f) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (g) to contact other
persons, whether or not in the same business as the Debtor, for expressions of
interest in acquiring all or any portion of the Collateral, (h) to hire one or
more professional auctioneers to assist in the disposition of Collateral, at
commercially reasonable rates, (i) to dispose of Collateral by utilizing
Internet sites that provide for the auction of assets of the types included in
the Collateral or that have the reasonable capability of doing so, or that match
buyers and sellers of assets at commercially reasonable rates, (j) to purchase
reasonable insurance or credit enhancements to insure the Agent against risks of
loss, collection or disposition of Collateral or to provide to the Agent a
guaranteed return from the collection or disposition of Collateral, or (k) to
the extent deemed appropriate by the Agent, to obtain the services of other
brokers, investment consultants and other professionals to assist the Agent in
the collection or disposition of any of the Collateral.   The
Debtor acknowledges that the purpose of this Article XIII is to provide
non-exhaustive indications of what actions or omissions by the Agent would not
be commercially unreasonable in the Agent’s exercise of remedies against the
Collateral and that other actions or omissions by the Agent shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Article XIII.  Without limitation upon the foregoing, nothing
contained in this Article XIII shall be construed to grant any rights to the
Debtor or to impose any duties on the Agent that would not have been granted or
imposed by this Agreement or by applicable law in the absence of this Article
XIII.

       

      ARTICLE
XIV

      NO
WAIVER BY AGENT, ETC.

       

      The Agent
shall not be deemed to have waived any of its rights upon or under the
Obligations or the Collateral unless such waiver shall be in writing and signed
by the Agent.  No delay or omission on the part of the Agent in
exercising any right shall operate as a waiver of such right or any other
right.  A waiver on any one occasion shall not be construed as a bar
to or waiver of any right on any future occasion.  All rights and
remedies of the Agent and the Holders with respect to the Obligations or the
Collateral, whether evidenced hereby or by any other instrument or papers, shall
be cumulative and may be exercised singularly, alternatively, successively or
concurrently at such time or at such times as the Agent deems
expedient.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      ARTICLE
XV

      SURETYSHIP
WAIVERS BY DEBTOR

       

      The
Debtor waives demand, notice, protest, notice of acceptance of this Agreement,
notice of loans made, credit extended, Collateral received or delivered or other
action taken in reliance hereon and all other demands and notices of any
description.  With respect to both the Obligations and the Collateral,
the Debtor assents to any extension or postponement of the time of payment or
any other indulgence, to any substitution, exchange or release of or failure to
perfect any security interest in any Collateral, to the addition or release of
any party or person primarily or secondarily liable, to the acceptance of
partial payment thereon and the settlement, compromising or adjusting of any
thereof, all in such manner and at such time or times as the Agent may deem
advisable.  The Agent shall have no duty as to the collection or
protection of the Collateral or any income thereon, nor as to the preservation
of rights against prior parties, nor as to the preservation of any rights
pertaining thereto beyond the safe custody thereof.  The Debtor
further waives any and all other suretyship defenses.

       

      ARTICLE
XVI

      MARSHALLING

       

      The Agent
shall not be required to marshal any present or future collateral security
(including, but not limited to, this Agreement and the Collateral) for, or other
assurances of payment of, the Obligations or any of them or to resort to such
collateral security or other assurances of payment in any particular order, and
all of its rights hereunder and in respect of such collateral security and other
assurances of payment shall be cumulative and, in addition to all other rights,
however existing or arising.  To the extent that it lawfully may, the
Debtor hereby agrees that it will not invoke any law relating to the marshalling
of collateral which might cause delay in or impede the enforcement of the
Agent’s rights under this Agreement or under any other instrument creating or
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may, the Debtor hereby
irrevocably waives the benefits of all such laws.

       

      ARTICLE
XVII

      PROCEEDS
OF DISPOSITIONS; EXPENSES

       

      The
Debtor shall pay to the Agent, on demand, any and all expenses, including
reasonable attorneys’ fees and disbursements, incurred by the Agent in
protecting, preserving or enforcing the Agent’s rights under or in respect of
this Agreement.  After deducting all of said expenses, the residue of
any proceeds of collection or sale of the Obligations or Collateral shall, to
the extent actually received in cash, be applied to the payment of the Monthly
Redemption Amount (as such term is defined in the Debentures) with respect to
each Debenture until all Monthly Redemption Amounts are paid in full, and then
as provided in the Debentures.  The Agent shall prepare and promptly
deliver to the Debtor written reports detailing amounts received by the Agent
and applied pursuant to the provisions of this Agreement.  Upon final
payment and satisfaction in full of all of the Obligations and, after making any
payments required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the Uniform
Commercial Code, any excess shall be returned to the Debtor.

       

      ARTICLE
XVIII

      OVERDUE
AMOUNTS

       

      Until
paid, all amounts due and payable by the Debtor hereunder shall be a debt
secured by the Collateral and shall bear, whether before or after judgment,
interest at the applicable rate as set forth in the Debentures.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      

       

      ARTICLE
XIX

      TERMINATION
AND RELEASE

       

      This
Agreement and the security interests created in favor of the Agent, for the
ratable benefit of the Holders, pursuant to this Agreement shall terminate when
all of the Obligations have been fully and indefeasibly paid, at which time the
Agent shall execute and deliver to Debtor, or to such person or persons as
Debtor shall reasonably designate, all Uniform Commercial Code termination
statements and similar documents prepared by Debtor at Debtor’s expense that
Debtor shall reasonably request to evidence the release of the security
interests created by this Agreement with respect to the
Collateral.  In addition, the Agent shall promptly send written notice
to each of the entities identified on Schedule B of the fulfillment of the
Obligations by the Debtor, the cancellation of this Security Agreement and the
termination of the respective payment direction letter.

       

      ARTICLE
XX

      WAIVER
OF JURY TRIAL

       

      THE DEBTOR WAIVES ITS RIGHT TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS.  Except as
prohibited by law, the Debtor waives any right which it may have to claim or
recover in any litigation referred to in the preceding sentence any special,
exemplary, punitive or consequential damages or any damages other than, or in
addition to, actual damages.  The Debtor (i) certifies that neither
the Agent nor any representative, agent or attorney of the Agent has
represented, expressly or otherwise, that the Agent would not, in the event of
litigation, seek to enforce the foregoing waivers and (ii) acknowledges that, in
entering into the Debentures, the Agent is relying upon, among other things, the
waivers and certifications contained in this Article XX.

       

      ARTICLE
XXI

      NOTICES

       

      All
notices, requests and demands to or upon the Agent, any Holder or Debtor to be
effective shall be in writing (including by telecopy) and, unless otherwise
expressly provided in this Agreement, shall be deemed to have been duly given or
made when delivered by hand, or five Business Days after being deposited in the
mail, postage prepaid, or in the case of telecopy notice, when received,
addressed as follows:

       

      if to the
Agent or any Holder, at

      

      (a)           Iroquois
Master Fund, Ltd.

      641
Lexington Avenue, 26th Floor

      New York,
NY 10022

      Fax:  (212)
207-3452

      Attention:  Mitchell
R. Kulick, General Counsel

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      

       

      with a
copy to :

       

      Olshan
Grundman Frome Rosenzweig & Wolosky LLP

      Attn: Adam H. Friedman,
Esq.

      Park Avenue Tower

      65 East 55th
Street

      New York, New York 10022

      Fax: (212) 451-2222

      

      

       and

       

      
        	
                 
      

              	
                (b)

              	
                if
      to Debtor, at:

                
                  
                     

                    PacificNet
      Inc.

                  

                  
                    23/F,
      Tower A, Timecourt,

                  

                  
                    No.6
      Shuguang Xili,

                  

                  
                    Chaoyang
      District, Beijing, China 100028

                  

                  Attention:  Victor
      Tong, President

                  Telecopier:  86
      010 59225001

                  Telephone:  86
      010 59225000

                   

                  with
      a copy to

                   

                  White
      and Williams, LLP

                  One
      Penn Plaza, Suite 1801

                  New
      York, N.Y. 10119

                  Fax:
      (212) 244-6200

                  Attention:
      Karel S. Karpe, Esq.

                

              

      

       

      
        
        

      

      The
Agent, each Holder and Debtor may change its address and transmission numbers
for notices by providing notice in the manner provided herein.

       

      ARTICLE
XXII

      GOVERNING
LAW

       

      This
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York, without regard to principles of conflicts of
law.  The Debtor, the Agent and the Holders (i) hereby irrevocably
submit to the jurisdiction of the courts of the State of New York and the United
States District Court sitting in the Southern District of New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waive, and agree not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. The Debtor, the Agent and the Holders consent to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing in this Article XXII shall affect or limit any right
to serve process in any other manner permitted by law.

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      ARTICLE
XXIII

      MISCELLANEOUS

       

      This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof.  No change, modification or addition to this
Agreement shall be enforceable unless in writing and signed by the party against
whom enforcement is sought.  The headings of each section of this
Agreement are for convenience only and shall not define or limit the provisions
thereof.  This Agreement and all rights and obligations hereunder
shall be binding upon the Debtor and its respective successors and assigns, and
shall inure to the benefit of the Agent and its successors and
assigns.  If any term of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity of all other terms hereof shall in no way
be affected thereby, and this Agreement shall be construed and be enforceable as
if such invalid, illegal or unenforceable term had not been included
herein.  The Debtor acknowledges receipt of a copy of this
Agreement.

       

      [SIGNATURE
PAGE FOLLOWS]

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      [SIGNATURE
PAGE TO SECURITY AGREEMENT]

      

      IN WITNESS WHEREOF, intending
to be legally bound, the parties hereto have caused this Security Agreement to
be duly executed as of the date first above written.

      

      
        	 
      	
                DEBTOR:

              
	 
      	 
      
	 
      	
                PACIFICNET
      INC.

              
	 
      	 
      
	 
      	
                By:

              	
                /s/
      Victor Tong

              
	 
      	 
      	
                Name:

              	
                Victor
      Tong

              
	 
      	 
      	
                Title:

              	
                President

              

      

      

      
        	 
      	
                AGENT:

              
	 
      	 
      
	 
      	
                IROQUOIS
      MASTER FUND, LTD.

              
	 
      	 
      
	 
      	
                By:

              	/s/
      Richard Abbe
	 
      	 
      	
                Name:

              	Richard
      Abbe
	 
      	 
      	
                Title:

              	General
      Partner

      

      

      

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      SCHEDULE
A

       

      HOLDERS
OF DEBENTURES OF PACIFICNET INC.

       

      IROQUOIS
MASTER FUND, LTD.

      Iroquois
Capital Management, LLC

      Mitchell
R. Kulick, General Counsel

      641
Lexington Ave., 26th
Fl.

      New York,
NY 10022

      Phone:
212-920-8172

      Fax:
212-207-3452

      mkulick@icfund.com

      

      BASSO
FUND LTD.

      BASSO
MULTI-STRATEGY HOLDING FUND LTD.

      BASSO
PRIVATE OPPORTUNITIES HOLDING FUND LTD.

      Marc
Seidenberg/Howard Fischer

      Basso
Capital Management

      1266 E.
Main Street

      Stamford,
CT 06902

      Phone:
203-352-6100

      Fax:
203-352-6193

      emails:
ms@bassocap.com

      hf@bassocap.com

      

      WHALEHAVEN
CAPITAL FUND LTD.

      Brian
Mazzella

      Whalehaven
Capital

      Chief
Financial Officer

      560
Sylvan Ave., 3rd
Fl.

      Englewood
Cliffs, NJ 07632

      Phone:
201-408-5127

      Fax:
201-408-5125

      Email:
brian@whalehavencapital.com

      

      CE
UNTERBERG

      c/o
Collins Stewart

      David M.
Barrett

      350
Madison Ave.

      New York,
NY 10017

      Phone:
212-389-8088

      Fax:
212-389-8488

      Email:
dbarrett@collinsstewart.com

      

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      ALPHA
CAPITAL AG

      Arie
Rabinowitz

      c/o L H
Financial Services Corp

      150
Central Park South, 2nd
Floor

      New York,
NY 10019

      Phone:  (212)
586-8224

      Fax:  (212)
586-8244

      Email:  rabin@lhfin.com

      

      DKR
SOUNDSHORE OASIS HOLDING FUND, LTD.

      695 East
Main Street

      Building
A, 4th Floor

      Stamford,
CT 06902

      203-363-8190
(phone)

      203-643-2325
(fax)

      Attention:  Brad
Caswell, Fizza Khan

      bcaswell@us.oasiscm.com

      fkhan@us.oasiscm.com

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      SCHEDULE
B

      to

      SECURITY
AGREEMENT between PACIFICNET INC. and IROQUOIS MASTER FUND, LTD.

      DESCRIPTION
OF COLLATERAL

       

      1.           All
rights of PacificNet Communications Limited (which have been assigned to Debtor)
to receive payments under the Sale and Purchase Agreement Relating to the Issued
Share Capital of PacificNet EPRO Holdings Limited and Termination of the
Original Agreement, dated April 11, 2008, among EPRO Group International
Limited, PacificNet Communications Limited and PacificNet EPRO Holdings Limited,
a copy of which is attached hereto as Schedule B-1-A, including pursuant to
certain negotiable instruments attached hereto as Schedule B-1-B, payable by
EPRO Group International Limited to PacificNet Communications Limited, which
negotiable instruments have been endorsed over to the Agent.  Payment
amounts and due dates for such payments are as follows:

       

      
        	
                Due Date of
      Payment

              	
                Amount of
      Payment

              
	
                September
      30, 2008

              	
                HK$4,000,000.00

              
	
                March
      31, 2009

              	
                HK$4,000,000.00

              
	
                September
      30, 2009

              	
                HK
      $5,000,000.00

              
	
                March
      31, 2010

              	
                HK
      $5,000,000.00

              

      

      

       

      2.           All
rights, title and interest of Debtor in and to 5,788,000 shares of stock of
International Financial Network Holdings Ltd., which shares were acquired by
PacificNet Financial Services Limited pursuant to a certain Conversion Rights
Agreement and Personal Guarantee dated April 5, 2007 between PacificNet
Financial Services Limited and Mr. Wang Wen Ming, a copy of which is attached
hereto as Schedule B-2, which shares have been assigned to Debtor, and including
the proceeds from the sale of such shares.

       

      3.           All
rights of PacificNet Strategic Investment Holdings Limited to payments pursuant
to the terms of that certain Stock Purchase and Sale Agreement between Heyspace
International Limited and PacificNet Strategic Investment Holdings Limited dated
April 30, 2007, as modified by the Supplementary Agreement of the Stock Purchase
and Sale Agreement of Pacific 3G Information & Technology Co., Limited dated
March 20, 2008, a copy of which is attached hereto as Schedule B-3, including
the right to receive U.S. $5,000,000 on or before March 31, 2009, plus interest
at an annual rate of 12% if such payment is not made on or before such date,
which rights of payment have been assigned to Debtor.

       

      

      

       

      15

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00147-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00147-of-00352.parquet"}]]