Page 58 of 70 SEC Filing
November 3, 2012, Mr. Hazout formally rejected Ms. Chan’s proposal and advised Ms. Chan that the Board of Directors of the Issuer had determined to pursue alternative
financing. In a report on Form 8-K filed by the Issuer on November 19, 2012, the Issuer announced that it had entered into a loan arrangement with a company controlled by Mr. Hazout. The 8-K filing provided no details about whether the
loan arrangement was sufficient to meet the Issuer’s future working capital needs or to repay the so-called “toxic” loans made to the Issuer.
On November 20, 2012, in a report on Form 8-K, the Issuer disclosed that its auditors had filed a notice of non-compliance advising that
the Issuer’s financial statements could no longer be relied upon. The Issuer has also not filed its required Form 10-Q for the quarter ended September 30, 2012. Finally, the Issuer has reported on Form 8-K that it has entered into
forbearance agreements with holders of its toxic loans but the Issuer has not disclosed how it intended to finance the repayment of these loans.
On April 16, 2013, the Reporting Persons, through their legal counsel, sent a letter to the Board of Directors of the Issuer, which,
among other things, expressed the concern of the Reporting Persons about the deterioration of the Issuer’s business, the significant dilution of their equity position, and the poorly disclosed insider-dealing transactions the Issuer has
recently undertaken, especially as the Issuer is seriously delinquent in filing its required Periodic Reports under the Securities Exchange Act of 1934, as amended. As a result of the foregoing, the Reporting Persons are seeking representation on
the board of directors of the Issuer. A copy of the letter was previously filed as Exhibit C to Amendment No. 1, and is incorporated herein by reference in response to this Item 4.
Beginning on or about June 2013, certain of the Reporting Persons began to engage in negotiations with the Issuer regarding a transaction is
which the Reporting Persons would arrange financing for the Issuer , certain members of the board of directors of the Issuer would resign and three Persons designated by the Reporting Persons would be appointed to the Board of Directors of the
Registration. The discussions resulted in an agreement pursuant to which one or more of the Reporting Persons agreed to advance up to $7,500,000 to the Issuer (the “Funding Agreement”). On or about December 31, 2013, based upon
assurances that the Funding Agreement would be signed by all applicable parties, the Reporting Persons advanced US$1,014,140 via wire transfer to the Issuer on behalf of Tsang Mun Ting (“Tsang”) (the “Tsang Funds”). The Tsang
Funds were advanced in good faith in anticipation of the consummation of the transactions contemplated by the Funding Agreement. The Tsang Funds were also sent with the understanding that the advances would be fully secured as contemplated by the
draft Funding Agreement. As a result of the refusal of a director of the Issuer to sign the Funding Agreement the transactions contemplated by the draft Agreement were not consummated. However, the Issuer and its President, Marc Hazout caused this
funds to be used and not returned to Mr. Tsang. It is the understanding of the Reporting Persons that at least $750,000 of the Tsang Funds were used to Mr. Hazout to pay himself and entities affiliated with him.
Tsang commenced an action on September 19, 2014 in the Delaware Court of Chancery, seeking to recover $1,014,140 in funds misappropriated
by Defendant Marc Hazout (“Hazout”), the Issuer and Travellers International, Inc. (“Travellers”). On November 24, 2014, Tsang elected to transfer the case to Delaware Superior Court. On January 7, 2015, Mr. Hazout
and Travellers moved to dismiss the action against them for lack of personal jurisdiction under Rule 12(b)(2) of the Superior Court Rules. On June 3, 2014, the Superior Court granted the motion to dismiss as to Travellers, but denied the motion
to dismiss as to Mr. Hazout, finding that jurisdiction over Hazout was proper in Delaware under 10 Del. C. § 3114. Tsang Mun Ting v. Silver Dragon Resources, Inc., 2015 Del. Super. LEXIS 277 (June 3, 2015). Hazout filed a motion for
reargument on June 8, 2015, which the Superior Court denied on June 18, 2015. Tsang Mun Ting v. Silver Dragon Res., Inc., 2015 Del. Super. LEXIS 332 (June 18, 2015). Mr. Hazout filed a Notice of Appeal before the Delaware Supreme
Court on July 7, 2015, which the Court accepted on August 6, 2015. That appeal is currently pending.
Separately, on
August 3, 2015, shareholder Su Hu filed a Verified Complaint in the Delaware Court of Chancery seeking to compel the Issuer to hold an annual meeting of stockholders, pursuant to 8 Del. C. § 211. On August 24, 2015, the Issuer filed
its Answer to Su Hu’s Verified Complaint. The Issuer’s Answer admitted each factual allegation contained in Su Hu’s Verified Complaint, including that “Pursuant to 8 Del. C. § 211(c), Plaintiff is entitled to an order of
this Court summarily directing the Issuer to promptly hold an Annual Meeting.
On or about October 26, 2015 additional Reporting
Persons entered into a Joinder Agreement to the Voting Agreement previously disclosed, which necessitated the filing of Amendment No. 2 as the Reporting Persons may be deemed to beneficially own 54.7% of the outstanding Common Stock of the
Issuer as set forth in Item 5 below.
On November 29, 2015, Chan sent a letter (the “Nomination Letter”) to the Issuer
nominating herself and three other nominees, Tsang Mun Ting, Man Kwan Fong, and David Wung Pok LIU (together, the “Nominees”) as candidates for the Issuer’s Board of Directors at the 2016 Annual Meeting of Stockholders, which was
announced by the Issuer on November 19, 2015, to be held on February 18, 2016. As of November 30, 2015, Man Kwan Fong, David Wung Pok LIU and Kerry Ka Yan Ng have entered into a Joinder Agreement to the Voting Agreement. On January
14, 2016, counsel for the Issuer responded to the Nomination Letter by sending a Director & Officer Questionnaire to be completed by each of the Nominees, which the Nominees are in the process of promptly responding to; if the Issuer does not
include all of the Nominees on its ballot for the 2016 Annual Meeting, the Nominees will run their a contested proxy campaign in support of the Nominees for the 2016 Annual Meeting.