pacificnet_8k-082908.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date of
report (Date of earliest event reported): August 29, 2008
PACIFICNET
INC.
(Exact
name of registrant as specified in charter)
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Delaware
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000-24985
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91-2118007
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(State
or Other Jurisdiction
of
Incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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23/F,
Tower A, TimeCourt, No. 6 Shuguang Xili,
Chaoyang
District, Beijing, China 100028
(Address
of Principal Executive Offices) (Zip Code)
86-10-59225000
(Registrant’s
telephone number, including area code)
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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¨
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
1.01. Entry Into A Material Definitive Agreement.
As of
August 29, 2008, PacificNet Inc. (“PacificNet”) entered into a Settlement and
Release Agreement (the “Settlement Agreement”) relating to all outstanding
disputes and litigation with each of the holders of its debentures, Iroquois
Master Fund, Ltd., C.E. Unterberg, Towbin Capital Partners I (n/k/a Collins
Stewart), 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. (collectively the “Debenture
Holders”). In connection with and simultaneously with the execution
of the Settlement Agreement, PacificNet is amending and restating certain
debentures, issuing new debentures, and entering into the following agreements
with the Debenture Holders: Security Agreement, Conversion Share Escrow
Agreement, and Agreement and Release as to Lawsuit, as described
below.
Settlement
and Release Agreement
Pursuant
to the Settlement Agreement, PacificNet and the Debenture Holders have reached
an agreement regarding, among other matters, payment by PacificNet of its
obligations under certain debentures issued in favor of the Debenture Holders,
and pending litigation matters commenced by certain of the Debenture Holders
against PacificNet, its directors and attorneys.
The
Settlement Agreement provides for the irrevocable cash payment by PacificNet to
the Debenture Holders of One Hundred and Fifty Thousand Dollars
($150,000). In addition, pursuant to the Settlement Agreement,
PacificNet issued an aggregate of 668,322 shares of common stock of the Company
on a pro rata basis to the Debenture Holders following the conversion, after
application of the $150,000 cash payment to the principal of the Second Amended
and Restated Variable Rate Secured Convertible Debentures due July 2009
(discussed below) (the “Second Amended Debentures”), of an amount equal to 10%
of the outstanding principal amount of the Second Amended Debentures at a
conversion price of $0.75 per share.
The
foregoing summary description of the terms of the Settlement Agreement is
qualified in its entirety by reference to the actual terms of the Settlement
Agreement. A copy of the Settlement Agreement is filed herewith as Exhibit 10.1
and is incorporated herein by reference.
Debentures
Upon
execution of the Settlement Agreement, each holder of an Amended and Restated
Variable Rate Convertible Debenture due March 2009 (previously issued by
PacificNet) (each an “Amended Debenture”) surrendered its Amended Debenture to
PacificNet and received a Second Amended Debenture, registered in such Debenture
Holder’s name. The aggregate principal amount of the Second Amended
Debentures is approximately $5,162,415, which amount together with interest
thereon is scheduled to be paid in ten (10) monthly installments with the first
payment due on October 15, 2008. The Second Amended Debentures accrue
interest at a rate of 7% per annum (or 12% following the occurrence of an event
of default thereunder).
In
addition, each holder of a Variable Rate Convertible Debenture due March 2009
(each a “Liquidated Damages Debenture”) (previously issued by PacificNet)
surrendered its Liquidated Damages Debenture to PacificNet and received an
Amended and Restated Variable Rate Secured Convertible Debenture due July 2009
(each a “New Debenture”) registered in such Debenture Holder’s
name. The aggregate principal amount of the New Debentures is
approximately $1,003,421, which amount together with interest is scheduled to be
paid in ten (10) monthly installments with the first payment due on October 15,
2008. The New Debentures accrue interest at a rate of 7% per
annum (or 12% following the occurrence of an event of default
thereunder).
Furthermore,
PacificNet and the Debenture Holders agreed that a default penalty, including
penalty interest and legal fees, in the aggregate amount of approximately
$3,035,623 is payable to the Debenture Holders in the event of default by
PacificNet in the repayment of the Amended Debentures and the Liquidated Damages
Debentures. Accordingly, upon the execution of the Settlement
Agreement, PacificNet issued a debenture (each a “Penalty Debenture”) to each
Debenture Holder in the amount of the respective portion of the penalty payable
to each Debenture Holder. The Penalty Debentures shall be due and
payable in full only upon the first date on which an event of default under any
of the debentures issued pursuant to the Settlement Agreement has occurred,
which default has not been cured as provided for thereunder.
The
obligations of PacificNet to the holders of each of the Second Amended
Debentures, the New Debentures and the Penalty Debentures are secured by the
security interests granted to the Debenture Holders under the Security Agreement
described below. Indebtedness under each of the Second Amended
Debentures and the New Debentures is convertible into shares of common stock of
PacificNet on the terms and subject to the restrictions set forth in such
debentures. In addition, PacificNet may elect to make scheduled
interest payments on the Second Amended Debentures and the New Debentures in
cash or shares of common stock of PacificNet on the terms set forth in such
debentures.
The
foregoing summary description of the terms of each of the Second Amended
Debentures, the New Debentures and the Penalty Debentures is qualified in its
entirety by reference to the actual terms of such debentures
respectively. Copies of the forms of each of the Second Amended
Debentures, the New Debentures and the Penalty Debentures are filed herewith as
Exhibits 10.2, 10.3 and 10.4 respectively and are incorporated herein by
reference.
Security
Agreement
Pursuant
to the Settlement Agreement, PacificNet has also entered into a Security
Agreement with Iroquois Master Fund, Ltd., individually and as agent for the
Debenture Holders. In accordance with the terms of the Security
Agreement, PacificNet has granted the Debenture Holders a senior secured first
priority lien and security interest in certain collateral of PacificNet in order
to secure the prompt repayment and performance in full of all of its obligations
to the Debenture Holders. In addition, PacificNet and certain of its
subsidiaries have entered into an Assignment of Payment Rights Agreements
pursuant to which such subsidiaries have assigned to PacificNet certain accounts
receivable that constitute part of the collateral under the Security
Agreement.
The
foregoing summary description is qualified in its entirety by reference to the
actual terms of the Security Agreement. A copy of the Security
Agreement is filed herewith as Exhibit 10.5 and is incorporated herein by
reference.
Conversion
Share Escrow Agreement
In
connection with the execution of the Settlement Agreement, PacificNet and the
Debenture Holders simultaneously entered into an Escrow Agreement (the
“Conversion Shares Escrow Agreement”). Pursuant to the terms of the
Conversion Shares Escrow Agreement, PacificNet delivered stock certificates
representing a total of 9,363,251 shares of common stock of PacificNet to
Continental Stock Transfer & Trust Company representing the number of shares
of common stock of PacificNet issuable upon full conversion of the debentures,
based upon a conversion price equal to the Escrow Conversion Price (as defined
in the Conversion Shares Escrow Agreement). Stock certificates
representing such shares of common stock of PacificNet are registered in the
names of the Debenture Holders according to their respective interests and are
held in escrow by Continental Stock Transfer & Trust
Company. Pursuant to the Conversion Shares Escrow Agreement, such
shares shall be issued to the Debenture Holders from time to time upon
conversion of the debentures by the Debenture Holders and upon the making of
amortization payments under the debentures by PacificNet that are permitted to
be made in shares of its common stock.
Agreement
and Release as to Lawsuit
Pursuant
to the Settlement Agreement, PacificNet and the Debenture Holders have mutually
agreed to take all steps to (i) dismiss the involuntary bankruptcy petition
filed in the United States Bankruptcy Court for the District of Delaware, Case
No. 08-10528, (ii) 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 (iii) 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. Victor Tong, Tony Tong, Norwood Beveridge and Loeb & Loeb
LLP, pending in the Supreme Court of the State of New York, County of New
York, Index No. 107663/08.
In
furtherance thereof, PacificNet and the Debenture Holders have entered into an
Agreement and Release as to Lawsuit, whereby they have agreed to terminate the
Iroquois Master Fund,
Ltd., Alpha Capital AG, Whalehaven Capital Fund Ltd. and DKR Soundshore Oasis
Holding Fund, Ltd. v. Victor Tong, Tony Tong, Norwood Beveridge and Loeb &
Loeb LLP legal proceeding with prejudice upon release of the Agreement
and Release as to Lawsuit from escrow. The Agreement and Release as
to Lawsuit shall not be released by the escrow agent thereunder except in
accordance with the satisfaction of the conditions contained in the escrow
agreement.
A copy of
the press release relating to the foregoing is attached hereto as Exhibit
99.1.
Item
2.03. Creation of a Direct Financial Obligation or an Obligation
under an Off-Balance Sheet Arrangement of a Registrant.
The
information set forth in Item 1.01 above is incorporated herein.
Item
8.01. Other Events.
The
information set forth in Item 1.01 above is incorporated herein.
Safe
Harbor Statement
This
Company’s announcement contains forward-looking
statements. Statements that are not historical facts, including
statements about our beliefs and expectations, are forward-looking
statements. Forward-looking statements involve inherent risks and
uncertainties. Potential risks and uncertainties include, but are not
limited to, PacificNet’s historical and possible future losses, limited
operating history, uncertain regulatory landscape in China, and fluctuations in
quarterly operating results. Further information regarding these and
other risks is included in PacificNet’s Forms 10-Q and 10-K and in its other
filings with the SEC.
Item
9.01. Financial Statements and Exhibits.
The
following exhibits are furnished herewith:
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10.1
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Settlement
and Release Agreement dated as of August 29,
2008.
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10.2
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Form
of Second Amended and Restated Variable Rate Secured Convertible Debenture
due July 2009.
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10.3
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Form
of Amended and Restated Variable Rate Secured Convertible Debenture due
July 2009.
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10.4
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Form
of PacificNet Inc. 7% Debenture.
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10.5
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Security
Agreement dated as of August 29,
2008.
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99.1
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Press
release dated September 4, 2008.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Dated:
September 5, 2008
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PACIFICNET
INC.
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By:
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Victor
Tong
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President
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-5-