SETTLEMENT AND RELEASE AGREEMENT
Exhibit
10.1
SETTLEMENT
AND RELEASE AGREEMENT
This
Settlement and Release Agreement (this “Agreement”), is made and entered into as
of August 29, 2008, by and among PacificNet Inc., a Delaware corporation (the
“Company”), and each of Iroquois Master Fund, Ltd., X.X. Xxxxxxxxx, Towbin
Capital Partners I (n/k/a Xxxxxxx Xxxxxxx), Alpha Capital AG, Whalehaven Capital
Fund Ltd., DKR Soundshore Oasis Holding Fund, Ltd., Basso Fund Ltd., Basso
Multi-Strategy Holding Fund Ltd., and Basso Private Opportunities Holding Fund
Ltd. (each, a “Holder” and,
collectively, the “Holders”). Capitalized
terms used herein, but not otherwise defined, shall have the meanings ascribed
to such terms as set forth in the Second Amended and Restated Variable Rate
Secured Convertible Debenture due July 2009, in the form attached hereto as
Annex
A, issued to each of the Holders on the date hereof (each, a “Second Amended
Debenture” and, collectively, the “Second Amended
Debentures”).
WHEREAS,
the Company and each of the Holders are parties to that certain (i) Securities
Purchase Agreement, dated February 28, 2006 (the “SPA”), pursuant to
which the Company issued Variable Rate Convertible Debentures due February 2009
(the “Original
Debentures”) and Common Stock Purchase Warrants (the “Warrants”) to each of
the Holders, and (ii) Registration Rights Agreement, dated February 28, 2006
(the “RRA” and,
together with the SPA, the Original Debentures and the Warrants, the “Transaction
Documents”); and
WHEREAS,
the Company and Iroquois Master Fund, Ltd., X.X. Xxxxxxxxx, Towbin Capital
Partners I, Alpha Capital AG, Whalehaven Capital Fund Ltd., and DKR Soundshore
Oasis Holding Fund, Ltd. are parties to the Settlement and Release Agreement
dated February 6, 2007 (the “2007 Settlement
Agreement”); and
WHEREAS,
in connection with the 2007 Settlement Agreement, the Company issued an Amended
and Restated Variable Rate Convertible Debenture due March 2009 (each, an “Amended Debenture”
and, collectively, the “Amended Debentures”)
to each of the Holders; and
WHEREAS,
in connection with the 2007 Settlement Agreement, the Company issued to each of
Iroquois Master Fund, Ltd., X.X. Xxxxxxxxx, Towbin Capital Partners I, Alpha
Capital AG, Whalehaven Capital Fund Ltd., and DKR Soundshore Oasis Holding Fund,
Ltd. a Variable Rate Convertible Debenture due March 2009 (each, a “Liquidated Damages
Debenture” and, collectively, the “Liquidated Damages
Debentures”) (the Amended Debentures and Liquidated Damages Debentures
shall sometimes be referred to each as an “Outstanding
Debenture” and collectively as the “Outstanding
Debentures”); and
WHEREAS,
the Company has defaulted on its obligations under the Outstanding Debentures;
and
WHEREAS,
the Company and the Holders have reached an agreement with respect to the
payment by the Company of the outstanding balance remaining under the
Outstanding Debentures; and
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WHEREAS,
the parties have agreed that each of the Outstanding Debentures will be amended
and restated in connection with this Agreement and that, in connection
therewith, the following documents, each dated as of the date hereof, shall be
executed and delivered by the applicable parties: (i) a Security
Agreement between the Company and Iroquois Master Fund, Ltd., as agent for the
Holders, in the form attached hereto as Annex
B (the “Security Agreement”);
(ii) the assignment of payment rights agreements, executed and delivered by the
Company and each of PacificNet Communications Limited, PacificNet Financial
Services Limited, and PacificNet Strategic Investment Holdings Limited, in the
form attached hereto as Annex
C (collectively, the “Assignment of Payment Rights
Agreements”); (iii) an Escrow Agreement among the Company, the Holders
and Continental Stock Transfer & Trust Company, as escrow agent, in the form
attached hereto as Annex
D (the “Conversion Shares Escrow
Agreement”); and (iv) an Agreement and Release as to Lawsuit by and among
Iroquois Master Fund, Ltd., Alpha Capital AG, Whalehaven Capital Fund Ltd., DKR
Soundshore Oasis Holding Fund, Ltd., Xxxxxx Xxxx and Xxxx Xxxx, in the form
attached hereto as Annex
E (the “Tong
Suit Agreement” and, together with this Agreement, the Second Amended
Debentures, the New Debentures (as defined below), the Penalty Debentures (as
defined below), the Security Agreement, the Assignment of Payment Rights
Agreements, the Conversion Shares Escrow Agreement and the Tong Suit Escrow
Agreement (as defined below), the “2008 Settlement
Documents”); and
WHEREAS,
the parties are interested in maintaining a long-term good business
relationship;
NOW
THEREFORE, in consideration of the terms and conditions contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
1. Annex
F hereto sets forth the principal and all accrued and unpaid interest due
and payable to each Holder, through and including the date hereof, under each
Outstanding Debenture held by it.
2. On
the date hereof, each Holder of an Amended Debenture shall surrender its Amended
Debenture to the Company and shall receive a Second Amended Debenture registered
in such Holder’s name and in the principal amount set forth next to such
Holder’s name on Annex
F hereto.
3. On
the date hereof, each Holder of a Liquidated Damages Debenture shall surrender
its Liquidated Damages Debenture to the Company and shall receive an Amended and
Restated Variable Rate Secured Convertible Debenture due July 2009, in the form
attached hereto as Annex
G (each, a “New
Debenture” and, collectively, the “New Debentures”) (the
Second Amended Debentures and New Debentures shall sometimes be referred to each
as a “2008
Debenture” and collectively as the “2008 Debentures”),
registered in such Holder’s name and in the principal amount set forth next to
such Holder’s name on Annex
F hereto.
4. Upon
execution of, and as an express condition to the respective obligations of the
Holders to consummate the transactions contemplated by, this Agreement, the
Company shall make an irrevocable cash payment to the Holders in the amount of
One Hundred and Fifty Thousand Dollars ($150,000), which shall be made to Xxxxxx
Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP to be distributed pro rata to the
Holders based upon the outstanding principal amount of the Second Amended
Debentures held by each Holder. Such payment shall be applied against
the outstanding principal balance due under the Second Amended Debentures as
identified on Annex
F. Such cash payment shall be made by wire transfer of
immediately available funds to the account of Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx
& Xxxxxxx LLP set forth on Annex
H.
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5. Upon
execution of this Agreement, the Holders shall convert, pro rata based upon the
outstanding principal amount of the Second Amended Debentures held by each
Holder after application of the $150,000 cash payment described in Section 4, an
amount equal to Ten Percent (10%) of the outstanding principal amount of the
Second Amended Debentures into common stock of the Company, based upon a
conversion price of $.75 per share based on the average of the VWAPs for the 20
consecutive Trading Days immediately prior to the date hereof and otherwise
pursuant to the terms of the Second Amended Debentures, and the Company shall
issue and deliver to each Holder’s account with The Depository Trust Company the
shares of common stock of the Company issuable to such Holder upon such
conversion, which shares shall be free of restrictive legends and trading
restrictions (such shares of common stock are collectively referred to as the
“Settlement Conversion
Shares”). The Company has authorized its transfer agent to
accept a legal opinion from counsel to the Holders that the Settlement
Conversion Shares can be sold without registration and shall be free of
restrictive legends. The principal amount of the Second Amended
Debentures to be converted by, and the number of Settlement Conversion Shares to
be issued upon such conversion to, each Holder is set forth on Annex
F. Thereafter, the Holders shall have the right to convert the
remaining obligations under the Second Amended Debentures at the Conversion
Price of Two Dollars ($2.00) per share, subject to adjustment as provided in the
Second Amended Debentures. Except as otherwise provided by the Second
Amended Debentures, there shall be no further re-pricing of the conversion rate
so long as the Company remains in full and complete compliance with the
provisions of the Second Amended Debentures.
6. Following
the making of the cash payment provided in Section 4 above and the conversion
provided in Section 5 above, the remaining outstanding principal amount of each
Holder’s Second Amended Debenture shall be as set forth on Annex
F.
7. The
Company and each of the Holders acknowledge and agree that a default penalty,
including penalty interest and legal fees, in the amount of Three Million
Thirty-Five Thousand Six Hundred Twenty-Two and 96/00 dollars (US $3,035,622.96)
is payable to the Holders (the “Penalty”) in
connection with the Outstanding Debentures. The amount of Penalty
payable to each Holder is set forth on Annex
F attached hereto. Upon the execution of this Agreement, the
Company shall issue and deliver to each Holder, and each Holder shall accept, a
debenture in the form attached hereto as Annex
I (the “Penalty
Debenture”), in the amount of the respective portion of the Penalty
payable to each Holder. The Penalty Debentures shall be due and
payable in full on the first date on which an Event of Default under any of the
Second Amended Debentures or the New Debentures has occurred, which default has
not been cured as provided for thereunder. Each Transaction Document,
other than the RRA with respect to the Penalty Debentures, is hereby amended so
that the term “Debentures” includes the 2008 Debentures and the Penalty
Debentures and the term “Underlying Shares” includes the shares of common stock
of the Company issued or issuable upon conversion of the 2008
Debentures.
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8. On
the date hereof, the Company and Iroquois Master Fund, Ltd., individually and as
agent (the “Agent”) for the
Holders, have entered into the Security Agreement pursuant to which the Company
has granted to the Agent a senior secured first priority lien and security
interest in the Collateral in order to secure the prompt repayment and
performance in full of all of the Obligations (as such terms are defined in the
Security Agreement), and the Company and certain of its Subsidiaries have
entered into the Assignment of Payment Rights Agreements pursuant to which such
Subsidiaries have assigned the right to receive certain payments, constituting
part of the Collateral, to the Company.
i. The
2008 Debentures shall be subject to mandatory prepayment of principal and
interest from 100% of the cash proceeds of, or constituting a part of, the
Collateral. Except as otherwise provided in paragraphs (iv) and (v)
below, the mandatory prepayments shall be applied against the next due monthly
amortization and interest payments under the 2008 Debentures pro rata based upon
the outstanding principal amount of the 2008 Debentures held by each Holder and,
if such prepayments exceed the amount of the next due monthly amortization and
interest payments, any remaining funds shall be applied against the following
months’ amortization and interest payments until such funds have been
exhausted.
ii. On
the date hereof, the Company has caused to be endorsed over to the Agent each of
four negotiable instruments, in the aggregate amount of HK$18,000,000, executed
by EPRO Group International Limited, which constitute part of the Collateral
(the “Negotiable
Instruments”), which the Agent shall submit to be cashed as promptly as
practicable on or after the respective dates thereof. The net cash
proceeds (after payment of normal and customary bank fees and similar charges)
from the Negotiable Instrument dated September 30, 2008 (the “First Negotiable
Instrument”) shall be applied against the October 15, 2008 amortization
and interest payment under the 2008 Debentures (the “First
Payment”). Notwithstanding anything to the contrary contained
in the 2008 Debentures, but subject to Section 8(vi) hereof, the First Payment
shall be made to the Holders all in cash. If the Agent does not for
any reason receive the cash proceeds from the First Negotiable Instrument on or
prior to October 5, 2008, then the Agent shall provide the Company with notice
of such non-payment and the Company shall have until October 15, 2008 to pay to
the Holders, in U.S. dollars (based on the U.S.-Hong Kong exchange rate as
reported in The Wall
Street Journal on September 30, 2008), a cash amount equal to the amount
of the First Negotiable Instrument, for application against the First
Payment.
iii. The
Company owns 5,788,000 shares of International Financial Network Holdings Ltd.,
which shares constitute part of the Collateral. The disposition of
such shares, and any proceeds received therefrom, shall be determined in good
faith by mutual agreement of the Company and the Holders.
iv. Subject
to the terms of the Security Agreement and the Assignment of Payment Rights
Agreements, upon the reduction of the principal balance of the 2008 Debentures
to below Fifty Percent (50%) of the outstanding principal amount thereof on the
date of this Agreement (in the case of the Second Amended Debentures, the
outstanding principal amount thereof shall be determined as provided in Section
6 above), the Company shall only be required to make the monthly payments
pursuant to the amortization schedule; provided, however, that, until
the 2008 Debentures have been paid in full, all cash proceeds of, or
constituting a part of, the Collateral shall continue to be paid to the Agent,
under the terms of the Security Agreement and Assignment of Payment Rights
Agreements, for application, on a pro rata basis among the Holders, against the
next due monthly amortization and interest payment under the 2008 Debentures,
with any excess amounts being paid by the Agent to the Company.
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v. Pursuant
to, and subject to the satisfaction of the conditions (including, without
limitation, the Equity Conditions) set forth in, Sections 2 and/or 6(a) of the
2008 Debentures, as the case may be, the Company may elect to pay all or part of
an interest payment and/or Monthly Redemption Amount (except, with respect to
the First Payment and the November 15, 2008 interest and amortization payment,
as otherwise provided in Section 8(ii) and 8(vi) hereof) under the 2008
Debentures in shares of Common Stock to the extent that the cash proceeds of, or
constituting a part of, the Collateral have not been applied against such
interest payment and/or Monthly Redemption Amount. In such event, the
Company shall provide the Agent with written notice to forward any payments
received under the Security Agreement (which have not been or are not applied to
pay all or any part of an interest payment or Monthly Redemption Amount) to the
Company in the event that all or part of such interest payment and/or Monthly
Redemption Amount is paid in Common Stock; provided, however, that if the
principal balance of the 2008 Debentures has not then been reduced to below
Fifty Percent (50%) of the outstanding principal amount thereof on the date of
this Agreement, the Agent shall continue to hold any such funds received, for
the benefit of the Holders, pursuant to the terms of the Security Agreement for
application against future amortization and interest payments.
vi. Notwithstanding
anything to the contrary contained in the foregoing or in the 2008 Debentures,
only with respect to the First Payment (but only the portion of the First
Payment in excess of the cash amount required to be paid pursuant to Section
8(ii) above) and the November 15, 2008 amortization and interest payment under
the 2008 Debentures, if the Company desires to pay such Monthly Redemption
Amount and/or interest payment in shares of Common Stock, and all of the
conditions (other than the Equity Conditions) to the making of any such payment
in shares of Common Stock have been satisfied, the Company shall notify the
Holders in writing, prior to the commencement of the applicable Monthly
Conversion Period, of its desire to pay such Monthly Redemption Amount and/or
interest payment in shares of Common Stock and shall specify in such notice
which Equity Conditions have not been satisfied. In such event, each
Holder shall, at least two business days prior to the end of the applicable
Monthly Conversion Period, notify the Company in writing of its election to (i)
accept all or a part (and if a part, shall specify the amount) of such Monthly
Redemption Amount and/or interest payment in shares of Common Stock, in which
case the Company shall make the applicable payment to such Holder in shares of
Common Stock on the applicable Monthly Redemption Date and/or Interest Payment
Date and otherwise in accordance with the terms of the 2008 Debentures (except
that, in such case, the reference to 80% in the definition of Interest
Conversion Rate in the 2008 Debentures shall be deemed to be a reference to 70%,
and the reference to 88% in the definition of Monthly Conversion Price in the
2008 Debentures shall be deemed to be a reference to 78%) and/or (ii) defer all
or a part (and if a part, shall specify the amount) of such Monthly Redemption
Amount and/or interest payment until the next Monthly Redemption Date and/or
Interest Payment Date, as the case may be, in which case the Monthly Redemption
Amount so deferred shall be added to the next Monthly Redemption Amount, and
interest shall continue to accrue on the outstanding principal amount of such
Holder’s 2008 Debentures (including any deferred Monthly Redemption
Amount). If a Holder does not deliver such notice to the Company
within the required time period, such Holder shall be deemed to have elected to
defer all of the applicable Monthly Redemption Amount and/or interest
payment.
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9. Upon
execution of this Agreement and receipt of the consideration required hereunder,
the Company and the Holders agree to (a) take all steps to dismiss the
involuntary bankruptcy petition filed in the United States Bankruptcy Court for
the District of Delaware, Case No. 08-10528, (b) dismiss with prejudice the
legal proceeding captioned Iroquois Master Fund, Ltd.
v. PacificNet, Inc., pending in the Supreme Court of New York, New York
County, Index No. 603261/07, and (c) dismiss without prejudice the legal
proceeding captioned Iroquois Master Fund, Ltd.,
Alpha Capital AG, Whalehaven Capital Fund Ltd. and DKR Soundshore Oasis Holding
Fund, Ltd. v. Xxxxxx Xxxx, Xxxx Xxxx, Xxxxxxx Xxxxxxxxx and Xxxx & Xxxx
LLP, pending in the Supreme Court of the State of New York, County of New
York, Index No. 107663/08 (the “Tong
Suit”). The parties to the Tong Suit have executed the Tong
Suit Agreement for that action, which agreement shall be held in escrow pursuant
to the Escrow Agreement, dated as of the date hereof (the “Tong Suit Escrow
Agreement”), among the parties to the Tong Suit and Xxxxxx Xxxxxxxx Frome
Xxxxxxxxxx & Xxxxxxx LLP, as escrow agent. Upon satisfaction of
those conditions set forth in the Tong Suit Escrow Agreement, the Tong Suit
Agreement shall be released from escrow and the Tong Suit shall be dismissed
with prejudice.
10. In
connection with the execution of this Agreement, the parties shall
simultaneously enter into the Conversion Shares Escrow
Agreement. Pursuant to the terms of the Conversion Shares Escrow
Agreement, the Company shall, on the date hereof, deliver stock certificates,
free of restrictive legends and trading restrictions, representing the number of
shares of common stock of the Company issuable upon full conversion of the 2008
Debentures, based upon a conversion price equal to the Escrow Conversion Price
(as defined in the Conversion Shares Escrow Agreement), which certificates shall
be registered in the names of, and apportioned among, the Holders as set forth
in Schedule B to the Conversion Shares Escrow Agreement, to be held in escrow by
Continental Stock Transfer & Trust Company (the “Escrow
Agent”). Pursuant to the terms and conditions of the
Conversion Shares Escrow Agreement, such shares shall be held by the Escrow
Agent and shall be issued to the Holders from time to time upon conversion by
the Holders of the 2008 Debentures and upon the making of amortization payments
under the 2008 Debentures that are permitted to be made in stock.
11. The
Company shall, by 8:30 a.m. Eastern Daylight time on the Trading Day following
the date hereof, issue a press release, and within four days of the date hereof,
file with the Securities and Exchange Commission a Current Report on Form 8-K,
each of which shall be subject to the prior approval of the Holders, not to be
unreasonably withheld, each disclosing (i) the settlement between the Company
and the Holders regarding the Outstanding Debentures, (ii) the intended
dismissal of the involuntary bankruptcy petition, and (iii) the dismissal of
state court actions. The Current Report on Form 8-K shall attach the
press release, this Agreement, the 2008 Debentures and the Security Agreement as
exhibits.
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12. Excepting
only its rights to enforce the terms of this Agreement and the other 2008
Settlement Documents, the Company fully and forever releases, remises and fully
discharges each Holder and their respective (where applicable) agents, managers,
financial advisers, employees, predecessors, representatives, subsidiaries,
affiliates, parents, divisions, owners, officers, directors, attorneys, heirs,
executors, administrators, successors and assigns from and against all actions,
proceedings, causes of action, claims for relief, demands, rights, titles,
interests, damages, losses, costs, expenses, disbursements (including attorneys’
fees), obligations, liabilities and other claims of every nature whatsoever,
made or asserted, known, unknown or suspected as of the date of this Agreement,
including, but not limited to any claims or defenses asserted, or which could
have been asserted, in any legal proceeding to which the Company is or was a
party, and covenants not to xxx or otherwise initiate or cause to be instituted
or in any way participate in any proceedings or actions concerning the foregoing
released claims. It is expressly agreed that the claims released
include all claims against individual employees, officers and managers of each
Holder whether or not such persons were acting within the course or scope of
their employment. Each Holder acknowledges and agrees that upon its
receipt of the consideration set forth herein, no sums shall be due or owing
from the Company, except those due under the 2008 Debentures and the Penalty
Debentures, and the Company shall not be in default thereunder as of the date
hereof.
13. Representations and
Warranties of the Company. The Company hereby makes to each
Holder the following representations and warranties:
i. Authorization;
Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this
Agreement and the other 2008 Settlement Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of
this Agreement and the other 2008 Settlement Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, its board of directors or its
stockholders in connection therewith. Each of this Agreement and the
other 2008 Settlement Documents has been duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
ii. No
Conflicts. The execution, delivery and performance of this
Agreement and the other 2008 Settlement Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not: (i) conflict with or violate any provision of the Company’s
or any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien, other than pursuant to the
Security Agreement, upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any material
agreement, credit facility, debt or other material instrument (evidencing a
Company or Subsidiary debt or otherwise) or other material understanding to
which the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected, or (iv) require any approval, authorization,
consent, permit or waiver of, or any registration or filing with or notification
to, any governmental, regulatory or administrative authority.
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iii. Issuance of
Securities. The 2008 Debentures and the Penalty Debentures
have been duly authorized by the Company and, upon issuance in accordance with
the terms hereof, will be duly and validly issued, fully paid and non-assessable
and free from all taxes, Liens and charges with respect to the issue
thereof. The Company has duly authorized and reserved for issuance,
upon conversion of the 2008 Debentures based upon a conversion price equal to
the Escrow Conversion Price, a number of shares of its common stock equal to the
number of shares of common stock issuable upon full conversion of the 2008
Debentures. Upon issuance in accordance with the terms hereof or of
the 2008 Debentures, the shares of common stock (including, without limitation,
the Settlement Conversion Shares) issuable upon conversion of the 2008
Debentures (collectively, the “Conversion Shares”)
will be duly and validly issued, fully paid and non-assessable and free from all
preemptive or similar rights, taxes, Liens and charges with respect to the issue
thereof, with the Holders being entitled to all rights accorded to a holder of
common stock of the Company. The issuance of the Conversion Shares
upon conversion of the 2008 Debentures is exempt from the registration
requirements of the Securities Act, and neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
iv. Rule
144. For the purposes of Rule 144 under the Securities Act,
the Company acknowledges that the holding period of the Conversion Shares may be
tacked onto the holding period of the 2008 Debentures and the holding period of
the Outstanding Debentures. The Company further acknowledges that the
Conversion Shares may be freely transferred or sold pursuant to Rule 144 under
the Securities Act without the requirement to be in compliance with Rule
144(c)(1) and otherwise without restriction or limitation pursuant to Rule
144. The Company agrees not to take a position contrary to this
paragraph.
v. Underlying
Agreements. The Company has delivered to the Holders true,
complete and correct copies of all of its and its Subsidiaries’ agreements with
each of EPRO Group International Limited (“EPRO”), Heyspace International
Limited (“Heyspace”), Xx. Xxxx Wen Ming and Lion Zone Holdings Limited (each, an
“Underlying
Agreement” and, collectively, the “Underlying
Agreements”). Schedule B to the Security Agreement sets forth
a complete and correct description of the payment terms of each of the
Underlying Agreements. Each Underlying Agreement is legal, valid,
binding and enforceable against the Company or its Subsidiary and the other
party thereto, and is in full force and effect. Neither the Company,
its Subsidiary nor the other party thereto is in breach or default, and no event
has occurred that with the passage of time or giving of notice or both would
constitute a breach or default, under any Underlying
Agreement. Neither the Company nor its Subsidiary has received notice
of termination, cancellation or non-renewal that is currently in effect with
respect to any Underlying Agreement. No amount payable to the Company
or its Subsidiary under any of the Underlying Agreements is subject to a right
of offset.
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vi. Xxxx Investments
LLC. With respect to that certain definitive agreement between
Xxxx Investments LLC and PacificNet Games Limited, a Subsidiary of the Company
(which the Company has delivered to the Holders a true, complete and correct
copy thereof), each of PacificNet Games Limited and each other party thereto has
in all material respects performed all obligations required to be performed by
it to date and is not in breach or default, and no event has occurred that with
the passage of time or giving of notice or both would constitute a breach or
default, thereunder.
vii. Past Due
Receivables. Other than receivables under the Underlying
Agreements, neither the Company nor any of its Subsidiaries has any receivables
in excess of $500,000 that (i) are more than sixty (60) days past due or (ii)
were more than sixty (60) days past due and the payment terms of which have been
modified.
viii. Equal
Consideration. Except as set forth in this Agreement, no
consideration has been offered or paid to any person to amend or consent to a
waiver, modification, forbearance or otherwise of any provision of any of the
Transaction Documents.
14. Representations and
Warranties of the Holders. Each Holder hereby, for itself and
for no other Holder, represents and warrants as of the date hereof to the
Company as follows:
i. Authority. The
execution and delivery by such Holder of this Agreement and the other 2008
Settlement Documents to which it is a party and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of such Holder. Each of this Agreement
and the other 2008 Settlement Documents to which it is a party has been duly
executed by such Holder and, when delivered in accordance with the terms hereof
and thereof, will constitute the valid and binding obligation of such Holder
enforceable against such Holder in accordance with its terms except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
ii. Own
Account. Such Holder understands that the Penalty Debentures
are “restricted securities” and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Penalty
Debenture as principal for its own account and not with a view to or for
distributing or reselling such Penalty Debentures or any part thereof in
violation of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Penalty Debentures in violation of
the Securities Act or any applicable state securities law and has no arrangement
or understanding with any other persons regarding the distribution of such
Penalty Debentures (this representation and warranty not limiting such Holder’s
right to sell the Penalty Debentures in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law. Such Holder is acquiring the Penalty Debentures
hereunder in the ordinary course of its business. Such Holder does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Penalty Debentures.
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iii. Holder
Status. Such Holder is an “accredited investor” as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act. Such Holder is not required to be registered as a broker-dealer
under Section 15 of the Exchange Act.
15. Rule
144. With a view to making available to the Holders the
benefits of Rule 144 promulgated under the Securities Act or any other similar
rule or regulation of the Securities and Exchange Commission that may at any
time permit a Holder to sell securities of the Company to the public without
registration (“Rule
144”), the Company agrees to:
i. make
and keep public information available, as those terms are understood and defined
in Rule 144;
ii. file
with the Securities and Exchange Commission in a timely manner all reports and
other documents required to be filed by the Company under the Securities Act and
the Exchange Act;
iii. furnish
to any Holder so long as such Holder owns any 2008 Debentures, promptly upon
request, (A) a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (B) such other information as
may be reasonably requested to permit the Holder to sell securities of the
Company pursuant to Rule 144 without registration; and
iv. pay
all amounts owed to its transfer agent when due.
16. Effect on Transaction
Documents. Except as expressly set forth above, all of the
terms and conditions of the Transaction Documents shall continue in full force
and effect after the execution of this Agreement and shall not be in any way
changed, modified or superseded by the terms set forth herein, including but not
limited to, any other obligations the Company may have to the Holders under the
Transaction Documents.
17. Amendments and Waivers;
Entire Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and each
Holder. This Agreement, together with the other 2008 Settlement
Documents and the Transaction Documents, contains the entire understanding of
the parties with respect to the subject matter hereof and supersedes all other
prior oral or written agreements, arrangements or understandings among the
parties or any of them relating to such subject matter.
18. Notices. Any notice,
request, demand or other communication permitted or required to be given
hereunder shall be in writing, shall be sent by one of the following means to
the addressee at the address set forth below (or at such other address as shall
be designated hereunder by notice to the other parties and persons receiving
copies, effective upon actual receipt) and shall be deemed conclusively to have
been given: (a) upon hand delivery or upon delivery by telecopy or facsimile at
the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received), (b) on the
business day following the date of mailing by overnight courier service, fully
prepaid, addressed to such address, or (c) upon actual receipt of such mailing,
whichever shall first occur.
10
|
|
If
to the Company:
|
23/F,
Tower A, Timecourt,
Xx.0
Xxxxxxxx Xxxx,
Xxxxxxxx
Xxxxxxxx, Xxxxxxx, Xxxxx 100028
Attention: Xxxxxx
Xxxx, President
Telecopier: 00
000 00000000
Telephone: 00
000 00000000
|
|
with
a copy to:
|
White
and Xxxxxxxx LLP
Xxx
Xxxx Xxxxx, Xxxxx 0000
Xxx
Xxxx, XX 00000
Attention:
Xxxxx X. Xxxxx, Esq.
Telecopier:
(000) 000-0000
Telephone:
(000) 000-0000
|
|
|
If
to any Holder:
|
at
the address of such Holder set forth on Annex
J to this Agreement.
|
|
| with a copy to the Agent: |
Iroquois
Master Fund, Ltd.
000
Xxxxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx, XX 00000
Attention: Xxxxxxxx
X. Xxxxxx, General Counsel
Telecopier:
(000) 000-0000
Telephone:
(000) 000-0000
|
|
|
and
to:
|
Xxxxxx
Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park
Avenue Tower
00
Xxxx 00xx
Xxxxxx
Xxx
Xxxx, XX 00000
Attention: Xxxx
X. Xxxxxxxx, Esq.
Telecopier: (000)
000-0000
Telephone:
(000) 000-0000
|
19. Successors and
Assigns. This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of each of the parties and shall inure to
the benefit of each Holder. The Company may not assign (except by merger) its
rights or obligations hereunder without the prior written consent of all of the
Holders. Each Holder may assign its rights hereunder in the manner and to the
Persons as permitted under the applicable Transaction Document.
11
20. Execution and
Counterparts. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.
21. Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement 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 the transactions contemplated hereby
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, 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 Agreement
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 Agreement or the
transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Agreement, 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.
22. Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
12
23. Headings. The
headings in this Agreement are for convenience only, do not constitute a part of
the Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
24. Independent Nature of
Holders’ Obligations and Rights. The obligations of each Holder hereunder
are several and not joint with the obligations of any other Holders hereunder,
and no Holder shall be responsible in any way for the performance of the
obligations of any other Holder hereunder. Nothing contained herein or in any
other agreement or document delivered at any closing, and no action taken by any
Holder pursuant hereto, shall be deemed to constitute the Holders as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Holders are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by this
Agreement. Each Holder shall be entitled to protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and it
shall not be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.
[SIGNATURE
PAGE FOLLOWS]
13
[SIGNATURE
PAGE TO SETTLEMENT AND RELEASE AGREEMENT]
IN
WITNESS WHEREOF, and intending to be legally bound hereby, the parties have
executed this Agreement as of the date first set forth above.
|
By:
|
/s/
Xxxxxx Xxxx
|
||
|
Name:
|
Xxxxxx
Xxxx
|
||
|
Title:
|
President
|
||
|
IROQUOIS
MASTER FUND, LTD.
|
|||
|
By:
|
/s/ Xxxxxxx Xxxx | ||
|
Name:
|
Xxxxxxx Xxxx | ||
|
Title:
|
General Partner | ||
|
X.X.
XXXXXXXXX, TOWBIN CAPITAL PARTNERS I (nka XXXXXXX XXXXXXX
LLC)
|
|||
|
By:
|
/s/ Xxxxxx Xxxx | ||
|
Name:
|
Xxxxxx Xxxx | ||
|
Title:
|
A Managing Partner of the GP | ||
|
ALPHA
CAPITAL AG
|
|||
|
By:
|
/s/ Xxxxxx Xxxxxxxxx | ||
|
Name:
|
Xxxxxx Xxxxxxxxx | ||
|
Title:
|
Director | ||
|
WHALEHAVEN
CAPITAL FUND LTD.
|
|||
|
By:
|
/s/ Xxxxx Xxxxxxxx | ||
|
Name:
|
Xxxxx Xxxxxxxx | ||
|
Title:
|
CFO | ||
14
|
DKR
SOUNDSHORE OASIS HOLDING FUND, LTD.
By: DKR OASIS MANAGEMENT COMPANY
L.P.
|
|||
|
By:
|
/s/ Xxxx Xxxxxxx | ||
|
Name:
|
Xxxx Xxxxxxx | ||
|
Title:
|
Authorized Signatory | ||
|
BASSO
FUND LTD.
|
|||
|
By:
|
/s/ Xxxxxx X. Xxxxxxx | ||
|
Name:
|
Xxxxxx X. Xxxxxxx | ||
|
Title:
|
Authorized Signatory | ||
|
BASSO
MULTI-STRATEGY HOLDING FUND LTD.
|
|||
|
By:
|
/s/ Xxxxxx X. Xxxxxxx | ||
|
Name:
|
Xxxxxx X. Xxxxxxx | ||
|
Title:
|
Authorized Signatory | ||
|
BASSO
PRIVATE OPPORTUNITIES HOLDING FUND LTD.
|
|||
|
By:
|
/s/ Xxxxxx X. Xxxxxxx | ||
|
Name:
|
Xxxxxx X. Xxxxxxx | ||
|
Title:
|
Authorized Signatory | ||
15
ANNEX A
FORM OF
SECOND AMENDED AND RESTATED
VARIABLE
RATE SECURED CONVERTIBLE DEBENTURE
16
ANNEX B
FORM OF
SECURITY AGREEMENT
17
ANNEX C
FORM OF
ASSIGNMENT OF PAYMENT RIGHTS AGREEMENT
18
ANNEX D
FORM OF
CONVERSION SHARE ESCROW AGREEMENT
19
ANNEX E
FORM OF
AGREEMENT AND RELEASE AS TO THE LAWSUIT
20
ANNEX F
SCHEDULE
OF INDEBTEDNESS
21
ANNEX G
FORM OF
AMENDED AND RESTATED
VARIABLE
RATE SECURED CONVERTIBLE DEBENTURE
22
ANNEX H
Xxxxxx
Xxxxxxxx Frome
Xxxxxxxxxx
& Wolosky LLP
Wire
Instructions:
BANK OF
AMERICA
0000
XXXXXX XX XXX XXXXXXXX
XXX XXXX,
XX 00000
FOR THE
BENEFIT OF:
XXXXXX
XXXXXXXX FROME XXXXXXXXXX & XXXXXXX LLP
ABA
#000000000
ACCT
#009429238282
SWIFT
CODE:#XXXXXX0X
(PLEASE
INCLUDE A REFERENCE)
23
ANNEX I
FORM OF
PENALTY DEBENTURE
24
ANNEX J
NOTICE
ADDRESSES OF HOLDERS
IROQUOIS
MASTER FUND, LTD.
Iroquois
Capital Management, LLC
Xxxxxxxx
X. Xxxxxx, General Counsel
000
Xxxxxxxxx Xxx., 00xx
Xx.
Xxx Xxxx,
XX 00000
Phone:
000-000-0000
Fax:
000-000-0000
xxxxxxx@xxxxxx.xxx
BASSO
FUND LTD.
BASSO
MULTI-STRATEGY HOLDING FUND LTD.
BASSO
PRIVATE OPPORTUNITIES HOLDING FUND LTD.
Xxxx
Xxxxxxxxxx/Xxxxxx Xxxxxxx
Xxxxx
Capital Management
0000 X.
Xxxx Xxxxxx
Xxxxxxxx,
XX 00000
Phone:
000-000-0000
Fax:
000-000-0000
emails:
xx@xxxxxxxx.xxx
xx@xxxxxxxx.xxx
WHALEHAVEN
CAPITAL FUND LTD.
Xxxxx
Xxxxxxxx
Whalehaven
Capital
Chief
Financial Officer
000
Xxxxxx Xxx., 0xx
Xx.
Xxxxxxxxx
Xxxxxx, XX 00000
Phone:
000-000-0000
Fax:
000-000-0000
Email:
xxxxx@xxxxxxxxxxxxxxxxx.xxx
XX
XXXXXXXXX
c/o
Xxxxxxx Xxxxxxx
Xxxxx X.
Xxxxxxx
000
Xxxxxxx Xxx.
Xxx Xxxx,
XX 00000
Phone:
000-000-0000
Fax:
000-000-0000
Email:
xxxxxxxx@xxxxxxxxxxxxxx.xxx
25
ALPHA
CAPITAL AG
Xxxx
Xxxxxxxxxx
c/o L H
Financial Services Corp
000
Xxxxxxx Xxxx Xxxxx, 0xx
Xxxxx
Xxx Xxxx,
XX 00000
Phone: (000)
000-0000
Fax: (000)
000-0000
Email: xxxxx@xxxxx.xxx
DKR
SOUNDSHORE OASIS HOLDING FUND, LTD.
000 Xxxx
Xxxx Xxxxxx
Xxxxxxxx
X, 0xx Xxxxx
Xxxxxxxx,
XX 00000
000-000-0000
(phone)
000-000-0000
(fax)
Attention: Xxxx
Xxxxxxx, Xxxxx Xxxx
xxxxxxxx@xx.xxxxxxx.xxx
xxxxx@xx.xxxxxxx.xxx
26
