VENTURE AGREEMENT
EXHIBIT 10.1
This VENTURE AGREEMENT (this “Agreement”) is entered into as of April 14, 2005 (the “Effective
Date”) by and between SILVER DRAGON RESOURCES INC., a Delaware corporation (“Silver Dragon”), and
SINO SILVER CORP., a Nevada corporation (“Sinn”).
WHEREAS, Sino owns a 60% interest in Sanhe Sino-Top Resources & Technologies, Ltd.
(“Sino-Top”) pursuant to the terms of a Joint Venture Contract dated January 27, 2005 among Sino
and other holders of equity interests in Sino-Top (the “Sino-Top Joint Venture Contract”);
WHEREAS, Sino-Top owns certain exploratory and licensing rights with respect to certain mining
properties located in The People’s Republic of China, including the real property described in
Exhibit A (the “Property”); and
WHEREAS, Silver Dragon desires to assist in the financing of the exploration and, as
applicable, development of the Property, and share in the revenues, if any, derived from the
Property on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
CONSIDERATION
1.1 Payments by Silver Dragon. Silver Dragon shall pay to Sino the sum of $350,000,
payable as follows: (a) $150,000 payable on the Effective Date; (b) $100,000 payable on the first
anniversary of the Effective Date; and (c) $100,000 payable on the second anniversary of the
Effective Date, with payments under (b) and (c) subject to the conditions set forth in Article V
1.2 Issuance of Stock by Silver Dragon. Silver Dragon shall issue to Sino 500,000
shares of common stock of Silver Dragon (the “Silver Dragon Shares”) as follows: (a) 250,000 shares
shall be issued on the Effective Date; and (b) 250,000 shares shall be issued on the first
anniversary of the Effective Date.
1.3 Payments by Sino.
(a) Sino shall pay to Silver Dragon (the “Silver Dragon Payment”) a sum equal to 50% (the
“Property Percentage Interest”) of all distributions received by Sino from Sino-Top attributable to
the Property (the “Property Distributions”). It is agreed that all Property Distributions will be
received by Sino in trust as to a 50% interest for Silver Dragon. The Silver Dragon Payment will
be due and payable from time to time within a reasonable period of time following Sino’s receipt of
the Property Distributions, not to exceed 30 days.
(b) The Property Distributions shall be deemed to include all distributions received by Sino
from Sino-Top attributable to the Property, including, without limitation,
distributions of current income, liquidating distributions on the sale or other disposition of
Sino-Top’s rights or interests in the Property or of Sino’s interest in Sino-Top, and distributions
in kind. The Property Distributions shall consist of gross revenues attributable to the Property
less (i) expenses directly attributable to the Property other than general overhead expenses of
Sino-Top (“Direct Expenses”) and (ii) a pro-rata amount of the general overhead expenses of
Sino-Top allocated to the Property equal to the total general overhead expenses of Sino-Top
multiplied by a fraction, the numerator of which is one and the denominator of which is the total
number of real properties in respect of which Sino-Top has exploratory and/or development rights
(“Indirect Expenses”). Gross Revenues attributable to the Property less Direct Expenses and
Indirect Expenses are hereinafter referred to as “Profits”. Sino-Top currently has exploratory
and/or development rights on four properties, including the Property, with an option to acquire
such rights on seven additional properties. The determination of whether distributions received by
Sino from Sino-Top are “attributable” to the Property, and whether revenues, expenses and
liabilities are “attributable” to the Property, shall be made by Sino, acting reasonably and in
good faith, based on the books and records of Sino-Top, subject to the provisions of Section 4.1.
(c) The Property Distributions shall not be deemed to include distributions attributable to
any property in respect of which Sino-Top or Sino has any rights or interests other than the
Property. Sino makes no representations whatsoever as to the amount of the Property Distributions
that can be expected to be received by Sino or the amount of the Silver Dragon Payment that can be
expected to be received by Silver Dragon.
(d) As controlling shareholder of Sino-Top, Sino shall ensure that 60% of all Profits shall be
distributed from Sino-Top to Sino as Property Distributions and not be retained by Sino-Top for
corporate or other purposes. Thereafter, in accordance with the terns in Article 1.3(a) above,
Sino shall distribute Silver Dragon Payments to Silver Dragon. Notwithstanding the aforementioned
Sino shall not be required to receive its share of the Property Distributions, so long as Silver
Dragon receives its Property Percentage Interest of the Property Distributions, as set forth
herein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SINO
As a material inducement to Silver Dragon to enter into this Agreement, Sino represents and
warrants to Silver Dragon, as of the Effective Date, as follows:
2.1 Corporate Status. Sino is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada, and has the requisite power and authority to
own or lease its properties and to carry on its business as now being conducted.
2.2 Power and Authority. Sino has the power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the transactions contemplated
hereby. Sino has taken all corporate action necessary to authorize the execution and delivery of
this Agreement, the performance of its obligations hereunder and the consummation by it of the
transactions contemplated hereby.
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2.3 Enforceability. This Agreement has been duly executed and delivered by Sino and
constitutes a legal, valid and binding obligation of Sino, enforceable against Sino in accordance
with its terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally
and general equitable principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
2.4 No Violation. The execution and delivery of this Agreement by Sino, the
performance by Sino of its obligations hereunder and the consummation by Sino of the transactions
contemplated by this Agreement will not (a) contravene any provision of the articles of
incorporation or bylaws of Sino, (b) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment or order of any governmental authority or of any
arbitration award that is applicable to, binding upon or enforceable against Sino, (c) conflict
with, result in any breach of, or constitute a default (or an event that would, with the passage of
time or the giving of notice or both, constitute a default) under, or give rise to a right to
terminate, amend, modify, abandon or accelerate, any contract or agreement that is applicable to,
binding upon or enforceable against Sino, (d) result in or require the creation or imposition of
any lien upon or with respect to any of the property or assets of Sino, or (e) require the consent,
approval, authorization or permit of, or filing with or notification to, any governmental
authority, any court or tribunal or any other person or entity, that has not been obtained, made or
given as of the Effective Date.
2.5 No Commissions. Sino has not incurred any obligation for any finder’s or broker’s
or agent’s fees or commissions or similar compensation in connection with the transactions
contemplated by this Agreement.
2.6 Ownership of Sino-Top Interest. Sino owns 60% of the equity interests of Sino-Top
pursuant to the terms of the Sino-Top Joint Venture Contract.
2.7 Organization of Sino-Top and Ownership of Property Rights. Sino-Top is a limited
liability company organized and existing under the laws of The People’s Republic of China.
Sino-Top owns the exploratory and/or licensing rights and interests in the Property (and, if the
Option (as defined in Section 4.2) is exercised and closes, the Additional Property (as defined in
Section 4.2) that it represents it owns in the Sino-Top Joint Venture Contract).
2.8 Representations Regarding Sino-Top and the Property. The execution and delivery
and performance of the Agreement herein does not contravene any provision of the Sino-Top Joint
Venture Contract, Sino having full, complete and unrestricted ability to assign to Silver Dragon a
portion of its interest in the Sino-Top Joint Venture with respect to the Property (and, if
applicable, the Additional Property as defined in Section 4.2). Sino-Top has exclusive exploratory
rights with respect to the Property (and, if applicable, the Additional Property) pursuant to the
laws of the Government of China, free and clear of all liens, disputes, taxes, claims and
encumbrances. Sino-Top has validly renewed its exploration rights on the Property (and the
Additional Property), such rights being valid up to and including January 19, 2006, and all
required government permits have been validly issued and are in good standing pursuant to the laws
of the Government of China. Sino does not require the consent of Sino-Top in order to enter into
this Agreement.
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2.9 Deliveries. Sino has provided to Silver Dragon a true and correct copy of (a) the
Sino-Top Joint Venture Contract, which has been signed and delivered by all parties thereto and is
in effect, (b) the Certificate of Authority issued by the competent administration of industry and
commerce in The People’s Republic of China reflecting that Sino has become a new shareholder of
Sino-Top holding 60% of the equity interests of Sino-Top (c) the written acknowledgement of
Sino-Top) that either Sino-Top or the North China Geological Bureau shall be responsible for the
initial exploratory or development work on the Property (and, if the Option is exercised and
closes, the Additional Property), (d) copies of the articles of incorporation and bylaws of Sino as
in effect on the Effective Date, certified as of the Effective Date by the Secretary of Sino as
being true, correct and complete, (e) a certificate of good standing of Sino issued by the
Secretary of State of the State of its incorporation as of a date not more than ten (10) days prior
to the Effective Date, and (f) a certified copy of the renewal of Sino-Top’s exploration rights
with respect to the Property together with a certified English translation.
2.10 Investment Representations.
(a) Sino is a sophisticated investor and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an investment in the
Silver Dragon Shares and, if acquired by Sino pursuant to Section 4.2, the Additional Silver Dragon
Shares (as defined in Section 4.2) (collectively, the “Shares”).
(b) Sino is acquiring the Shares for its own account and not with a view toward distribution
in a manner that would violate the Securities Act of 1933, as amended (“Securities Act”).
(c) Sino understands that the Shares have not been registered under the Securities Act. Sino
agrees that it will not sell or otherwise dispose of any of the Shares unless such sale or other
disposition has been registered under the Securities Act or is exempt from registration under the
Securities Act and has been registered or qualified or is exempt from registration or qualification
under applicable state securities laws. Sino acknowledges that, until such time as the Shares have
been registered under the Securities Act or otherwise may be sold pursuant to Rule 144 under the
Securities Act (“Rule 144”) without any restriction as to the number of securities as of a
particular date that can then be immediately sold, the certificates evidencing the Shares may bear
a restrictive legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OF SAID ACT OR UNLESS THE SECURITIES
ARE OTHERWISE SOLD, TRANSFERRED OR ASSIGNED IN COMPLIANCE WITH ALL APPLICABLE
SECURITIES LAWS.
2.11 Exploration of the Property. Sino represents that, as controlling shareholder of
Sino-Top, it will ensure that Sino-Top begins the exploration and evaluation of the Property as
soon as reasonably possible after the Effective Date.
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2.12 Disclosure. None of the foregoing representations, warranties and statements of
fact contains any untrue statement of material fact or omits to state any material fact necessary
to make any such representation, warranty or statement not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SILVER DRAGON
As a material inducement to Sino to enter into this Agreement, Silver Dragon represents and
warrants to Sino, as of the Effective Date, as follows:
3.1 Corporate Status. Silver Dragon is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has the requisite power and
authority to own or lease its properties and to carry on its business as now being conducted.
3.2 Power and Authority. Silver Dragon has the power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate the transactions
contemplated hereby. Silver Dragon has taken all corporate action necessary to authorize the
execution and delivery of this Agreement, the performance of its obligations hereunder and the
consummation by it of the transactions contemplated hereby.
3.3 Enforceability. This Agreement has been duly executed and delivered by Silver
Dragon, and constitutes the legal, valid and binding obligation of Silver Dragon, enforceable
against Silver Dragon in accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.
3.4 No Violation. The execution and delivery of this Agreement by Silver Dragon, the
performance by Silver Dragon of its obligations hereunder and the consummation by Silver Dragon of
the transactions contemplated by this Agreement will not (a) contravene any provision of the
articles of incorporation or bylaws of Silver Dragon, (b) violate or conflict with any law,
statute, ordinance, rule, regulation, decree, writ, injunction, judgment or order of any
governmental authority or of any arbitration award that is applicable to, binding upon or
enforceable against Silver Dragon, (c) conflict with, result in any breach of, or constitute a
default (or an event that would, with the passage of time or the giving of notice or both,
constitute a default) under, or give rise to a right to terminate, amend, modify, abandon or
accelerate, any contract or agreement that is applicable to, binding upon or enforceable against
Silver Dragon, (d) result in or require the creation or imposition of any lien upon or with respect
to any of the property or assets of Silver Dragon, or (e) require the consent, approval,
authorization or permit of, or filing with or notification to, any governmental authority, any
court or tribunal or any other person or entity, that has not been obtained, made or given as of
the Effective Date.
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3.5 No Commissions. Silver Dragon has not incurred any obligation for any finder’s or
broker’s or agent’s fees or commissions or similar compensation in connection with the transactions
contemplated by this Agreement.
3.6 SEC Filings. Silver Dragon has timely filed with the SEC all documents required
to be filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) during
the 12 months preceding the Effective Date. The following documents (collectively, the “Exchange
Act Documents”) complied when filed in all material respects with the Exchange Act and the
applicable rules and regulations of the SEC thereunder, and did not, when so filed, contain any
untrue statement of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were made, not misleading:
(a) Quarterly Report on Form 10-QSB for the quarters ended March 31, 2004, June 30, 2004 and
September 30, 2004; (b) Annual Report on Form 10-KSB for the year ended December 31, 2004; and (c)
all other documents filed by Silver Dragon with the SEC since January 1, 2004. The information
contained in the Exchange Act Documents does not as of the Effective Date contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not misleading. The term
“file” as used in this Section 3.6 shall be broadly construed to include any manner in which a
document or information is furnished, supplied or otherwise made available to the SEC.
3.7 Capitalization. The authorized capital stock of Silver Dragon conforms as to
legal matters to the description thereof contained in the Exchange Act Documents. As of the
Effective Date, Silver Dragon has (a) 170,000,000 shares of capital stock authorized and no other
shares of any class of capital stock, (b) 28,375,533 shares of capital stock issued and outstanding
and (c) no shares of capital stock held in treasury. All of the issued and outstanding shares of
capital stock of Silver Dragon (i) have been duly authorized and validly issued and are fully paid
and non-assessable, (ii) were issued in compliance with all applicable state and federal securities
laws and (iii) were not issued in violation of any preemptive rights or rights of first refusal.
Except as set forth on Schedule 3.7, (A) no preemptive rights or rights of first refusal exist with
respect to the shares of capital stock of Silver Dragon and no such rights arise by virtue of or in
connection with the transactions contemplated hereby, (B) there are no outstanding or authorized
rights, options, warrants, convertible securities, subscription rights, conversion rights, exchange
rights or other agreements or commitments of any kind that could require Silver Dragon to issue or
sell any shares of its capital stock (or securities convertible into or exchangeable for shares of
its capital stock) save and except for subscriptions for shares received by Silver Dragon which
would authorize the issuance of a maximum of 3,000,000 common shares, (C) there are no outstanding
stock appreciation, phantom stock, profit participation or other similar rights with respect to
Silver Dragon, (D) there are no anti-dilution or price adjustment provisions contained in any
security issued by Silver Dragon (or in any agreement or document providing rights to security
holders) that will be triggered by the issuance of the Shares, (E) there are no proxies, voting
rights or other agreements or understandings with respect to the voting or transfer of the capital
stock of Silver Dragon, (F) there are no agreements or arrangements under which Silver Dragon is
obligated to register the sale or any of its securities under the Securities Act acid (G) Silver
Dragon is not obligated to redeem or otherwise acquire any of its outstanding shares of capital
stock. The copies of the articles of incorporation and bylaws of Silver Dragon which
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were provided to Sino are true, accurate and complete and reflect all amendments made through
the Effective Date.
3.8 Valid Issuance of Shares. The Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement, will be validly issued, fully paid
and non-assessable, will have been issued in compliance with all applicable federal and state
securities laws, and will be free from all taxes, liens, claims and encumbrances. The issuance of
the Shares will not be subject to any preemptive or similar rights.
3.9 Financial Statements. The financial statements of Silver Dragon included in the
Exchange Act Documents (including the related notes) complied as to form, as of their respective
dates of filing with the SEC, in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto (including, without limitation,
Regulation S-X), have been prepared in accordance with generally accepted accounting principles in
the United States (“GAAP”) (except, in the case of unaudited statements, to the extent permitted by
Regulation S-X for Quarterly Reports on Form 10-QSB) applied on a consistent basis during the
periods and at the dates involved (except as may be indicated in the notes thereto) and fairly
present the financial condition of Silver Dragon at the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited statements, to notes
and normal year-end audit adjustments that were not, or with respect to any such financial
statements contained in any Exchange Act Documents to be filed subsequent to the Effective Date are
not reasonably expected to be, material in amount or effect). Except (a) as reflected in Silver
Dragon’s unaudited balance sheet at December 31, 2004 or liabilities described in any notes thereto
(or liabilities for which neither accrual nor footnote disclosure is required pursuant to GAAP) or
(b) for liabilities incurred in the ordinary course of business since December 31, 2004 consistent
with past practice or in connection with this Agreement or the transactions contemplated hereby,
Silver Dragon does not have any material liabilities or obligations of any nature.
3.10 No Material Adverse Chance; Litigation. There has not occurred any material
adverse change, or any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or operations of Silver Dragon,
taken as a whole, since December 31, 2004. There are no legal or governmental proceedings pending
or threatened to which Silver Dragon is a party or to which any of the properties of Silver Dragon
is subject other than proceedings accurately described in all material respects in the Exchange Act
Documents and proceedings that would not have a material adverse effect on Silver Dragon, taken as
a whole, or on the power or ability of Silver Dragon to perform its obligations under this
Agreement or to consummate the transactions contemplated by this Agreement.
3.11 No Registration Required. It is not necessary under applicable laws in
connection with the offer, sale and/or delivery of the Shares to Sino in the manner contemplated by
this Agreement to register the Shares under the Securities Act. Silver Dragon has taken such
action as is necessary to qualify the Shares for sale to Sino under applicable securities or “blue
sky” laws of the states of the United States (or has obtained an exemption from such
qualification), and has provided Sino with evidence of any such action so taken.
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3.12 Deliveries. Silver Dragon has delivered to Sino (a) copies of the articles of
incorporation and bylaws of Silver Dragon as in effect on the Effective Date, certified as of the
Effective Date by the Secretary of Silver Dragon as being true, correct and complete, (b) copies of
resolutions adopted by the Board of Directors of Silver Dragon authorizing the transactions
contemplated by this Agreement, certified as of the Effective Date by the Secretary of Silver
Dragon as being true, correct and complete, and (c) a certificate of good standing of Silver Dragon
issued by the Secretary of State of the State of its incorporation as of a date not more than ten
(10) days prior to the Effective Date.
ARTICLE IV
ADDITIONAL COVENANTS
4.1 Silver Dragon’s Information and Accounting Rights.
(a) Sino shall cause Sino-Top to maintain its books and records in a manner that accurately
segregates (i) revenues and expenses attributable to the Property from the revenues and expenses
attributable to any other property in respect of which Sino-Top has rights or interests and (ii) if
the Option is exercised and closes, revenues and expenses attributable to the Additional Property
from the revenues and expenses attributable to any other property in respect of which Sino-Top has
rights or interests, for purposes of determining Property Distributions and Additional Property
Distributions, as applicable.
(b) Sino shall provide Silver Dragon with Sino-Top’s financial statements related to the
Property and, if the Option is exercised and closes, the Additional Property, within ten (10) days
of completion thereof. In addition, at the time of each distribution of Silver Dragon’s share of
the Property Distributions, for purposes of allowing Silver Dragon to verify the payments due to it
under this Agreement, Sino shall deliver to Silver Dragon a written statement (the “Property
Distribution Statement”) signed by the Secretary of Sino which shall: (i) state the amount of the
Property Distribution received by Sino (or which Sino would be entitled to receive) with respect to
the Property; (ii) provide details including receipts (with certified English translations, if
necessary) of all permissible Direct Expenses as defined in Article 1.3; (iii) provide details of
all permissible Indirect Expenses as defined in Article 1.3; (iii) list the net payment to Silver
Dragon of each Silver Dragon Payment; and (iv) contain a certification by the Secretary of Sino
that the Property Distribution Statement is true and correct. Silver Dragon shall have a period of
30 days to review the Property Distribution Statement and documentation provided by Sino and either
accept or contest the amount of the Silver Dragon Payment. In the event Silver Dragon contest the
amount of a Silver Dragon Payment, Sino shall supply it with such further documentation and
verification of its calculations as Silver Dragon shall reasonably request, within 30 days of such
request. In the event that Silver Dragon continues to contest the amount of a Silver Dragon
Payment following receipt of such additional information and documentation, the matter shall be
determined in accordance with paragraph (c) below.
(c) Silver Dragon may at any time and from time to time cause a complete audit to be made by
it’s auditors or chartered accountants (collectively, “Auditor”) of Sino’s and/or Sino-Top’s
business affairs, records and procedures relating solely to the calculation of Property
Distributions and, if applicable, Additional Property Distributions. If the Auditor
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performing such audit reports to Silver Dragon that, in its reasonable opinion, Sino Top’s
records and procedures are insufficient to permit a determination of Property Distributions and/or
Additional Property Distributions, Sino shall immediately after notice from Silver Dragon take such
steps as are necessary to ensure that Sino-Top remedies this. If the Auditor reports that Sino
and/or Sino-Top is in default pursuant to the requirements of Article 1 or 4 hereof or that, in its
reasonable opinion, Sino’s or Sino-Top’s records and procedures are insufficient to permit a
determination of Property Distributions and/or Additional Property Distributions, or if such audit
discloses that the Silver Dragon Payment and/or Additional Silver Dragon Payment for the period in
question are understated by Five Percent (5%) or more (the “Deficiency”), Sino shall forthwith,
after being provided with notice from Silver Dragon, pay to Silver Dragon the cost of such audit
(“Audit Cost”) as well as the amount of the Deficiency. In the event that Sino disputes the amount
of the Deficiency, Sino shall send written notice of such dispute to Silver Dragon (“Sino’s
Notice”). Within ten (10) days of receipt of Sino’s Notice by Silver Dragon, Sino’s auditor and
Silver Dragon’s Auditor shall choose a third auditor to review Sino’s and/or Sino-Top’s records.
The report of the third auditor is final and binding on the parties hereto. In the event that the
third auditor confirms that the Silver Dragon Payment and/or Additional Silver Dragon Payment for
the period in question were understated by five percent (5%) or more, Sino shall remit the amount
of the Deficiency and the Audit Cost to Silver Dragon forthwith. In addition, Sino shall be
responsible for the cost of the third auditor. In the event that the third auditor determines that
Silver Dragon Payment and/or Additional Silver Dragon Payment for the period in question were
understated by less than five percent (5%), Silver Dragon shall be responsible for the cost of the
third auditor.
(d) Sino shall make available to Silver Dragon from time to times, upon Silver Dragon’s
request, technical information that it has regarding the Property (and the Additional Property, if
applicable), including geological data and title confirmation.
(e) Sino will consult with Silver Dragon from time to time on technical and business matters
affecting the Property (and the Additional Property, if applicable).
(f) Notwithstanding anything to the contrary in this Agreement, Silver Dragon shall have no
right to participate in the management of Sino-Top or Sino.
4.2 Silver Dragon’s Option With Respect to Additional Property.
(a) Silver Dragon shall have the option, exercisable during the 30-day period following the
Effective Date (the “Option Period”), to acquire an Additional Payment Right (as herein defined)
with respect to an Additional Property (as herein defined), on the terms set forth in this Section
4.2 (the “Option”). For purposes hereof, the term “Additional Payment Right” means the right to
receive from Sino payments (the “Additional Silver Dragon Payment”) from time to time of a sum
equal to 50% (the “Additional Property Percentage Interest”) of all distributions received by Sino
from Sino-Top attributable to the Additional Property (the “Additional Property Distributions”),
subject to the terms of Section 4.2(b). It is agreed that all Additional Property Distributions
will be received by Sino in trust as to a 50% interest for Silver Dragon. The Additional Silver
Dragon Payment will be due and payable from time to time within a reasonable period of time
following Sino’s receipt of the Additional Property Distributions, not to exceed 30 days. For
purposes hereof, the term “Additional Property” means
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property located in. The People’s Republic of China (other than the Property) selected by
Sino in its sole discretion, in respect of which Sino-Top has mineral exploration and development
rights.
(b) Following the Option Closing (as herein defined), the Additional Silver Dragon Payment
will be due and payable from time to time within a reasonable period of time following Sino’s
receipt of the Additional Property Distributions, not to exceed 30 days. The Additional Property
Distributions shall be deemed to include all distributions received by Sino from Sino-Top
attributable to the Additional Property, including, without limitation., distributions of current
income, liquidating distributions on the sale or other disposition of Sino-Top’s rights or
interests in the Additional Property or of Sino’s interest in Sino-Top, and distributions in kind.
The Additional Property Distributions shall consist of gross revenues attributable to the
Additional Property less (i) expenses and liabilities attributable to the Additional Property other
than general overhead expenses of Sino-Top (“Direct Expenses”) and (ii) a pro-rata amount of the
general overhead expenses of Sino-Top allocated to the Additional Property equal to the total
general overhead expenses of Sino-Top multiplied by a fraction, the numerator of which is one and
the denominator of which is the total number of real properties in respect of which Sino-Top has
exploratory and/or development rights (“Indirect Expenses”). Gross Revenues attributable to the
Additional Property less Direct Expenses and Indirect Expenses are hereinafter referred to as
“Additional Property Profits”. The determination of whether distributions received by Sino from
Sino-Top are “attributable” to the Additional Property, and whether revenues, expenses and
liabilities are “attributable” to the Additional Property, shall be made by Sino, acting reasonably
and in good faith, based on the books and records of Sino-Top, subject to the provisions of Section
4.1. The Additional Property Distributions shall not be deemed to include distributions
attributable to any property in respect of which Sino-Top or Sino has any rights or interests other
than the Additional Property. Sino makes no representations whatsoever as to the amount of the
Additional Property Distributions that can be expected to be received by Sino or the amount of the
Additional Silver Dragon Payment that can be expected to be received by Silver Dragon.
(c) As controlling shareholder of Sino-Top, Sino shall ensure that 60% of all Additional
Property Profits shall be distributed from Sino-Top to Sino as Additional Property Distributions
and not be retained by Sino-Top for corporate or other purposes. Thereafter, in accordance with
the terms in Section 4.2(a) above, Sino shall distribute the Additional Silver Dragon Payment to
Silver Dragon. Notwithstanding the aforementioned, Sino shall not be required to receive its share
of the Property Distributions, so long as Silver Dragon receives its Property Percentage Interest
of the Additional Property Distributions.
(d) Silver Dragon may exercise the Option by giving Sino written notice of exercise within the
Option Period. Within five (5) days of the Effective Date, Sino will provide Silver Dragon with
written notice of the Additional Property selected by Sino together with a description of the
exploratory and/or development rights of Sino-Top with respect thereto, and any other information
reasonably requested by Silver Dragon in Sino’s possession related to the Additional Property (the
“Option Effective Date”). Silver Dragon’s failure to timely give Sino written notice of exercise
of the Option within the Option Period shall be deemed to constitute a waiver by Silver Dragon of
the Option.
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(e) In consideration of the Additional Payment Right, Silver Dragon shall (i) pay to Sino the
sum of $350,000, payable as follows: (A) $150,000 payable at the Option Closing; (B) $100,000
payable on the first anniversary of the Option Closing; and (C) $100,000 payable on the second
anniversary of the Option Closing and (ii) issue to Sino 300,000 shares of common stock of Silver
Dragon (the “Additional Silver Dragon Shares”) as follows: (A) 150,000 shares shall be issued at
the Option Closing; (B) 75,000 shares shall be issued on the first anniversary of the Option
Closing; and (C) 75,000 shares shall be issued on the second anniversary of the Option Closing. As
a condition to Sino’s obligation and Silver Dragon’s right to close the Option, both parties shall
deliver a certificate to the other party certifying that the representations and warranties of such
party set forth in this Agreement are true and correct as of the Option Closing Date.
(f) If the Option is exercised, then subject to the terms and conditions of this Agreement,
the consummation of the transactions contemplated by the Option (the “Option Closing”) shall take
place as promptly as practicable following Silver Dragon’s exercise of the Option and receipt from
Sino of the information to be provided pursuant to Section 4.2(d) (and in any event within twenty
(20) days after the Option Effective Date), at the offices of Sino’s counsel, or such other time
and place as the parties may otherwise agree. The date on which the Option Closing occurs is
referred to herein as the “Option Closing Date.”
4.3 Use of Cash Proceeds.
(a) The cash paid by Silver Dragon to Sino pursuant to Section 1.1 shall be used to finance
the exploration and, if deemed feasible by Sino-Top, development of the Property by Sino-Top and
for general working capital. Silver Dragon shall have the right to review and offer proposals for
the budget for such exploration of the Property.
(b) If the Option is exercised and closes, the cash paid by Silver Dragon to Sino pursuant to
Section 4.2(e) shall be used to finance the exploration and, if deemed feasible by Sino-Top,
development of the Additional Property by Sino-Top and for general working capital. Silver Dragon
shall have the right to review and offer proposals for the budget for such exploration of the
Additional Property.
4.4 Silver Dragon’s Observation Rights. Silver Dragon shall be entitled, at its own
cost and expense, to hire its own geologist to observe the exploratory and/or mining operations of
the Property and, if the Option is exercised and closes, the Additional Property.
4.5 Maintenance of Property Percentage Interest in Property.
(a) If Sino purchases additional equity interests in Sino-Top resulting in an increase of
Sino’s total indirect equity interest in the Property above 60% (the amount by which Sino’s
interest increases above 60% is referred to herein as the “Additional Interest in the Property”),
then Silver Dragon shall have the option to pay to Sino 50% (the “Participation Percentage”), of
the a pro-rata amount of the total purchase price for the Additional Interest in the Property and
all related acquisition costs incurred by Sino, acting reasonably, (collectively, the “Transaction
Costs”) multiplied by a fraction, the numerator of which is one and the denominator of which is the
total number of real properties in respect of which Sino-Top has
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exploratory and/or development rights (“Silver Dragon’s Purchase Price”), and thereupon cause
the Property Percentage Interest to remain at 50%. If Silver Dragon does not make such payment, it
will not be entitled to any portion of distributions received by Sino as a result of the Additional
Interest in the Property.
(b) Prior to acquiring an Additional Interest in the Property, Sino shall give Silver Dragon
written notice at least thirty (30) days prior to the closing of such acquisition, which shall set
forth the material terms of such acquisition, including the percentage interest to be acquired by
Sino, the purchase price, the estimated related acquisition costs, and the scheduled closing date.
Silver Dragon may exercise its option under Section 4.5(a) by (i) giving Sino written notice of
exercise at least five (5) days prior to the scheduled closing of such acquisition, and (ii)
paying, at the time Silver Dragon provides such notice to Sino Silver Dragon’s Purchase Price to be
used towards the purchase of the Additional Interest in the Property. Silver Dragon’s option
hereunder shall be irrevocable once exercised. The Transaction Costs shall be deemed to include
the purchase price for the Additional Interest in the Property, reasonable attorneys’ and other
professional fees incurred by Sino, closing costs and any other costs directly related to such
acquisition. Any Transaction Costs that are estimated by Sino in its notice to Silver Dragon
hereunder prior to the closing of the acquisition of the Additional Interest in the Property shall
be reconciled with actual costs at the time of such closing and Silver Dragon shall be obligated to
pay at such closing any amounts due based on such reconciliation or shall be entitled to a refund
at such closing of any overpayments based on the actual amount due. In the event that Sino does
not complete the purchase of the Additional Interest in the Property within 10 business days of the
scheduled closing date, then, at the option of Silver Dragon in its sole discretion, Silver
Dragon’s Purchase Price shall be returned to Silver Dragon in full, without interest or deduction,
upon written request thereof being provided to Sino.
4.6 Acquisition of Additional Interest in Additional Property.
(a) If Sino purchases additional equity interests in Sino-Top resulting in an increase of
Sino’s total indirect equity interest in the Additional Property above 60°X0 (the amount by which
Sino’s interest increases above 60% is referred to herein as the “Additional Interest in the
Additional Property”), then Silver Dragon shall have the option to pay to Sino 50% (the “Additional
Participation Percentage”) of the total purchase price for the Additional Interest in the
Additional Property and all related acquisition costs incurred by Sino (collectively, the
“Additional Transaction Costs”) and thereupon cause the Additional Property Percentage Interest to
remain at 50%. If Silver Dragon does not make such payment it will not be entitled to any portion
of distributions received by Sino as a result of the Additional Interest in the Additional
Property.
(b) Prior to acquiring an Additional Interest in the Additional Property, Sino shall give
Silver Dragon written notice at least fifteen (15) days prior to the closing of such acquisition,
which shall set forth the material terms of such acquisition, including the percentage interest to
be acquired by Sino, the purchase price, the estimated related acquisition costs, and the scheduled
closing date. Silver Dragon may exercise its option under Section 4.6(a) by (i) giving Sino
written notice of exercise at least five (5) days prior to the scheduled closing of such
acquisition, and (ii) paying, at the time Silver Dragon provides such notice to Sino, 50% of the
Additional Transaction Costs. Silver Dragon’s option hereunder shall be irrevocable once
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exercised. The Additional Transaction Costs shall be deemed to include the purchase price for
the Additional Interest in the Additional Property, attorneys’ and other professional fees incurred
by Sino, closing costs and any other costs related to such acquisition. Any Additional Transaction
Costs that are estimated by Sino in its notice to Silver Dragon hereunder prior to the closing of
the acquisition of the Additional Interest in the Additional Property shall be reconciled with
actual costs at the time of such closing and Silver Dragon shall be obligated to pay at such
closing any amounts due based on such reconciliation or shall be entitled to a refund at such
closing of any overpayments based on the actual amount due.
4.7 Silver Dragon’s Covenants Respecting the Shares.
(a) Silver Dragon at all times shall have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of its common stock for issuance to Sino of the Shares in
accordance with the terms of this Agreement.
(b) Silver Dragon will obtain, as long as Sino beneficially owns any of the Shares or other
securities issued in respect thereof or in exchange therefor, and maintain the listing and trading
of its common stock on The Bulletin Board, Nasdaq, the Nasdaq SmallCap Market, the New York Stock
Exchange, or the American Stock Exchange and will comply in all respects with its reporting, filing
and other obligations under the bylaws or rules of the National Association of Securities Dealers,
Inc. (“NASD”) and such exchanges, as applicable. Silver Dragon shall promptly provide to Sino
copies of any notices it receives from any exchanges or quotation systems on which its common stock
is then listed regarding the continued eligibility of its common stock for listing on such
exchanges and/or quotation systems.
(c) Silver Dragon shall cause the legend set forth in Section 2.9(c) to be removed and shall
issue (or promptly instruct its transfer agent to issue) a certificate without such legend if (i)
such security is registered for sale under an effective registration statement filed under the
Securities Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold, or (ii) such holder
provides Silver Dragon with an opinion of counsel, in form, substance and scope reasonably
satisfactory to Silver Dragon, to the effect that a public sale or transfer of such security may be
made without registration under the Securities Act and such sale or transfer is effected.
4.8 Further Assurances; Cooperation. Each party hereto shall use its commercially
reasonable efforts to execute and deliver such additional instruments and other documents and take
such further actions as maybe necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby. Each of the parties
hereto agrees to cooperate with the other in the preparation and filing of all forms,
notifications, reports and information, if any, required or reasonably deemed advisable pursuant to
any law, rule or regulation or the rules of any exchange on which either party’s common stock may
be listed in connection with the transactions contemplated by this Agreement and to use their
respective best efforts to agree jointly on a method to overcome any objections by any governmental
authority to any such transactions.
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4.9 Press Releases. No press release or other public announcement related to this
Agreement or the transactions contemplated hereby shall be issued by Silver Dragon or Sino without
the prior approval of the other party. Sino and Silver Dragon will prepare all press releases and
other public announcements related to this Agreement or the transactions contemplated hereby in a
coordinated effort. Both parties agree to act expeditiously and cooperatively in this process, and
to provide the other party with their respective comments within a 24 hour period.
4.10 Confidentiality. Silver Dragon agrees and acknowledges that it may receive
information concerning Sino or Sino-Top which constitutes material inside information, as defined
for purposes of Section 20A and 21A of the Exchange Act (“Inside Information”). Silver Dragon
shall not disclose any Inside Information to any person or entity other than pursuant to court
order or with the prior written consent of Sino, until after such information has been publicly
disseminated other than through the breach hereof by Silver Dragon. Both parties hereto
acknowledge that improper disclosure of Inside Information constitutes a violation of the civil and
criminal provisions of Sections 20A and 21A of the Exchange Act. In addition to the foregoing,
Silver Dragon agrees that at all times after the Effective Date it shall (a) hold in confidence and
refrain from disclosing to any other party all information, whether written or oral, tangible or
intangible, of a private, secret, proprietary or confidential nature, of or concerning Sino or
Sino-Top or their respective properties, assets, plans, businesses and operations (“Confidential
Information”), (b) use the Confidential Information solely in connection with the purposes of this
Agreement and for no other purpose and (c) take all precautions necessary to ensure that the
Confidential Information shall riot be, or be permitted to be, shown, copied or disclosed to any
third parties, without the prior written consent of Sino. In the event that Silver Dragon is
ordered to disclose any Confidential Information, whether in a legal or regulatory proceeding or
otherwise, Silver Dragon shall provide Sino with prompt notice of such request or order so that
Sino may seek to prevent disclosure. In the case of any disclosure, Silver Dragon shall disclose
only that portion of the Confidential Information that Silver Dragon is ordered to disclose. The
provisions of this Section 4.10 shall survive the termination of this Agreement.
ARTICLE V
FINANCIAL REQUIREMENTS
5.1 Initial Exploratory Work. Silver Dragon’s obligation to pay Sino (i) the sum of
$100,000 on the first anniversary of the Effective Date (the “Second Installment”) and (ii) the sum
of $100,000 on the second anniversary of the Effective Date (the “Third Installment”) shall each be
contingent upon written notice to Silver Dragon of Sino’s determination made in its sole and
absolute discretion, acting reasonably, to continue exploratory and/or development or related work
on the Property for the next 12 month period. Such written notice shall be given no later than 20
days prior to each anniversary date of the Effective Date.
5.2 Additional Silver Dragon Payments.
(a) Following payment of the Third Installment, Silver Dragon’s obligation to pay Sino in
excess of $350,000 for its Property Percentage Interest shall arise in the event that (i) Sino-Top
has incurred Direct and Indirect Expenses of $350,000 and (ii) Sino determines in its
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sole discretion, acting reasonably, to continue exploratory, development or related work on
the Property. Silver Dragon shall be given no less than 30 days written notice (the “Budget
Notice”) of such determination along with the details of all permissible Direct Expenses and
Indirect Expenses as defined in Article 1.3, certified by the Secretary of Sino reflecting Direct
and Indirect Expenses of at least $350,000 and a proposed budget for further exploratory,
development or related work to be performed on the Property during the next 12 month period
reflecting additional capital required (the “Additional Capital”). Silver Dragon shall within 30
days after receipt of the Budget Notice either (i) consent to the payment of 50% of the Additional
Capital which shall include amounts spent by Sino or Sino-Top in excess of $350,000, (“Silver
Dragon’s Additional Payment”) and make a payment of 50% of Silver Dragon’s Additional Payment
within 60 days of receipt of the Budget Notice and thereafter the balance of Silver Dragon’s
Additional Payment within 120 days of receipt of the Budget Notice and thereby retain its Property
Percentage Interest, or (ii) decline to make the Silver Dragon Additional Payment, or (iii) contest
the calculation of Direct and Indirect Expenses. In the event Silver Dragon contests such
calculation, Sino shall supply it with further documentation and verification as Silver Dragon
shall reasonably request, within 30 days of such request. In the event Silver Dragon continues to
contest the calculation following receipt of such additional information and documentation, the
matter shall be referred to an accounting firm chosen by the parties who shall make a binding
determination of the Direct and Indirect Expenses within 15 days and 50% of Silver Dragon’s
Additional Payment must be made within 60 days of initial receipt of the Budget Notice, if
appropriate, with the balance of Silver Dragon’s Additional Payment due within 120 days of receipt
of the Budget Notice.
(b) Thereafter, Silver Dragon will continue to be responsible for 50% of the Direct and
Indirect costs in the proposed budget for each subsequent year, subject to reduction for
overpayment of budgeted Direct and Indirect Costs when compared to actual Direct or Indirect Costs
for the prior 12 month period, in order to maintain its Property Percentage Interest.
(c) In the event that Silver Dragon does not make the Silver Dragon Additional Payment, and
notwithstanding the foregoing, Sino contributes Additional Capital to the Property, Sino’s
percentage interest in the Property shall increase and Silver Dragon’s Property Percentage Interest
shall decrease. For the purpose of determining the decrease in Silver Dragon’s Property Percentage
Interest from 50%, the parties agree that 100% of the Property Interest is valued as follows:
($350,000 + the value of the Silver Dragon Shares (as hereinafter defined)) X 2.
If, upon receipt by Silver Dragon of the Budget Notice, the Silver Dragon Shares are eligible for
sale under Rule 144 of the Securities Act Rules (the “Free Trading Shares”), the Silver Dragon
Shares shall be valued based on the average closing price of the of Silver Dragon Shares over the
30 day period prior to receipt of the Budget Notice, multiplied by the number of Free Trading
Shares. If all or a portion of the Silver Dragon Shares are restricted at the time of receipt of
the Budget Notice (the “Restricted Shares”), such restricted shares shall be valued on the same
basis as the Free Trading Shares less a discount of Fifty Percent (50%).
For example, if all of the Silver Dragon Shares are Free Trading Shares and the average closing
price of the 500,000 Silver Dragon Shares for the 30 day period prior to receipt of the Budget
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Notice is $1.00, then the Property Interest would be valued at $350,000 + $500,000 X 2 =
$1,700,000. Thereafter, if Sino contributes Additional Capital of $500,000 and Silver Dragon
contributes nil, Silver Dragon’s Property Percentage Interest would decrease to 38.6% (850,000
divided by 2,200,000).
5.3 Additional Property Distributions. In the event Silver Dragon exercises its
option pursuant to Section 4.2(a), (i) the requirement to make additional payments on the first and
second anniversary dates of the Option Closing shall be subject to the same notice provision set
forth in Article 5.1 and (ii) the request to make additional capital contributions shall be subject
to the same notice, informational and payment obligations set forth in Article 5.2(a) above.
ARTICLE VI
INDEMNIFICATION
6.1 Obligation to Indemnify. Each party hereto agrees to indemnify and hold harmless
the other party hereto and its officers, directors, employees, affiliates and agents from, against
and in respect of, the full amount of any and all liabilities, damages, claims, deficiencies,
fines, assessments, losses, taxes, penalties, interest, costs and expenses, including, without
limitation, reasonable fees and disbursements of counsel (collectively, “Indemnifiable Damages”),
arising from, relating to, caused by (whether in whole or in part), in connection with, or incident
to any breach, inaccuracy or violation of any of the representations, warranties, covenants or
agreements of such indemnifying party contained in this Agreement, in any schedule or exhibit to
this Agreement, or in any certificate delivered by such indemnifying party in connection with this
Agreement on the Effective Date. Without limiting the generality of the foregoing, in the event
that Sino’s equity interest in Sino-Top is reduced below 60%, or Sino breaches any of its
obligations pursuant to the Sino-Top Joint Venture Contract which results in Sino losing its rights
to receive all or part of the Property Distributions (and Additional Property Distributions, if
applicable) (hereinafter either such event referred to as “Sino’s Default”), then Sino agrees to
indemnify Silver Dragon for its Indemnifiable Damages. Provided, however, that such Indemnifiable
Damages shall be limited to the sum of $350,000, plus the value of the Silver Dragon Shares as
hereinafter defined. If, upon receipt of notice of Sino’s Default, the Silver Dragon Shares are
eligible for sale under Rule 144 of the Securities Act Rules (the “Free Trading Shares”), the
Silver Dragon Shares shall be valued based on the average closing price of the of Silver Dragon
Shares over the 30 day period prior to receipt of notice of Sino’s Default, multiplied by the
number of Free Trading Shares. If all or a portion of the Silver Dragon Shares are restricted at
the time of receipt of notice of Sino’s Default (the “Restricted Shares”), such Restricted Shares
shall be valued on the same basis as the Free Trading Shares less a discount of Fifty Percent
(50%). The provisions of this Article VI shall survive the termination of this Agreement.
6.2 Survival of Representations and Warranties. Each of the representations and
warranties made by any party hereto in this Agreement or pursuant hereto shall survive after the
Effective Date and shall survive the termination of this Agreement. Notwithstanding any knowledge
of facts determined or determinable by any party by investigation, each party shall have the right
to fully rely on the representations, warranties, covenants and agreements of the
16
other party contained in this Agreement or in any other documents or papers delivered in
connection herewith. Each representation, warranty, covenant and agreement of any party contained
in this Agreement is independent of each other representation, warranty, covenant and agreement.
6.3 Third Party Actions. With respect to each claim made by a third party for which
an Indemnified Party (as hereinafter defined) seeks indemnification under this Article V (a “Third
Party Claim”), the Indemnified Party shall give prompt notice to the Indemnifying Party (as
hereinafter defined) of the Third Party Claim, provided that failure to give such notice promptly
shall not relieve or limit the obligations of the Indemnifying Party except to the extent the
Indemnifying Party has been materially prejudiced thereby (and such failure to notify the
Indemnifying Party will not relieve the Indemnifying Party from any other liability it may have to
the Indemnified Party). The Indemnifying Party will have the right to defend the Indemnified Party
against any Third Party Claim with counsel of the Indemnifying Party’s choice reasonably
satisfactory to the Indemnified Party so long as and to the extent that (a) the Indemnifying Party
notifies the Indemnified Party in writing, within fifteen (15) days after receipt from the
Indemnified Party of notice of the claim, that the Indemnifying Party will indemnify and defend the
Indemnified Party and agrees in writing to provide such defense and indemnification, from and
against any Indemnifiable Damages with respect to which such Indemnified Party is entitled to
indemnification and defense under Section 5.1 hereof that the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the claim; (b) the
claim seeks the recovery of solely money damages and does not contain a claim for an injunction,
specific performance, a declaration of rights or other equitable relief; (c) the Indemnifying Party
conducts the defense of the claim actively and diligently; and (d) representation of both the
Indemnified Party and the Indemnifying Party by the counsel selected by the Indemnifying Party
would not create an actual or potential conflict of interest between the Indemnified Party and the
Indemnifying Party. In all other cases, the Indemnified Party shall be entitled to retain its own
separate counsel and control the defense of the Third Party Claim, all at the sole cost and expense
of the Indemnifying Party. If there is a conflict of interest, however, that would prevent counsel
for the Indemnifying Party from also representing the Indemnified Party as reasonably determined by
the Indemnified Party, then the Indemnified Party shall have the right to select separate counsel,
at the Indemnifying Party’s sole cost and expense, to participate in the defense of such action on
behalf of the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party
of its election to so assume the defense thereof, the Indemnifying Party will not be liable to the
Indemnified Party pursuant to the provisions of this Article V for the related counsel and
paralegal fees and expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof, unless (i) the Indemnified Party shall have employed counsel in accordance with
the provisions of this paragraph, (ii) the Indemnifying Party shall not have employed counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified Party within a
reasonable time after notice of the commencement of the action, or (iii) the Indemnifying Party has
not authorized the employment of counsel for the Indemnified Party at the expense of the
Indemnifying Party. Notwithstanding anything to the contrary in this Agreement, the Indemnifying
Party shall have no right to settle or compromise, without the prior written consent of the
Indemnified Party, any action or claim to the extent the settlement or compromise provides for any
injunctive or other equitable relief against the Indemnified Party other than monetary damages, or
does not include as an unconditional term thereof the providing to the Indemnified Party by the
third party of a release, in form and substance acceptable to the
17
Indemnified Party, of all liability in respect of such claim. Nothing stated herein shall
otherwise affect the Indemnifying Party’s obligation to pay the Indemnified Party any Indemnifiable
Damages pursuant to the provisions of this Article V The Indemnified Party shall reasonably
cooperate with the Indemnifying Party in the defense of any action or claim assumed by the
Indemnifying Party in accordance with the terms hereof and shall make available to the Indemnifying
Party such information as the Indemnifying Party reasonably requests in connection with any such
defense. For purposes of this Article V, an “Indemnified Party” shall mean a party claiming
defense or indemnification under this Article V and an “Indemnifying Party” shall mean a party from
whom defense or indemnification is sought under this Article V With regard to any Third Party
Claims for which indemnification is payable hereunder, such indemnification shall be paid by the
Indemnifying Party upon the earliest to occur of: (a) the entry of a judgment against the
Indemnified Party and the expiration of any applicable appeal period, or if earlier, ten (10) days
prior to the date that the judgment creditor has the right to execute the judgment; (b) the entry
of a nonappealable judgment or final appellate decision against the Indemnified Party; (c) a
settlement of the claim; or (d) with respect to indemnities for tax liabilities, upon the issuance
of any binding resolution by a taxation authority. Notwithstanding the foregoing, expenses of
counsel to the Indemnified Party shall be reimbursed on a current basis by the Indemnifying Party.
All indemnification claims not paid when due shall bear interest at a rate equal to the lesser of
10% per annum or the highest rate permitted by law.
6.4 Right to Indemnification Not Affected by Knowledge or Waiver. The right to
indemnification, payment of Indemnifiable Damages or other remedy based upon breach of
representations, warranties, covenants, agreements or obligations or otherwise will not be affected
by any investigation conducted (or not conducted) with respect to, or knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution and delivery of this
Agreement or the Effective Date, with respect to the accuracy or inaccuracy of or compliance with
any such representation, warranty, covenant, agreement or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance of or compliance
with any covenant, agreement or obligation, will not affect the right to indemnification, payment
of Indemnifiable Damages or other remedy biased on such representations, warranties, covenants,
agreements and obligations.
6.5 Set Off. An Indemnified Party may set off any Indemnifiable Damages incurred by
it against any amounts owed by the Indemnified Party pursuant to this Agreement to the Indemnifying
Party, subject, however, to the following terms and conditions:
(a) The Indemnified Party shall give written notice to the Indemnifying Party of any claim for
Indemnifiable Damages or any other damages hereunder, which notice shall set forth (i) the amount
of Indemnifiable Damages or other loss, damage, cost or expense which the Indemnified Party claims
to have sustained by reason thereof and (ii) the basis of the claim therefor;
(b) Such set off shall be effected on the later to occur on the expiration of ten (10) days
from the date of such notice (the “Notice of Contest Period”) or, if such claim is contested, the
date the dispute is resolved; and
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(c) If, prior to the expiration of the Notice of Contest Period, the Indemnifying Party shall
notify the Indemnified Party in writing of an intention to dispute the claim and if such dispute is
not resolved within thirty (30) days after expiration of such period, then the Indemnified Party
may take any action or exercise any remedy available to it by appropriate legal proceedings to
collect the Indemnifiable Damages.
ARTICLE VII
ARBITRATION
All controversies and claims arising under or relating to this Agreement are to be resolved by
arbitration in accordance with the rules of the American Arbitration Association before a panel of
three arbitrators selected in accordance with those rules. The arbitration is to be conducted in
New York, New York. The arbitrators are to apply Delaware law, without regard to its choice of
laws principles. Each party shall submit to any court of competent jurisdiction for purposes of
the enforcement of any award, order or judgment. Any award, order or judgment pursuant to the
arbitration is final and may be entered and enforced in any court of competent jurisdiction. The
prevailing party in any dispute arising from or in connection with this Agreement shall be entitled
to recover from the non-prevailing party its reasonable attorneys’ fees and costs.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing and shall be delivered by certified or registered mail (first class
postage pre-paid), guaranteed overnight delivery, or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed
overnight delivery, to the following addresses and fax numbers (or to such other addresses or fax
numbers which such party shall designate in writing to the other party):
if to Sino:
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Sino Silver Corp. 0000 Xxxx 00 Xx. Xxxxx Xxxxxxxxx, X.X. X0X0X0 Attention: Xxx Xxxx, President |
|
with a copy to:
|
Akerman Senterfitt Xxx X.X. 0xx Xxx., 00xx Xxxxx Xxxxx, Xxxxxxx 00000 Attn.: Xxxxxxx X. Xxxxx, Esquire Fax: (000) 000-0000 |
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if to Silver Dragon:
|
Silver Dragon Resources, Inc. 0000 Xxxxxxx Xxxxxx Xxxx Xxxxx 000 Xxxxxxx, Xxxxxxx, Xxxxxx X0X0X0 Attn: Xxxx Xxxxxx, President Fax: (000) 000-0000 |
|
with a copy to:
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Garfrn Zeidenberg LLP 0000 Xxxxx Xxxxxx Xxxxxxxxxxx Xxxx Xxxxxxx, Xxxxxxx, Xxxxxx X0X 0X0 Attn: Xxxxxxx X. Xxxxx Fax: (000) 000-0000 |
Notice shall be deemed given on the date sent if sent by facsimile transmission and on the date
delivered (or the date of refusal of delivery) if sent by overnight delivery or certified or
registered mail.
8.2 Term. This Agreement shall commence on the Effective Date and shall terminate
following the disposition of all of Sino-Top’s rights in the Property and, if the Option is
exercised and closes, the Additional Property, or the liquidation of all of Sino’s equity interest
in Sino-Top, and in either case, the distribution of the Property Percentage Interest/Property
Distributions and, if applicable, the Additional Payment Right to Silver Dragon.
8.3 Entire Agreement; No Third Party Beneficiaries. This Agreement (including the
exhibits and schedules attached hereto) and the certificates delivered on the Effective Date
pursuant hereto, contain the entire understanding of the parties hereto in respect of their
respective subject matters and supersede all prior (oral or written) agreements, understandings,
representations and warranties between or among the parties with respect to such subject matters.
The exhibits and schedules constitute apart hereof as though set forth in full above. This
Agreement is not intended to confer upon any person or entity, other than the parties hereto, any
rights or remedies hereunder. Each party hereto agrees that, except for the statements,
representations and warranties contained in this Agreement and any exhibit, schedule or document
attached hereto and any certificate delivered on the Effective Date pursuant hereto, neither party
hereto makes any other statements, representations or warranties (whether in writing or otherwise)
that the other is entitled to rely upon, and each hereby disclaims any other statements,
representations or warranties (whether in writing or otherwise) made by each party hereto or any of
the officers, directors, employees, agents, financial and legal advisors or other representatives
of such party with respect to the preparation, execution and delivery of this Agreement and any
exhibit, schedule or document attached hereto and any certificate delivered on the Effective Date
pursuant hereto, or the transactions contemplated hereby, notwithstanding the delivery or
disclosure to the other or the other’s representatives of any documentation or other information
(whether oral or written) with respect to any one or more of the foregoing.
8.4 Independent Contractor Status. It is understood and agreed that the parties
hereto are independent contractors only and not agents for any purpose whatsoever, and shall make
no representations to the contrary to anyone. This Agreement does not create or represent a
partnership between the parties hereto. Neither party hereto has the right or authority to
20
assume, or create, any obligation of any kind, whether express or implied, on behalf of the
other party hereto nor any right or authority to bind the other party hereto in any respect
whatsoever. Neither party hereto is expressly or impliedly authorized to make decisions on behalf
of the other party hereto, to enter into written or oral contracts or agreements of any nature on
behalf of the other party hereto, to pledge the credit of the other party hereto or to extend
credit in the name of the other party hereto, or to act as a legal representative of the other
party hereto in judicial or extrajudicial proceedings.
8.5 Transaction Costs. Except as otherwise provided in this Agreement, the parties
hereto shall pay their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated hereby.
8.6 Amendment; Waiver. This Agreement may not be modified, amended, supplemented,
canceled or discharged, except by written instrument executed by all parties hereto. No failure to
exercise, and no delay in exercising, any right, power or privilege under this Agreement shall
operate as a waiver, nor shall any single or partial exercise of any right, power or privilege
hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or
any other provision, nor shall any waiver be implied from any course of dealing between the parties
hereto. No extension of time for performance of any obligations or other acts hereunder or under
any other agreement shall be deemed to be an extension of the time for performance of any other
obligations or any other acts. The rights and remedies of the parties under this Agreement are in
addition to all other rights and remedies, at law or equity, that they may have against each other.
8.7 Binding Effect; Assignment. The rights and obligations of this Agreement shall
bind and inure to the benefit of the parties hereto and their respective successors and assigns.
Nothing expressed or implied herein shall be construed to give any other person or entity any legal
or equitable rights hereunder. This Agreement and/or the rights and obligations under this
Agreement may not be assigned by either party hereto without the prior written consent of the other
party hereto; provided that Sino may assign this Agreement and/or its rights and obligations
hereunder to any successor to its business who/which agrees to assume its obligations hereunder.
Any other purported assignment of rights or obligations in violation of this Agreement is void.
8.8 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one and the same
instrument. A telecopy signature of any party hereto shall be considered to have the same binding
legal effect as an original signature.
8.9 Interpretation. The headings contained in this Agreement and on the schedules are
for reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement or the schedules. Whenever the words “include,” “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without limitation.” Terms
defined in the singular shall have a comparable meaning when used in the plural, and vice versa.
As used in this Agreement, the neuter gender shall also denote the masculine and
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feminine, and the masculine gender shall also denote the neuter and feminine, where the
context so permits.
8.10 Governing Law. The laws of the State of Delaware (without giving effect to its
conflict of laws principles) govern all matters arising out of or relating to this Agreement and/or
the transactions contemplated by this Agreement, including, without limitation, its interpretation,
construction, performance and enforcement.
8.11 Severability. If any provision of this Agreement is determined to be invalid,
illegal or unenforceable, the remaining provisions of this Agreement shall remain in full force, if
the essential terms and conditions of this Agreement for each party hereto remain valid, binding
and enforceable.
8.12 Construction. The parties hereto agree and acknowledge that they have jointly
participated in the negotiation and drafting of this Agreement. In the event of an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties hereto and no presumptions or burdens of proof shall arise favoring any
party hereto by virtue of the authorship of any of the provisions of this Agreement. Any reference
to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules
and regulations promulgated thereunder, unless the context requires otherwise. If any party hereto
has breached any representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first representation,
warranty, or covenant. The mere listing (or inclusion of copy) of a document or other item shall
not be deemed adequate to disclose an exception to a representation or warranty made herein (unless
the representation or warranty relates solely to the existence of the document or other items
itself).
(Signatures On Following Page)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first above written.
| SILVER DRAGON RESOURCES INC. |
||||
| By: | /s/ Xxxx Xxxxxx | |||
| Name: | Xxxx Xxxxxx | |||
| Title: | President I have authority to bind the Corporation |
|||
| SINO SILVER CORP |
||||
| By: | /s/ Xxx Xxxx | |||
| Name: | Xxx Xxxx | |||
| Title: | President I have authority to bind the Corporation |
|||
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