Item 1.01 Entry into a Material Definitive Agreement
As previously reported on a Form 8-K that was filed with the
Securities and Exchange Commission on April 12, 2016 (the April 12, 2016 8-K),
on April 7, 2016, Silver Dragon Resources, Inc., a Delaware corporation (the
Company) entered into a Settlement and Securities Purchase Agreement (the
Agreement) with Tonaquint, Inc. a Utah corporation (the Investor).
Under the Agreement the Company and the Investor agreed that,
upon the mutual agreement of both parties, Investor may make additional
investments pursuant to a Secured convertible Promissory Note (the Additional
Note). On August 2, 2016, the Investor purchased an Additional Note having a
principal amount of $170,000 for $150,000, which reflected a $15,000 original
issue discount for the Additional Note and $5,000 that the Company paid towards
Investors legal fees, accounting costs, due diligence and other costs incurred
in connection with the purchase and sale of the Additional Note.
The Additional Note is secured by a security agreement whereby
the company granted Investor a security interest in all of its assets in favor
of the Investor to secure the Companys performance of its obligations under the
Additional Note and a Pledge Agreement whereby the Company pledged all of its
right, title and interest in and to the equity interest held by the Company in
Sanhe Sino-Top Resources & Technologies, Ltd, (Sino-Top) a Chinese foreign
cooperative joint venture to secure the performance of the Companys obligations
under the Additional Note and Additional Notes. The Additional Note provides for
customary events of default, including, but not limited to, cross defaults to
specified other debt of the Company and its subsidiaries. The Investor, pursuant
to the terms of the Additional Note, is subject to an ownership limitation of
9.99% (the Limitation). If the lender comes to beneficially own a number of
the Companys shares in excess of 9.99%, the Company must not issue to Investor
shares of Common Stock which would excess the Limitation. The material terms of
the Agreement, the Security Agreement and the Pledge Agreement were reported in
the April 12, 2016 8-K.
The Additional Note carries an annual interest rate of 12%. The
Investor may convert the Additional Note at any time beginning January 2, 2017
and until the outstanding balance on the Note is paid in full. The maturity date
of the Additional Note is February 28, 2017 (the Maturity Date).
The conversion price for each Lender Conversion (as defined
below) shall be $0.015 (the Lender Conversion Price). However, in the event
the Companys Market Capitalization (as defined in the Additional Note) falls
below $4,000,000.00 at any time, then in such event (a) the Lender Conversion
Price for all conversions by the Investor occurring after the first date of such
occurrence shall equal the lower of the Lender Conversion Price or the Market
Price (as defined in the Additional Note) as of any applicable date of
conversion, and (b) the true-up provisions of the promissory note shall apply to
all Lender Conversions that occur after the first date the Market Capitalization
falls below $4,000,000.00.
Beginning on December 31, 2016 and on the same day of each
month thereafter until the Maturity Date (each, an Installment Date), if
paying in cash, the Company shall pay to the Investor the applicable Installment
Amount due on such date and if paying in Installment Conversion Shares (as
defined below), the Company shall deliver such Installment Conversion Shares on
or before the delivery date. As used in the Installment Amount means
$55,000.
Payments of each Installment Amount may be made (a) in cash, or
(b) by converting such Installment Amount into shares of Common Stock
(Installment Conversion Shares, and together with the Lender Conversion
Shares, the Conversion Shares) (each an Installment Conversion) per the
following formula: the number of Installment Conversion Shares equals the
portion of the applicable Installment Amount being converted divided by the
Installment Conversion Price, or (c) by any combination of the foregoing, so
long as the cash is delivered to Lender on the applicable Installment Date and
the Installment Conversion Shares are delivered to Lender on or before the
applicable delivery date. Notwithstanding the foregoing, the Company will not be
entitled to elect an Installment Conversion with respect to any portion of any
applicable Installment Amount and shall be required to pay the entire Amount of
such Installment Amount in cash if on the applicable Installment Date there is
Equity Conditions Failure (as defined in the Additional Note), and such failure
is not waived in writing by Investor.
On the date that is twenty trading days (a True-Up Date) from
each date that the Installment Conversion Shares delivered by the Company to the
Investor become cleared for resale by any applicable compliance departments of the Investors brokerage firm or clearing firm and such shares
have been deposited in such clearing firms account for the benefit of the
Investor, there shall be a true-up where the Company shall deliver to Lender
additional Installment Conversion Shares (True-Up Shares) if the Installment
Conversion Price as of the True-Up Date is less than the Installment Conversion
Price used in the applicable installment notice. In such event, the Company
shall deliver to investor within three trading days of the True-Up Date a number
of True-Up Shares equal to the difference between the number of Installment
Conversion Shares that would have been delivered to Investor on the True-Up Date
based on the Installment Conversion Price as of the True-Up Date and the number
of Installment Conversion Shares originally delivered to Investor pursuant to
the applicable installment notice.
-2-
Upon the sale by Company of all equity interests held by the
Company in Sino-Top, the Investor may cause the Company to repay its outstanding
balance on promissory notes held by the Investor or redeem Additonal Note at the
Redemption Value (as defined in the Additional Note).
The foregoing descriptions of the Additional Note are qualified
in their entirety by reference to the full text of the Additional Note which is
attached as an exhibit to this current Report on Form 8-K and which are
incorporated herein by reference.
In connection with the foregoing, the Company relied upon the
exemption from securities registration provided by Section 4(a)(2) under the
Securities Act of 1933, as amended, for transactions not involving a public
offering.