STOCK PLEDGE AND GUARANTY AGREEMENT
EXHIBIT
10.1
This
STOCK PLEDGE AND GUARANTY AGREEMENT
(this
“Agreement”),
dated
as of February 6, 2007, is made by PacificNet Inc., a Delaware Corporation,
(“Pledgor”)
in
favor of ▇▇▇▇ Investments LLC, a Delaware limited liability company (the
“Pledgee”).
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Loan Agreement.
W
I T N E S S E T H
WHEREAS,
PACIFICNET
GAMES LIMITED, a
company
organized under the laws of the British Virgin Islands (the “Company”), and
Pledgee have entered into that certain Loan Agreement, dated as of even date
herewith (as amended, supplemented or modified from time to time, the “Loan
Agreement”), and the Company has issued a Convertible Secured Promissory Note,
in favor of Pledgee, dated as of even date herewith (the “Note”, and together
with the Loan Agreement, the “Loan Documents”) pursuant to which Pledgee has
agreed to make available to the Company during the period the Note is
outstanding loans (the “Loans”) aggregating $5,000,000 all in accordance with
and subject to the terms and conditions set forth in the Loan
Documents;
WHEREAS,
the
extension and/or continued extension of the Loans, as aforesaid, by Pledgee
is
necessary and desirable to the conduct and operation of the business of the
Company and will inure to the personal and financial benefit of Pledgor;
and
WHEREAS,
Pledgor
presently owns 51% of the issued and outstanding shares of the Company (the
“Pledged
Shares”);
WHEREAS,
it
is a
condition precedent to Pledgee’s obligation to make the Loans pursuant to the
Loan Documents, that Pledgor executes and delivers this Agreement;
NOW,
THEREFORE,
for
good and valuable consideration, the receipt, sufficiency and adequacy of which
are hereby acknowledged, Pledgor hereby agrees as follows:
1. Pledge.
Pledgor
hereby pledges to Pledgee, and grants to Pledgee, a security interest in, all
of
its right, title and interest in, to and under the following (the “Pledged
Collateral”):
(a) the
Pledged Shares now owned by Pledgor and the certificates, if any, representing
such Pledged Shares, and all securities, instruments, rights and other property
from time to time received, receivable or otherwise distributed in exchange
for
any or all of such Pledged Shares; and
(b) all
other
property hereafter delivered to Pledgee in substitution for, as proceeds of,
any
of the foregoing, and all certificates, instruments and documents representing
or evidencing such property.
2. Guaranty;
Security for Liabilities.
(a)
Pledgor
hereby irrevocably, unconditionally and absolutely guarantees to Pledgee the
prompt, complete and full payment and performance when due, no matter how the
same shall become due, but subject to any applicable grace periods, of all
Loans
outstanding from time to time under the Note, together with all interest thereon
and all other sums payable under the Note, whether in respect of Loans,
interest, fees or otherwise, (the “Liabilities”). Notwithstanding anything to
the contrary contained in this Guaranty, the aggregate liability hereunder
shall
not exceed Loans representing $2,000,000 in the aggregate (together with
interest thereon).
(b) The
Pledgor shall also be responsible for all out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred in the enforcement or
protection of rights hereunder, after demand under this Stock Pledge and
Guaranty Agreement has been made and not timely honored.
(c) It
is the
intention hereof that Pledgor shall remain liable as a principal until the
full
amount of all Guaranteed Obligations shall have been indefeasibly paid in full
in cash or Conversion Shares (including by enforcement of Pledgee’s rights in
the Pledged Collateral) and performed and satisfied in full and the Note
irrevocably terminated, notwithstanding any act, omission or anything else
which
might otherwise operate as a legal or equitable discharge of
Guarantor.
(d) Pledgor
acknowledges and agrees that its obligations hereunder shall not be impaired,
modified, changed, released or limited in any manner whatsoever by any
impairment, modification, change, release or limitation of the liability of
the
Company of the Guaranteed Obligations or any other person or his or their
respective estates in bankruptcy resulting from the operation of any present
or
future provision of the bankruptcy laws or other similar statute, or from the
decision of any court.
(e) Upon
payment or satisfaction of any of the Guaranteed Obligations by the Pledgor
or
upon enforcement of Pledgee’s rights in the Pledged Collateral, the Pledgor
shall be subrogated to the rights of the Pledgee against the Company with
respect to such Guaranteed Obligations, and the Pledgee agrees to take at the
Pledgor’s expense such steps as the Pledgor may reasonably request to implement
such subrogation.
3. Delivery
of Pledged Shares.
All
certificates, instruments or documents, if any, representing or evidencing
the
Pledged Shares shall be delivered to and held by Loeb & Loeb LLP, as escrow
agent pursuant to that certain escrow agreement, dated as of the date hereof,
on
behalf of Pledgee pursuant hereto and shall be in suitable form for transfer
by
delivery, shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to
Pledgee. Pledgor agrees that it will not issue new or additional certificates,
instruments or documents to evidence the Pledged Shares without the prior
written approval of Pledgee and, if approved, Pledgor will comply with all
instructions of Pledgee regarding the continued perfection of the Pledged
Shares.
4. Representations
and Warranties.
Pledgor
represents and warrants as follows:
(a) The
Pledged Shares have been duly authorized and validly issued and are fully paid
and non-assessable.
(b) Pledgor
is the legal and beneficial owner of the Pledged Collateral, except for the
lien
created by this Agreement, the Loan Agreement and the Note, free and clear
of
any lien, security interest, pledge, warrant, option, purchase agreement,
shareholders’ agreement, restriction, redemption agreement or other charge,
encumbrance or restriction of any nature on the Pledged Collateral, with full
right to deliver, pledge, assign and transfer the Pledged Collateral to Pledgee
as Pledged Collateral hereunder. The grant of a lien in the Pledged Collateral
or the exercise by any Pledgee of any of its rights and remedies hereunder
will
not violate the terms of any charter, by-laws, shareholder agreement or other
agreement to which Pledgor is a party.
(c) Except
to
the extent already obtained or made, no authorization, approval, or other action
by, and no notice to or filing with, any governmental authority, regulatory
body
or other Person is required either (i) for the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by Pledgor, or (ii) for the exercise by Pledgee
of
the voting or other rights provided for in this Agreement or the remedies in
respect of the Pledged Collateral pursuant to this Agreement (except as may
be
required in connection with a disposition of such Pledged Shares pursuant to
laws affecting the offering and sale of securities generally).
(d) Pledgor
has full power and authority to enter into this Agreement and has the right
to
pledge and grant a security interest in the Pledged Collateral as provided
by
this Agreement and, has the full power and authority to vote such Pledged
Shares.
(e) None
of
the Pledged Shares has been issued in violation of any federal, state or other
law, regulation or rule pertaining to the issuance of securities, or in
violation of any rights, pre-emptive or otherwise, of any present or past
stockholder of Issuer.
5. Voting
Rights; Dividends; Etc.
(a) So
long
as no Event of Default (as hereinafter defined) shall have occurred (and be
continuing):
(i) Pledgor
shall be entitled to exercise any and all voting and other consensual rights
pertaining to the Pledged Shares or any part thereof for any purpose not
inconsistent with the terms of this Agreement, or the Loan Documents;
provided,
however,
that
Pledgor shall not, without Pledgee’s prior written consent, exercise nor shall
it refrain from exercising any such right if such action (A) violates the terms
of this Agreement, or any of the Loan Documents, (B) impairs the validity or
priority of the security position or interests of Pledgee in any manner
whatsoever in violation of this Agreement, or (C) causes an Event of
Default.
(ii) Pledgor
shall be entitled to receive and retain any and all cash dividends, cash
distributions, cash interest and principal and cash proceeds paid in respect
of
the its Pledged Collateral.
(b) Upon
the
occurrence (and during the continuance) of an Event of Default:
(i) All
rights of Pledgor to exercise the voting and other consensual rights which
it
would otherwise be entitled to exercise pursuant to Section 5(a)(i) and to
receive the dividends, distributions (other than tax distributions), and
proceeds which it would otherwise be authorized to receive and retain pursuant
to Section 5(a)(ii) shall cease, and all such rights shall thereupon become
vested in the Pledgee which shall thereupon have the sole right to exercise
such
voting and other consensual rights and to receive and hold as Pledged Collateral
such dividends, distributions and proceeds; and
(ii) All
dividends, distributions and proceeds which are received by Pledgor contrary
to
the provisions of paragraph (i) of this Section 5(b) shall be received in trust
for the benefit of the Pledgee, shall be segregated from other funds of Pledgor
and shall be forthwith paid over to the Pledgee as Pledged Collateral in the
same form as so received (with any necessary endorsements).
(iii) Pledgor
shall execute and deliver (or cause to be executed and delivered) to the Pledgee
all such proxies and other instruments as Pledgee may reasonably request for
the
purpose of enabling Pledgee to exercise the voting and other rights which it
is
entitled to exercise pursuant to paragraph (i) above and to receive the cash
dividends, interest or other payments which it is authorized to receive pursuant
to paragraph (ii) above.
6. Transfers
and Other Liens.
Pledgor
agrees that it will not (a) sell, assign, transfer, convey, exchange, pledge
or
otherwise dispose of, or grant any option, warrant, right, contract or
commitment with respect to, any of the Pledged Collateral without the prior
written consent of Pledgee, or (b) create or permit to exist any lien, security
interest, pledge, proxy, purchase arrangement, restriction, redemption
agreements, shareholders’ agreement or other charge or encumbrance upon or with
respect to any of the Pledged Collateral, except for liens in favor of Pledgee,
and in each case only to the extent permitted by this Agreement.
7. Application
of Proceeds of Sale or Cash Held as Collateral.
The
proceeds of sale of Pledged Collateral sold pursuant to this Agreement shall
be
applied by Pledgee to pay outstanding Loans under the Note, together with
accrued but unpaid interest thereon.
8. Pledgee
Appointed Attorney-in-Fact.
Pledgor
hereby appoints Pledgee as Pledgor’s attorney-in-fact, with full authority in
the place and stead of Pledgor and in the name of Pledgor or otherwise, from
time to time in Pledgee’s discretion to take any action and to execute any
instrument which Pledgee may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, to
receive, endorse and collect all instruments made payable to Pledgor
representing any dividend or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same;
provided, that such power shall be exercised only upon the occurrence and during
the continuation of an Event of Default.
9. Pledgee
May Perform.
If
Pledgor fails to perform any agreement contained herein, Pledgee may itself
perform, or cause performance of, such agreement, and the expenses of Pledgee
incurred in connection therewith shall be payable by Pledgor under Section
15.
10. Reasonable
Care.
Pledgee
shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in its possession if the Pledged
Collateral is accorded treatment substantially equal to that which Pledgee
accords its own property. Upon Pledgor’s instruction, Pledgee shall use
reasonable efforts to take such action as Pledgor directs Pledgee to take with
respect to calls, conversions, exchanges, maturities, tenders, rights against
other parties or other similar matters relative to the Pledged Collateral,
but
failure of Pledgee to comply with any such request shall not of itself be deemed
a failure to exercise reasonable care, and no failure of Pledgee to preserve
or
protect any rights with respect to the Pledged Collateral against prior parties,
or to do any act with respect to preservation of the Pledged Collateral not
so
requested by Pledgor, shall be deemed a failure to exercise reasonable care
in
the custody or preservation of the Pledged Collateral.
11. Subsequent
Changes Affecting Collateral.
Pledgor
represents to Pledgee that it has made its own arrangements for keeping informed
of changes or potential changes affecting the Pledged Collateral (including,
but
not limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers and voting rights), and Pledgor
agrees that Pledgee shall have no responsibility or liability for informing
Pledgor of any such changes or potential changes or for taking any action or
omitting to take any action with respect thereto.
12. Events
of Default; Remedies upon an Event of Default.
(a) The
following events shall constitute an “Event
of Default”
by
Pledgor under this Agreement:
(i) The
occurrence of any Event of Default as set forth in the Note;
(ii) Pledgor
fails to perform or observe any term, covenant or agreement contained in this
Agreement on its part to be performed or observed, or any representation or
warranty made by Pledgor in this Agreement shall be untrue or misleading in
any
material respect as of the date with respect to which such representation or
warranty was made;
(iii) a
notice
of lien, levy or assessment is filed or recorded with respect to all or a
substantial part of the Pledged Collateral, except for a lien, levy or
assessment which relates to current taxes not yet due and payable or other
liens
not prohibited to be incurred pursuant to the Loan Documents, which has not
been
released within thirty (30) days of the filing or recording dates;
and
(iv) all
or a
substantial part of the Pledged Collateral is attached, seized, subjected to
a
writ or distress warrant, or is levied upon, or comes within the possession
of
any receiver, trustee, custodian or assignee for the benefit of
creditors.
(b) If
any
Event of Default shall have occurred and be continuing after any applicable
cure
period, Pledgee shall have, in addition to all other rights given by law or
by
this Agreement, the Loan Agreement, the Note or otherwise, all of the rights
and
remedies with respect to the Pledged Collateral of a secured party under
applicable law in effect in the State of [New York] at that time and Pledgee
may, at its option, upon five (5) Business Days written notice to Pledgor,
transfer or register the Pledged Collateral or any part thereof on the books
of
the Company into the name of Pledgee or Pledgee’s nominee(s), with or without
any indication that such Pledged Collateral is subject to the security interest
hereunder. In addition, with respect to any Pledged Collateral which shall
then
be in or shall thereafter come into the possession or custody of Pledgee,
Pledgee may sell or cause the same to be sold at any broker’s board or at public
or private sale, in one or more sales or lots, at such price or prices as
Pledgee may deem best, for cash or on credit or for future delivery, without
assumption of any credit risk. The purchaser of any or all Pledged Collateral
so
sold shall thereafter hold the same absolutely, free from any claim, encumbrance
or right of any kind whatsoever, except for claims, encumbrances or rights
that
may arise without the knowledge or consent of Pledgor. Pledgee will give Pledgor
reasonable notice of the time and place of any public sale thereof, or of the
time after which any private sale or other intended disposition is to be made.
Any sale of the Pledged Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, commercial finance
companies, or other financial institutions disposing of property similar to
the
Pledged Collateral shall be deemed to be commercially reasonable. In view of
the
fact that federal and state securities laws may impose certain restrictions
on
the method by which a sale of the Pledged Collateral may be effected after
an
Event of Default, Pledgor agrees that upon the occurrence and during the
continuance of any Event of Default, Pledgee may, from time to time, attempt
to
sell all or any part of the Pledged Collateral by means of a private placement,
restricting the prospective purchasers to those who can make the representations
and agreements required of purchasers of securities in private placements.
In so
doing, Pledgee may solicit bona fide offers to buy the Pledged Collateral,
or
any part of it, for cash, from a limited number of investors deemed by Pledgee,
in its reasonable judgment, to be responsible parties who might be interested
in
purchasing the Pledged Collateral, and if Pledgee solicits such offers from
not
less than three (3) such investors, then the acceptance by Pledgee of the
highest offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposition of the Pledged Collateral.
(c) In
addition, during the existence of an Event of Default, all rights of Pledgor
to
exercise the voting and other rights which they would otherwise be entitled
to
exercise and to receive cash dividends, distributions, interest and principal
payments shall cease, and all such rights shall thereupon become vested in
Pledgee as provided in Section
5.
13. Authority
of Pledgee.
Pledgee
shall have and be entitled to exercise all such powers hereunder as are
specifically delegated to Pledgee by the terms hereof, together with such powers
as are incidental thereto. Pledgee may execute any of its duties hereunder
by or
through its agents or employees. Neither Pledgee, nor any director, officer,
agent or employee of Pledgee, shall be liable for any action taken or omitted
to
be taken by it or them hereunder or in connection herewith, except for its
or
their own gross negligence or willful misconduct.
14. Termination.
This
Agreement shall terminate when all the Liabilities have been fully paid and
performed and the Note is terminated, at which time Pledgee shall cause to
be
reassigned and redelivered to Pledgor, or to such person or persons as Pledgor
shall designate, against receipt, such of the Pledged Collateral (if any) as
shall not have been sold, released or otherwise applied by Pledgee pursuant
to
the terms hereof and shall still be held by it hereunder, together with
appropriate instruments of reassignment and release. Any such reassignment
shall
be without recourse upon or warranty by Pledgee and at the expense of
Pledgor.
15. Expenses.
Pledgor
agrees to reimburse Pledgee, on written demand, for any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of
any
experts and agents, which Pledgee incurs in connection with (a) the
administration of this Agreement, (b) the custody or preservation of, or the
registration of, the Pledged Collateral, (c) the exercise or enforcement of
any
of the rights of Pledgee hereunder, or (d) the failure by Pledgor to perform
or
observe any of the provisions hereof.
16. Security
Interest Absolute.
All
rights of Pledgee and security interests hereunder, and all obligations of
Pledgor hereunder, shall be absolute and unconditional irrespective
of:
(a) any
lack
of validity or enforceability of the Loan Agreement or an other agreement or
instrument relating thereto;
(b) any
change in the time, manner or place of payment of, or in any other term of,
all
or any of the Liabilities, or any other amendment or waiver of or any consent
to
any departure from the Loan Agreement;
(c) any
exchange, surrender, release or non-perfection of any other collateral, or
any
release or amendment or waiver of or consent to departure from any guaranty,
for
all or any of the Liabilities; or
(d) any
other
circumstance which might otherwise constitute a defense available to, or a
discharge of, Pledgor in respect of the Liabilities or of this
Agreement.
17. Amendments,
Waivers and Consents.
No
amendment or waiver of any provision of this Agreement nor consent to any
departure by Pledgor herefrom shall in any event be effective unless the same
shall be in writing and signed by Pledgee, and then such amendment, waiver
or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
18. Notices.
Any
notice required or desired to be served, given or delivered hereunder shall
be
made in accordance with the terms of the Loan Agreement.
19. Continuing
Security Interest.
This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (a) remain in full force and effect until payment in full of the
Liabilities and termination of the Loan Agreement and maturity of the Note;
(b)
be binding upon Pledgor, its successors and assigns; and (c) inure to the
benefit of Pledgee and its successors, transferees and assigns.
20. Governing
Law; Terms.
This
Agreement shall be governed by and construed in accordance with the internal
laws of New York. Whenever possible, each provision of this Agreement shall
be
interpreted in such manner as to be effective and valid under applicable law,
but, if any provision of this Agreement shall be interpreted in such manner
as
to be ineffective or invalid under applicable law, such provisions shall be
ineffective or invalid only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.
21. Definitions.
The
singular shall include the plural and vice versa and any gender shall include
any other gender as the text shall indicate.
22. Section
Headings.
The
section headings herein are for convenience of reference only, and shall not
affect in any way the interpretation of any of the provisions
hereof.
23. Conflicts.
In the
event there is a conflict between the terms of this Agreement and the Loan
Agreement, the Loan Agreement shall control.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF,
Pledgor
and Pledgee have each caused this Agreement to be duly executed and delivered
by
their respective officer or managers, as applicable, thereunto duly authorized
as of the date first above written.
PLEDGOR:
By: /s/
▇▇▇▇▇▇ ▇▇▇▇
Name: ▇▇▇▇▇▇
▇▇▇▇
Title: President
PLEDGEE
▇▇▇▇
INVESTMENT LLC
By: /s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
Title: President