Document:

ex10-7.htm

Exhibit 10.7

 

SUBSCRIPTION AGREEMENT

This SUBSCRIPTION AGREEMENT (this “Agreement”) is made as of the last date set forth on the signature page hereof by and between Texas Rare Earth Resources Corp., a Nevada corporation (the “Company”), and [__] (the “Subscriber”).

 

W I T N E S S E T H:

WHEREAS, the Company shall sell to the Subscriber, as provided herein, and the Subscriber shall purchase for the Purchase Price (i) [__] shares of Company common stock (the “Shares”) at a purchase price of $2.50 per share and (ii) and a common stock purchase warrant, the form of which is attached hereto as Exhibit A (the “Warrant”), to purchase up to [__] shares of Company common stock, exercisable for a period of five (5) years at an exercise price of $2.50 per share.  As additional consideration for the purchase of the Shares and the Warrant, the Company shall grant to the Subscriber an option (the “Option”) to purchase up to [__] shares of Company common stock (“Option Shares”) at $2.50 per share and 100% warrant coverage through the issuance of warrants (the “Option Warrant”) to purchase up to [__] shares of Company common stock at an exercise price of $2.50 per share as provided for in Section 2.3 hereof;

 

WHEREAS, pursuant to the Registration Rights Agreement, the form of which is attached hereto as Exhibit B (the “Registration Rights Agreement”), to be entered into by and between the Company and the Subscriber, the Company is obligated under certain circumstances to register the resale of the Shares, the shares of common stock issuable upon the exercise of the Warrants (“Warrant Shares”) under the Securities Act (as defined below); and

 

NOW, THEREFORE, in consideration of the premises and the mutual representations and covenants hereinafter set forth, the parties hereto do hereby agree as follows:

 

	
I.  

	
DEFINITIONS

 

“Action” against a Person means any lawsuit, action, proceeding or complaint before any Governmental Authority, mediator or arbitrator.

“Affiliate” means, with respect to a specified Person, any other Person, whether now in existence or hereafter created, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person.

“Agreement” shall have the meaning set forth in the preamble hereto.

“Closing” shall have the meaning set forth in Section 2.4.

“Closing Date” shall have the meaning set forth in Section 2.4.

“Company” shall have the meaning set forth in the preamble hereto.

“Company Material Adverse Effect” means a material and adverse effect on (i) the assets, liabilities, financial condition, business or affairs of the Company or (ii) the ability of the Company to consummate the transactions under any Transaction Document.

  

  

  

“Company Related Parties” shall have the meaning set forth in Section 7.2

“Concurrent Financing” shall mean the issuance of (i) up to [__] shares of common stock at a purchase price of $2.50 per share and warrants to purchase up to [__] shares of common stock at an exercise price of $2.50 per share, and (ii) an option to purchase up to [__] shares of common stock at a purchase price of $2.50 per share and an option warrant to purchase up to an additional [__] shares of common stock at a purchase price of $2.50 per share of common stock; such securities (and applicable registration rights) to be substantially identical to the Securities purchased by Subscriber pursuant to this Agreement and shall be inclusive of the Securities issued to Subscriber.

“Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

“Existing Registration Rights Agreements” means agreements providing for registration rights applicable to, and only to, the Other Registrable Securities.

“GAAP” means generally accepted accounting principles in the United States of America in effect from time to time.

“Governmental Authority” shall include the country, state, county, city and political subdivisions in which any Person or such Person’s Property is located or which exercised valid jurisdiction over any such Person or Person’s Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them and any monetary authorities that exercise valid jurisdiction over any such Person or such Person’s Property.

“Holder” means the record holder of the Securities.

“Indemnified Party” shall have the meaning set forth in Section 7.3.

“Indemnifying Party” shall have the meaning set forth in Section 7.3.

“Law” means any federal, state, local or foreign order, writ, injunction, judgment, settlement, award, decree, statute, law, rule or regulation.

“Lien” means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.  For the purpose of this Agreement, a Person shall be deemed to be the owner of any Property that it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing.

  

  

  

“Option” shall have the meaning set forth in the recitals hereto.

“Option Shares” shall have the meaning set forth in the recitals hereto.

“Option Warrant” shall have the meaning set forth in the recitals hereto.

“Option Warrant Shares” shall have the meaning set forth in Section 2.3.

“Other Registrable Securities” shall mean (i) [__] shares of common stock (including the shares underlying outstanding common stock purchase warrants), (ii) up to [__] shares of common stock (including shares to the underlying warrants) issued to investors in the Concurrent Financing, (iii) up to [__] shares of common stock underlying options, and (iv) shares underlying warrants issued as compensation to Sunrise and/or other broker-dealers involved in the Concurrent Financing and in Subscriber’s financing.

“Party” or “Parties” means the Company and the Subscriber” party to this Agreement, individually or collectively, as the case may be.

“Person” means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“Purchase Price” means $[__].

“Registration Rights Agreement” shall have the meaning set forth in the recitals hereto.

“Representatives” of any Person means the Affiliates, control persons, officers, directors, employees, agents, counsel, investment bankers and other representatives of such Person.

“SEC” means the United States Securities and Exchange Commission.

“Securities” means collectively the Shares, the Warrant, the Warrant Shares, the Option, the Option Shares, and the Option Warrant Shares.

“Securities Act” means the Securities Act of 1933, as amended.

“Shares” shall have the meaning set forth in the recitals hereto.

  

  

  

“Subscriber” shall have the meaning set forth in the preamble hereto.

“Subscriber Material Adverse Effect” means any material and adverse effect on (i) the ability of the Subscriber to meet its obligations under the Transaction Documents on a timely basis or (ii) the ability of the Subscriber to consummate the transactions under any Transaction Document.

“Subscriber Related Parties” shall have the meaning set forth in Section 7.1.

“Transaction Documents” means, collectively, this Agreement, the Registration Rights Agreement, the Warrant and any and all other agreements or instruments executed and delivered by the Parties on even date herewith or at Closing, or any amendments, supplements, continuations or modifications thereto.

“Warrant” shall have the meaning set forth in the recitals hereto.

“Warrant Shares” shall have the meaning set forth in the recitals hereto.

	
II.  

	
SUBSCRIPTION, SALE AND PURCHASE OF SECURITIES

 

2.1 Sale and Purchase of the Securities.  Subject to the terms and conditions hereinafter set forth, the Subscriber hereby irrevocably subscribes for and agrees to purchase from the Company the Securities, and the Company agrees to sell to the Subscriber such Securities, in exchange for the Purchase Price.  Upon execution of this Agreement on the Signature Page, the Subscriber shall deliver the Purchase Price for the Securities, to be deposited with the Company.  At such time, the Company shall deliver certificates representing the Securities purchased by the Subscriber pursuant to this Agreement.

 

2.2 Issuance of Warrant.  As additional consideration for the Subscriber’s agreement to the terms and conditions of this Agreement and other valuable consideration, the Company shall issue to the Subscriber a warrant to purchase [__] shares of Company common stock, with the exercise price and other additional terms and conditions set forth in the form of Warrant attached hereto as Exhibit A.

 

2.3 Additional Consideration.  As additional consideration for the purchase of the Shares and the Warrant by the Subscriber, the Company hereby grants to the Subscriber an option to purchase up to [__] Option Shares at a price of $2.50 per share with 100% warrant coverage (i.e. for each share of Company common stock purchased pursuant to the exercise of the Option, the Subscriber shall be granted a five year Option Warrant to purchase an equivalent number of shares of common stock (the “Option Warrant Shares”), which shall contain the same terms and conditions set forth in the Warrant attached to this Agreement as Exhibit A).  Such option shall expire on the 120th day from the date the Company executes this Agreement (the “Option Term”). The number of Option Shares and Option Warrant Shares and their respective exercise prices shall be subject to the adjustment provisions set forth in Section 3(a) of the Warrant.  The Option may be exercised, in whole or in part, by the Subscriber by delivering to the Company a written notice of exercise, the form of which is attached hereto as Exhibit C (“Notice of Exercise”), at least five (5) business days prior to the expiration of the Option Term.  Within two (2) business days following the receipt by the Company of the Notice of Exercise, the Company shall deliver to the Subscriber a new subscription agreement, substantially in the form of this Agreement (except for this Section 2.3) and a new registration rights agreement, substantially in the form of Exhibit B to this Agreement.  The Subscriber shall thereafter have five (5) business days to deliver to the Company (i) a signed copy of the new subscription agreement and registration rights agreement, and (ii) a wire transfer or certified or cashier’s check payable to the order of the Company in payment of the purchase price of the Option Shares; after which the Company shall deliver to the Subscriber the Option Shares and the Option Warrant (or the Option Warrant Shares if the Option Warrant is exercised).  If an executed subscription agreement and the payment of the option purchase price are not received by the Company within such five-day period and the Option Term has then expired, then the Option shall expire and will thereafter be void.  Notwithstanding anything herein to the contrary, if the outstanding shares of stock of the class then subject to the Option are increased or decreased, or are changed into or exchanged for a different number or kind of shares or securities or other forms of property (including cash) or rights, as a result of one or more reorganizations, recapitalization, spin-offs, stock splits, reverse stock splits, stock dividends or the like, appropriate adjustments shall be made in the exercise price and number of Option Shares, Option Warrant and Option Warrant Shares.

 

  

  

  

2.4 Closing.  The execution and delivery the Transaction Documents (other than this Agreement) and execution and delivery of all other instruments, agreements and other documents required by this Agreement (the “Closing”) shall take place as of the date hereof (the “Closing Date”).

 

	
III.  

	
REPRESENTATIONS BY THE SUBSCRIBER

 

The Subscriber hereby represents and warrants to the Company that:

3.1 Investment.  The Subscriber recognizes that the purchase of the Securities involves a high degree of risk including, but not limited to, the following: (a) the Company has a limited operating history with a history of losses and requires additional funds in addition to the proceeds from the sale of the Securities; (b) an investment in the Company is highly speculative, and only investors who can afford the loss of their entire investment should consider investing in the Company and the Securities; (c) there is an extremely limited market for the Shares, Warrant Shares, Option Shares, and Option Warrant Shares, and an active market may never develop, and there is no market for the Warrant, the Option, or the Option Warrant, and no market will develop; (e) in the event of a disposition, the Subscriber could sustain the loss of its entire investment; (f) the Company has not paid any dividends since its inception and does not anticipate paying any dividends; and (g) the Company may issue additional securities in the future which have rights and preferences that are senior to those of its shares of common stock, including the Shares, Warrant Shares, Option Shares, and Option Warrant Shares.

 

3.2 Accredited Investor Status.  The Subscriber represents that it is an “accredited investor” as such term is defined in Rule 501 of Regulation D (“Regulation D”) promulgated under the Securities Act, and that the Subscriber is able to bear the economic risk of an investment in the Securities.

 

3.3 Subscriber Financial Knowledge; Advisers.  The Subscriber hereby acknowledges and represents that (a) the Subscriber has knowledge and experience in business and financial matters, prior investment experience, or the Subscriber has employed the services of a “purchaser representative” (as defined in Rule 501 of Regulation D), attorney and/or accountant, (who are unaffiliated with and not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly),`to read all of the documents furnished or made available by the Company both to the Subscriber and to all other prospective investors in the Securities to evaluate the merits and risks of such an investment on the Subscriber’s behalf; (b) the Subscriber recognizes the highly speculative nature of this investment; and (c) the Subscriber has the capacity to protect the Subscriber’s own interests and is able to bear the economic risk that the Subscriber assumes in connection with the transaction contemplated hereby.

 

 

 

  

  

  

3.4 Receipt of Information.  The Subscriber hereby acknowledges receipt and careful review of this Agreement and any documents which may have been made available by the Company upon request by the Subscriber (collectively referred to as the “Disclosure Materials”) and hereby represents that the Subscriber (a) has carefully reviewed the Disclosure Materials and (b) has been furnished by the Company all information regarding the Company, the terms and conditions of the purchase and sale of the Securities that the Subscriber has requested or desired to know, and has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning the Company and the terms and conditions of the purchase and sale of the Securities.

 

3.5 Investigation; Solicitation.

 

(a) In making the decision to invest in the Securities, the Subscriber has relied upon the information provided by the Company in the Disclosure Materials.  To the extent necessary, the Subscriber has retained, at its own expense, and relied upon appropriate professional advice regarding the investment, tax and legal merits and consequences of this Agreement and the purchase of the Securities hereunder.  The Subscriber disclaims reliance on any statements made or information provided by any person or entity in the course of the Subscriber’s consideration of an investment in the Securities other than made in connection with the Disclosure Materials.

 

(b) The Subscriber represents that (i) the Subscriber was contacted regarding the sale of the Securities by the Company (or an authorized agent or representative thereof), (ii) no Securities were offered or sold to it by means of any form of general solicitation or general advertising, and in connection therewith, the Subscriber did not (A) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast over television or radio, whether closed circuit, or generally available; or (B) attend any seminar meeting or industry investor conference whose attendees were invited by any general solicitation or general advertising, and (iii) the Subscriber’s substantive relationship with the placement agent predates the placement agent’s contact with the Subscriber regarding an investment in the Securities.

 

3.6 Restricted Securities.

 

(a) The Subscriber hereby acknowledges that the purchase and sale of the Securities has not been reviewed by the SEC nor any state regulatory authority since the purchase and sale of the Securities is intended to be exempt from the registration requirements of Section 5 of the Securities Act pursuant to Regulation D promulgated thereunder.  The Subscriber understands that the Securities have not been registered under the Securities Act or under any state securities or “blue sky” laws and agrees not to sell, pledge, assign or otherwise transfer or dispose of the Securities unless they are registered under the Securities Act and under any applicable state securities or “blue sky” laws or unless an exemption from such registration is available.

 

 

  

  

  

(b) The Subscriber consents to the placement of a legend on any certificate or other document evidencing the Securities that such securities have not been registered under the Securities Act or any state securities or “blue sky” laws and setting forth or referring to the restrictions on transferability and sale thereof contained in this Agreement.  The Subscriber is aware that the Company will make a notation in its appropriate records with respect to the restrictions on the transferability of such securities. The legend to be placed on each certificate shall be in form substantially similar to the following:

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES OR “BLUE SKY LAWS,” AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

3.7 Securities for the Subscriber’s Account.  The Subscriber understands that the Securities have not been registered under the Securities Act by reason of a claimed exemption under the provisions of the Securities Act that depends, in part, upon the Subscriber’s investment intention.  Accordingly, the Subscriber hereby represents that the Subscriber is purchasing the Securities for the Subscriber’s own account for investment and not with an intent to resell or distribute to others.  The Subscriber, if an entity, further represents that it was not formed for the purpose of purchasing the Securities.

 

3.8 Market for Securities.  The Subscriber understands that there is a limited trading market for the Shares, the Warrant Shares, the Option Shares, and the Option Warrant Shares and that an active market may not develop for such securities; that there is no market for the Warrant, the Option, or the Option Warrant, and no market will develop.  The Subscriber understands that even if an active market develops for the Shares, the Warrant Shares, the Option Shares, or the Option Warrant Shares, Rule 144 promulgated under the Securities Act (“Rule 144”) requires for non-affiliates, among other conditions, a six-month holding period commencing as of the date that the Company executes this Agreement.  The Subscriber understands and hereby acknowledges that the Company is under no obligation to register any of the Securities under the Securities Act or any state securities or “blue sky” laws other than as set forth in the Registration Rights Agreement.

 

3.9 Company Reliance.  The Subscriber understands that the Securities are being offered and sold in reliance on specific exemptions from the registration requirements of federal and state securities laws and that the Company and the principals and controlling persons thereof are relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments, and understandings set forth herein in order to determine the applicability of such exemptions and the undersigned’s suitability to acquire Securities.

 

3.10 Company Investigation.  The Subscriber understands that the Company will review this Agreement and is hereby given authority by the Subscriber to call the Subscriber’s bank or place of employment or otherwise review the financial standing of the Subscriber.  The Subscriber hereby further represents that the address of the Subscriber furnished by the Subscriber on the Signature Page is the Subscriber’s principal business address.

 

3.11 Fractional Units; Stop Orders.  The Subscriber agrees that the Company, at its sole discretion, reserves the unrestricted right, without further documentation or agreement on the part of the Subscriber, to accept subscriptions for fractional shares of the Shares, Warrant Shares, or Option Shares, and to issue stop transfer instructions to its transfer agent with respect to the Securities.

 

3.12 Authority; Enforcement.

 

(a) The Subscriber represents that the Subscriber has full power and authority (corporate, statutory and otherwise) to execute and deliver this Agreement and to purchase the Securities.  This Agreement constitutes the legal, valid and binding obligation of the Subscriber, enforceable against the Subscriber in accordance with its terms.

 

(b) If the Subscriber is a corporation, partnership, limited liability company, trust, employee benefit plan, individual retirement account, Keogh Plan, or other tax-exempt entity, it is authorized and qualified to invest in the Company, and the person signing this Agreement on behalf of such entity has been duly authorized by such entity to do so.

 

  

  

  

	
IV.  

	
REPRESENTATIONS BY THE COMPANY

 

The Company hereby represents and warrants to the Subscriber that:

 

4.1 Organization, Good Standing and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has full corporate power and authority to conduct its business in all jurisdictions in which the failure to be so qualified would result in a Company Material Adverse Effect.  The Company has all requisite power and authority (i) to own and lease the Properties and assets it currently owns and leases and it contemplates owning and leasing and (ii) to conduct its activities as such activities are currently conducted and as currently contemplated to be conducted.

 

4.2 Authorization; Enforceability.  The Company has all corporate right, power and authority to enter into this Agreement and each of the other Transaction Documents and to consummate the transactions contemplated hereby and thereby.  All corporate action on the part of the Company, its directors and stockholders necessary for the (i) authorization execution, delivery and performance of this Agreement by the Company; and (ii) authorization, sale, issuance and delivery of the Securities contemplated hereby and the performance of the Company’s obligations hereunder has been taken.  This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and to limitations of public policy.  The Shares, Warrant Shares, and Option Shares, when issued and fully paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable.  The issuance and sale of the Securities contemplated hereby will not give rise to any preemptive rights or rights of first refusal on behalf of any person which have not been waived in connection with this offering.

 

4.3 Capitalization.

 

(a) The Company is currently authorized to issue 100,000,000 shares of common stock, par value $0.01, of which [__] are issued and outstanding as of the date hereof, and 10,000,000 shares of preferred stock, par value $0.001, none of which have been issued as of the date hereof.  All of the outstanding Company common stock and Company preferred stock have been duly authorized and validly issued and are fully paid and nonassessable.  The rights, privileges and preferences of the Company common stock and Company preferred stock are as stated in the Company’s Articles of Incorporation (the “Articles”).

 

(b) As of the date hereof, except for the (i) Class A Warrants to purchase of to [__] shares of its common stock, (ii) Class B Warrants to purchase up to [__] shares of its common stock, (iii) options to purchase up to [__] shares of its common stock, (iv) the Concurrent Financing, (v) penalty shares of common stock in an amount of up to [__] shares in the event that obligations under the Existing Registration Rights Agreements are not timely discharged, and (vi) derivative securities to be issued to Sunrise Financial Corp. pursuant to its engagement agreement and any other broker-dealer with respect to the Concurrent Financing (right to purchase 10% of the quantity of shares sold to protected participants at a strike price offered to the protected participants), as well as [__] shares per month to be paid to [__] during the term of its engagement agreement that expires in November 2011, unless extended, there are no outstanding options, warrants, rights (including conversion preemptive rights or similar rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock.  The Company is not a party or subject to any agreement or understanding, and there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company.

 

  

  

  

(c) The Company has never made a public offering of securities or sold, offered for sale or solicited offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) in a manner that would require the registration under the Securities during the last five years.

 

(d) The issuance of the Warrant and Option have been duly authorized by the Company and, when issued and delivered to the Subscriber against payment therefor in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable and will be free of any and all Liens and restrictions on transfer, other than under applicable state and federal securities Laws and other than such Liens as are created by the Subscriber.

 

(e) The Company has reserved the Warrant Shares, Options Shares and Option Warrant Shares for issuance and has adequate authorized capital under its Articles to issue such shares when the Warrant or Option is exercised.

 

4.4 Audit Firms.  To current management’s knowledge, no audit firm has resigned or been dismissed as the independent registered public accountants of the Company as a result of or in connection with any disagreement with the Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures.

 

4.5 Financial Statements.

 

(a) The annual financial statements provided to the Subscriber covering periods from September 1, 2008 to August 31, 2010 present fairly in all material respects the financial position of the Company as of the dates indicated therein and the results of its operations for the periods specified therein; and except (i) as stated therein and (ii) for a potential derivative liability for the potential liquidated damage shares of common stock that may be issued pursuant to the Existing Registration Rights Agreements that may be reflected in the financial statements for the year ended August 31, 2010, such financial statements were prepared in conformity with GAAP, applied on a consistent basis (except for the absence of notes and as otherwise may be noted therein).

 

(b) LBB & Associates Ltd., LLP, who audited certain financial statements of the Company, are independent public accountants as required by the Exchange Act and the rules and regulations of the Public Company Accounting Oversight Board.

 

4.6 No Material Adverse Change.  As of the date hereof, the Company has conducted its business in the ordinary course, consistent with past practice, and there has been no (i) change that has had or would reasonable be expected to have a Company Material Adverse Effect, (ii) acquisition or disposition of any material asset by the Company or any contract or arrangement therefor, otherwise than for fair value in the ordinary course of business, (iii) material change in the Company’s accounting principles, practices or methods or (iv) incurrence of material indebtedness.

 

4.7 Litigation.  There is no Action pending or, to the knowledge of the Company, contemplated or threatened against the Company or any of its officers (in their capacity as such), directors (in their capacity as such), Properties, which (individually or in the aggregate) reasonably would be expected to have a Company Material Adverse Effect or which challenges the validity of this Agreement or which would reasonably be expected to adversely affect or restrict the Company’s ability to consummate the transactions contemplated by the Transaction Documents.

 

  

  

  

4.8 No Conflict.  The execution, delivery and performance by the Company of the Transaction Documents to which it is a party and all other agreements and instruments to be executed and delivered by the Company pursuant hereto or thereto or in connection herewith and therewith, and compliance by the Company with the terms and provisions hereof and thereof, do not and will not (a) violate any provision of any Law, governmental permit, determination or award having applicability to the Company or any of its Properties, (b) conflict with or result in a violation of any provision of the Articles of bylaws of the Company, (c) require any consent, approval or notice under or result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under (i) any note, bond, mortgage, license, or loan or credit agreement to which the Company is a party or by which the Company or any of its Properties may be bound or (ii) any other agreement, instrument or obligation, or (d) result in or require the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by the Company, except in the cases of clauses (a), (c) and (d) where such violation, default, breach, termination, cancellation, failure to receive consent or approval, or acceleration with respect to the foregoing provisions of this Section 4.7 would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

 

4.9 Compliance with Laws.  The Company is not in violation of any judgment, decree or order or any Law applicable to the Company, except as would not, individually or in the aggregate, have a Company Material Adverse Effect.  The Company possesses all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct its business, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Company Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit, except where such potential revocation or modification would not have, individually or in the aggregate, a Company Material Adverse Effect.

 

4.10 Preemptive Rights or Registration Rights.  Except for the Concurrent Financing, there are no preemptive rights or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any capital stock of the Company pursuant to any agreement or instrument to which the Company is a party and is bound.  Except for the Existing Registration Rights Agreements and the registration rights of the Subscriber provided for in this Agreement and the exhibits hereto, the Company has not granted or agreed to grant any rights (including “piggy-back” registration rights) to have any securities of any of the Company registered with the SEC.

 

4.11 Property Leases.  The Company is the legal holder of certain prospect permits and that certain Mining Lease M-111331 dated as of August 17, 2010 between the State of Texas and the Company. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no material mortgage, pledge, lien, lease, encumbrance or charge, other than (i) liens for current taxes not yet due and payable, (ii) liens imposed by law and incurred in the ordinary course of business for obligations not past due, (iii) liens in respect of pledges or deposits under workers’ compensation laws or similar legislation, and (iv) liens, encumbrances and defects in title which do not in any case materially detract from the value of the property subject thereto or have a Company Material Adverse Effect, and which have not arisen otherwise than in the ordinary course of business. With respect to the property and assets it leases, the Company is in compliance with such leases in all material respects and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances, subject to clauses (i)-(iv) above. The Company has all requisite leases, licenses, authorizations, consents and approvals necessary for it to own its assets and carry on its business as now being conducted and as proposed to be conducted.

 

 

  

  

  

4.12 Approvals.  No authorization, consent, approval, waiver, license, qualification or written exemption from, nor any filing, declaration, qualification or registration with, any Governmental Authority or any other Person is required in connection with the execution, delivery or performance by the Company of any of the Transaction Documents to which it is a party, except (i) as may be required under the state securities or “Blue Sky” Laws, or (ii) where the failure to receive such authorization, consent, approval, waiver, license, qualification or written exemption or to make such filing, declaration, qualification or registration would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

 

4.13 Offering.  Assuming the accuracy of the representations and warranties of the Subscriber contained in this Agreement, the sale and issuance of the Securities pursuant to this Agreement is exempt from the registration requirements of the Securities Act and neither the Company nor any authorized Representative acting on its behalf has taken or will take any action hereafter that would cause the loss of such exemption.

 

4.14 Certain Fees.  Except for a 10% cash fee of the Purchase Price and the obligation to issue warrants to purchase 10% of the shares of Common Stock (including those underlying the Warrant and Option, if such Option is exercised) issued to Subscriber at an exercise price of $2.50 per share owed to Sunrise Securities Corp. (or other broker-dealer), no fees or commissions will be payable by the Company to brokers, finders, or investment bankers with respect to the sale of any of the Securities or the consummation of the transactions contemplated by this Agreement or any of the other Transaction Documents.

 

4.15 No Side Agreements.  There are no other agreements by, among or between the Company or its Affiliates, on the one hand, and any other Person, on the other hand, with respect to the transactions contemplated by this Agreement or any of the other Transactions Documents nor promised or inducements for future transactions between or among any of such parties.

 

4.16 Investment Company Status.  The Company is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

4.17 No Subsidiaries.  The Company does not have any subsidiaries or any share of ownership in any other business entity.

 

 

 

  

  

  

4.18 Real Property Holding Company Status.  The Company is not a United States real property holding corporation within the meaning Section 897(c)(1)(A)(ii) of the Internal Revenue Code, as amended.

 

4.19 Shell Company Status. The Company is not and has not been at any time previously an issuer described in paragraph (i)(1) of Rule 144.

 

4.20 Confidentiality.

 

(a) The Company agrees not to issue any public statement with respect to the Subscriber’s investment or proposed investment in the Company or the terms of any agreement or covenant between it and the Company without the Subscriber’s prior written consent, except such disclosures as may be required under applicable Law or under any applicable order, rule or regulation.

 

(b) The Company agrees not to disclose the names, addresses or any other information about Subscriber, except as required by Law; provided, that, the Company will describe the name of the Subscriber in any registration statement filed pursuant to the Registration Rights Agreement in which the Shares, Warrant Shares, Option Shares, or Option Warrant Shares sold to the Subscriber are included as well as to the extent required in other in Company SEC filings.

 

	
V.  

	
COVENANTS

 

5.1 Sufficiency of Authorized Stock.  During the period from the Closing Date until the date on which the Warrant, Option or Option Warrant have been fully exercised, the Company shall at all times have reserved for issuance, free of preemptive or similar rights, a sufficient number of shares of authorized and unissued Warrant Shares, Option Shares and Option Warrant Shares to effectuate such exercise.  Nothing in this Section 5.1 shall preclude the Company from satisfying its obligations in respect of the exercise of the Warrant, Option or Option Warrant by delivery of shares of common stock which are held in the treasury of the Company.

 

5.2 Integration.  The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities.

 

5.3 Taking of Necessary Action.  Each of the Parties hereto shall use its commercially reasonable efforts promptly to take or cause to be taken all action and promptly to do or cause to be done all things necessary, proper or advisable under applicable Law and regulations to consummate and make effective the transactions contemplated by this Agreement.  Without limiting the foregoing, the Company and the Subscriber will use its commercially reasonable efforts to make all filings and obtain all consents of Governmental Authorities that may be necessary or, in the reasonable opinion of the Subscriber or the Company, as the case may be, advisable for the consummation of the transactions contemplated by the Transaction Documents.

 

  

  

  

5.4 Confidentiality.

 

(a) The Subscriber agrees not to issue any public statement with respect to the Subscriber’s investment or proposed investment in the Company or the terms of any agreement or covenant between them and the Company without the Company’s prior written consent, except such disclosures as may be required under applicable Law or under any applicable order, rule or regulation.

 

(b) In connection with the registration statement, the Subscriber agrees to complete and deliver any such documentation as may be reasonably required by the Company, including a shareholder questionnaire, in order to satisfy the disclosure requirements for the filing of a registration statement.

 

(c) The Company shall disclose any and all material non-public information provided by the Company to the Subscriber upon the reasonable request of the Subscriber.

 

5.5 Removal of Legend.  In connection with a sale of the Securities by Subscriber in reliance on Rule 144, the Subscriber or its broker shall deliver to the Company a broker representation letter providing any information the Company deems necessary to determine that the sale of the Securities is made in compliance with Rule 144, including, as may be appropriate, a certification that the Subscriber is not an affiliate of the Company and regarding the length of time the Securities have been held. Upon receipt of such representation letter, the Company shall as soon as reasonably practicable exchange share certificates bearing the legend described in Section 3.6 for share certificates without such legend. After Subscriber or its permitted assigns have held the Securities for one year or if a registration statement covering the Securities is declared effective, if such Securities still bear the legend described in Section 3.6, the Subscriber may request the Company to remove the legend and the Company agrees to take all steps necessary to effect the removal of the legend as soon as reasonably practicable. The Company shall bear all direct costs and expenses associated with the removal of a legend pursuant to this Section 5.6, regardless of whether the request is made in connection with a sale or otherwise, so long as such Purchaser or its permitted assigns provide to the Company any information the Company deems necessary to determine that the legend is no longer required under the Securities Act or applicable state laws, including a certification that the holder is not an affiliate of the Company and regarding the length of time the Securities have been held.

 

5.6 Lock-Up. Without the written consent of Subscriber, for a period of six months following the date of this Agreement, the Company shall not grant, issue or sell, nor shall it cause or permit any of its directors, executive officers or other affiliates to sell, any equity or voting securities of the Company or any securities convertible thereinto or exchangeable or exercisable therefor, or take any other action that may result in the issuance of any of the foregoing, for a price less than $2.50 per share of Company common stock; provided, however. that this section shall not apply to: (i) shares of Common Stock issued or issuable upon conversion, exercise or exchange of any convertible securities or exercise of any options or warrants outstanding on the Effective Date or to be issued to Sunrise Securities Corp. pursuant to its engagement letter outstanding on the Effective Date; (ii) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock; (iii) up to 1,000,000 options to purchase shares of Common Stock issued or issuable to officers of the Company hired after the date hereof with an exercise price not less than the lesser of (A) $2.50 per share or (B) then-current fair market value per share of the Common Stock; and (iv) any Securities issued or issuable by the Company pursuant to the Subscription Agreement, any securities issued by the Company pursuant to the Concurrent Financing, and any shares that may be issued as liquidated damages pursuant to the Existing Registration Rights Agreements.

 

 

  

  

  

	
VI.  

	
CLOSING DELIVERABLES

 

6.1 Company Deliverables.  At the Closing, subject to the terms and conditions of this Agreement, the Company will deliver, or cause to be delivered to the Subscriber:

 

(a) The Securities, free and clear of any Liens, encumbrances or interest of any other party other than restrictions on transfer imposed by federal and state securities Laws and those imposed by Subscriber;

 

(b) The Registration Rights Agreement in substantially the form attached to this Agreement as Exhibit B, which shall have been duly executed by the Company;

 

(c) The Warrant in substantially the form attached to this Agreement as Exhibit A, which shall have been duly executed by the Company;

 

(d) Copies of the Articles of the Company, certified by the Secretary of State of the State of Nevada, dated as of a recent date;

 

(e) A certificate of the Secretary of State of the State of Nevada, dated as of a recent date, that the Company is in good standing; and

 

(f) A cross-receipt, dated the Closing Date, executed by the Company and delivered to the Subscriber certifying that the Company has received the Purchase Price with respect to the Securities issued and sold to the Subscriber.

 

6.2 Subscriber Deliverables.  At the Closing, subject to the terms and conditions of this Agreement, the Subscriber will deliver, or cause to be delivered to the Company:

 

(a) Payment to the Company of the Purchase Price by wire transfer(s) of immediately available funds to an account designated by the Company in writing at least two (2) Business Days prior to Closing;

 

(b) The Registration Rights Agreement in substantially the form attached to this Agreement as Exhibit B, which shall have been duly executed by the Subscriber; and

 

(c) A cross-receipt, dated the Closing Date, executed by the Subscriber and delivered to the Company certifying that the Subscriber has received the Securities.

 

  

  

  

	
VII.  

	
INDEMNIFICATION, COSTS AND EXPENSES

 

7.1 Indemnification by the Company.  The Company agrees to indemnify the Subscriber and its Representatives (collectively, “Purchase Related Parties”) from, and hold each of them harmless against any and all actions, suits, proceedings (including any investigations, litigation or inquiries), demands and causes of action, and, in connection therewith, and promptly on demand, pay and reimburse each of them costs, losses, liabilities, damages, or expenses of any kind or nature whatsoever, including the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them as a result of, arising out of, or in any way related to the breach of any of the representations, warranties or covenants of the Company contained herein; provided, that, such claim for indemnification relating to a breach of a representation or warranty is made prior to the expiration of such representation or warranty.

 

7.2 Reserved..

 

7.3 Indemnification Procedure.

 

(a) Indemnification Claim.  Promptly after any of the Company Related Party or Subscriber Related Party (hereinafter, the “Indemnified Party”) ahs received notice of any indemnifiable claim hereunder, or the commencement of any action or proceeding by a third party, which the Indemnified Party believes in good faith is an indemnifiable claim under this Agreement, the Indemnified party shall give the indemnitor hereunder (the “Indemnifying Party”) written notice of such claim or the commencement of any such action or proceeding, but failure to so notify the Indemnifying Party will not relieve the Indemnifying Party form any liability it may have to such Indemnified Party hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure.

 

(b) Indemnification Notice.  Such notice shall state the nature and the basis of such claim to the extent then known.

 

(c) Indemnifying Party.  The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel, who shall be reasonable acceptable to the Indemnified Party, any such matter as long as the Indemnifying Party pursues the same diligently and in good faith.  If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in all commercially reasonable respects in the defense hereof and the settlement thereof.

 

(d) Indemnified Party Cooperation.  Such cooperation shall include furnishing the Indemnifying Party with any books, records and other information reasonably requested by the Indemnifying Party and in the Indemnified party’s possession or control.  Such cooperation of the Indemnified Party shall be at the cost of the Indemnifying Party.

 

(e) Expenses.  After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability; provided, however, that the Indemnified Party shall be entitled (i) at its expense, to participate in the defense of such asserted liability and the negotiations of the settlement thereof and (ii) if (A) the Indemnifying Party has failed to assume the defense or employ counsel reasonably acceptable to the Indemnified Party or (B) if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and counsel to the Indemnified Party shall have concluded that there may be reasonable defenses available to the Indemnified Party that are different from or in addition to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, then the Indemnified Party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred.

 

  

  

  

(f) Consent.  Notwithstanding any other provision of this Agreement, the Indemnifying Party, unless the settlement thereof imposes no liability or obligation on, involves no admission of wrongdoing or malfeasance by, and includes a complete release from liability of, the Indemnified Party.

 

	
VIII.  

	
MISCELLANEOUS

 

8.1 Notices.  Any notice or other communication given hereunder shall be deemed sufficient if in writing and sent by registered or certified mail, return receipt requested, or delivered by hand against written receipt therefor, addressed as follows:

 

	
If to the Company, to:

	
Texas Rare Earth Resources Corp.

	
 

	
3 Riverway, Ste. 1800

	
 

	
Houston, Texas 77056

	
 

	
Attention: Dan E. Gorski, Chief Executive Officer

	
With a copy to:

	
Brewer & Pritchard, P.C.

	
 

	
Three Riverway, 18th Floor

	
 

	
Houston, TX 77056

	
 

	
Attention: Thomas C. Pritchard, Esq.

	
 

	
Facsimile: (713) 209-2922

 

if to the Subscriber, to the Subscriber’s address indicated on the Signature Page.

 

Notices shall be deemed to have been given or delivered on the date of mailing, except notices of change of address, which shall be deemed to have been given or delivered when received.

 

8.2 Modifications in Writing.  Except as otherwise provided herein, this Agreement shall not be changed, modified or amended except by a writing signed by the parties to be charged, and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged.

 

  

  

  

8.3 Binding Effect; Entire Agreement.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns.  This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

 

8.4 Governing Law.

 

NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO SUCH STATE’S PRINCIPLES OF CONFLICTS OF LAW.  THE PARTIES HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL DISTRICT COURTS SITUATED THEREIN AND AGREE TO SAID VENUE.

 

8.5 Expenses.  Each Party shall be responsible for such Party’s own expenses in connection with this Agreement and the transactions contemplated hereby.

 

8.6 Severability.  The holding of any provision of this Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Agreement, which shall remain in full force and effect.  If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, such provision shall be interpreted so as to remain enforceable to the maximum extent permissible consistent with applicable law and the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provisions shall be deemed dependent upon any other covenant or provision unless so expressed herein.

 

8.7 No Waiver.  It is agreed that a waiver by either Party of a breach of any provision of this Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same Party.

 

8.8 Survival.  All of the representations and warranties contained in this Agreement shall survive execution and delivery of this Agreement and the undersigned’s investment in the Company.

 

8.9 Necessary Action.  The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement.

 

8.10 Execution in Counterparts.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

  

  

  

8.11 No Third Party Rights.  Nothing in this Agreement will confer any third party beneficiary or other rights upon any person or any entity that is not a party to this Agreement.  Nothing in this Agreement shall create or be deemed to create any rights in any person or entity not a party to this Agreement.

 

8.12 Change of Control.  The provisions of this Agreement shall apply to the full extent set forth herein with respect to any and all common stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets, operation of law or otherwise) which may be issued in respect of, in exchange for or in substitution of, the Securities.

 

8.13 Interpretation.

 

(a) This Agreement is intended to be read and construed in conjunction with the other Disclosure Materials pertaining to the issuance by the Company of the Securities.  Accordingly, pursuant to the terms and conditions of this Agreement and the Disclosure Materials it is hereby agreed that the execution by the Subscriber of this Agreement, in the place set forth herein, shall constitute an agreement to be bound by the terms and conditions hereof with the same effect as if each of the related Disclosure Materials were separately signed.

 

(b) Article, Section, Schedule, and Exhibit references are to this Agreement, unless otherwise specified.  All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified.  The word “including” shall mean “including but not limited to.”

 

IN WITNESS WHEREOF, the undersigned have executed this Subscription Agreement as of the date set forth below.

 

[Signature page follows]

 

 

 

 

 

 

 

  

  

  

SUBSCRIPTION AGREEMENT COUNTERPART SIGNATURE PAGE

The undersigned hereby represents, warrants and covenants that the undersigned is duly authorized by the prospective investor to take all requisite action on the part of the prospective investor listed below to enter into this Agreement and, further, that the prospective investor has all requisite authority to enter into such Agreement.

 

The undersigned represents and warrants that each of the above representations, agreements or understandings set forth herein applies to the prospective investor and that the undersigned has authority under the charter, by-laws, resolutions of such prospective investor to execute this Agreement.

 

[__]

_____________________________

Dated:   [__], 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

 

ACCEPTANCE PAGE FOR SUBSCRIPTION AGREEMENT

Agreed to and accepted as of [__], 2011.

 

	  	
Texas Rare Earth Resources Corp.

	  	  
	  	  
	  	
_______________________________

	  	
Name:Dan E. Gorski

	  	
Title:Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

EXHIBIT C

NOTICE OF EXERCISE

TO:           Board of Directors of Texas Rare Earth Resources Corp.

(1) The undersigned hereby elects to purchase ______________ shares of the Company pursuant to the terms of the attached Subscription Agreement, and hereby agrees to tender payment of $___________ ($2.50 per share of common stock), the exercise price, together with all applicable transfer taxes, if any, and as a result thereof, desires that the undersigned be issued a five (5) year warrant to purchase up to _______________ shares of Company common stock.

(2) Within two (2) business days following the receipt by the Company of this Notice of Exercise, the Company shall deliver to the Subscriber a new subscription agreement, substantially in the form of the Subscription Agreement (save for Section 2.3) and a new registration rights agreement, substantially in the form of the Registration Rights Agreement attached as Exhibit B to the Subscription Agreement.   Within five (5) business days following receipt of the new subscription agreement and registration rights agreement, the undersigned agrees to deliver to the Company an executed copy of such new subscription agreement, new registration rights agreement, and the option purchase price.

(3) The undersigned hereby requests that the stock certificate or certificates representing the Option Shares, the Option Warrant, and the Option Warrant Shares (if the Option Warrant is exercised) be in the name of the undersigned or in such other name as is specified as follows:  _______________________________

	
(4)  

	
The securities described in Section (3) above shall be delivered to the following address:

_______________________________

_______________________________

_______________________________

[PURCHASER]

By: _____________________________

Name: __________________________

Title: ___________________________

FEIN: ________________

Dated: ___________________________ex10-8.htm

Exhibit 10.8

 

Warrant Certificate No. 0[__]

NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.

	
Effective Date: [__], 2011

	
Void After: January 25, 2016

 

TEXAS RARE EARTH RESOURCES CORP.

WARRANT TO PURCHASE COMMON STOCK

Texas Rare Earth Resources Corp., a Nevada corporation (the “Company”), for value received on or about [__], 2011 (the “Effective Date”), hereby issues to [__] (the “Holder”) this Warrant (the “Warrant”) to purchase [__] shares (each such share as from time to time adjusted as hereinafter provided being a “Warrant Share” and all such shares being the “Warrant Shares”) of the Company’s Common Stock (as defined below), at the Exercise Price (as defined below), as adjusted from time to time as provided herein, on or before January 25, 2016 (the “Expiration Date”), all subject to the following terms and conditions. Unless otherwise defined in this Warrant, terms appearing in initial capitalized form shall have the meaning ascribed to them in that certain Subscription Agreement between the Company and the purchaser signatory thereto pursuant to which this Warrant was issued (the “Subscription Agreement”).

As used in this Warrant, (i) “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of Houston, Texas, are authorized or required by law or executive order to close; (ii) “Common Stock” means the common stock of the Company, par value $0.01 per share, including any securities issued or issuable with respect thereto or into which or for which such shares may be exchanged for, or converted into, pursuant to any stock dividend, stock split, stock combination, recapitalization, reclassification, reorganization or other similar event; (iii) “Exercise Price” means $2.50 per share of Common Stock, subject to adjustment as provided herein; (iv) “Trading Day” means any day on which the Common Stock is traded on the primary national or regional stock exchange on which the Common Stock is listed, or if not so listed, the Pink Sheets, if quoted thereon, is open for the transaction of business; and (v) “Affiliate” means any person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, a person, as such terms are used and construed in Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

  

  

  

	
1.

	
DURATION AND EXERCISE OF WARRANTS

(a)           Exercise Period.  The Holder may exercise this Warrant in whole or in part on any Business Day on or before 5:00 P.M., Central Time, on the Expiration Date, at which time this Warrant shall become void and of no value.

	
  

	
(b)

	
Exercise Procedures.

(i)           While this Warrant remains outstanding and exercisable in accordance with Section 1(a), the Holder may exercise this Warrant in whole or in part at any time and from time to time by:

(A)           delivery to the Company of a duly executed copy of the Notice of Exercise attached as Exhibit A;

(B)           surrender of this Warrant to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder; and

(C)           payment of the then-applicable Exercise Price per share multiplied by the number of Warrant Shares being purchased upon exercise of the Warrant (such amount, the “Aggregate Exercise Price”) made in the form of cash, or by certified check, bank draft or money order payable in lawful money of the United States of America or in the form of a net issuance exercise to the extent permitted in Section 1(e) below.

(ii)           Upon the exercise of this Warrant in compliance with the provisions of this Section 1(b), the Company shall promptly issue and cause to be delivered to the Holder a certificate for the Warrant Shares purchased by the Holder.  Each exercise of this Warrant shall be effective immediately prior to the close of business on the date (the “Date of Exercise”) that the conditions set forth in Section 1(b) have been satisfied, as the case may be.  On the first Business Day following the date on which the Company has received each of the Notice of Exercise and the Aggregate Exercise Price (the “Exercise Delivery Documents”), the Company shall transmit an acknowledgment of receipt of the Exercise Delivery Documents to the Company’s transfer agent (the “Transfer Agent”). On or before the fifth Business Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall issue and dispatch by overnight courier to the address as specified in the Notice of Exercise, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares.

 

 

  

  

  

(iii)           If the Company shall fail for any reason or for no reason to issue to the Holder, within five (5) Business Days of receipt of the Exercise Delivery Documents, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register, and if on or after such Business Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within five (5) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the closing bid price on the date of exercise.

(d)           Partial Exercise.  This Warrant shall be exercisable, either in its entirety or, from time to time, for part only of the number of Warrant Shares referenced by this Warrant. If this Warrant is exercised in part, the Company shall issue, at its expense, a new Warrant, in substantially the form of this Warrant, referencing such reduced number of Warrant Shares that remain subject to this Warrant.

 

(e)           Net Issuance Exercise. Notwithstanding any other provision contained herein to the contrary, from and after the six month anniversary of the Effective Date and if the Warrant Shares may not be freely sold to the public pursuant to a Registration Statement, the Holder may elect to receive, without the payment by the Holder of the aggregate Exercise Price in respect of the Shares to be acquired, Shares equal to the value of this Warrant or any portion hereof by the surrender of this Warrant (or such portion of this Warrant being so exercised) together with the Net Issue Election Notice annexed hereto as Exhibit C duly executed, at the office of the Company. Thereupon, the Company shall issue to the Holder such number of fully paid, validly issued and non-assessable Shares as is computed using the following formula:

 

where

 

X = the number of Shares which the Holder has then requested be issued to the Holder;

 

Y = the number of Shares covered by this Warrant that the Holder is surrendering at such time for net issuance exercise (including both shares to be issued to the Holder and shares to be canceled as payment therefor);

 

A = the Market Price (as defined below) of one Share as at the time the net issue election is made; and

 

B = the Exercise Price in effect under this Warrant at the time the net issue election is made.

 

  

  

  

(f)           Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 16.

(g)           Blocker. Notwithstanding anything to the contrary herein, the Holder shall not have the right to exercise any portion of this Warrant to the extent that after giving effect to such issuance after exercise, the Holder (together with the Holder’s affiliates) would beneficially own in excess of 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to such issuance.  For purposes of the foregoing sentence, the number of Common Stock beneficially owned by the Holder and its affiliates shall include the number of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock or Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(g), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act.  Following the written or oral request of the Holder, the Company shall, or shall cause its transfer agent to, within two business days confirm orally and in writing to the Holder the number of Common Stock then outstanding.  In any case, the number of shares of outstanding Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding Common Stock was reported.  The provisions of this Section 2(g) may be waived by the Holder, at the election of the Holder, upon not less than 61 days’ prior notice to the Company, and the provisions of this Section 2(g) shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).

	
2.

	
ISSUANCE OF WARRANT SHARES

(a)           The Company covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be (i) duly authorized, fully paid and non-assessable, and (ii) free from all liens, charges and security interests, with the exception of claims arising through the acts or omissions of any Holder and except as arising from applicable Federal and state securities laws.

(b)           The Company shall register this Warrant upon records to be maintained by the Company for that purpose in the name of the record holder of such Warrant from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner thereof for the purpose of any exercise thereof, any distribution to the Holder thereof and for all other purposes.

  

  

  

(c)           The Company will not, by amendment of its certificate of formation, by-laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all action necessary or appropriate in order to protect the rights of the Holder to exercise this Warrant, or against impairment of such rights.

	
3.

	
ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT SHARES

(a)           The Exercise Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3(a); provided, that notwithstanding the provisions of this Section 3, the Company shall not be required to make any adjustment if and to the extent that such adjustment would require the Company to issue a number of shares of Common Stock in excess of its authorized but unissued shares of Common Stock, less all amounts of Common Stock that have been reserved for issue upon the conversion of all outstanding securities convertible into shares of Common Stock and the exercise of all outstanding options, warrants and other rights exercisable for shares of Common Stock.  If the Company does not have the requisite number of authorized but unissued shares of Common Stock to make any adjustment, the Company shall use its commercially best efforts to obtain the necessary stockholder consent to increase the authorized number of shares of Common Stock to make such an adjustment pursuant to this Section 3(a).

(i)           Subdivision or Combination of Stock. In case the Company shall at any time subdivide (whether by way of stock dividend, stock split or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of Warrant Shares shall be proportionately increased, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined (whether by way of stock combination, reverse stock split or otherwise) into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares shall be proportionately decreased.  The Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(i).

(ii)           Dividends in Stock, Property, Reclassification. If at any time, or from time to time, all of the holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefore:

(A)           any shares of stock or other securities that are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or

 

 

  

  

  

(B)           additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement (other than shares of Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3(a)(i) above), then and in each such case, the Exercise Price and the number of Warrant Shares to be obtained upon exercise of this Warrant shall be adjusted proportionately, and the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to above) that such Holder would hold on the date of such exercise had such Holder been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property.  The Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(ii).

(iii)           Reorganization, Reclassification, Consolidation, Merger or Sale. If any recapitalization, reclassification or reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (an “Organic Change”), then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented by this Warrant) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable assuming the full exercise of the rights represented by this Warrant. In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument reasonably satisfactory in form and substance to the Holder executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. If there is an Organic Change, then the Company shall cause to be mailed to the Holder at its last address as it shall appear on the books and records of the Company, at least 10 calendar days before the effective date of the Organic Change, a notice stating the date on which such Organic Change is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares for securities, cash, or other property delivered upon such Organic Change; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to exercise this Warrant during the 10-day period commencing on the date of such notice to the effective date of the event triggering such notice.  In any event, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall be deemed to assume such obligation to deliver to such Holder such shares of stock, securities or assets even in the absence of a written instrument assuming such obligation to the extent such assumption occurs by operation of law.

 

 

  

  

  

           (b)           If and whenever the Company shall issue or sell, or is, in accordance with any of Section 3(b)(1)-(7), deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share less than the Exercise Price in effect immediately prior to the time of such issue or sale, then and in each such case (a “Trigger Issuance”) the then-existing Exercise Price, shall be reduced, as of the close of business on the effective date of the Trigger Issuance, to a price determined as follows:

 

	
Adjusted Exercise Price = (A x B) + D

	
A+C

where

 

“A”           equals the number of shares of Common Stock issued and outstanding, including Additional Shares (as defined below) deemed to be issued hereunder, immediately preceding such Trigger Issuance;

 

“B”           equals the Exercise Price in effect immediately preceding such Trigger Issuance;

 

“C”           equals the number of Additional Shares issued or deemed issued hereunder as a result of the Trigger Issuance; and

 

“D”           equals the aggregate consideration, if any, received or deemed to be received by the Company upon such Trigger Issuance; provided, however, that in no event shall the Exercise Price after giving effect to such Trigger Issuance be greater than the Exercise Price in effect prior to such Trigger Issuance; provided, further, that the following issuances shall not be deemed a Trigger Issuance resulting in a reduction of the then-existing Exercise Price: (i) shares of Common Stock issued or issuable upon conversion, exercise or exchange of any convertible securities or exercise of any options or warrants outstanding on the Effective Date or to be issued to Sunrise Securities Corp. pursuant to its engagement letter outstanding on the Effective Date; (ii) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Section 3(a) above; (iii) up to 1,000,000 options to purchase shares of Common Stock issued or issuable to officers of the Company hired after the date hereof with an exercise price equal to the lesser of (A) $2.50 per share or (b) the then-current fair market value per share of the Common Stock; and (iv) any Securities issued or issuable by the Company pursuant to the Subscription Agreement, any securities issued by the Company pursuant to the Concurrent Financing, and any shares that may be issued as liquidated damages pursuant to the Existing Registration Rights Agreements (collectively, “Excluded Issuances”).

 

 

 

  

  

  

For purposes of this Section 3(b), “Additional Shares” shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 3(b), not including Excluded Issuances.

 

For purposes of this Section 3(b), the following Section 3(b)(1)-(7) shall also be applicable:

 

(1) Issuance of Rights or Options. In case at any time the Company shall in any manner grant (directly and not by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, shares of Common Stock or any stock or security convertible into or exchangeable for shares of Common Stock (such warrants, rights or options being called “Stock Options” and such convertible or exchangeable stock or securities being called “Convertible Securities”) whether or not such Stock Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which shares of Common Stock are issuable upon the exercise of such Stock Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Stock Options, plus (y) the aggregate amount of additional consideration payable to the Company upon the exercise of all such Stock Options, plus (z), in the case of such Stock Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Stock Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Stock Options) shall be less than the Exercise Price in effect immediately prior to the time of the granting of such Stock Options, then the total number of shares of Common Stock issuable upon the exercise of such Stock Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Stock Options shall be deemed to have been issued for such price per unit as of the date of granting of such Stock Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Exercise Price. Except as otherwise provided in Section 3(b)(3), no adjustment of the Exercise Price shall be made upon the actual issue of such shares of Common Stock upon exercise of such Stock Options or upon the actual issue of such shares of Common Stock upon conversion or exchange of such Convertible Securities.

 

 

 

  

  

  

(2) Issuance of Convertible Securities.  In case the Company shall in any manner issue (directly and not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which shares of Common Stock are issuable upon such conversion or exchange (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Exercise Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Exercise Price, provided that (a) except as otherwise provided in Section 3(b)(3), no adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Exercise Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Stock Options to purchase any such Convertible Securities for which adjustments of the Exercise Price have been made pursuant to the other provisions of Section 3(b).

 

(3) Change in Stock Option Price or Conversion Rate.  Upon the happening of any of the following events, namely, if the purchase price provided for in any Stock Option referred to in Section 3(b)(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Section 3(b)(1) or Section 3(b)(2),  or the rate at which Convertible Securities referred to in Section 3(b)(1) or Section 3(b)(2) are convertible into or exchangeable for shares of Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such event shall forthwith be readjusted to the Exercise Price which would have been in effect at such time had such Stock Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold.

 

(4) Stock Dividends.  The issuance of stock dividends as set forth in Section 3(a)(i) and (ii) shall result in adjustments described therein.

 

(5) Consideration for Stock. In case any shares of Common Stock, Stock Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any underwriting commissions or sales concessions paid or allowed by the Company in connection therewith. In case any shares of Common Stock, Stock Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the board of directors (“Board of Directors”) of the Company, after deduction of any expenses incurred or any underwriting commissions or sales concessions paid or allowed by the Company in connection therewith. In case any Stock Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Stock Options by the parties thereto, such Stock Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company. If shares of Common Stock, Stock Options or Convertible Securities shall be issued or sold by the Company and, in connection therewith, other Stock Options or Convertible Securities (the “Additional Rights”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined using the Black-Scholes Option Pricing Model or another method mutually agreed to by the Company and the Holder). The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Holder as to the fair market value of the Additional Rights. In the event that the Board of Directors of the Company and the Holder are unable to agree upon the fair market value of the Additional Rights, the Company and the Holder shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne evenly by the Company and the Holder.

 

  

  

  

(6) Record Date.  In case the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in shares of Common Stock, Stock Options or Convertible Securities or (ii) to subscribe for or purchase shares of Common Stock, Stock Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(7) Treasury Shares.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Shares for the purpose of this Section 3(b).

 

(c)           Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 3, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall promptly furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; and (ii) the number of shares and the amount, if any, of other property which at the time would be received upon the exercise of the Warrant.

(d)           Certain Events. If any event occurs as to which the other provisions of this Section 3 are not strictly applicable but the lack of any adjustment would not fairly protect the purchase rights of the Holder under this Warrant in accordance with the basic intent and principles of such provisions, or if strictly applicable would not fairly protect the purchase rights of the Holder under this Warrant in accordance with the basic intent and principles of such provisions, then the Company’s Board of Directors will, in good faith, make an appropriate adjustment to protect the rights of the Holder; provided, that no such adjustment pursuant to this Section 3(d) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 3.

	
4.

	
TRANSFERS AND EXCHANGES OF WARRANT AND WARRANT SHARES

(a)           Registration of Transfers and Exchanges. Subject to Section 4(c), upon the Holder’s surrender of this Warrant, with a duly executed copy of the Form of Assignment attached as Exhibit B, to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder, the Company shall register the transfer of all or any portion of this Warrant. Upon such registration of transfer, the Company shall issue a new Warrant, in substantially the form of this Warrant, evidencing the acquisition rights transferred to the transferee and a new Warrant, in similar form, evidencing the remaining acquisition rights not transferred, to the Holder requesting the transfer.

(b)           Warrant Exchangeable for Different Denominations. The Holder may exchange this Warrant for a new Warrant or Warrants, in substantially the form of this Warrant, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder, each of such new Warrants to be dated the date of such exchange and to represent the right to purchase such number of Warrant Shares as shall be designated by the Holder. The Holder shall surrender this Warrant with duly executed instructions regarding such re-certification of this Warrant to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder.

(c)           Restrictions on Transfers. This Warrant may not be transferred at any time without (i) registration under the Securities Act or (ii) an exemption from such registration and a written opinion of legal counsel addressed to the Company that the proposed transfer of the Warrant may be effected without registration under the Securities Act, which opinion will be in form and from counsel reasonably satisfactory to the Company.

(d)           Permitted Transfers and Assignments.  Notwithstanding any provision to the contrary in this Section 4, the Holder may transfer, with or without consideration, this Warrant or any of the Warrant Shares (or a portion thereof) to the Holder’s Affiliates (as such term is defined under Rule 144 of the Securities Act) without obtaining the opinion from counsel that may be required by Section 4(c)(ii), provided, that the Holder delivers to the Company and its counsel certification, documentation, and other assurances reasonably required by the Company’s counsel to enable the Company’s counsel to render an opinion to the Company’s Transfer Agent that such transfer does not violate applicable securities laws.

  

  

  

	
5.

	
MUTILATED OR MISSING WARRANT CERTIFICATE

           If this Warrant is mutilated, lost, stolen or destroyed, upon request by the Holder, the Company will, at its expense, issue, in exchange for and upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in substantially the form of this Warrant, representing the right to acquire the equivalent number of Warrant Shares; provided, that, as a prerequisite to the issuance of a substitute Warrant, the Company may require satisfactory evidence of loss, theft or destruction as well as an indemnity from the Holder of a lost, stolen or destroyed Warrant.

	
6.

	
PAYMENT OF TAXES

The Company will pay all transfer and stock issuance taxes attributable to the preparation, issuance and delivery of this Warrant and the Warrant Shares (and replacement Warrants) including, without limitation, all documentary and stamp taxes; provided, however, that the Company shall not be required to pay any tax in respect of the transfer of this Warrant, or the issuance or delivery of certificates for Warrant Shares or other securities in respect of the Warrant Shares to any person or entity other than to the Holder.

7.           FRACTIONAL WARRANT SHARES

No fractional Warrant Shares shall be issued upon exercise of this Warrant. The Company, in lieu of issuing any fractional Warrant Share, shall round up the number of Warrant Shares issuable to nearest whole share.

	
8.

	
NO STOCK RIGHTS AND LEGEND

No holder of this Warrant, as such, shall be entitled to vote or be deemed the holder of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription rights or otherwise (except as provide herein).

           Unless (i) a registration statement covering the Warrant Shares is effective at any time that this Warrant is exercised or (ii) this Warrant is exercised pursuant to Section 1(e) more than six months after the date hereof and the Holder provides the Company with reasonable assurance that the Warrant Units can be sold, assigned or transferred pursuant to Rule 144 or a similar rule under the Securities Act;, each certificate for Warrant Shares initially issued upon the exercise of this Warrant, and each certificate for Warrant Shares issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

  

  

  

           “THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES OR “BLUE SKY LAWS,” AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.”

	
9.

	
REGISTRATION UNDER THE SECURITIES ACT OF 1933

The Company agrees to provide certain registration rights for the resale of the Warrant Shares under the Securities Act on the terms and subject to the conditions set forth in the Registration Rights Agreement.

10.           REPORTS TO THE SEC

The Company shall use its reasonable best efforts to timely file all reports and other documents required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations promulgated by the SEC thereunder (or, if the Company is not required to file such reports, it shall, upon the request of any Holder, make publicly available such information as necessary to permit sales pursuant to Rule 144 or Regulation S under the Securities Act), and it shall use reasonable best efforts to take such further action as any Holder may reasonably request, in each case to the extent required from time to time to enable such holder to, if permitted by the terms of this Warrant and the Subscription Agreement, sell this Warrant without registration under the Securities Act within the limitation of the exemptions provided by (A) Rule 144 or Regulation S under the Securities Act, as such rules may be amended from time to time, or (B) any successor rule or regulation hereafter adopted by the SEC.  Upon the written request of any Holder, the Company will deliver to such Holder a written statement that it has complied with such requirements.

11.           NOTICES

           All notices, consents, waivers, and other communications under this Warrant must be in writing and will be deemed given to a party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile or e-mail with confirmation of transmission by the transmitting equipment; (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, if to the registered Holder hereof; or (d) seven days after the placement of the notice into the mails (first class postage prepaid), to the Holder at the address, facsimile number, or e-mail address furnished by the registered Holder to the Company in accordance with the Subscription Agreement and/or Securities Purchase Agreement by and between the Company and the Holder, or if to the Company, to it at 1408 Roseland Blvd., Tyler, Texas 75701, Attention: Dan Gorski, Chief Executive Officer (or to such other address, facsimile number, or e-mail address as the Holder or the Company as a party may designate by notice the other party) with a copy to Brewer & Pritchard, P.C., 3 Riverway, Suite 1800, Houston, Texas 77056, Attention:  Thomas Pritchard.

 

 

  

  

  

	
12.

	
SEVERABILITY

If a court of competent jurisdiction holds any provision of this Warrant invalid or unenforceable, the other provisions of this Warrant will remain in full force and effect. Any provision of this Warrant held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

	
13.

	
BINDING EFFECT

This Warrant shall be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, the registered Holder or Holders from time to time of this Warrant and the Warrant Shares.

	
14.

	
SURVIVAL OF RIGHTS AND DUTIES

This Warrant shall terminate and be of no further force and effect on the earlier of 5:00 P.M., Central Time, on the Expiration Date or the date on which this Warrant has been exercised in full.

	
15.

	
GOVERNING LAW

This Warrant will be governed by and construed under the laws of the State of Texas without regard to conflicts of laws principles that would require the application of any other law.

	
16.

	
DISPUTE RESOLUTION

In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two Business Days of receipt of the Notice of Exercise giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two Business Days, submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

 

  

  

  

	
17.

	
NOTICES OF RECORD DATE

Upon (a) any establishment by the Company of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or right or option to acquire securities of the Company, or any other right, or (b) any capital reorganization, reclassification, recapitalization, merger or consolidation of the Company with or into any other corporation, any transfer of all or substantially all the assets of the Company, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, or the sale, in a single transaction, of a majority of the Company’s voting stock (whether newly issued, or from treasury, or previously issued and then outstanding, or any combination thereof), the Company shall mail to the Holder at least ten (10) Business Days, or such longer period as may be required by law, prior to the record date specified therein, a notice specifying (i) the date established as the record date for the purpose of such dividend, distribution, option or right and a description of such dividend, option or right, (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up, or sale is expected to become effective and (iii) the date, if any, fixed as to when the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, transfer, consolation, merger, dissolution, liquidation or winding up.

	
18.

	
RESERVATION OF SHARES

The Company shall reserve and keep available out of its authorized but unissued shares of Common Stock for issuance upon the exercise of this Warrant, free from pre-emptive rights, such number of shares of Common Stock for which this Warrant shall from time to time be exercisable.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation. Without limiting the generality of the foregoing, the Company covenants that it will use commercially reasonable efforts to take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and use commercially reasonable efforts to obtain all such authorizations, exemptions or consents, including but not limited to consents from the Company’s stockholders or Board of Directors or any public regulatory body, as may be necessary to enable the Company to perform its obligations under this Warrant.

	
19.

	
NO THIRD PARTY RIGHTS

This Warrant is not intended, and will not be construed, to create any rights in any parties other than the Company and the Holder, and no person or entity may assert any rights as third-party beneficiary hereunder.

20.           SECTION HEADINGS

The Section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof.

  

  

  

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the date first set forth above.

	  	
TEXAS RARE EARTH RESOURCES CORP.

	  	  
	  	  
	  	
By: ___________________________

	  	
Name:Dan E. Gorski

	  	
Title:Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  

  

EXHIBIT A

NOTICE OF EXERCISE

(To be executed by the Holder of Warrant if such Holder desires to exercise Warrant)

To Texas Rare Earth Resources Corp.:

The undersigned hereby irrevocably elects to exercise this Warrant and to purchase thereunder, ___________________ full shares of Texas Rare Earth Resources Corp. common stock issuable upon exercise of the Warrant and delivery of:

$_________ (in cash as provided for in the foregoing Warrant) and any applicable taxes payable by the undersigned pursuant to such Warrant.

The undersigned requests that certificates for such shares be issued in the name of:

_________________________________________

(Please print name, address and social security or federal employer

identification number (if applicable))

_________________________________________

_________________________________________

              If the shares issuable upon this exercise of the Warrant are not all of the Warrant Shares which the Holder is entitled to acquire upon the exercise of the Warrant, the undersigned requests that a new Warrant evidencing the rights not so exercised be issued in the name of and delivered to:

_________________________________________

(Please print name, address and social security or federal employer

identification number (if applicable))

_________________________________________

_________________________________________

	  	
Name of Holder (print):_____________________________

	  	
(Signature):______________________________________

	  	
(By:)___________________________________________

	  	
(Title:)__________________________________________

	  	
Dated:__________________________________________

  

  

  

EXHIBIT B

FORM OF ASSIGNMENT

FOR VALUE RECEIVED, ___________________________________ hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the Warrant (as defined in and evidenced by the attached Warrant) to acquire the number of Warrant Shares set opposite the name of such assignee below and in and to the foregoing Warrant with respect to said acquisition rights and the shares issuable upon exercise of the Warrant:

 

 

	
Name of Assignee

	
Address

	
Number of Shares

	  	  	  
	  	  	  
	  	  	  
	  	  	  

If the total of the Warrant Shares are not all of the Warrant Shares evidenced by the foregoing Warrant, the undersigned requests that a new Warrant evidencing the right to acquire the Warrant Shares not so assigned be issued in the name of and delivered to the undersigned.

	  	
Name of Holder (print):_________________________

	  	
(Signature):__________________________________

	  	
(By:)_______________________________________

	  	
(Title:)______________________________________

	  	
Dated:______________________________________

 

 

 

 

  

  

  

EXHIBIT C

 

TEXAS RARE EARTH RESOURCES CORPORATION

 

NET ISSUE ELECTION NOTICE

 

To: [Name]

 

Date: [_______________]

 

The undersigned hereby elects under Section 1(e) of this Warrant to surrender the right to purchase [________________] Shares pursuant to this Warrant and hereby requests the issuance of [______________] Shares. The certificate(s) for the shares issuable upon such net issue election shall be issued in the name of the undersigned or as otherwise indicated below.

 

	
Signature

	  
	  
	
Name for Registration

	  
	  
	
Mailing Address

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