SECURITY AGREEMENT

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.

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.

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: