Item
1.01. Entry
into a Material Definitive Agreement
On
February 6, 2007, the registrant entered into a stock pledge and guaranty
agreement (the “Stock Pledge Agreement”), in favor of Pope Investments LLC
(“Pope”). The Stock Pledge Agreement was entered into in connection with, and
as
a condition to the issuance by PacificNet Games Limited, a 51% owned subsidiary
of the registrant (“PacGames”), of a secured convertible promissory note in the
principal amount of $5,000,000 (the “Note”) to Pope. Pursuant to the terms of
the Stock Pledge Agreement, the registrant pledged all of its right, title
and
interest in the shares of PacGames (the “Pledged Shares”), including all
securities, instruments, rights and other property received for the Pledged
Shares to Pope as collateral to guaranty the payment of up to $2,000,000
principal amount of the Note, including interest thereon, being used by
PacGames
for capital asset acquisitions and leasing obligations (the “Guaranteed
Amount”).
The
registrant shall remain liable as principal for payment of the Guaranteed
Amount
until such amount is paid in full by PacGames as provided under the terms
of the
Note. Upon the occurrence of an event of default, which shall include (i)
any
event of default under the Note; (ii) any failure by registrant to perform
under
the Stock Pledge Agreement, or any representation or warranty that is untrue
or
misleading as of the date it was made; (iii) the filing of a lien, levy
or
assessment with respect to the Pledged Shares, which has not been released
within 30 days; and (iv) the Pledged Shares being attached, seized, subject
to a
write or warrant, levied upon or come within the possession of a receiver,
trustee, custodian or assignee for the benefit of creditors. If any event
of
default shall occur and be continuing after any applicable cure period,
at
Pope’s option, the Pledged Shares shall be transferred to Pope to be disposed
of
in accordance with the terms of the Stock Pledge Agreement. A copy of the
Stock
Pledge Agreement is attached hereto as Exhibit 10.1.
In
connection with the PacGames transaction, on February 6, 2007, the registrant
also entered into an agreement with Pope and AON Games Limited, the holder
of
49% of the equity interest in PacGames. The agreement provides that upon
the
occurrence of an event which would dilute the registrant’s ownership of PacGames
below 51% voting power, the registrant has the option to purchase additional
shares of PacGames from AON to regain 51% ownership. Such purchase would
be
on terms reasonably acceptable to Pope and AON, except that if the option
is exercised as a result of Pope’s participation in a subsequent financing by
PacGames, the sale will be on the same terms as the subsequent financing.
The
registrant shall have the option to pay the purchase price in cash or issue
restricted shares. The registrant also has a right of first refusal, on
the same
terms, with respect to the sale of shares by AON to a third party A copy
of the
Agreement is attached hereto as Exhibit 10.2.
Item
2.03 Creation of a Direct Financial Obligation
As
disclosed in Item 1.01 above, on February 6, 2007, the registrant entered
into
the Stock Pledge Agreement with Pope in connection with the issuance of
the Note
by PacGames. The Note matures on February 6, 2010, and at Pope’s option, prior
to the maturity date, may be converted into shares of PacGames representing
between 26% and 32% ownership of PacGames, subject to the terms specified
in the
Note. The registrant has guaranteed the repayment of up to $2,000,000 principal
amount of the Note, secured by the Pledged Shares.
A
default
by PacGames under the Note, which includes, (i) non-payment of obligations
under
the Note; (ii) non-performance of affirmative covenants; (iii) failure
to
observe negative covenants; (iv) bankruptcy, insolvency; and (v) failure
to
timely deliver shares upon conversion of the Note, may result, at Pope’s option,
in acceleration of all outstanding principal amount and accrued but unpaid
interest thereon. A default under the Note is an event of default under
the
Stock Pledge Agreement. Upon an event of default, in addition to other
rights
and remedies available to Pope under the Note and New York state law, Pope
may
elect to exercise its rights under the Stock Pledge Agreement and have
the
Pledged Shares transferred into its name to be disposed of in accordance
with
the terms of the Stock Pledge Agreement.
Item 4.01. Changes
in Registrant’s Certifying Accountants
On
February 7, 2007, the audit committee of PacificNet Inc. (the “Company”)
approved the appointment of Kabani & Company, Inc. (“Kabani”), as the
Company’s new independent public accountant. Kabani was engaged by the Company
on the same day. The Company has not consulted with Kabani on any matters
described in Item 304(2) of Regulation S-K during the two most recent fiscal
years of the Company and subsequently up to the date of Kabani’s engagement.
A
press
release announcing the approval and engagement of Kabani was issued by
the
Company on February 7, 2007, and is attached hereto as Exhibit
99.1.
Item
9.01 Financial
Statements and Exhibits
(d)
Exhibits
| 10.1 |
Stock
Pledge and Guaranty Agreement, between PacificNet Inc. and Pope
Investments
LLC, dated February 6, 2007
|
| 10.2 |
Agreement,
by and among AON games Limited, PacificNet Inc and Pope Investments
LLC, dated February 6, 2007
|
| 99.1 |
Press
Release, dated February 6, 2007
|
| 99.2 |
Press
Release, dated February 7, 2007
|
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.
PACIFICNET,
INC.
By:
/s/
Victor Tong
Name:
Victor Tong
Title:
President
Dated:
February 12, 2007