Exhibit
10
JOINT VENTURE AGREEMENT
This
VENTURE AGREEMENT (this "Agreement") is entered into as of
September ____, 2005 (the "Effective Date") by and between
SILVER DRAGON RESOURCES INC. , a Delaware corporation
("Silver Dragon"), LINEAR GOLD CORP ., a Canada corporation,
LINEAR GOLD CARIBE, S.A., a Panama corporation (Linear Gold
Corp. and Linear Gold Caribe, S.A. hereinafter jointly identified
as "Linear") and LINEAR GOLD MEXICO, S.A. de C.V., a Mexican
corporation (" Linear Mexico").
WHEREAS , Linear Gold
Corp., as to 98% interest and Linear Gold Caribe, S.A., as to 2%
interest are the sole shareholders of Linear Mexico;
WHEREAS , Linear has the
right to acquire through Linear Mexico, the exploration and
exploitation rights to the property known as the Tierra Blanca
Property located in Durango, Mexico, as more particularly described
in Schedule "A" (the "Property"); and
WHEREAS , Linear, through
Linear Mexico has the exclusive option to purchase the mining
rights to the Property ("Linear Mexico's Option") at the option
price of $2,000,000 (the "Option Price") provided it undertakes
certain payment obligations as more particularly described herein;
and
WHEREAS , Silver Dragon
desires to acquire a portion of Linear's interest in and rights to
the Property, and share in the revenues, if any, derived from the
Property on the terms set forth in this Agreement (the "Joint
Venture").
NOW,
THEREFORE , in
consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as
follows:
ARTICLE I
INTERPRETATION
1.1
Definitions. In this agreement the following words, phrases and
expressions shall have the following meanings:
(a)
"Assets" means all tangible and intangible goods, chattels,
improvements or other items including, without limiting the
generality of the foregoing, land, buildings, equipment and mineral
rights, but excluding the Property, acquired for or made to the
Property under this agreement in connection with the Mining
Operations;
(b)
"Associated Company" means, in respect of a Participant, a
corporation associated with it within the meaning of the Canada
Business Corporations Act , R.S.C. 1985, c. C-44;
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(c)
"Commercial Production" means the operation of the Property or any
part of it as a Mine, but does not include milling for the purpose
of testing or milling by a pilot plant;
(d)
"Cost Share" means the respective shares of all Costs and other
liabilities under this agreement to be borne by each Participant
after the Participation Date and shall be equal to the respective
Interests of each Participant as determined from time to
time;
(e)
"Costs" means all items of outlay and expense whatsoever, direct or
indirect, with respect to Mining Operations, recorded by the
Operator in accordance with this agreement incurred after the
Participation Date:
(f)
"Interest" means the undivided beneficial percentage interest of a
party in the Assets and shall be equal to its interest in NewCo (as
defined in paragraph 2.4) as determined pursuant to this agreement,
respectively;
(g)
"Joint Venture" shall have the meaning attributed to it in the
recitals;
(h)
"Management Committee" means the committee established pursuant to
Article 7;
(i)
"Mine" means the workings established and Assets acquired including
development headings, plant and concentrator installations,
infrastructure, housing, airport and other facilities in order to
bring the Property into Commercial Production;
(j)
"Mineral Products" means the end products derived from operating
the Property as a Mine;
(k)
"Mining Operations" means every kind of work done on or in respect
of the Property by or under the direction of the Management
Committee including, without limiting the generality of the
foregoing, the work of assessment, geophysical, geochemical and
geological surveys, studies and mapping, investigating, drilling,
designing, examining, equipping, improving, surveying,
shaft-sinking, raising, cross-cutting and drifting, searching for,
digging, trucking, sampling, working and procuring minerals, ores
and metals, surveying and bringing any mining claims to lease or
patent, and all other work usually considered to be prospecting,
exploration, development and mining work; in paying wages and
salaries of workers engaged in the work and in supplying food,
lodging, transportation and other reasonable needs of those
workers; in paying assessments or premiums for workers'
compensation insurance, contributions for unemployment insurance or
other pay allowances or benefits customarily paid in the district
to those workers; in paying rentals, licence renewal fees, taxes
and other governmental charges required to keep the Property in
good standing; in purchasing or renting plant, buildings,
machinery, tools, appliances, equipment or supplies and in
installing, erecting, detaching and removing them; mining, milling,
concentrating rehabilitation, reclamation, and environmental
protections and in the management of any work which may be done on
the Property or in any other respect necessary for the due carrying
out of the prospecting, exploration and development
work;
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(l)
"Net Profits Interest" means an entitlement to profits from the
Property by each party;
(m)
"Operator" means the party appointed as the Operator in accordance
with Article 8;
(n)
"Participant" means either of Linear or Silver Dragon, and their
respective successors and permitted assigns and "Participants"
means both Linear and Silver Dragon and their respective successors
and permitted assigns;
(o)
"Participation Date" shall mean that date on which Silver Dragon
has given proper notice of the exercise of its option to earn a 55%
interest in the Property;
(p)
"party" or "parties" means the parties to this agreement and their
respective successors and permitted assigns which become parties
pursuant to this agreement;
(q)
"Prime Rate" means the rate of interest quoted or published by the
HSBC from time to time as being its rate of interest per annum
charged from time to time at Toronto, Ontario;
(r)
"Program" means any program to carry out work and incur Costs on
the Property and includes as the context requires:
(i) a
document or documents wherein there is specified in reasonable
detail an outline of any and all research, prospecting and
exploration and development work proposed to be carried out during
the program, the estimated Costs as to be incurred in carrying out
the work and the area of the Property on which the work is to be
undertaken, and
(ii)
the preparation of any feasibility report,
and
shall include any amendments to a Program as may be agreed on by
the Management Committee;
(s)
"Property" means the certain property described in Schedule "A",
and all other interests in mineral properties made subject to this
agreement by the parties;
(t)
"Qualified Expenditures" means the expenditures of Silver Dragon as
described in paragraph 2.3;
(u)
"Revenues" means the total proceeds, calculated at the point of
sale, derived from the sale of ore, minerals or other products
extracted from the Property, plus any miscellaneous proceeds
(including all net amounts received from the sale of plant,
machinery, equipment or other assets prior to the cessation of
operations) from the Property;
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(v)
"Underlying Agreement" means the Linear Mexico Contract as
described in paragraph 3.8; and
(w)
"Vendor" means Messrs. Ramón Tomás Dávila Flores,
Carlos Arturo Romo Ramírez and José Jaime Gutiérrez
Núñez .
1.2
Included words. This agreement shall be read with those
changes in gender or number as the context shall
require.
1.3
Headings. The headings to the paragraphs of this agreement are
inserted for convenience only and shall not affect the construction
of this agreement.
1.4
References. Unless otherwise stated, a reference to a numbered
or lettered paragraph refers to the paragraph bearing that number
or letter in this agreement. A reference to this agreement or in
this agreement means this agreement including the schedules,
together with any amendments.
1.5
Schedules. The following schedules are incorporated into this
agreement by reference:
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Schedules
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Description
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"A"
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Property
Description
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(including
location of mineral
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concessions,
title numbers, corner
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locations
and/or coordinates)
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ARTICLE II
CONSIDERATION and OPTION
2.1
Payments by Silver Dragon. In order to maintain the option
hereby granted, Silver Dragon shall pay to Linear (through Linear
Gold Corp) a maximum sum of $230,000, as follows: (a) $45,000
payable on the Effective Date; (b) $75,000 payable on March 31,
2006 ; and (c) $110,000 payable on March 30, 2007, with payments
under (b) and (c) subject to the conditions set forth in Article
VI.
2.2
Issuance of Stock by Silver Dragon . Silver Dragon shall issue
to Linear a maximum of 600,000 shares of common stock of Silver
Dragon (the " Silver Dragon Shares") as follows: (a) 100,000 shares
shall be issued on the Effective Date; (b) 200,000 shares shall be
issued on the first anniversary of the Effective Date; and (c)
300,000 shares shall be issued on the second anniversary of the
Effective Date, with the issuances under (b) and (c) subject to the
conditions set forth in Article VI.
2.3
Silver Dragon's Option. In consideration for the payments
referred to in Section 2.1 and the issuance of the Silver Dragon
Shares, Linear hereby grants to Silver Dragon an option to earn an
interest in the Property ("Silver's Option") subject to the terms
of the
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Agreement herein. Throughout the
term of Silver's Option, the exploration rights to the Property
shall remain the property of Linear Mexico, and Linear shall
maintain Linear Mexico's Option in good standing. In order to
maintain Linear Mexico's Option in good standing, Linear Mexico
must make the following payments (herinafter referred to as the
"Payment Obligations"):
i) Year 1 - $20,000
ii) April 6, 2006 -
$35,000
iii) April 6, 2007 -
$70,000
For greater certainty, the
Payment Obligations and Linear Mexico's Option shall remain the
obligations of Linear Mexico solely before the concessionaires of
the Property. In order to maintain Silver Dragon's Option, Silver
Dragon shall make the payments and issue shares in accordance with
Sections 2.1 and 2.2. In addition, subject to the conditions set
forth in Article VI, Silver Dragon shall be required to make
qualified expenditures totaling $850,000 (the "Qualified
Expenditures"), which expenditures satisfy Linear's obligations
under the Underlying Agreement, as work commitments on the Property
in accordance with the following schedule:
i. Year 1 - $150,000
ii. Year 2 - $200,000
iii. Year 3 - $500,000
The Qualified Expenditures during
years 2 and 3 are subject to the conditions set forth in Article
VI. Any expenditures by Silver Dragon which exceed the minimum
investment amount in any year can be carried forward and applied
against Silver Dragon's Qualified Expenditures for any subsequent
year(s). Silver Dragon shall provide Linear with a report
summarizing its work completed on the Property, the results of such
work and details of expenditures as at December 31 st
and June 30 th of each year during which Silver's Option
is outstanding.
2.4
Assignment to Silver Dragon. Subject to making all payments set
forth in Section 2.1, issuing all shares as set forth in Section
2.2 and meeting all Qualified Expenditures, Linear, shall cause
Linear Mexico to assign to Silver Dragon, a 55% interest in the
Property, through a new Mexican company (NewCo) to be incorporated
and in which capital stock Linear participates in a 45% interest
and Silver Dragon participates in a 55% interest, or in any other
percentage as agreed by the parties. Each of Linear and Silver
Dragon through the NewCo, shall thereafter be responsible for
funding the Option Price and providing the necessary development
funds required to mine the Property, pro rata in accordance with
their respective percentage interests. All net proceeds of NewCo
shall be distributed pro rata, in accordance with each party's
respective percentage interest.
ARTICLE III
5
REPRESENTATIONS AND WARRANTIES OF LINEAR AND
LINEAR MEXICO
As a material
inducement to Silver Dragon to enter into this Agreement, Linear
(which includes both Linear Gold Corp. and Linear Gold Caribe, S.A.
as earlier defined) represents and warrants to Silver Dragon, as of
the Effective Date, as follows:
3.1
Corporate Status. Linear Gold Corp. is a corporation duly
organized, validly existing and in good standing under the laws of
the Dominion of Canada, and has the requisite power and authority
to carry on its business as now being conducted.
3.2
Linear Gold Caribe, S.A. is a corporation duly organized, validly
existing and in good standing under the laws of the Dominion of
Panama, and has the requisite power and authority to carry on its
business as now being conducted.
3.3
Linear Mexico is a corporation duly organized, validly existing and
in good standing under the laws of the Mexican United States and
has the requisite power and authority to own, option or lease
mining concessions in Mexico and to carry out its business as now
being conducted.
3.4 Power
and Authority. Linear and Linear Mexico have the power and
authority to execute and deliver this Agreement, to perform their
obligations hereunder and to consummate the transactions
contemplated hereby. Linear and Linear Mexico have taken all
corporate action necessary to authorize the execution and delivery
of this Agreement, the performance of their obligations hereunder
and the consummation by them of the transactions contemplated
hereby.
Likewise, Linear Gold Corp. and
Linear Gold Caribe, S.A. as sole shareholders of Linear Gold
Mexico, S.A. de C.V. have the power and authority to commit the
latter under the terms of this Agreement.
3.5
Enforceability. This Agreement has been duly executed and
delivered by Linear and Linear Mexico and constitutes a legal,
valid and binding obligation of Linear and Linear Mexico,
enforceable against Linear and Linear Mexico 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.
3.6
No Violation. The execution and delivery of this Agreement by
Linear and Linear Mexico, the performance by Linear and Linear
Mexico of their obligations hereunder and the consummation by
Linear and Linear Mexico of the transactions contemplated by this
Agreement will not (a) contravene any provision of the articles of
incorporation or bylaws of Linear or Linear Mexico, (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 Linear or Linear Mexico, (c)
conflict with, result in any breach of, or constitute a default (or
an event
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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 Linear or Linear Mexico, (d)
result in or require the creation or imposition of any lien upon or
with respect to any of the property or assets of Linear or Linear
Mexico, 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.
3.7 No
Commissions. Neither Linear nor Linear Mexico have 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.
3.8
Representations Regarding the Property. The execution and
delivery and performance of the Agreement herein does not
contravene any provision of Linear Mexico's Contract of Mining
Exploration and of Promise of Assignment of Rights, nor its
Amendment Agreement entered into with Messrs. Ramón Tomás
Dávila Flores, Carlos Arturo Romo Ramírez and José
Jaime Gutiérrez Núñez the "Linear Mexico- Contract",
Linear Mexico having full, complete and unrestricted ability to
promise to assign to NewCo, and/or to Silver Dragon's Mexican
subsidiary, should such be the case, a portion or all of its
interest in the Property. Linear has exclusive exploratory rights
with respect to the Property pursuant to the laws of the United
Mexican States , free and clear of all liens, disputes, taxes,
claims and encumbrances. Linear Mexico has valid exploration rights
on the Property, such rights being valid up to and including April
7, 2008, and to the best of the knowledge of Linear, the Property
is free and clear of all liens, disputes, taxes, claims and
encumbrances, and also to the best of its knowledge, all required
government permits have been validly issued and are in good
standing pursuant to the laws of the Government of Mexico. Linear
does not require the consent of Property owners in order to
enter into this Agreement. The Linear Mexico Contract is in good
standing and Linear and Linear Mexico have complied with all of
their obligations therein up to the Effective Date.
However, the prior written
consent of the Concession owners, through Mr. Ramón Tomás
Dávila Flores, must be obtained prior to the execution of the
definitive contract of assignment of rights whereby Linear Mexico
shall assign to NewCo or to Silver Dragon's Mexican subsidiary, its
interest in the Property, it being expressly understood that, under
the terms of the Linear Mexico Contract, said prior written consent
may not be withheld if the assignee assumes the obligation to
comply with all of the obligations Linear Mexico acquired upon said
Linear Mexico Contract.
3.9
Deliveries. Linear and Linear Mexico have provided to Silver
Dragon a true and correct copy of (a) the articles of incorporation
and bylaws of Linear and Linear Mexico as in effect on the
Effective Date, certified as of the Effective Date by the
respective Secretaries of Linear and Linear Mexico as being true,
correct and complete, (b) a certified copy of the resolutions of
the Board of Directors of Linear and Linear Mexico consenting to
the transaction herein, (c) complete information about the Property
sufficient to allow Silver
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Dragon to make an informed
decision regarding entering into this Joint Venture Agreement,
including, without limitation, all geological data in Linear's
possession, title confirmation and all other documentation
evidencing Linear's rights with respect to the Property, together
with a certified English translation where required, and (d)
certificates of good standing of Linear and Linear Mexico issued by
the Secretary of State/Province of incorporation as of a date not
more than ten days prior to the Effective Date.
3.10
Investment Representations.
(a) Linear
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
(the "Shares").
(b) Linear
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) Linear
understands that the Shares have not been registered under the
Securities Act. Linear 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. Linear 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.
3.11
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 to a
prospective joint venture participant seeking full information
concerning the matters which are the subject of such
representations, warranties and statements.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SILVER
DRAGON
As a material inducement to
Linear to enter into this Agreement, Silver Dragon represents and
warrants to Linear, as of the Effective Date, as
follows:
4.1
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.
4.2
Power and Authority. Silver Dragon has the power and authority
to execute and deliver this Agreement and to execute all of the
documents deriving from this Contract, 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.
4.3
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.
4.4
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.
4.5
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.
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4.6
SEC Filings. Silver Dragon has 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: (a) Quarterly Report
on Form 10-QSB for the quarters ended March 31, 2005, September 30,
2004 and June 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, 2005.
4.7
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,
provincial 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. The Shares
are subject to Rule 144 of the Securities Act of 1933, and shall be
freely tradable after 12 months from the date of
issuance.
4.8 No
Material Adverse Change; 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 March 31, 2005. 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.
4.9
Deliveries. Silver Dragon has delivered to Linear (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 issued by the Secretary of State of
incorporation of Silver Dragon as of a date not more than ten days
prior to the Effective Date.
ARTICLE V
ADDITIONAL COVENANTS
5.1
Use of Cash Proceeds.
The cash paid by Silver Dragon to
Linear pursuant to Section 2.1 shall be used by Linear partially to
finance Linear Mexico's Payment Obligations to Messrs. Ramón
Tomás Dávila Flores, Carlos Arturo Romo Ramírez and
José Jaime Gutiérrez Núñez with respect to
the
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Property as follows: (a) $20,000
payable in 2005; (b) $35,000 payable on April 6, 2006; and (c)
$70,000 payable on April 6, 2007, with payments under (b) and (c)
subject to the conditions set forth in Article VI.
5.2
Silver Dragon's Covenants Respecting the Shares. 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 Linear of the Shares in accordance with the terms of
this Agreement.
5.3
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 may be necessary or appropriate to effectuate, carry out
and comply with all of the terms of this Agreement and the
transactions contemplated hereby.
5.4
Press Releases. Prior to the distribution of any press releases
by either party with respect to the Joint Venture, the other party
shall be entitled to review and comment on such proposed press
releases. Neither party shall issue a press release with respect to
the Joint Venture without the prior consent of the other party,
which consent shall not be unreasonably withheld or delayed. The
parties agree to act expeditiously and cooperatively in this review
process, and provide such comments and/or consent within a 24 hour
period.
5.5
Confidentiality. Both parties agree and acknowledge that they
may receive information concerning the other party which
constitutes material inside information, as defined for purposes of
Section 20A and 21A of the Exchange Act ("Inside Information").
Neither party shall disclose any Inside Information to any person
or entity other than pursuant to court order or with the prior
written consent of the other party, until after such information
has been publicly disseminated. In addition to the foregoing, both
parties agree that at all times after the Effective Date they 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 the other party or its 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 not be, or be permitted to be,
shown, copied or disclosed to any third parties, without the prior
written consent of the other party. In the event that either party
is ordered to disclose any Confidential Information, whether in a
legal or regulatory proceeding or otherwise, such party shall
provide the other party with prompt notice of such request or order
so that the other party may seek to prevent disclosure. In the case
of any disclosure, such party shall disclose only that portion of
the Confidential Information that it is ordered to disclose. The
provisions of this Section 5.5 shall survive the termination of
this Agreement.
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ARTICLE VI
FINANCIAL REQUIREMENTS
6.1
Initial Exploratory Work . Silver Dragon's obligation to pay
Linear (i) the sum of $75,000 on March 31, 2006 (the "Second
Installment") and (ii) the sum of $110,000 on March 30, 2007 (the
"Third Installment")(as well as issue the Silver Dragon Shares
specified in Section 2.2(b) and (c)), and to make the Qualified
Expenditures in years 2 and 3 shall all be contingent upon Silver
Dragon's determination to continue with the exploration of the
Property. In the event that Silver Dragon determines, in its sole
and absolute discretion, that it does not wish to continue with the
exploration of the Property at any time prior to the payment of the
Second Installment or the Third Installment as the case may be, it
shall inform so to Linear in writing with a 30 (thirty) day term
anticipation and, thereafter, no further payments, Qualified
Expenditures or share issuances to Linear shall be
required.
6.2
Exercise of Option . Within 30 days following the later of
receipt by Linear of all payments pursuant to Section 2.1, the
issuance and delivery to Linear of all of the Silver Dragon Shares
and the completion of all the Qualified Expenditures (the
"Participation Date"), Linear shall cause Linear Mexico to exercise
Linear Mexico's Option, as well as to assign all of the rights
deriving from the Property to NewCo, in which capital stock, Linear
shall participate in a 45% share and Silver Dragon in a 55% share ,
and which at that time must have been duly incorporated under the
laws of the United Mexican States and recorded with the Public
Registry of Commerce of its corporate domicile and with the Public
Registry of Mining, in order to have enough power to be holder of
mining concessions in Mexico. Each of Linear and Silver Dragon
shall contribute their pro-rata shares of the Option Price which,
under the terms of the Linear Mexico Contract rises to $2,000,000,
it being expressly understood that said contribution must be made,
prior to the date in which Linear Mexico exercises its option to
acquire the Property. Provided, however, in the event that Linear
does not wish to exercise Linear Mexico's Option and in case it has
no further interest in the Property, it shall assign its rights in
Linear's Option to a Mexican subsidiary of Silver Dragon in
consideration for sum of $2.00, after which Silver Dragon through
said Mexican subsidiary shall directly exercise the option and
shall own 100% of the Property rights.
6.3
Capital Contributions. As further detailed in Article IX,
Silver Dragon and Linear shall act reasonably and in good faith in
determining a budget for the mining of the Property, with each
party contributing their respective pro rata shares according to
their participation interest in NewCo of the expenses from time to
time. After each budget has been determined (the "Budget
Determination Date") for the forthcoming 12 month period, the
parties shall be given no less than 30 days (or such longer period
as may be agreed to between the parties) to contribute their
respective shares of the budget. In the event that either party
does not make its respective capital contribution within 60 days of
the Budget Determination Date (the "Defaulting Party"), the
Defaulting Party's percentage interest in the capital stock of
NewCo shall decrease and the non-defaulting party's percentage
interest in the capital stock of NewCo shall correspondingly
increase. For the purpose of determining the increase and decrease
in the respective party's participating interest in NewCo , the
parties agree that,
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upon the exercise of Linear
Mexico's Option, 100% of the Property interest is valued as
follows:
($2,000,000 + $1,545,545.50 =
$3,545,454.50).
For example, if Silver Dragon
contributes additional capital of $1,000,000 and Linear contributes
nil, Linear's percentage interest in the capital stock of NewCo
would decrease to 35% (3,545,454.50 X 45% divided by 4,545,454.50),
and Silver Dragon's percentage interest in the capital stock of
NewCo would increase to 65%.
If the Defaulting Party fails to
cooperate for the purpose of adjusting the percentage interests in
the capital stock of NewCo, the non-defaulting party shall be
entitled to execute and deliver, on behalf of and in the name of
the Defaulting Party, such deeds, transfers, share certificates,
resignations or other documents that may be necessary to complete
the subject transaction and the Defaulting Party hereby irrevocably
appoints the non-defaulting party as its attorney in that behalf in
accordance with the Powers of Attorney Act, R.S.O. 1990, c.
P.20.
ARTICLE VII
MANAGEMENT AND OPERATIONAL
GOVERNANCE
7.1
Formation of Management Committee. A Management Committee shall
be established on or immediately after the Participation Date.
Except as otherwise provided herein, the Management Committee shall
make all decisions in respect of Mining Operations. The Management
Committee shall act reasonably and in good faith to protect the
interests of all shareholders of Newco in discharging its
obligations hereunder.
7.2
Appointment of Representatives. Each party shall immediately
appoint one representative and one alternate representative to the
Management Committee, and give the other party notice of the
appointments. The alternate representative may attend all meetings
and may act for a party's representative in his absence. A
Participant may from time to time revoke in writing the appointment
of its representative or alternate representative, and appoint in
writing a substitute.
7.3
Meetings. The Operator shall call a Management Committee
meeting at least once eve
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